Corporate governance failures in Nigeria can be attributed to two major factors.
While the first is the adoption and usage of a formal legal system that is alien and unamenable to our norms and values (culture), the second which is related to the first is the acceptance and practice of a model of corporate governance that is also at variance and unsuitable to our society.
Good evidence of the ineffectiveness of our formal legal system can be deduced from our (Nigeria) performance in the key governance matters published regularly by the World Bank. Focusing on factors such as rule of law, regulatory quality, and government effectiveness which we have consistently performed abysmally (mainly negative), it is abundantly clear that our formal legal system is not understood, accepted and internalized and as such, very poor compliance. In the same vein, the persistent corporate governance failures in Nigeria over these years particularly in the banking sector overwhelmingly demonstrates that the Anglo-American model we are using contradicts with who we are and the model suitable to us.
From a purely capitalist orientation and given our ineffective formal legal system, the majority shareholder pursues a strategy that will protect his investments
To be more precise, at the heart of the problem with our formal legal system is its inability to engender trust required for an effective corporate governance system. As earlier indicated, the main challenge that corporate governance frameworks are trying to solve is that of trust particularly between the shareholders and managers generally referred as agency problem. While the shareholders are concerned that the managers (agents) will not manage the business in line with agreed terms and conditions, the managers are also worried that the shareholders are mainly concerned with profits and dividends and as such might not treat the managers accordingly. With the moderation of this inherent principal-agent (trust) problem by a legal system that is not trusted, the governance problem is compounded. This is interestingly the case of Nigeria!
