By Adaeze Okechukwu
CORPORATE governance has been identified as a crucial element in ensuring that companies thrive even in the face of economic recession.
This was the keynote position at the 2017 roundtable on corporate governance organized by the Institute of Chartered Secretaries and Administrators of Nigeria, ICSAN, yesterday, in Lagos.
Leading the discourse themed, “The importance of Corporate Governance in a Recessed Economy”, Mr Folarin Alayande, Head of Strategy, First Bank Holdings Plc, explained that recessions lead to greater advocacy for transparency or greater accountability in corporate governance, with activists challenging decisions of Board of Directors and put greater pressure on management for performance, adding that strengthened corporate governance leads to enhanced resource utilization across private and public sectors.
He said that this would enhance efficiency in, and ultimately greater resource allocation across the economy, thus leading to a faster route out of the economic recession.
Alayande stated: “Economic history of the last six centuries suggests to us that in periods of economic recession or depression, capital flows towards regions or countries or industries of relative stability. Indeed, empirical evidence suggest that the performance of corporate governance is significantly negatively correlated to economic growth , indicating that most of the advances we have witnessed in the field of corporate governance have been at the cusp of economic recessions.”
“The above dynamics within the economy also hold true within economic sectors or industries, with the resulting outcome that companies in particular sectors that adhere to higher corporate governance standards would attract more domestic and foreign capital into their businesses, notwithstanding an economic recession. It is therefore intuitive and logical, if not commonsensical, to expect that given the overwhelming evidence that improved corporate governance would position a corporation at a greater competitive advantage relative to its peers within its industry, every business or corporation would enforce rapid and noticeable improvements in corporate governance.”
Alayande, however highlights that this transition may not always occur drastically. He stated: “ This imperative for improved corporate governance in companies during an economic recession may not always translate immediately into improved performance at the corporate level, for reasons often over-looked. The explanation for the slow improvement in corporate performance in some organizations while other organisations witness rapid improvements goes beyond the nature of the company’s industry – high growth or secular, and the current competitive positioning of the company. This soft explanation is hinged on dynamic corporate governance styles in an era of economic uncertainty.”