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Corporate Governance in Nigeria Author(s): Boniface Ahunwan Reviewed work(s): Source: Journal of Business Ethics, Vol. 37, No. 3, Corporate Governance Reforms in Developing Countries (May, 2002), pp. 269-287 Published by: Springer Stable URL: . Accessed: 18/11/2011 04:00 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. Springer is collaborating with JSTOR to digitize, preserve and extend access to Journal of Business Ethics.

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Page 1: Corporate Governance in Nigeria

Corporate Governance in NigeriaAuthor(s): Boniface AhunwanReviewed work(s):Source: Journal of Business Ethics, Vol. 37, No. 3, Corporate Governance Reforms inDeveloping Countries (May, 2002), pp. 269-287Published by: SpringerStable URL: .Accessed: 18/11/2011 04:00

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

Springer is collaborating with JSTOR to digitize, preserve and extend access to Journal of Business Ethics.

Page 2: Corporate Governance in Nigeria

Corporate Governance

in Nigeria Boniface Ahunwan

ABSTRACT. In recent years, international economic

pressures have induced Nigeria to adopt a program of economic liberalization and deregulation.

Advocates of the reforms tout their potential not only for generating greater economic growth, but also for

contributing to more

responsible corporate gover

nance. Sceptics abound. This paper provides


account of the nature of corporate governance in

Nigeria and investigates the prospects for recent

reforms contributing to more responsible governance

and development.

KEY WORDS: corporate governance, economic

development, Nigeria

In the post-colonial period Nigeria, like many

developing countries, adopted an interventionist

development strategy that involved restrictions on

foreign ownership and an active role for gov ernment in key economic sectors, especially infrastructure and oil and gas. This development

strategy, operating in a context of weak market

institutions and a lack of robust political democ

racy, did not result in responsible corporate

Boniface Ahunwan is a Harley D. Hallet Doctorate scholar at Osgoode Hall Law School, York University, Toronto, Canada. Called to the Nigerian Bar in 1991, he has

functioned as a

legal practitioner and later, in-house

attorney with Zenith International Bank, Lagos,

Nigeria, one of Nigeria's leading commercial banks. His areas

of research include comparative corporate gover

nance, securities regulation, globalisation and corporate

governance in developing countries and legal theory. He

has published several papers on these subjects, including his latest, (<Contextualising Legal Theory: Economic

Analysis of Law and Jurisprudence from the African

Perspective" in the African Journal of International

& Comparative Law.

governance. In recent years, international

economic pressures have induced the country to

adopt a program of economic liberalization and

deregulation. Advocates of the reforms tout their

potential not only for generating greater economic growth, but also for contributing to

more responsible corporate governance. Sceptics abound.

This paper provides an account of the nature

of corporate governance in Nigeria and investi

gates the prospects for recent reforms con

tributing to more responsible governance. In

taking up these tasks, I adopt a broad under

standing of corporate governance which includes

not only the functioning of corporate boards, but

also other key factors (e.g., the financial and

banking systems, macro economic policy, the

legal system) which comprise the context in

which boards make decisions. Underlying the

investigation of this issue, of course, is concern

about whether the reforms will have any signif icant impact in terms of fulfilling the aspirations of the Nigerian people for economic, political and social development.

The paper proceeds in the following manner.

The first section provides a short account of the

context in which corporate governance occurs

in Nigeria. The second section examines the

ownership structure of the corporate sector.

Next, an account of the problems of ownership and control, especially as they relate to minority

shareholders, is provided. The following section

investigates the role of company law and the legal

system in corporate governance. The role of

markets is then taken up. Finally, the nature of

recent reforms in Nigeria are examined,

including their prospects for contributing to

more responsible governance.

-^g- Journal of Business Ethics 37: 269-287, 2002. r ? 2002 Kluwer Academic Publishers. Printed in the Netherlands.

Page 3: Corporate Governance in Nigeria

270 Boniface Ahunwan

I. The context of governance

The concept of the corporation is foreign to the

indigenous customary business practices of pre colonial Nigeria. The first corporations to

operate in Nigeria, British companies chartered

in England, arrived in the second half of the 19th

century. One of first and most influential of these

was the National African Company (later renamed the Royal Niger Company), which was

chartered in 1886 (Ukpabi, 1987, p. 3). Between

1862 (when colonial rule was formally estab

lished in Nigeria) and 1912, all of the corpora tions that operated in Nigeria were foreign

companies registered in England and subject to

the law and ideology of the British corporate

governance system (Orojo, 1992). The first

corporate statute in Nigeria was enacted in 1912.

However, corporate governance in Nigeria

during the period of colonial rule remained a

part of the British system of corporate gover nance. It is only in the post-colonial period that

we can begin to speak of "Nigerian" corporate


The post-independence development strategy

Following independence in 1960, several factors

affected the direction of corporate governance in

Nigeria. Perhaps, most important among these

were the dominant ideological convictions of the

post-colonial period, which stressed economic

self-dependence. Economic self-dependence was

primarily understood in terms of indigenous

ownership and control of the means of produc tion and was operationalized into two basic broad


First, the government imposed absolute

control over public utilities, infrastructure and

social service provision by establishing state

owned corporations. While there was significant interest among foreign investors, especially

British corporations, in many of these areas, the

state prohibited foreign ownership. In many

instances, the state did not even permit partici

pation by private, domestic corporations. Activities in such areas as electricity generation and distribution, telecommunications, postal and

telegraphic services, shipping and ports, and air

travel, among others, were restricted to wholly owned state corporations.

Second, the government promoted indigenous

ownership in other sectors of the economy. Two

pieces of legislation were key to this strategy,

viz., the Foreign Exchange Control Act of 1962

(hereinafter "the FX Act") and the Nigerian

Enterprises Promotion Decree, No. 4 of 1972, often

referred to as the "Indigenisation Decree" (here inafter "NEPD"). The FX Act prohibited the

creation or transfer of any security or interest in

a security in favour of a person resident outside

Nigeria except with the permission of the

Minister of Finance. For its part, the NEPD

Decree restricted foreign ownership by creating three schedules of enterprises: (i) enterprises

exclusively reserved for Nigerians; (ii) enterprises in respect of which foreigners cannot hold more

than 40% of the shares, and (iii) enterprises in

respect of which foreigners cannot hold more

than 60%.1 This classification was based on the

perceived financial and managerial needs of the

country at the time. The second schedule was

comprised of manufacturing companies where

foreign participation was expected to bring

foreign capital and managerial expertise. The

third schedule included capital-intensive enter

prises (Kachikwu, 1988; Orojo, 1992; Yerokun,


The social context

Although there was a great deal of optimism in

1960 about the development prospects of the

newly independent country, forty years on

Nigeria is still largely underdeveloped. The

country still lacks an efficient infrastructure (e.g., communications and transportation systems,

electricity, water, etc.), unemployment rates are

high and social needs far outstrip social programs. In addition, the country is rife with corruption and divided by ethnic and tribal tensions (Federal

Office of Statistics, 1996). These features of Nigeria socio-economic

development have major repercussions for

business, both in the private and public sectors

(Akanki, 1994). In commenting on the problems

Page 4: Corporate Governance in Nigeria

Corporate Governance in Nigeria 271

of the Nigerian economy, a former Governor of

Central Bank of Nigeria expresses a frustration

felt by many:

[t]here appears to be a certain built-in stubborn ness in the attitude of the typical Nigerian economic agent

... It manifests itself in a strong

propensity to circumvent laid-down rules of

economic behaviour and to resist control and

regulation ... it tends to encourage a kind of

softness and lukewarmness in the application and

implementation of legitimate rules of economic

conduct. Hence it provides a fertile ground for

bribery, corruption, idleness and the contrivance

of get-rich quick attitude which are antithetical to hard work and discipline (Ahmed, 1996, p. 14).

Of course, the nature of Nigeria's problems are

not only rooted in the attitudes on individual

Nigerians, but are also related to larger political and economic structures and practices. In what

follows, one of these key structures, the owner

ship pattern in the corporate sector, is examined.

II. The ownership structure of Nigerian


In Nigeria, as in many former colonies, the

government of the newly independent country

perceived a need for greater local control over

productive resources, which during the colonial

period were largely dominated by foreign owners. It was in this context, that the govern

ment enacted the FX Act and the NEPD with

the intention of effecting a change in the own

ership structure of Nigerian corporations. Some

Nigerian scholars have expressed doubts as to

whether the NEPD had any significant impact on

corporate governance and, in particular,

whether there were any effects on the owner

ship structure of Nigerian corporations (Yerokun,

1992, pp. 228-230). Such skepticism about

changes in ownership is not completely unfounded as there have been many reported cases of Nigerian citizens fronting for foreign

entrepreneurs to satisfy the ownership require ments of the NEPD (Achebe, 1989, p. 663).2 It

would appear to most commentators, however -

the various efforts to circumvent the provisions

of both the FX Act and the NEPD notwith

standing ? that the enactments did have signifi

cant effects on the ownership structure of

Nigerian corporations and corporate governance. The major way in which ownership structure

was affected was through the provision that

prohibited 100% foreign ownership in a variety of sectors. Many foreign corporations had to

divest their shareholding to satisfy the new

requirements. It was the Nigerian government that ended up buying a majority of the divested

shares, as there was not sufficient domestic invest

ment funds available (Yerokun, 1992). This

further entrenched government participation with foreign partners in industrial and commer

cial ventures. Most of the divested shares that

were not purchased by the government, were

bought up by a small number of very wealthy

Nigerians (Akinsanya, 1983, p. 169). The combined effect of the government's

macro-economic policy objectives and its legis lation on foreign ownership are easy to imagine. In many instances, the government became

proactively involved in productive activities,

owning industrial, commercial and service

provision corporations, either solely or in joint ventures with other foreign or local investors. In

other cases, foreign investors continued to

operate as majority (or controlling) partners with

the government and other local investors. Other

local investors operated either as (minority)

partners with foreign investors or through small

family-owned corporations. The ownership structure resulting from government policy can

be best classified under four categories.

Category "A" can be conceived as composed of corporations wholly-owned by government. Both the federal government and state govern ments operate wholly-owned corporations,

including four major petroleum refineries (owned

by the Federal Government), petrochemical

plants, insurance companies, banks, hotels and a

range of other enterprises.

Category "B" comprises joint venture

arrangements between the federal government and foreign crude oil producing corporations.

Although the government operates joint venture

arrangements in other sectors, it makes sense to

include this sector as a separate category due to

Page 5: Corporate Governance in Nigeria

272 Boniface Ahunwan

its immense importance to the national economy. A key indicator of the importance of this sector

is the fact that the government of Nigeria derives

about 97 percent of its total revenue from joint ventures in oil and gas (Federal Office of

Statistics, 1997). Table I, below, indicates the

shareholding structure of the major Group "B"


Group "C" consists of publicly listed corpo rations. Here foreign investors operate with local

investors in the industrial and commercial sector.

The foreign investors are mostly subsidiaries of

multinational enterprises. Table II below shows

the shareholding structure of the nine most

capitalized corporations in the Nigerian Stock

Exchange. As indicated by the shareholding structure, foreign investors hold a majority or

controlling interest in many of the corporations.

Finally, Group "D" consists of privately owned

corporations that are not listed in the stock

market. Most of the corporations are family owned. A majority of them are small companies, owned and operated by families and friends and

lacking business sophistication. Some of these

enterprises, however, are quite large, with a

capital base comparable to many listed corpora tions. Banks, insurance and various industrial

corporations corne under this category. Both

foreign and local entrepreneurs operate in this


As the discussion above indicates, a prominent feature of the ownership structure of Nigerian

corporations is majority (or substantial minority)

ownership. Even apart from the 100% govern ment-owned corporations in group "A," in

groups "B," "C" and "D" majority (or strong

minority) ownership is the norm. In group B,

majority ownership is exercised by government. In the publicly listed corporations in Group "C,"

majority ownership may be vested in govern

ment, foreign investors (especially TNCs) or local

entrepreneurs. In group "D" corporations,

family-control is the norm for local firms.

Some corporate law scholarship suggests that

the corporate ownership structure is a feature of

the availability of protection to minority share

holders. La Porta et al. (1996; 1997) argue that

a widely dispersed shareholding structure, such

as obtains in the United States, is due to the

availability of good protection to minority share

holders. Conversely, they argue, countries with

poor investor protection have more highly concentrated ownership of shares. La Porta

(1998) has recently sought to demonstrate this


Group "B" companies

Name of company Percentage of

foreign holding

Percentage of

govt. holding

Type of company

Shell Petroleum Co. Nig. Ltd.

Chevron Nig. Ltd.

Mobil Producing Nig. Ltd.

Nigeria Agip Oil Ltd.

Texaco Overseas Nig. Ltd.

Elf. Nigeria Ltd.

Pan Ocean




30% 10% 5%

Chevron 40%

Mobil Int. 40%

Agip Phillip




20% 20%

20% 20%


Pan Ocean 40%








Private company

Private company

Private unlimited company

Private company

Private company

Private company

Private company

Source: Nigeria Economy,

Page 6: Corporate Governance in Nigeria

Corporate Governance in Nigeria 273


Group "C" companiesa

Name of company Shareholding structure (%) Market capitalisation

Nigerian Breweries Pic

First Bank of Nig. Pic

Union Bank of Nigeria Pic

Guiness Nig. Pic

West African Portland Cement

United Bank for Africa Pic

Nestle Foods Nig. Pic

Mobil Oil Nigeria Pic

Total Nigerian Pic

Foreign: Heineken BV - 41.67

Others: 58.33

Widely dispersed

Widely dispersed

Foreign: Guiness Oversea - 42.21


Others: 50

Foreign: Ass. Int. Cement - 39.48

Domestic: Odua - 26.85

Federal. Govt. -



Foreign: Nestle S.A. - 56.90


Foreign: Others:

Foreign: Others:


Exxon Mobil - 60


Total Fina Elf Soc. An. - 60


NG. 32b

NG. 18b

NG. 14b

NG. 13b


NG. 12b

NG. 10b

NG. 10b

NG. 10b

a This is based on Nigerian Stock Exchange corporate profile as at January, 2000. The capitalization in Nigerian

currency with exchange rate of Nil0 to US$ (S.B.A. Research Ltd.).

thesis by empirical studies, on the basis of which

it is affirmed:

In countries with good shareholder protection, where expropriation of minority shareholders is

limited by law, investors pay higher prices for their

shares, and hence controlling shareholders are

willing to reduce their stakes or even give up

control. As a consequence . . .

ownership is less

concentrated. In contrast, poor shareholder pro

tection countries have both more concentrated

ownership of firms and narrower and smaller stock


La Porta 's proposition about shareholder pro tection may help to account for some of the

behaviour of foreign corporations with respect to

their ownership strategies, but it probably plays a secondary role, especially when one considers

the entire economy. Macro-economic policy and

political development, such as regulation of

foreign investment noted above, would seem to

be much more important explanatory variables

in the Nigerian case than considerations of

shareholders' protection.

III. Problems of ownership and control

Historically the study of corporate governance has been closely linked with the abuse of share

holder rights. Initially, this problem was con

ceived of in terms of a principal-agent problem in which the management (agents) of widely

held firms were increasingly able and predisposed to maximize its own interest rather than those

of shareholders (principals). It has also been

argued, especially in relationship to the analysis of developing countries, that a similar problem exists between majority and minority owners in

which the former are largely able to ignore the

interests and rights of the latter. A variation of

this problem involves government participation in the economy, where government, as an owner

(or regulator) is able to adversely affect the

Page 7: Corporate Governance in Nigeria

274 Boniface Ahunwan

interests of shareholders. In what follows we will

examine the nature of these three problems as

they arise in the Nigerian context, characterized

as it is by the concentrated ownership structure

discussed above.

Management vs. Shareholders

Although the recent literature correctly suggests that the predominant problem in most devel

oping countries is a conflict between majority and minority shareholders, this does not mean

that the classical principal-agent problem (Jensen and Meckling, 1976) does not arise. In Nigeria, the problem occurs in and is exacerbated by the

context of a political culture of corruption and

bribery, ethnic tensions and rivalries, poorly

functioning markets (e.g., information asymme

tries) and a lack of adequate infrastructure. In this

context, many managers and directors have been

able to use corporate opportunities and resources

for their own personal benefit at the expense of

the corporation and its shareholders.

The agency problem as it arises in the

Nigerian context is exemplified by the case of

Lever Brothers Nigeria Pic. (hereinafter "LBN"). LBN is a public listed company in Nigeria. The

Unilever Group U.K. has a 52% stake in the

company. Between 1996 and 1998, there were

reports of abuse by senior management, including insider dealings, shares racketeering and the

awarding of supply contracts to companies in

which senior management had interests (Ogbu,

1998). Sources also disclosed that one of the key officers of the company had up to 18 official cars,

while almost all of the company's major contracts

were handled by a company registered in his

wife's name. The reports further revealed that

employment and other management decisions

were based more on ethnic solidarity than effi

ciency considerations (Ogbu, 1998).

Corporate abuse in Lever Brothers culminated

in serious financial irregularities. The Nigerian Stock Exchange suspended the company in 1998

for submitting an annual return with irregulari ties. The company's turnover in the first quarter of 1997 before adjustment stood at N4 billion,

with a profit before and after tax at N791.3

million and N554.7 million respectively. After

adjustment, there was a N5.8 billion turnover, while profits before and after taxes were N351

million and N244.95 respectively (Ekanem,

1998, Moyela, 1998). The Lever Brothers case raises several issues,

but most important for our concerns here is the

inability of majority shareholders to monitor

management in the Nigerian context. While the

Unilever Group, U.K. exercised majority own

ership, this did not ensure efficient monitoring of local management. Schleifer and Vishny

(1997) have argued that the effectiveness of large shareholders' control of management is intimately tied to their ability to enforce voting rights to

remove management. In the Nigerian context,

this factor is of minimal importance. The

majority shareholders have the votes to remove

local management without much resistance. The

problem is that they are not able to effectively monitor management as a situation of endemic

corruption, ethnic loyalty, and infrastructural

problems make corporate abuses difficult to


Many Nigerian commentators have argued that the Lever Brothers situation was further

compromised by the inability of regulatory bodies to monitor the activities of listed com

panies. It is noted for instance, that for more than

one year after the discovery of the financial

irregularities, the Nigerian Securities Com

mission still had not commented on the case

(Ekanem, 1998).

Majority vs. Minority shareholders

As highlighted above, ownership in Nigerian

corporations is highly concentrated. La Porta et

al. (1996) have suggested on the basis of

empirical studies that, in countries with con

centrated ownership, exploitation of minority shareholders tends to be the basic problem.

Therefore, the major challenge of corporate

governance in such countries is restricting such

exploitation. La Porta et al.'s studies accords with

the earlier work on the problems of majority share ownership (Morck et al., 1988).

Clearly, in Nigeria concentrated ownership

Page 8: Corporate Governance in Nigeria

Corporate Governance in Nigeria 275

entails problems for minority shareholders. It is

important to investigate, however, the nature of

these problems and examine whether they arise

from majority ownership itself or other causes.

The importance of this question is highlighted

by the fact that ownership (and, particularly,

control) is also concentrated in economic powers such as Germany and Japan. In Germany, one

study estimates that in over 80% of large German

public corporations there are large (non-bank) shareholders (Gorton and Schmid, 1996;

Mulbert, 1998). For their part, large commer

cial banks in Germany control over a quarter of

the votes of major public companies through

proxy voting arrangements. In Japan, although concentration levels are not as high, banks are

able to exert similar influence through a high level of cross-holding between major banks

(Berglof and Perotti, 1994). Advocates of the German and Japanese model

frequently argue that their ownership and control

patterns have advantages over a more dispersed

ownership system. Some of the imputed benefits

are that majority shareholders, such as the

German banks, have better access to corporate information and can act as owners and exert

control over managers (Myers and Majluf, 1984,

Diamond, 1991, Nuti, 1992). Research also

demonstrates that in countries such as Japan, dominant shareholders, like the Japanese banks, facilitate long-term relationship (Hoshi et al.,

1990). What these studies seem to indicate is that

more important than the fact of majority own

ership is the nature of majority ownership.

Important aspects of the nature of majority

ownership are the social and institutional context

in which ownership is exercised. Concentrated

ownership in Nigeria is different from the

German or Japanese model. In the Group C

corporations in Nigeria - where the majority

shareholders can be government, foreign investors or local investors - the social context

(e.g., corruption, an uneducated investing public,

etc.) and weak institutional arrangements (an inefficient judicial system, weak capital markets,

etc.) facilitate (rather than prevent) the exploita tion of minority shareholders by majority shareholders. The dispersed minority share

holders are unsophisticated, with little knowledge

of or concern about the internal management of

their corporations and few options for redress

once problems arise. The net result is that

majority shareholders are effectively able to

expropriate the benefits of control without regard to the interests of minority shareholders.

Government ownership

Another problem associated with majority

ownership in Nigeria is government ownership

(and influence). In corporations wholly-owned

by the government, corporate governance and

partisan political considerations merge. Several

years of military rule and unimaginable levels of

corruption have adversely affected the manage ment of public sector corporations. Appointment

to the board, senior management positions and

even lower cadres is often based on political

connections, ethnic loyalty and/or religious faith

as opposed to considerations of efficiency and

professional qualifications (Akanki, 1994;

Yerokun, 1992). Furthermore, coming under the

authority of government ministries, these cor

porations are also subject to the rent-seeking behaviour (Bhagwati, 1982) of politicians and

bureaucrats, which further reduces level of pro fessionalism and productivity in these enterprises. These problems are also reflected in the Group B (and some group C) corporations where the

government operates in joint venture with

foreign multinational corporations. Whether the

extent of the problem is significantly mollified by the presence of private sector actors is unclear.

IV. Company law and the legal system

A key role is played in corporate governance by

company law and the legal system. Company law

lays down the "rules of the game" for the

internal operation of the corporation including such key issues as the nature of shareholder rights, the organizational structure of the corporation, etc. The legal system is important for corporate

governance not only insofar as it plays a role in

the enforcement of company law, but also to the

extent that it is charged with enforcing a wide

Page 9: Corporate Governance in Nigeria

276 Boniface Ahunwan

range of contracts that corporations make with

various external actors (e.g., suppliers, distribu

tors, partners in joint ventures, etc.). In Nigeria company law has historically been

strongly influenced by the example of the U.K.

As a result of this, shareholders have in principle

enjoyed many of the same legal rights as

shareholders in the dominant Anglo-American economies. What has been lacking in Nigeria,

however, is an effective judicial system capable of

enforcing formal rights. In addition to a weak

judicial system, the Nigerian economy has also

been characterized by undeveloped market insti

tutions, a high level of information asymmetries,

deep rooted corruption and a general disregard for the rule of law (Ahunwan, 1998). These

defects dramatically increase the costs of con

tracting and make business activities much more

risky ventures (La Porta, 1998). To address these practical problems, Kraakman

et al. (1995; 1996) have suggested certain basic

features that should be implemented in corpo rate governance rules in developing countries

such as Nigeria. Basically, the overall purpose is

to make corporate governance rules "self

enforcing," that is, to rely for their success on

actions and decisions by direct participants in the

corporate enterprise (shareholders, directors,

managers), rather than by indirect participants

(judges, regulators, legal and accounting profes

sionals, financial press.) These features include:

1. direct participation of the parties in the

corporation by: shareholders approval, cumulative voting for directors, require

ment of one share, one vote, and unitary

ballot; 2. a high degree of protection for minority

shareholders and provision of appraisal

rights for dissenting shareholders to major

decisions; 3. the use of procedural protections such as

approval of certain decisions by indepen dent directors and shareholders;

4. board powers to set dividends and estab

lish company policies; 5. takeover rules requiring notice to the

company of any acquisition of shares above

15% ownership and a requirement that

shareholders who acquire more than 30%

acquire all the shares; 6. a requirement that shares be issued only at

market value with pre-emptive rights to

shareholders; 7. provision of safeguards for employee share

holders against voting control by managers; 8. strong legal remedies; 9. use of clear language in legislation that

defines proper and improper behavior.

Many of these rules are also endorsed by La

Porta as measures to regulate the problems of

majority ownership. Thus, among the measures

that La Porta (1998) suggests are: one share one

vote, proxy voting, shares not to be blocked

before voting, cumulating voting system/

proportional representation, oppression remedy,

pre-emptive rights, mandatory dividends and

notice to company after a percentage threshold

of ownership.

Berglof and von Thadden (1999), however, have criticized these studies. They argue that, even though protection of minority shareholders

is necessary for developing countries, there are

still significant problems of enforcement. They also argue that these measures are unlikely to

solve one of the major problems of corporate

governance in developing countries, that of

"crony capitalism" (Krugeman, 1998). According to this perspective, problems associated with

government participation require measures other

than investor protection. Specifically, they require a dismantling of government intervention in the

economy, including the privatization of state

owned enterprises. In Nigeria, many of the measures advocated

to protect minority shareholders were already

incorporated into Nigerian law in 1990 through the Companies and Allied Matters Act (1990), even

before Kraakman's paper was published (see Table

III). Highlighted in the new Act is the right of shareholders to participate in the management of

the corporation. Thus, for example, in addition

to the director-called shareholders' meetings, shareholders holding a required percentage of the

shares can also requisition meetings (as can the

Corporate Affairs Commission, the body established to administer the Act). Voting rights

Page 10: Corporate Governance in Nigeria

Corporate Governance in Nigeria 277

TABLE III Procedural protections in Nigerian Company Law

Type of protection Section of Act

One share, one vote ss. 116, 224?226

Cumulative votinga S226

Removal of directors by shareholders without cause s. 262

Requirement of shareholder votes on fundamental transactions *b

Requirement of shareholders' approval of director's self dealings ss. 277, 284 and 287

Appraisal rights in mergers, takeovers and reconstructions involving transfer of shares0 ss. 593 and 608

a The Kraakman features required proportional representation of directors.

b Several fundamental changes on the corporation require shareholders votes. They include alteration of objects

and articles of the company, CAMA 2. 46 and 48, alteration of the share capital by increase, consolidation, convert ion, subdivision or cancellation, CAMA s. 100 and 101, declaration of dividend, s. 379 etc. c

There are some debates however on the protective strength of the appraisal remedy. Frank Easterbrook and

Daniel Fischel argue that appraisal remedy protects shareholders from value decreasing transactions and that

"[AJppraisal's principal effects occur ex ante and increase the welfare of all shareholders, not just those who

happen to be in a minority ex post." (1991, p. 145). Bayless Manning (1962, pp. 223-234) sees the appraisal

remedy as a drain on a

company's liquidity and could deter other value-enhancing transactions. See also V.

Brudney and M. Chirelstein (1974) arguing that free-rider problems limit the efficiency of appraisal remedies.

I subscribe to Kraakman et al.'s view. In a country where the problem of minority oppression is serious, like

the company's welfare is so intertwined with the majority interest that an equally profitable exit must be provided for the minority shareholder.

have also been strictly defined and the Act has

abolished the issuance of non-voting shares. It

also upholds the principle of one vote for one

share (except in certain defined circumstances

involving the interests of preference share

holders). Strict rules on disclosure requirements are also provided for in the Act, such as the

requirement for the filing of annual returns, an

audit report, and provisions for accounting

reports. In addition, the new Act also provides

strong legal remedies, including the statutory derivative action, the oppression and unfair

prejudice suit, and other personal remedies for

shareholders (see Table IV). As seen above, the Nigerian statute employed

many of the substantive, procedural and remedial

strategies of Kraakman's "self-enforcing model."3

The case of Nigeria, as well as those of many other developing countries, raises some obvious

questions for this model, however. How effec

TABLE IV Shareholders' remedies in Nigerian Company Law

Type of Shareholders' Remedies Section

Shareholders' action for oppressive and unfairly prejudicial act ss. 310-313

Shareholders' derivative action ss. 303-309 Shareholders' personal action under the common law minority protection actions ss. 299-301 Shareholders' rights to apply to the Corporate Affairs Commission for investigation

of company's management/ ss. 314-330

a Only shareholders holding not les than one quarter of the issued shares may make this application. CAMA ss.

314 (2) (a). The merit of such administrative remedy in a country with deficient resources, non-functioning but corrupt administrative system is questionable. See Ahunwan (1998, pp. 158-163).

Page 11: Corporate Governance in Nigeria

278 Boniface Ahunwan

tive, for example, is the principle of self-enforce

ment in emerging countries with uniquely weak

judicial systems, inactive capital and product

markets, and a pernicious management and

business culture? How effective are strong legal remedies in isolation from a supportive macro

economic, social and political context for

responsible corporate governance? In trying to answer such questions, it may be

appropriate to refer to the experience of Russia

where the new corporate law, drawn up from

scratch, included even more of the features of the

self-enforcing model than Nigerian law does

(Kraakman et al., 1995). Five years after its

implementation, the architects of the Russian

statute, and indeed, the authors of the self

enforcement "hypothesis" have accepted that

their faith in the self-enforcing model was

misplaced (Black et al., 2000). Kraakman et al. identified three major factors

for the failure of the Russian system. These are

the flaws in the privatization exercise, self-dealing

by managers and majority shareholders and more

general economic conditions. Specific to corpo rate governance, they identify major social, economic and political factors that thwarted the

effectiveness of the self-enforcing model. These

include the absence of an institutional infra

structure to control self-dealing (such as prose

cutors, experienced business lawyers, judges, effective capital and commercial law), a business

culture of law avoidance, corruption, judicial

corruption, and poor management (Black et al.,

2000). But are these not the problems that the

self-enforcing model is supposed to curb? The

authors seem to agree, albeit regrettably.

According to them,

writing good laws can take years and building good institutions takes decades. . . . The laws did indeed

follow. . . . But the privatizers hoped for more than

just decent laws. They hoped that broad private

ownership would create a constituency for

strengthening and enforcing those laws. That didn't

happen (Black et al., 2000, pp. 1750-1769).

The Russian experience is not unique however. Nigeria implemented the self-enforce

ment strategy in 1990. In spite of the strong legal remedies and the ample procedural and structural

protection afforded to shareholders, the Nigerian

corporate governance system still remains largely inefficient.

V. Market control

In addition to legal rules, market forces also act

to discipline corporations and promote more

responsible behaviour. Three types of market are

most important in this regard, product markets, the market for managerial talent and capital

markets. The ways in which markets are supposed to contribute to responsible governance have

been well articulated in the literature on the

Anglo-American model of corporate governance,

perhaps most notably by scholars in the field of

the economics analysis of law. In what follows, we examine the role of each of the three markets

as they function in the Nigerian context.

Product markets

The basic role of the product market in disci

plining management flows from standard

understandings of neo-classical economics. In

competitive markets, corporations are forced to

minimize cost in order to ensure that their

products are competitive. If their prices are not

competitive, then their products will be driven

out of the market by other similar products and

render the company insolvent. As a result of this

market pressure, managers are restrained from

pursuing their self-interests for this would

increase costs, make the firms products uncom

petitive and result in the removal of management

(Butler, 1989, p. 114).

Despite the mathematical elegance of neo

classical accounts of general equilibrium, there

is good reason to question the role of product markets in imposing discipline upon management

in the real world. One obvious problem is that

many product markets are oligopolistic in nature

and therefore do not effectively subject manage ment to pressure. A related argument offered by

Jensen and Meckling (1976) states that since all

of the firms competitors (assuming a separation of ownership and control) are also subject to

Page 12: Corporate Governance in Nigeria

Corporate Governance in Nigeria 279

agency costs, these costs are effectively passed on

to consumers rather than eliminated.

A final consideration that further serves to

downplay the importance of the product market

as a disciplinary device relates to the role of

marketing and advertising. In Nigeria, there is an

obsession among consumers with foreign goods. Researches have established that Nigerian

consumers harbour a very negative image of

"made-in-Nigeria" labels, and rate them lower

than labels from other more developed countries

(Okechukwu and Onyemah, 1999). While con

sumers' preferences for foreign goods correlates

to some degree with superior reliability and

technological sophistication, such objective factors alone cannot entirely account for this

obsession. The implications of this with respect to the disciplinary role of the product market,

then, are that the market does not necessarily reward management according to performance in

terms of productive efficiency, innovation, etc.

and, to the degree this is so, does not serve as a

disciplinary device.

The market for managers

A second form of market control is the market

for managers. One dimension of the managerial

market, which sorts and compensates managers

according to performance, is that it should deter

managers from abusing their positions by pro

viding them prospects of promotion and instilling fear of dismissal (Fama, 1980). Many studies

support the fact that the fear of discharge and

internal competition do in fact, exert pressure on

managers especially, middle level managers.4 Another aspect of the market for managers is that

it is supposed to align the interests of managers with shareholders' interests through performance related compensation (Fischel, 1982, pp.

918-919).5 In the Nigerian context, the effects of the

market for managers in disciplining management are ambiguous. It would be expected that in

economies plagued with enduring unemploy ment problems, the fear of dismissal would serve

as an effective deterrent against corporate abuse.

In private sector corporation, such prospects do

serve as a deterrent, though more among middle

level management than senior executives (who

may be harder to monitor). In wholly-owned state corporations and joint ventures, however, the story is different. Here, due to bureaucratic

structures and political influence, it is frequently not standard measures of executive performance that ensure (senior) management security or

maximal compensation packages. Rather, loyalty to political and administrative patrons and not

challenging the status quo may be more effec

tive strategies (Chrite and Hudson, 1998). This

situation is further complicated and exacerbated

by the socio-economic conditions and religious and ethnic ties (Olukoshi, 1996, p. 8).

The capital market

Perhaps the most effective form of market control

potentially comes from the discipline of the

capital market. The role of capital markets in

disciplining management is twofold. On the one

hand, share prices provide shareholders with an

important measure by which to evaluate man

agement performance. On the other hand, capital markets present a direct threat to poorly per

forming management in the form of hostile

take-overs (in the aftermath of which incumbent

management is generally ousted). For capital markets to serve either of these functions, the

market must be relatively large and enjoy a

certain degree of liquidity. In Nigeria, the capital market has historically

been underdeveloped, even by the standards of

developing countries, and has played little role in

governance. Table V offers a comparison of the

Nigerian capital market with those of some other

developing countries.

As the table indicates, while countries such as

Malaysia, Israel and Egypt each have a GNP just under three times the size of Nigeria, the dis

parity in the market capitalization is significantly

greater - a market capitalization of US$98 557,

$39 628 and $24 381 respectively, against Nigeria's $2887. Comparisons with smaller

economies such as Zimbabwe, Ghana and Cote

d'Ivoire indicate a similar situation. While

Nigeria's GNP is more than triple that of these

Page 13: Corporate Governance in Nigeria

280 Boniface Ahunwan


Capital markets of selected developing countries

Country GNP (1998) (US$ million)

No. of listed


Market capitalization (US$ million)

Average corporation size

(US$ million)

South Africa



Egypt Pakistan

Nigeria Cote d'Ivoire



136 868 96 483 81 311 79 185 61 451 36 373 10 196

7269 7214

668 650 708 861 781 182 50 21 67

170 252 39 628 98 557 24 381

5418 2887 1818 1384 1310










Based on IFC Report: Emerging Stock Market Factbook (2000).

smaller countries, its advantage in terms of

market capitalization is much smaller percentage wise.

The major reason for this situation should be

obvious from the discussion above. The biggest

Nigerian corporations are in the Group A and

B categories, which are not listed in the capital market. As many of these corporations are valued

at over US$2 billion each, their absence from the

capital market is a major factor in the market's

underdevelopment. Part of the problem here

clearly has to do with government ownership

(and regulation). It is not entirely clear, however, that privatisation and deregulation would alter

the situation significantly as large foreign corpo

rations, especially in the oil and gas sector

(which, as noted above, accounts for 97% of

government revenues in Nigeria), typically incor

porate their subsidiaries as private rather than

public companies when operating in developing countries.

An important corollary of the undeveloped

capital market is that a culture of equity finance

has not developed among Nigerian corporations.

Rather, corporate finance still largely relies on

personal or corporate savings and bank finance.

Bank finance, however, does not operate as it

does in the German and Japanese models, which

often involves banks holding equity. Bank finance

in Nigeria comes exclusively in the form of

short-term loans, typically secured by corporate assets. The short-term nature of bank finance

creates uncertainty and instability in interests rates

and inflation. Furthermore, with adequate

security, the banks do not really have the same

incentives as German banks to monitor corpo rate behaviour.

The small size and illiquidity of the capital market, combined with the ownership structure, means that the threat of takeover plays virtually no role in disciplining management and pro

tecting minority shareholder rights. This situa

tion can be illustrated by the case of Lever

Brothers Nigeria Pic. As noted above, a series

financial irregularities, misappropriations and

management inefficiencies in this firm were

reported. In line with the theory of market

control, market operators and investors reacted

to the mismanagement. The Nigerian Stock

Exchange slammed the stock price down.

Unfortunately however, there was no bid for the

shares or takeover. The minority shareholders lost

in two ways from the operation of the invisible

hand in the Nigerian context. They lost both

from the decline in corporate growth resulting from the mismanagement and from the reduction

in share prices. Thus, while the market protects

widely diversed minority shareholdings in the

American system, it does the opposite in Nigeria.

Majority shareholders, however, benefit from

market illiquidity in two ways -

they not only encounter reduced share prices, but are in a

better position to consolidate their holding (La

Porta, 1998).

Page 14: Corporate Governance in Nigeria

Corporate Governance in Nigeria 281

VI. Recent developments and future


Nigeria, like other developing countries, is facing

pressures to become more integrated into the

global economy. What integration requires in

practical terms is adopting programs of economic

liberalization and deregulation. As a result of

these pressures, the government has introduced

reforms in several key areas related to corporate

governance. In what follows we examine these

recent changes in government policy as well as

other some other changes that may affect cor

porate governance practices.

Deregulation of foreign ownership

In 1995, the restrictions on foreign ownership of

shares were removed with the repeal of both the

FX Act and the NEPD. These enactments were

replaced by foreign investment friendly legisla tion in the form of the Nigerian Investment

Promotion Commission Decree. The new legislation

effectively abolished all restrictions on foreign

ownership, with a few key exceptions. Most

significantly, the oil and gas industry still operates in accord with the old joint venture arrangement

between the government and foreign corpora tions. In addition, the electricity and telecom

munication sectors are still limited to government

providers in the new Act. Restrictions have also

been placed upon foreign participation is in the

manufacture of arms and ammunition, as well as

upon the production and sale of narcotics and

psychotropic substances. Another investor

friendly provision of the legislation is that it

prohibits the nationalization or expropriation of

any foreign corporation operating in Nigeria.

Foreign exchange control

Foreign exchange control in Nigeria has also

been deregulated recently. The new foreign investment rules are contained in the Foreign

Exchange (Monitoring & Miscellaneous Provision) Decree of 1995. The new legislation allows for

private foreign exchange dealers {bureau de

change). In addition, Nigerian companies can now

hold domiciliary accounts in private banks and

have unfettered use of their money. Foreign

companies may also bring foreign capital into the

country unhindered, provided they obtain a

certificate of capital importation from their

Nigerian banks. They may also freely service

loans and remit dividends.


Nigeria commenced a program of privatization of government corporations in 1988. The

Nigerian Privatization and Commercialization

Decree, 19886 sets out the principles of the

privatization program. The focus of the privati zation program is to afford core foreign

investors/strategic partners the opportunity to

hold up to 40% of the shares of privatized com

panies. The rationale for this policy is that such

investor will be able to provide a much needed

injection of capital as well as more professional

management. The guidelines define core/

strategic investors as:

formidable and experienced groups with the capac ities for adding value to an enterprise and making it operate profitably in the face of international

competition. . . .

They must have technical knowl

edge, . . .

posses the financial muscle not only to

pay for the enterprise but also to turn around the

fortune . . . have managerial know-how to run

the business . . .7

In line with its priority of encouraging greater

participation by core/strategic investors, the

government intends to sell 40% of its equity to

strategic investors in the following areas:

telecommunications, electricity, petroleum

refineries, petrochemicals, coal and bitumen

production and tourism. The government will

retain 40% of the equity, while the remaining 20% will be sold to the Nigerian public through the stock exchange. In some sectors, the gov ernment intends to sell all of its holding (Bureau of Public Enterprises, 2000). Table VI provides a representative sample of the ownership struc

ture of corporations already approved by the

Privatisation Commission.

Page 15: Corporate Governance in Nigeria

282 Boniface Ahunwan

TABLE VI List of companies approved for privatisation*

Name of company Holdings before privatization Privatisation approved

capital structure

Cement Company of

Northern Nigeria

National Oil & Chemical

Marketing Co. Pic

Unipetrol Nigeria Pic.

West Africa Portland

Cement Nigeria Pic.

Federal Government 46%

Other State Govts 29%

Nigerian Public 25%

Fed. Govt. 40%

Shell petroleum 40%

Nigerian public 20%

Federal Government 40%

Nigerian public 60%

Blue Circle Ind. (U.K.) 39.48%

Odua 26.85%

Federal Government 16.58%

Scancem of Norway

State Govts

Nigerian Public

Core Investor

Nigerian Public

40% 29% 23%

60% 0%

Nigerian Public 70%

Ocean and Oil Services Ltd. 30%

Blue Circle Ind. (U.K.) *

Nigerian Public

* Exact information not available, but it is known the government has sold part of its shares to Blue Circle. a

See the press statements by Mallam Nasir Ahmed El-Rufai, Director General, Bureau of Public

Enterprises on privatisation from January 22, May 6, May 18, August 25 and September 5, 2000,


Progress with privatization has been slow, with

all the major corporations, such as the electricity and telecommunication commissions, yet to be

privatized. While the privatization exercise

picked up a bit following the installation of

democratic rule in 1997, economic and political controversies are still inhibiting rapid movement.

Between 1988 and 1999, about 57 government

corporations have been privatised. These were in

the agricultural, insurance, banking, brewery,

shipping, petroleum marketing and hotel and

food processing sectors.8

While privatisation of government owned

corporations may change the composition of

ownership of Nigerian corporation, it will not

alter the pattern of concentrated ownership. This

raises the question, then, of whether privatiza tion will benefit minority shareholders (or

whether majority owners continue to exploit

minority owners). One possible hope is that a

greater participation by institutional investors will

help protect the interests of minority share

holders. At this stage, however, there is little data

on which to make such an evaluation.

Capital market reforms

Originally known as the Lagos Stock Exchange, the Nigerian Stock Exchange was set up in 1960

and currently operates six branches in the country. As of December 2000, the total market capital ization was approximately US$4 billion. There

were 255 listed companies, an increase of 100

firms since 1988 (Nigerian Stock Exchange, 1998).

According to Hayford I. Alile (1995, pp. 257

260), then Director General of the Exchange, several reasons help to account for the rise in

listings. These include the ongoing deregulation and liberalisation policies of the Government, the

privatization of government corporations (22 of

which have been listed onthe exchange) and the

introduction of prudential guidelines for banks

and other financial institutions.

Several improvements have also been made in

terms of the services of the exchange. These

include an automated central security clearing

system in 1997, reduction in the costs of listing and the introduction of the Second Tier over the

Counter Exchange for the trading of securities

of small companies. It has also improved its

Page 16: Corporate Governance in Nigeria

Corporate Governance in Nigeria 283

market oversight and information (SBA Research

Ltd., pp. 25-26). In addition to the above, a second Stock

Exchange, the Abuja Stock Exchange has also

been recently established. Incorporated in June

17, 1998, the Abuja Stock Exchange was estab

lished as a floor-less, technology driven exchange with facilities to provide electronic, screen-based

trading systems. This exchange, which started

trading in April 2001, is equipped to provide dealers from across the country with on-line

access to the trading system. In spite of these reforms, the Nigerian capital

market still falls short of the developments in

other countries. As noted above, it remains

relatively small and illiquid when compared not

only to developed countries, but also to other

developing countries. Additionally, the Nigerian Stock Exchange still suffers from problems of

poor and non-functioning infrastructure, which

haunts the country generally (Alile, 1997;

Akamiokor, 1995).

Shareholder and stakeholder activism

In addition to the policy reforms discussed above,

forces such as the internet and improvements in

other methods of communication have the

potential to affect corporate governance in

Nigeria by increasing shareholder and stakeholder

activism and making it more effective. Although the subscription to the internet is very low in

Nigeria compared to developed countries, the

impact it still very noticeable. Nigerian websites

(as well as websites located in a variety of other

African countries) provide an important forum

for the discussion of different social, economic

and political issues related to corporate gover nance in Nigeria and Africa more generally. Some of these websites provide free information

about corporate structures and activities in

Nigeria (and other African countries). Such

access to information is a radical departure in the

case of Nigeria, as there was strict control over

the press by the government (and large corpora

tions) during the past 10 years of military rule.

Therefore, the internet has become an important means for many people of monitoring and

influencing corporate activities in Nigeria.

Perhaps the potential of the internet has been

best realized by stakeholder groups who are

opposed to particular corporations and their

activities. The internet enables such groups not

only to engage in discussion about corporate

activities, but to organize opposition to ques tionable practices. In the case of Nigeria, oil

companies in particular have been the target of

attention. The Movement for the Survival of the

Ogoni people (MOSOP), for example, has been

very active and effective in using the internet not

only to publicize the activities of Shell, but to

organize opposition to the firm internationally

(http : //lists. essential, org/shell-nigeria-action). The internet may also help minority share

holders to protect their interests and check abuses

of majority shareholders in several ways. First, it

affords minority shareholders an avenue to pub licize corporate abuses, which they otherwise

would not have (due to the high costs involved

with the use of other media, e.g., newspaper

advertisements). Second, it can potentially facil

itate the development of minority shareholders'

organisations and activities. Third, it may also

assist in the spread of a more responsible corpo rate culture. A variety of websites hosted by individual academics, research institutes, inter

national organizations and activists provide a

wide range of information that may be impor tant in this regard.9

The potential of the internet, however, should

not be overstated. First, as noted above, only a

very small percentage of the population has

access. Second, while the internet facilitates the

spread of information, it does little to generate new information. Much of the abuse carried out

by management and majority owners is not easily

detected, either by outsiders or minority share

holders. Finally, the internet does not go very far

in overcoming the imbalance in power and

resources between majority owners and manage ment on the one hand and minority owners and

stakeholders on the other.

VII. Conclusion

In an age of globalization, governance reforms

are critical. Nigeria has been undertaking a

Page 17: Corporate Governance in Nigeria

284 Boniface Ahunwan

program of reforms for more than a decade now.

The nature of the reforms has been largely determined by developments in the global

economy. As a result, the reform process does not

so much involve choosing the best form of

corporate governance, as it does adapting existing structures and practices to the exigencies of

competing in a global economy. To compete in

the global economy, developing countries are

increasingly being forced to introduce programs of economic liberalization and deregulation (e.g., tax cuts, privatizing state-run industries, cuts in

government spending, etc.). In addition, they have had to introduce other reforms that more

directly affect governance, e.g., strengthening

company law (to provide greater legal guaran tees to investors), reforming the legal system (so that shareholders' rights can be effectively

enforced) and liberalizing capital markets (to allow for a more efficient allocation of capital and

attract investment funds). We have shown in this paper how Nigeria has

introduced reforms in all of these areas. The

reforms have not been without some success.

Privatization and reforms in the capital market

have increased activities in the stock market.

Privatization of state enterprises and the liberal

ization of foreign investment laws are facilitating the inflow of foreign capital, which is likely to

monitor managers much more effectively than

government has in the past. In addition, com

petitive pressures from other African and western

countries seem to be inducing a change in the

"entitlement culture" of the indigenous man

agement in large corporations.

However, while there has been some progress, the governance problems that the reform process seeks to address are deeply rooted in a socio

economic and political context characterized by ethnic and religious tensions, poverty and a

history of military rule and human rights abuses.

As we noted above, passing formal laws in such

a context does little to actually ensure that share

holder rights are protected. Such reforms need

to address the deeper causes of the problem (e.g., an ineffective legal system, the ownership struc

ture, etc.). Similarly, reform efforts in other areas

(e.g., capital markets, the legal system) are

unlikely to be successful unless other fundamental

problems of Nigerian society are addressed (e.g., the lack of vibrant democratic political culture, ethnic and tribal tensions, poverty, etc.).

Ultimately, the success of corporate governance reforms are linked to broader governance reforms

of the Nigerian state and, one might argue, of

the international economic order which sets the

context in which states like Nigeria have to

compete in the global economy.


I am grateful to Prof. Mary Condon and Prof.

Obiora Okafor, both of Osgoode Hall Law

School, Prof. Ananya Mukhereej-Reed of the

Political Science Dept. at York University, Prof.

Solomon Ukhuegbe, Dr. Yosef Yacob, Bola Ige, Virtus Igbokwe and Shedrack Agbakwa for their

comments. I wish to also particularly thank Prof.

Darryl Reed whose comments and suggestions

guided me throughout the preparation of this

paper. However, as usual, all errors and omissions

remain mine.


1 See NEPD, ss. 4, 5 and 6.

2 Some of the reported cases on the issue include

Lasisivs. Registrar of Companies [1976] 7 S.C. 73 (S.C.

Nig.) and Kehinde vs. Registrar of Companies [1979] L.R.N. 213 (H.C.) where the Registrar refused to

approve their application for registration of compa

nies on the ground that the Nigerians were fronting for foreigners. These cases are discussed in detail by

Nnona (1995, pp. 595-602). 3

On a scale of 18 features, the Kraakman survey

rates Nigeria as having 7. This is an error as other

features are in the law as indicated above. 4

The effect of the prospect of promotion on the

chief executive is doubted but the fear of

discharge does serve as a check, although a weak and

uniformly low one. For a review of empirical studies on this issue see Eisenberg (1989, pp. 1495-1497). See also, Weibach (1988) on the dynamics of the

effect of the check on chief executives. The study

argues that a board dominated by outside directors is

more likely to remove a CEO for poor performance. 5 This again is controversial. Eisenberg argues that

executives often have a hand in setting their pay

Page 18: Corporate Governance in Nigeria

Corporate Governance in Nigeria 285

through the various steps: personnel level, the com

pensation committee and the Board approval stages. Second, that even though empirical studies show that

executive compensation increases with shareholders

gain, the amount involved is insignificant and makes

the studies descriptively inaccurate. (Eisenberg, 1989,

pp. 1490-1491). 6 No. 25 of 1988 now Cap. 369, Laws of the

Federation of Nigeria, 1990. 7

See Bureau of Public enterprises, "Guidelines on

Privatisation and Commencialisation" http:// 8 The new Public Enterprises (Privatisation and

Commercialisation) Decree 1999 is now available at 9 This trend has also been observed in other

emerging countries such as China (Hughes and Baeri,



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