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Corporate Governance and Organizational Performance in the
Nigerian Banking Industry

*am+e Isaa,
Bing-am .ni/ersit0( 1aru( Nasarawa State. Nigeria
E-Mail2 tal32i,e40a-oo.,om

Abstract
5-e ,on,ept of ,orporate go/ernan,e emerged in response to t-e failures and widespread dissatisfa,tion wit- t-e
wa0 ,orporate organi6ations fun,tion. 5-e Ban3ing reforms in Nigeria +roug-t a+out t-e ,onsolidation of +an3s
and +ased on e7plorator0 anal0sis( it was found t-at in t-e presen,e of se/eral regulations( wea3 ,orporate
go/ernan,e was a ,ontri+uting fa,tor to t-e poor performan,e underl0ing t-e su+prime ,risis in t-e Nigerian
+a3ing se,tor. In Nigeria It is e/idential t-at +an3s strongl0 influen,e e,onomi, de/elopment and t-e effi,ient
allo,ation of funds resulting in a lower ,ost of ,apital to firms( a +oost in ,apital formations( and an in,rease in
o/erall produ,ti/it0. 8onse9uentl0( t-e passing of /arious a,ts w-i,- deregulated t-e +an3ing industr0
-eig-tened t-e importan,e of internal regulator0 me,-anisms of +an3s su,- as ,orporate go/ernan,e. In
parti,ular ,orporate go/ernan,e is e7pe,ted to affe,t +an3:s /aluation( ,ost of ,apital( performan,e and ris3
ta3ing +e-a/iour. ;i/en t-e importan,e of t-e industr0( t-ere is a need to safeguard depositors: funds and
s-are-olders in/estments t-roug- a ,ontinuous entren,-ment of sound and effe,ti/e ,orporate go/ernan,e
regime wit-in t-e +an3ing se,tor.
ey!ords" 8orporate go/ernan,e( %rgani6ational performan,e( sta3e-olders( Ban3ing Industr0( Nigeria.

#$ Introduction
Emp-eri,al e/iden,es in t-e ,orporate world suggest a positi/e asso,iation +etween ,orporate go/ernan,e and
organi6ational performan,e. In t-is regard( su+-optimal or outrig-t failure of go/ernan,e s0stems ,an t-erefore
+e argued to +e a ma<or ,ontri+utor to t-e ,ollapse of man0 of t-e well esta+lis-ed organi6ations t-at a+ound in
t-e world:s ,orporate lands,ape. 5-is failure( w-i,- translates into an ina+ilit0 of organi6ations to meet t-e
e7pe,tations of t-eir /arious sta3e-olders( -as often +een tra,ed to wea3nesses in t-e internal ,ontrols
infrastru,tures and operating en/ironments( and a la,3 of ,ommitment to -ig- et-i,al standards. 5-ese
wea3nesses are sometimes deli+eratel0 or intentionall0 indu,ed +0 organi6ational designers and ,ontrollers( and
at ot-er times t-e0 ma0 +e a result of t-e nai/e assumption t-at t-ose entrusted wit- managerial responsi+ilities
will alwa0s a,t in a wa0 t-at suggests or promotes enlig-tened self-interest( w-i,- s-ould ultimatel0 -a/e
positi/e impli,ations for all sta3e-olders =onaldson > !reston( 1995". ?owe/er( e/iden,es emerging from
some of t-e re,entl0 ,ollapsed organi6ations t-e world o/er( -it-erto assumed to +e run professionall0 or on
sound prin,iples( su,,in,tl0 demonstrates t-e point t-at t-ere is indeed a la,3 of good ,orporate go/ernan,e
,ulture among ,orporate organi6ations( wit- its attendant effe,t of enormous finan,ial losses to +ot- t-e
sta3e-olders and t-e so,iet0 as a w-ole.
8orporate go/ernan,e in/ol/es a set of relations-ips +etween a ,ompan0:s management( its +oard( its
s-are-olders and ot-er sta3e-olders. 8orporate go/ernan,e also pro/ides t-e stru,ture t-roug- w-i,- t-e
o+<e,ti/es of t-e ,ompan0 are set( and t-e means of attaining t-ose o+<e,ti/es and monitoring performan,e are
determined. 8onse9uentl0 ,orporate go/ernan,e is all a+out running an organi6ation in a wa0 t-at guarantees
t-at its owners or sto,3-olders re,ei/e a fair return on t-eir in/estment( w-ile t-e e7pe,tations of ot-er
sta3e-olders are also met Magdi > Nedare-( 2002". It addresses t-e need for organi6ational stewards or
managers to a,t in t-e +est interest of t-e firm:s ,ore sta3e-olders( parti,ularl0( minorit0 s-are-olders or
in/estors( +0 ensuring t-at onl0 a,tions t-at fa,ilitates deli/er0 of optimum returns and ot-er fa/oura+le
out,omes are ta3en at all times. 5-is is t0pi,all0 fa,ilitated +0 ,reating an operational +ase w-i,- promotes t-e
o+ser/an,e of ,odes of ,ondu,t t-at entren,-es a,,ounta+ilit0( transparen,0( fairness( et-i,al +e-a/iour(
responsi+ilit0 and ot-er /alues designed to a,t as safeguards against institutional ,orruption and t-e
mismanagement of s,ar,e organi6ational resour,es. 5-e poli,ies( rules( pro,esses( pra,ti,es( programs and
institutions used in administering( dire,ting and ,ontrolling t-e operations and affairs of an organi6ation
generall0 ,onstitute t-e elements and instruments of its ,orporate go/ernan,e. 5-erefore( t-e ela+orateness(
,larit0( formalit0 and t-e degree of ,omplian,e wit- t-ese elements and plans refle,t t-e e7tent to w-i,- an
organi6ation is li3el0 to e7perien,e good ,orporate go/ernan,e. 5-e main responsi+ilit0 for ,orporate
go/ernan,e rests wit- t-e Board of =ire,tors of a firm. 5-e +oard is usuall0 made up of e7e,uti/e full time" and
non-e7e,uti/e part-time and independent" mem+ers. 5-e +oard:s responsi+ilities in,lude setting t-e ,ompan0:s
strategi, goals( pro/iding leaders-ip towards putting t-e set goals into effe,t( super/ising t-e management of t-e
firm and reporting to s-are-olders on t-eir stewards-ip. 5-e +oard also sets finan,ial poli,0 and o/ersees its
implementation( using finan,ial ,ontrols s0stems. 5-e +oard:s a,tions are su+<e,t to laws( regulations and t-e
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s-are-olders: re/iew at general meetings. @-ile t-e 3e0 fa,ilitators of ,orporate go/ernan,e are ,learl0 mem+ers
of t-e +oard( it is -owe/er apparent t-at ot-er sta3e-olders( parti,ularl0 management and emplo0ees( e9uall0
-a/e signifi,ant roles to pla0 in /ar0ing degrees" in a,-ie/ing effe,ti/e ,orporate go/ernan,e. As t-e +oard
needs to se,ure t-e a,ti/e ,ooperation of managers in order to +e effe,ti/e in instituting and ensuring appropriate
+e-a/iour( so do emplo0ees on t-eir part need to offer support +0 insisting on( and ,ompl0ing wit-( onl0 +oard-
appro/ed a,tions ta3en +0 managers. In t-is wa0( a ,ooperati/e relations-ip +etween t-ese ,ore of organi6ational
sta3e-olders -elps dri/e t-e ,orporate go/ernan,e pro,ess in t-e rig-t dire,tion.

%$ &iterature 'evie!
8orporate go/ernan,e -as +een part of resear,- into t-e +usiness profession sin,e Adam Smit-:s 1BB'" seminal
pu+li,ation of an in9uir0 into t-e nature and ,auses of t-e wealt- of nations and undou+tedl0 gi/en impetus
t-roug- Berle and Mean:s 19$2" ,lassi, pu+li,ation of t-e separation of ,orporate owners-ip from ,ontrol.
8orporate go/ernan,e is aimed at redu,ing ,onfli,ts of interest( s-ort-sig-tedness of writing ,ostless perfe,t
,ontra,ts and monitoring of ,ontrolling interest of t-e firm( t-e a+sen,e of w-i,- firm /alue is de,reased
=enisand M,8onnell( 200$". ;ood ,orporate go/ernan,e ,an also +e ,onsidered as t-e diligent wa0 in w-i,-
pro/iders of ,orporate finan,ial ,apital guarantee appropriate rewards in a legal and et-i,all0 moral wa0. 5-ere
are +ot- internal and e7ternal wa0s of a,-ie/ing t-is Jensen( 199$". 5-e first is t-roug- t-e stru,ture of
owners-ip s-are-olding ,on,entration and /oting rig-ts"( and +oard of dire,tors or super/isor0 +oard in some
regulator0 regimes w-o monitor firms and are supposed to wor3 in t-e interest of s-are-olders". 5-e se,ond is
t-roug- t-e mar3et for ,orporate ,ontrol ta3eo/er t-reats"( regulator0 inter/ention( and produ,t and fa,tor
mar3ets. 8orporate go/ernan,e ,odes t-at ser/e as templates of a,-ie/ing /alue to s-are-olders and
sta3e-olders" -a/e +een written in se/eral ,ountries.

2.1 Conceptual framework
8orporate go/ernan,e( as a ,on,ept( ,an +e /iewed from two perspe,ti/es2 t-e narrow /iew and t-e +road
perspe,ti/e. 5-e narrow /iew is ,on,erned wit- t-e stru,tures wit-in a ,orporate entit0 or enterprise re,ei/es its
+asi, orientation and dire,tion. 5-e +road perspe,ti/e is regarded as +eing t-e -eart of +ot- a mar3et e,onom0
and a demo,rati, so,iet0 %0e<ide and So0i+o( 2001"( t-e narrow /iew per,ei/es ,orporate go/ernan,e in terms
of issues relating to s-are-older prote,tion( management ,ontrol and t-e popular prin,ipal-agen,0 pro+lems of
e,onomi, t-eor0. In ,ontrast Sulli/an 2000"( a proponent of t-e +roader perspe,ti/es( uses t-e e7amples of t-e
resultant pro+lems of t-e pri/ati6ation ,rusade to pro/e t-at issues of institutional( legal and ,apa,it0 +uilding as
well as t-e rule of law are at t-e /er0 -eart of ,orporate go/ernan,e.
%0e<ide and So0i+o 2001" defined ,orporate go/ernan,e as t-e relations-ip of t-e enterprise to
s-are-olders or in t-e wider sense as t-e relations-ip of t-e enterprise to so,iet0 as a w-ole. ?owe/er( Ma0er
1999" ,ontends t-at it means t-e sum of t-e pro,esses( stru,tures and information used for dire,ting and
o/erseeing t-e management of an organi6ation. 5-e organi6ation for e,onomi, ,orporation and de/elopment
%E8=( 1999" also defined ,orporate go/ernan,e as a s0stem on t-e +asis of w-i,- ,ompanies are dire,ted and
managed. Curt-ermore( Arun and 5urner 2002" ,ontend t-at t-ere e7ist narrow approa,-es to ,orporate
go/ernan,e( w-i,- /iews t-e su+<e,t as t-e me,-anism t-roug- w-i,- s-are-olders are assured t-at managers
will a,t in t-eir interest. ?owe/er( %man 2001" o+ser/ed t-at t-ere is a +roader approa,- w-i,- /iews t-e
su+<e,t as t-e met-ods +0 w-i,- suppliers of finan,e ,ontrol managers in order to ensure t-at t-eir ,apital ,annot
+e e7propriated and t-at t-e0 earn a return on t-eir in/estment.
5-ere is a ,onsensus( -owe/er t-at t-e +roader /iew of ,orporate go/ernan,e s-ould +e adopted in t-e
,ase of +an3ing institutions +e,ause of t-e pe,uliar ,ontra,tual form of +an3ing w-i,- demands t-at ,orporate
go/ernan,e me,-anisms for +an3s s-ould en,apsulate depositors as well as s-are-olders Ma,e0 and %:?ara(
2001". Arun and 5urner 2002" <oined t-e ,onsensus +0 arguing t-at t-e spe,ial nature of +an3ing re9uires not
onl0 a +roader /iew of ,orporate go/ernan,e( +ut also go/ernment inter/ention in order to restrain t-e +e-a/iour
of +an3 management. 5-e0 furt-er argued t-at( t-e uni9ue nature of t-e +an3ing firm( w-et-er in t-e de/eloped
or de/eloping world( re9uires t-at a +road /iew of ,orporate go/ernan,e( w-i,- en,apsulates +ot- s-are-olders
and depositors( +e adopted for +an3s. 5-e0 posit t-at( t-e nature of t-e +an3ing firm is su,- t-at regulation is
ne,essar0 to prote,t depositors as well as t-e o/erall finan,ial s0stem.
5-e adoption of /arious e,onomi, reform programmes in Afri,a in t-e 19#0:s in w-i,- pri/ati6ation of
go/ernment-owned enterprise forms a ma<or plan3( -as -eig-tened t-e ,orporate go/ernan,e de+ate in t-e
,ontinent. 5-e +itter e7perien,e of Asian finan,ial ,risis of t-e 1990:s unders,ores t-e importan,e of effe,ti/e
,orporate go/ernan,e pro,edures to t-e sur/i/al of t-e ma,ro-e,onom0. 5-is ,risis demonstrates in no
unmista3a+le terms t-at De/en strong e,onomies( la,3ing transparent ,ontrol( responsi+le ,orporate +oards( and
s-are-older rig-ts ,an ,ollapse 9uite 9ui,3l0 as in/estor:s ,onfiden,e ,ollapseE and emp-asi6es t-e need to
ensure effe,ti/e ,orporate go/ernan,e wit- a /iew to ensuring t-e de/elopment of mar3et-+ased e,onomies and
demo,rati, so,ieties +ased on t-e rule of law So0i+o et al(2002". Cor t-e finan,ial industr0( t-e retention of
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pu+li, ,onfiden,e t-roug- t-e ent-ronement of good ,orporate go/ernan,e remains of utmost importan,e gi/en
t-e role of t-e industr0 in t-e mo+ili6ation of funds( t-e allo,ation of ,redit to t-e need0 se,tors of t-e e,onom0(
t-e pa0ment and settlement s0stem and t-e implementation of monetar0 poli,0.
As seen from t-e a+o/e( ,orporate go/ernan,e is not a ,on,ept t-at ,ould +e su+<e,ted to a watertig-t
definition. 5-e 1992 8ad+ur0 Feport saw it as Ds0stems +0 w-i,- ,ompanies are dire,ted and ,ontrolled.E
@it-out disputing t-e /alidit0 of t-is definition( t-e ,on,ept e7tends +e0ond s0stems for dire,ting and
,ontrolling a ,ompan0 and is also D,on,erned wit- -olding t-e +alan,e +etween e,onomi, and so,ial goals and
+etween indi/idual and ,ommunal goals t-e aim is to align as nearl0 as possi+le t-e interests of indi/iduals(
,orporations and so,iet0.E 5-us( t-e ,on,ept impli,ates rules and regulations t-at ensure t-at a ,ompan0 is
go/erned in a transparent and an a,,ounta+le manner( su,- t-at t-e enterprise sur/i/es and meets t-e
e7pe,tations of its s-are-olders( ,reditors and sta3e-olders of w-i,- so,iet0 forms a large part of. 5-e o/erall
effe,t of ,orporate go/ernan,e s-ould +e t-e strengt-ening of in/estors: ,onfiden,e in t-e e,onom0 of a
parti,ular ,ountr0( su+-region( or region.
Fe,ent o,,urren,es in t-e international ,orporate en/ironment -a/e refo,used t-e world:s attention to
,on,erns for effe,ti/e domesti, ,orporate go/ernan,e initiati/es t-at would ensure ,redi+ilit0 on -ow ,ompanies
,ondu,t +usiness in our post modern glo+alised world. 5-e mu,- ,ele+rated Enron and t-e @orld8om saga in
t-e .nited States( t-e &i/endi and t-e re,ent !armalat s,andals in Europe are t-e most re,ent of su,- distur+ing
failures of ,redi+le +usiness pra,ti,e. Nigeria -as also -ad its s-are of inelegant +usiness pra,ti,es t-at -a/e
resulted in failed ,orporate giants t-at on,e stood firm( wit-out an0 o/ert sign of trou+le. 5-us( wit-in Nigeria:s
domesti, ,orporate setting( t-e effe,t of t-e unw-olesome international ,orporate go/ernan,e ,limate
engendered a renewed emp-asis on effe,ti/e ,orporate go/ernan,e standards. 5-e re,ent laun,- of 8ode of Best
!ra,ti,es on 8orporate ;o/ernan,e in Nigeria 8orporate ;o/ernan,e 8ode" la0s ,reden,e to t-is emp-asis.
5-e finan,ial se,tor wit- spe,ial referen,e to +an3ing -as ,ome under t-e sear,-lig-t in re,ent 0ears not onl0
+e,ause of its strategi, role as mediator of funds +etween t-e surplus and t-e defi,it units +ut also as a result of
t-e pro+lem ro,3ing t-e industr0 in terms of failure and e/entual +an3rupt,0. 5-e +an3ing se,tor +asi,all0 ser/es
as t-e ner/e ,entre of an0 modern e,onom0( +eing t-e repositor0 of people:s wealt- and supplier of ,redits
w-i,- lu+ri,ates t-e engine of growt- of t-e entire e,onomi, s0stem. 5-e failure e7perien,ed in t-e se,tor o/er
t-e 0ears ,an +e ,aptured +0 t-e num+er of failed +an3s( t-e de+t and e7tent of re9uired ,apitali6ation( t-e
proportion of non-performing ,redits( loss of depositor:s funds and t-e general impa,t on t-e e,onom0 all of
w-i,- unders,ores t-e importan,e of t-e se,tor.
@-ile t-e targeted end result of +an3ing +usiness are to +e a,-ie/ed t-roug- ad-eren,e to laid down
rules and regulations( t-e ,auses of t-e un-ealt-0 de/iation from set rules -a/e +een found to in,lude( inade9uate
Super/ision @ea3 Management and offensi/e go/ernment poli,ies. %gunle0e 2002" ,lassified t-e ,auses of
+an3 failure into Institutional( E,onomi, and !oliti,al fa,tors as well as regulator0 and Super/isor0 inade9ua,ies.
E+-odag-e 1995" attri+uted +an3 failure to e,onomi, downturn( in-i+iti/e poli,0 en/ironment and management
pro+lems.
5-e impa,t of ill -ealt- in t-e +an3ing se,tor left no+od0 untou,-ed ranging from t-e go/ernment( t-e
regulator0 aut-orities t-e +an3ers as well as t-e general pu+li,. It is in t-is spirit t-at predi,ting t-e potential of
failure in t-e se,tor +e,omes imperati/e if t-ese a,torsGpla0ers are to +e rig-tl0 guided in t-eir de,ision ma3ing
/entures. A good manager t-erefore must +e ,on/ersant wit- su,- tools t-at will ena+le -im measure
performan,e and trend o/er time for t-e a,-ie/ement of t-e desired organi6ational and de,ision ma3ing
o+<e,ti/es espe,iall0 in an unsta+le e,onomi, en/ironment li3e ours. In t-is ,onne,tion t-erefore( t-e use of
+an3rupt,0 predi,tion model for determining t-e ,urrent and potential +usiness failure pro/es -and0 and
appropriate. 5-is will afford effe,ti/e resour,e management instead of distress ,lassifi,ation t-at amounts to
medi,ine after deat-.
In re,ent 0ears( t-ere -as +een great ,on,ern on t-e management of +an3s: assets and lia+ilities
+e,ause of large-s,ale finan,ial distress. 5-e e7perien,e of man0 ,ountries indi,ates t-at regulation and
super/ision are essential for sta+le and -ealt-0 finan,ial s0stem and t-at t-e need +e,omes greater as t-e num+er
and /ariet0 of finan,ial institutions in,rease. 5-e +an3ing se,tor -as +een singled out for t-e spe,ial prote,tion
+e,ause enfor,ement of rules and regulations( +ut also <udgments ,on,erning t-e soundness of +an3 leads to
-ealt-0 +an3ing industr0. 5o maintain ,onfiden,e in t-e +an3ing s0stem( t-e monetar0 aut-orities -a/e to ensure
+an3s pla0 +0 t-e rule. 5-e =eposit insuran,e s,-eme and prudential guidelines were e/ol/ed to impro/e t-e
assets 9ualit0 of +an3s( redu,e +ad and dou+tful de+t( ensure ,apital ade9ua,0 and sta+ilit0 of t-e s0stem( and
prote,t depositors funds %ladipo 199$". In Nigeria( t-e rising ,ases of +an3 distress -a/e also +e,ome a ma<or
sour,e of ,on,ern for poli,0 ma3ers. It is not surprising to find +an3s to -a/e nonperforming loans t-at e7,eed
50 per ,ent of t-e +an3:s loan portfolio. Cor instan,e( t-e Nigeria =eposit Insuran,e 8orporation N=I8" in its
199' annual report put t-e num+er of distressed +an3s loans( N)0 +illion or B9 per ,ent of w-i,- were ,lassified
as nonperforming ,redits. 5-e re,ent deregulation of t-e finan,ial s0stem em+ar3ed upon from 19#' allowed t-e
influ7 of +an3s into t-e +an3ing industr0. As a result of attra,ti/e interest rate on deposits and loans( ,redits were
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&ol.'( No.25( 201)

11$
gi/en out indis,riminatel0 wit-out proper ,redit appraisal !-illip( 199)". 5-e resultant effe,ts were t-at man0 of
t-ese loans turn out to +e +ad. Cor instan,e( in t-e mer,-ant +an3s +etween 19#9 and 1992( t-e ratio of ,lassified
assets to total loans and ad/an,es rose from 1).B per ,ent to $B per,ent and pea3ed at '$.9 per ,ent in 199). Cor
,ommer,ial +an3s( t-e ratio rose from )B.) per ,ent in 19#9 to 50.9 per ,ent in 1990 and fell to $#.10 per ,ent in
199)N=I8 Feport( 1995". Asset 9ualit0 degenerated( as ,lassified assets in,reased from N11.91 +illion in 1990
to N1#.#2 +illion in 1992( mo/ed to N)'.9 +illion in 199) and furt-er to N9).# +illion in 1999. It is in realisation
of t-e ,onse9uen,e of deteriorating loan 9ualit0 on t-e +an3ing se,tor and t-e e,onom0 at large t-at t-is paper is
moti/ated. 5-e regulation and super/ision of +an3s is e7pe,ted to +ring order to t-e ,-aoti, situation t-at -ad
de/eloped in finan,ial se,tor sin,e t-e late 19#0s.

2.2 Theoretical and Empherical framework
An understanding of ,orporate go/ernan,e pro,eeds from an e7amination of a num+er of t-eories t-at attempt to
e7plain t-e +asis and rationale +e-ind t-is management imperati/e. 5-ese t-eories prin,ipall0 in,lude t-e
Agen,0( Sta3e-olders( Stewards-ip( Fesour,e-dependen,0( 5ransa,tion ,ost and 8omple7it0 t-eories. 5-e
agen,0 t-eor0 is a t-eor0 t-at e7plains t-e relations-ip +etween prin,ipals su,- as s-are-olders" and agents
su,- as a ,ompan0:s e7e,uti/e". In t-is relations-ip( t-e prin,ipal delegates or -ires an agent to perform a tas3.
5-e t-eor0 attempts to deal wit- two spe,ifi, pro+lemsH first( t-at t-e goals of t-e prin,ipal and agent are not in
,onfli,t( and se,ond( t-at t-e prin,ipal and agent re,on,ile different toleran,e for ris3 in/estorword 201)".
5-e Sta3e-olders t-eor0 is a t-eor0 of organi6ational management and +usiness et-i,s t-at addresses
morals and /alues in managing an organi6ation. In t-e traditional /iew of t-e firm( t-e s-are-olders or
sto,3-olders are assumed to +e t-e owners of t-e ,ompan0( and t-e firm -as a +inding fidu,iar0 dut0 to put t-eir
needs first( and to in,rease /alue to t-em. Sta3e-older:s t-eor0 -owe/er argues t-at t-ere are ot-er parties
in/ol/ed su,- as emplo0ees( ,ustomers( suppliers( finan,iers( ,ommunities( go/ernmental +odies( politi,al
groups( trade asso,iations and sometimes ,ompetitors as t-e0 all -a/e ,apa,it0 to affe,t t-e wor3ings of an
organi6ation Edward 201)".
5-e Stewards-ip t-eor0 posits t-at managers( left on t-eir own will indeed a,t as responsi+le stewards
of t-e assets t-e0 ,ontrol. 5-is is an alternati/e /iew of agen,0 t-eor0( in w-i,- managers are assumed to a,t in
t-eir own self interest at t-e e7pense of s-are-olders. 5-e Fesour,e-dependen,0 t-eor0 on t-e ot-er -and
fo,uses on -ow t-e e7ternal resour,es of an organi6ation affe,t t-e +e-a/iour of t-e organi6ation. 5-e
pro,urement of e7ternal resour,es is an important tenet of +ot- t-e strategi, and ta,ti,al management of an
organi6ation @e+master 200B". 5-e 5ransa,tion ,ost t-eor0 suggests t-at firms organi6e e7,-anges internall0
t-at mig-t ot-erwise +e ,ondu,ted in mar3ets due to t-e ,osts asso,iated wit- an e7,-ange transfer" of a good or
ser/i,e in t-e mar3et ,ostl0 negotiating and monitoring ,ost t-at ma0 a,,ompan0 e7,-anges ,ondu,ted wit-in
t-e mar3et". It is a t-eor0 a,,ounting for t-e a,tual ,ost of outsour,ing of produ,ts or ser/i,es( in,luding
transa,tion ,osts( ,ontra,ting ,osts( ,oordination ,osts and sear,- ,ost. 5-e in,lusion of all ,osts is ,onsidered
w-en ma3ing a de,ision and not <ust t-e mar3et pri,es 5-e E,onomist 201)". 8onse9uentl0 t-e ,omple7it0
t-eor0 is t-e stud0 of ,omple7 s0stems( su,- t-at +e-a/iour of d0nami,al s0stem are +roug-t under re/iew to
test t-eir sensiti/it0 to initial ,onditions @i3ipedia 201)".
?owe/er o/er t-e last de,ade( t-e Asian finan,ial ,rises( Enron( @orld8om( 50,o( Adelp-ia( Art-ur
Anderson( *e-man Brot-ers( Credd0 Ma, and Cann0 Mae in t-e .SA -a/e ,ome to represent t-e ,lassi, fa,es of
failure attri+uta+le to ,orporate go/ernan,e s-ort,omings. %n a,,ount of t-e same pro+lem( ot-er important
institutions( in,luding ;oldman Sa,-s in .SA"H Mar,oni and Nort-ern Fo,3 in .1"H !armalat in Ital0"H
Iu3os in Fussia"H and( Inter,ontinental Ban3( %,eani, Ban3( .nion Ban3( Ban3 !?B( Spring Ban3 in Nigeria"(
were found to +e /irtuall0 on t-e t-res-old of failure <ust +efore t-eir /arious national go/ernments inter/ened to
+ail t-em out of imminent ,ollapse. In t-e wa3e of t-ese de/elopments( ,orporate go/ernan,e framewor3s -a/e
+een formulated +0 a /ariet0 of regulator0 agen,ies and national go/ernments o/er t-e last de,ades a,ross
different ,ountries( in,luding t-e .SA - t-e Sar+anes-%7le0 A,t 2002"H in t-e .1 - t-e .1 8ompanies: A,t
200'" and similar poli,0 guidelines issued +0 t-e Cinan,ial Feporting 8oun,il and t-e Cinan,ial Ser/i,es
Aut-oritiesH t-e .N:s Ban3 of International Settlement:s Basel 8ommittee guidelines on 8orporate ;o/ernan,eH
t-e %E8= !rin,iples of 8orporate ;o/ernan,e 1999 > 200)"H in Nigeria t-e Se,urities and E7,-ange
8ommission SE8" 8ode of Best !ra,ti,es for !u+li, 8ompanies 200$"( 8ode of 8orporate ;o/ernan,e for
Ban3s and 8ode of 8orporate ;o/ernan,e for *i,ensed !ension %perators Nwadio3e( 2009". 5-ese well-
do,umented guidelines -a/e pro/ided t-e main instruments used in regulating t-e operations of firms. In spite of
t-e soundness and widespread su+s,ription to t-ese ,orporate go/ernan,e ,odes( finan,ial s,andals and prospe,ts
of organi6ational failure still ,ontinue to +e of deep ,on,ern to sta3e-olders. 5-e %E8= pro/isions for instan,e
is ,onsidered to +e ade9uate in addressing issues of e7e,uti/e remuneration( ris3 management( +oard pra,ti,es
and e7er,ise of s-are-older rig-ts. ?owe/er( wea3ness in ,orporate go/ernan,e appears to +e a fun,tion of
ineffe,ti/e implementation of t-e ,odes %E8=( 2009". !ursuan,e of good ,orporate go/ernan,e would
t-erefore mainl0 stem from t-e politi,al will of organi6ational managers to ad-ere to spe,ified +est-pra,ti,es.
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5-e rewards of good ,orporate go/ernan,e in,lude redu,tion of waste on non-produ,ti/e a,ti/ities
su,- as s-ir3ing( e7,essi/e e7e,uti/e remuneration( per9uisites( asset-stripping( tunnelling( related-part0
transa,tions and ot-er means of di/erting t-e firm:s assets and ,as- flows. It also results in lower agen,0 ,osts
arising from +etter s-are-older prote,tion( w-i,- in turn engenders a greater willingness to a,,ept lower returns
on t-eir in/estment. 5-e firm ultimatel0 ends up en<o0ing -ig-er profits as it in,urs lower ,ost of ,apital.
Importantl0( firms +e,ome more attra,ti/e to e7ternal finan,iers in dire,t proportion to a rise in t-eir ,orporate
go/ernan,e profile. 8onse9uentl0( managers +e,ome less sus,epti+le to ma3ing ris30 in/estment de,isions( and
fo,us more on /alue-ma7imi6ing pro<e,ts t-at generall0 fa,ilitate organi6ational effi,ien,0. 5-e ultimate
out,omes of t-ese ,orporate go/ernan,e +enefits are generall0 -ig-er ,as- flows and superior performan,e for
t-e firm *o/e( 2011". Most of t-e studies on t-e lin3 +etween ,orporate go/ernan,e and firm performan,e
,onfirm ,ausalit0 A+or > Ad<asi( 200B". ?owe/er( t-e e/iden,e indi,ates +etween a strong and /er0 wea3
relations-ip. Bla,3 2001"( for instan,e found a strong ,orrelation +etween ,orporate go/ernan,e and firm
performan,e( as represented +0 sto,3 /aluation. *o/e 2011( pp 50- 5#" do,umented se/eral ot-er studies t-at
-a/e demonstrated t-ese /ar0ing positi/e relations-ips to in,lude Be+,-u3( 8o-en and Cerrell 200'"( Bla,3 and
1-ana 200B"( Brown and 8a0lor 2009"( Bruno and 8laessens 200B"( 8--ao,--aria and *ae/en 200B"( El
Me-di 200B"( ;ompers( Is-ii and Metri,3 200$"( 1lapper and *o/e 200)"( 10ere+oa--8oleman 200B"(
*ar,3er( Fi,-ardson and 5una 200B"( Ne/ona 2005" and @a-a+( ?ow and &er-oe/en 200B". Some ot-er
studies -a/e -owe/er argued against a positi/e relations-ip +etween ,orporate go/ernan,e and firm performan,e
Cerreira > *au7( 200BH ;illan( ?art6ell > Star3s( 200'H !-am( Su,-ard > Jein( 200B". 5-is la,3 of unanimit0
,ontinues to ma3e t-e dis,ussion a ,urrent issue. Cindings from past studies on t-e sele,ted ,orporate go/ernan,e
/aria+les in t-e literature are as follows2
a" Felia+ilit0 of finan,ial reporting2 5-e a,,ura,0 and relia+ilit0 of t-e finan,ial reports issued +0 management
affe,ts t-e per,eption of t-e firm +0 all ot-er sta3e-olders and prospe,ti/e in/estors. In spite of t-e e7perien,e at
Enron and @orld8om( t-e finan,ial reporting of pu+li,l0 9uoted firms are generall0 per,ei/ed to +e more
transparent and ,redi+le( +e,ause t-e0 are usuall0 su+<e,ted to stiffer or more rigorous s,rutin0( t-an w-at
o+tains in pri/ate firms. And( t-is t-erefore ma3es t-e finan,ial reporting ,omponent of ,orporate go/ernan,e
e/en more diffi,ult to assure in pri/atel0 -eld firms. Audit ,ommittees and e7ternal auditors are t-e main
instruments a/aila+le for ensuring t-is ,orporate go/ernan,e /aria+le. 5-ere is -owe/er s,ant e/iden,e of
empiri,al resear,- findings around t-is parti,ular /aria+le.
+" E7isten,e of ,ode of ,orporate go/ernan,e2 5-e growing ,on,ern a+out t-e need to institutionali6e ,orporate
go/ernan,e me,-anisms in firms -as eli,ited t-e issuan,e of ,odes of go/ernan,e +0 different regulator0
agen,ies and /oluntar0 industr0 asso,iations. ?owe/er( ,lear e/iden,e of t-e e7a,t e7tent to w-i,- Nigerian
firms -a/e adopted t-ese ,odes or de/eloped t-eir own ,ompan0-spe,ifi, go/ernan,e pro,edures is still
un3nown largel0 +e,ause of deart- of readil0 a/aila+le data.
," Audit ,ommittees2 Alt-oug- results of 1lein 2002" and Anderson( Mansi and Fee+ 200)" s-owed a strong
asso,iation +etween audit ,ommittee and firm performan,e( 1a<ola 200#" found no signifi,ant relations-ip
+etween +ot- /aria+les. 5-is la,3 of ,onsensus presents s,ope for deeper resear,- on t-e impa,t of t-is ,orporate
go/ernan,e /aria+le.
d" Board si6e2 5-ere is a ,on/ergen,e of agreement on t-e argument t-at +oard si6e is asso,iated wit- firm
performan,e. ?owe/er( ,onfli,ting results emerge on w-et-er it is a large( rat-er t-an a small +oard( t-at is more
effe,ti/e. Cor instan,e( w-ile Ierma,3 199'" -ad found t-at strong organi6ational performan,e de,lines wit-
+oard si6e( and t-is finding was ,orro+orated +0 t-ose of Ma3 and 1usnadi 2005" and Sanda( Mi3ailu and
;ar+a 2005" w-i,- s-owed t-at small +oards were more positi/el0 asso,iated wit- -ig- firm performan,e.
?owe/er( results of t-e stud0 of 10ere+oa--8oleman 200B" rat-er indi,ated t-at large +oards en-an,ed
s-are-olders: wealt- more positi/el0 t-an smaller ones.
e" Separation of offi,e of +oard ,-air and 8E%2 Separation of offi,e of +oard ,-air from t-at of 8E% generall0
see3s to redu,e agen,0 ,osts for a firm. 1a<ola 200#" found a positi/e and statisti,all0 signifi,ant relations-ip
+etween performan,e and separation of t-e offi,e of +oard ,-air and 8E%. Ierma,3 199'" e9uall0 found t-at
firms are more /alua+le w-en different persons o,,up0 t-e offi,es of +oard ,-air and 8E%. 10ere+oa--8oleman
200B" pro/ed t-at large and independent +oards en-an,e firm /alue( and t-e fusion of t-e two offi,es negati/el0
affe,ts a firm:s performan,e( as t-e firm -as less a,,ess to de+t finan,e. 5-e results of t-e stud0 of 1lein 2002"
suggest t-at +oards t-at are stru,tured to +e more independent of t-e 8E% are more effe,ti/e in monitoring t-e
,orporate finan,ial a,,ounting pro,ess and t-erefore more /alua+le. Cos+erg 200)" found t-at firms t-at
separated t-e fun,tions of +oard ,-air and 8E% -ad smaller de+t ratios finan,ial de+tGe9uit0 ,apital". 5-e
amount of de+t in a firms: ,apital stru,ture -ad an in/erse relations-ip wit- t-e per,entage of t-e firm:s ,ommon
sto,3 -eld +0 t-e 8E% and ot-er offi,ers and dire,tors. 5-is finding was ,orro+orated +0 A+or and Bie3pe
2005"( w-o demonstrated t-at dualit0 of t-e +ot- fun,tions ,onstitute a fa,tor t-at influen,es t-e finan,ing
de,isions of t-e firm. 5-e0 found t-at firms wit- a stru,ture separating t-ese two fun,tions are more a+le to
maintain t-e optimal amount of de+t in t-eir ,apital stru,ture t-an firms wit- dualit0. A,,ordingl0( t-e0 argued
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t-at a positi/e relations-ip e7ists +etween t-e dualit0 of t-ese two fun,tions and finan,ial le/erage. Separation of
t-ese two offi,es is -owe/er s-arpl0 ,-allenged +0 =onaldson and =a/is 1991"( w-o found t-at s-are-olders:
returns are ma7imi6ed w-en t-ere is dualit0.

($ Corporate Governance in Nigeria
Fe,entl0( Nigeria -as laid a solid foundation for ,orporate go/ernan,e +0 sponsoring series of legislati/e(
e,onomi, and finan,ial reforms t-at intended to promote transparen,0( a,,ounta+ilit0 and t-e rule of law in t-e
e,onomi, life of t-e ,ountr0. Managerial ineffi,ien,0 and a,,ounting s,andals alert t-e legislators:( go/ernment
and management of +an3s and +ig ,orporations to t-e danger in/ol/ed in t-e a+sen,e of ,onstraints go/erning
,orporate go/ernan,e. 5-is -as in turn reinfor,ed interest in ,onsolidating t-e foundation and prin,iples of
,orporate go/ernan,e in t-e Nigerian e,onom0. %/er t-e 0ears( Nigeria as a nation -as suffered a lot of
de,aden,e in /arious aspe,ts of -er national life( espe,iall0 during t-e prolonged period of militar0 di,tators-ip.
5-e politi,al and +usiness ,limate -ad +e,ome so +ad in re,ent times( t-us ne,essitating t-e entren,-ment of
,orporate go/ernan,e regimes in all aspe,t of national life.
Cor a de/eloping ,ountr0 su,- as Nigeria ,orporate go/ernan,e is of ,riti,al importan,e. In its re,ent
-istor0( t-e la,3 of ,orporate go/ernan,e -as led to e,onomi, up-ea/als. 5wo e7amples illustrate t-e point +eing
made. In t-e late 19#0 and earl0 1990s t-e ,ountr0 witnessed a near ,ollapse of t-e finan,ial se,tor t-roug- t-e
p-enomenon of failed +an3s and ot-er finan,ial institutions. In ,onse9uen,e( t-e Cailed Ban3s Fe,o/er0 of
=e+t" and Cinan,ial Malpra,ti,e in Ban3s A,t was promulgated to fa,ilitate t-e prose,ution of t-ose w-o
,ontri+uted to t-e failure of +an3s and to re,o/er t-e de+t owed to t-e failed +an3s.
Se,ondl0( t-e pri/ati6ation and ,ommer,iali6ation programme of t-e Nigerian ;o/ernment was a
rea,tion to t-e failure of ,orporate go/ernan,e in state owned enterprises S%E". A,,ording to El-Fufai 199#"(
data o+tained from /arious go/ernment department estimates re/eal t-at in 199#( Nigerian !Es K!u+li,
EnterprisesL en<o0ed a+out N2'5 +illion in transfers( su+sidies and wai/ers( w-i,- ,ould -a/e +een +etter
in/ested in our edu,ation( -ealt- and ot-er so,ial se,tors. 5-ere is /irtuall0 no pu+li, enterprise in Nigeria toda0
t-at fun,tions well. @-ile t-e0 were ,reated to alle/iate t-e s-ort,omings of t-e pri/ate se,tor and spear-ead t-e
de/elopment of Nigeria( man0 of t-em -a/e stifled entrepreneurial de/elopment and fostered e,onomi,
stagnation. !u+li, enterprises -a/e ser/ed as platforms of patronage and t-e promotion of politi,al o+<e,ti/es(
and ,onse9uentl0 suffer from operational interferen,e +0 ,i/il ser/ants and politi,al appointees. 5-e Nigerian
e7perien,e in t-e re,ent 0ears -as s-own man0 e7amples t-at ,learl0 esta+lis- t-e poor le/els of ,orporate
go/ernan,e in pu+li, enterprises and pri/ate( in,luding t-e +an3ing industr0. In /iew of t-e importan,e atta,-ed
to t-e institution of effe,ti/e ,orporate go/ernan,e( t-e Cederal go/ernment of Nigeria( t-roug- -er /arious
agen,ies -a/e ,ome up wit- /arious institutional arrangements to prote,t t-e in/estors of t-eir -ard earned
in/estment from uns,rupulous managementGdire,tors of listed firms in Nigeria. 5-ese institutional arrangements
was pro/ided in t-e D8ode of 8orporate ;o/ernan,e for Best !ra,ti,esE
5-e 8entral Ban3 of Nigeria in its ,ontinuing efforts to en-an,e ,orporate go/ernan,e in t-e Nigerian
+an3ing s0stem also ,ame up wit- t-e 8orporate ;o/ernan,e 8ode w-i,- is intended to promote international
+est pra,ti,e in t-e ,orporate go/ernan,e of Nigerian +an3s. 5-e 8ode draws upon international +est pra,ti,e( in
parti,ular t-e %rganisation of E,onomi, 8orporation and =e/elopment %E8=" prin,iples of 8orporate
;o/ernan,e and t-e guidan,e issued +0 t-e Basel 8ommittee on Ban3ing Super/ision in t-eir pu+li,ation2
En-an,ing 8orporate ;o/ernan,e for Ban3ing %rgani6ations. ?owe/er( it is wort-0 to note t-at t-e interest in
,orporate go/ernan,e is not limited to go/ernmental or +an3ing institutions( as some pri/ate forums and
asso,iations -a/e also +een esta+lis-ed to en-an,e t-e adoption of t-e ,on,ept of ,orporate go/ernan,e. 5-us t-e
ma<or fo,us of ,orporate go/ernan,e regime as ,-ampioned +0 t-e regulator0 institutions in Nigeria are good
+oard pra,ti,es( ,ontrol en/ironment( transparent dis,losure( well defined s-are-older rig-ts and +oard
,ommitment. 5-e +an3ing se,tor on t-e ot-er -and also draws its poli,0 framewor3 from t-e four pillars of
,orporate go/ernan,e( w-i,- in,ludes a,,ounta+ilit0( fairness( transparen,0 and independen,0 %mei6a Mi,-eal(
2009". 8onse9uentl0 @eil et al 2002" ,on,luded t-at alt-oug-( ,orporate go/ernan,e in Nigeria ,an +e
generall0 /iewed as a /ariet0 of wa0s in/ol/ing t-e me,-anisms +0 w-i,- t-ose saddled wit- t-e responsi+ilities
of managing +usinesses( firms and pu+li, enterprises( are -eld a,,ounta+le for ,orporate ,ondu,t and
performan,e.

3.1 Evolution of Corporate Governance in the Nigerian Banking Indutr!
In t-e Nigerian Ban3ing industr0( t-e ,onsolidation regime was introdu,ed in ot-er to guarantee en-an,ed
ser/i,es and deepening of finan,ial intermediation on t-e part of t-e +an3s. %n Jul0 't- 200)( t-e 8entral Ban3
of Nigeria introdu,es a reform in t-e finan,ial s0stem +0 in,reasing t-e ,apital +ase of +an3s to N25+illion. 5-e
reform led to t-e wit-drawal of pu+li, se,tor funds amounting to NB) +illion. 5-e reform also led to mergers and
a,9uisition of +an3s( w-i,- redu,ed t-e num+er of +an3s in Nigeria from #9 to 25. 5-e ,onsolidation e7er,ise
e9uall0( led to a re/iew of t-e e7isting ,ode for t-e Nigerian +an3s( w-i,- in turn led to t-e de/elopment in 200'(
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&ol.'( No.25( 201)

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t-e 8ode of 8orporate ;o/ernan,e for Ban3s in Nigeria. 5-is de/elopment was made to ,omplement and
en-an,e t-e effe,ti/eness of ot-er e7isting poli,ies in t-e Nigerian Ban3ing Se,tor.
A +rief -istori,al perspe,ti/e into t-e a,ti/ities of t-e +an3ing se,tor in Nigeria s-owed t-at distress
s0ndrome was first o+ser/ed around 19#9 w-en t-ere was mass wit-drawal of deposit +0 go/ernment agen,ies
and ot-er pu+li, se,tor institutions w-i,- re/ealed t-e finan,ial wea3ness of ,ertain +an3s li3e t-e National +an3
of Nigeria and t-e 8ommer,ial trust +an3 *imited w-i,- was +ede/illed +0 +oardroom ,ries and inside a+use
%su3a( Bernado > 8-ris Mpamugo-". Crom a+out t-at period( t-ere were ,onsistent +an3 failures and finan,ial
,risis during t-e ne7t two de,ades t-at followed( w-i,- raised a num+er of 9uestions on t-e ,onsisten,0 of t-e
8orporate ;o/ernan,e pra,ti,es in t-e +an3ing s0stem( alt-oug- t-ere were se/eral attempts made at arresting
t-e deteriorating situation.
5-e most re,ent +an3 distress in t-e Nigerian e,onom0 ,an +e tra,ed to t-e glo+al finan,ial ,risis
w-i,- +egan in t-e .nited States of Ameri,a and t-e .nited 1ingdom w-en t-e glo+al ,redit mar3et ,ame to a
standstill in Jul0 200B A/gouleas( 200#". 5-e ,risis( w-i,- -ad +een +rewing for a w-ile( reall0 started to s-ow
its effe,ts in t-e middle of 200#. Around t-e world( sto,3 mar3ets were at t-e lowest e++ as s-are pri,es were
falling( large finan,ial institutions were ,ollapsing and go/ernments around t-e world -ad to ,ome up wit-
res,ue pa,3ages to +ail out t-eir finan,ial s0stems. Anal0sis of t-e finan,ial ,risis wit-in t-e period in 9uestion
was s-own to -a/e +een related to 8orporate ;o/ernan,e issues. As a dire,t ,onse9uen,e( t-e Nigerian
go/ernment introdu,ed new poli,0 framewor3 in form of ,orporate go/ernan,e to stem t-e tide of +an3 failures
and distress in Nigeria. 5-e 8BN in ,on<un,tion wit- ot-er super/isor0 institutions de,ided to pla,e emp-asis on
t-e monitoring of ,redit ris3 and pro/ide in,enti/es on prudent management of +an3s to aid transparen,0 in t-e
+an3ing s0stem( so t-at t-e Nigerian e,onom0 ,an forge a-ead.
8orporate ;o/ernan,e in t-e +an3ing s0stem -as assumed -eig-tened importan,e and -as +e,ome an
issue of glo+al ,on,ern +e,ause it is re9uired to lead to en-an,ed ser/i,es and deepening of finan,ial
intermediation on t-e part of t-e +an3s and ena+les proper management of t-e operations of +an3s. 5o ensure
t-is( +ot- t-e +oard and management -a/e 3e0 roles to pla0 to ensure t-e institution of ,orporate go/ernan,e.
;o/ernan,e and performan,e are e7pe,ted to +e mutuall0 reinfor,ing in +ringing a+out t-e +est ,orporate
go/ernan,e. 5ransparen,0 and dis,losure of information are 3e0 attri+utes of good ,orporate go/ernan,e w-i,-
+an3s must ,ulti/ate wit- new 6eal so as to pro/ide sta3e-olders wit- t-e ne,essar0 information to <udge
w-et-er interest are +eing ta3en ,are of.

3.2 Corporate Governance and Bank "erformance
It -as +een argued t-at t-e go/ernan,e stru,ture of Nigerian +an3s -as little or no relations-ip to t-eir finan,ial
performan,e due to t-e presen,e of e7ternal regulators at +ot- t-e state and federal le/el. 8onsistent wit- t-is
statement( Simpson and ;leason 1999" posits t-at t-ere was no relations-ip +etween t-e stru,ture of +an3s:
+oard of dire,tors and su+se9uent failure. Curt-er( !rowse 199B" argues t-at t-e ,-ange in ,orporate ,ontrol in
,ommer,ial +an3 is t-e result of regulator0 inter/ention. As e/iden,e +0 t-e re,ent ,risis( it is apparent t-at
regulator0 for,es were not effe,ti/e in promoting a safe and fair allo,ation of +an3 resour,es.
It is important to demonstrate t-at e/en in t-e presen,e of regulation( wea3 ,orporate go/ernan,e was a
,ontri+uting fa,tor to t-e poor performan,e underl0ing t-e su+prime ,risis and to poor loan 9ualit0. !rior
resear,- suggests t-at +an3s strongl0 influen,e e,onomi, de/elopment and t-e effi,ient allo,ation if funds
resulting in a lower ,ost of ,apital to firms( a +oost in ,apital formations( and an in,rease in produ,ti/it0 *e/ine(
200)". 5-e passing of /arious a,ts w-i,- deregulated t-e +an3ing industr0 -eig-tened t-e importan,e of internal
regulator0 me,-anisms of +an3s su,- as ,orporate go/ernan,e. In parti,ular ,orporate go/ernan,e is e7pe,ted to
affe,t +an3:s /aluation( ,ost of ,apital( performan,e and ris3 ta3ing +e-a/iour !olo( 200B".
Agen,0 t-eor0 as posited +0 Jensen and Me,3ling 19B'" suggests t-at strong ,orporate go/ernan,e
leads to +etter performan,e and a,,ounting out,omes. El0asiani and Jai 200#" reports t-at +an3:s finan,ial
performan,e is positi/el0 asso,iated wit- t-e sta+ilit0 of owners-ip +0 institutional in/estors. Alt-oug- t-e
institutional -oldings of +an3s ma0 +e lower t-an ot-er firms( e/iden,e suggests t-at institutional -olding
promote good finan,ial performan,e. Institutional in/estors su,- as pension funds( in/estment trusts( and mutual
funds own large +lo,3s of pu+li, ,ompan0 sto,3. =ue to t-ese large in/estments t-e0 often pla0 an a,ti/e
monitoring role of ,orporate managers S-leifer and &is-n0( 199B". %t-er empiri,al findings suggest
institutional in/estors promote s-ort term finan,ial performan,e at t-e e7pense of long-term finan,ial
performan,e 8offee( 1991H Bus-ee( 199#".
Ban3ing super/ision ,annot fun,tion well if sound ,orporate go/ernan,e is not in pla,e( and
,onse9uentl0( +an3ing super/isors -a/e strong interest in ensuring t-at t-ere is effe,ti/e ,orporate go/ernan,e at
e/er0 +an3ing organi6ation. In an0 e,onom0( well-fun,tioning +an3s promote e,onomi, growt-. @-en +an3s
effi,ientl0 mo+ili6e and allo,ate funds( t-is lowers t-e ,ost of ,apital to firms and a,,elerates ,apital
a,,umulation and produ,ti/it0 growt-. In addition( +an3s pla0 important roles in go/erning firm to w-i,- t-e0
are ma<or ,reditors and in w-i,- t-e0 are ma<or e9uit0 -olders 8aprio( *ea/en and *e/ine( 200)". 5-us( if +an3
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&ol.'( No.25( 201)

11B
managers fa,e sound go/ernan,e me,-anisms( t-is en-an,es t-e li3eli-ood t-at +an3s will raise ,apital
ine7pensi/el0( allo,ate so,iet0:s sa/ings effi,ientl0( and e7ert sound go/ernan,e o/er t-e firm t-e0 fund.
;enerall0 +an3s o,,up0 a deli,ate position in t-e e,onomi, e9uation of an0 ,ountr0 su,- t-at its
performan,e in/aria+l0 affe,ts t-e ma,ro e,onom0 of t-e nation. !oor ,orporate go/ernan,e will definitel0
,ontri+ute to +an3 failures( w-i,- ,an pose signifi,ant pu+li, ,osts and ,onse9uen,es due to t-eir potential
impa,t on an0 appli,a+le deposit insuran,e s0stems and t-e possi+ilit0 to +roader ma,roe,onomi, impli,ations(
su,- as ,ontagion ris3 and t-e impa,t on pa0ments s0stems. In addition( poor ,orporate go/ernan,e leads
mar3ets to lose ,onfiden,e in t-e a+ilit0 of a +an3 to properl0 manage its assets and lia+ilities in,luding deposits(
w-i,- ,ould in turn trigger a +an3 run or li9uidit0 ,risis Inam 200'".
5-e e,onomi,s and fun,tions of +an3s differ from t-ose of industrial firms. Be,ause of t-ese
differen,es( +an3s are su+<e,t to stringent prudential regulation of t-eir ,apital and ris3. Moreo/er( t-ese
differen,es are refle,ted in ,orporate go/ernan,e pra,ti,es o+ser/ed in t-e +an3ing se,tor and in t-eoreti,al
wor3s on t-e Dgood ,orporate go/ernan,e of +an3sE. @it- respe,t to ,orporate go/ernan,e pra,ti,es( a
parti,ularl0 stri3ing and almost uni9ue feature of +an3s -as +een t-e pre/alen,e of remuneration s,-emes t-at
pro/ide -ig--powered in,enti/es( not onl0 for e7e,uti/e dire,tors offi,ers"( i.e.( mem+ers of t-e management
+oard in a two-tier s0stem( +ut also for senior managers at lower le/els( and e/en for more <unior emplo0ees in
some fun,tions( in parti,ular t-e trading and sales fun,tion.
5-e performan,e of t-e indi/idual +an3s w-i,- ma3es up t-e +an3ing se,tor is a fun,tion of t-e
de,isions of t-e management go/erning t-ese +an3s. In ot-er words( ,orporate go/ernan,e -as a ma<or role to
pla0 in t-e de/elopment of t-e +an3ing se,tor. 5-is is in line wit- t-e argument of Blo,3( Jang and 1im 200'"
and 8laessen 200'" t-at t-e ,on,ern o/er ,orporate go/ernan,e stems from t-e fa,t t-at sound go/ernan,e
pra,ti,es +0 organi6ations( +an3s in,lusi/e results in -ig-er firm:s mar3et /alue( lower ,ost of funds and -ig-er
profita+ilit0.

)$ Importance and benefits of corporate Governance
8orporate ;o/ernan,e is ma<orl0 to ensure a strong and relia+le +an3ing industr0 w-ere t-ere is safet0 of
depositors: mone0 and also to de/elop t-e re9uired fle7i+ilit0 to support t-e e,onomi, de/elopment of t-e nation
+0 effe,ti/el0 performing its fun,tions. 8orporate go/ernan,e also aims to ,reate an atmosp-ere w-ere+0
Nigerian +an3s will ,ompl0 wit- t-e laid down rules and regulations wit-out ,ompromise. 5-is will in t-e end
lead to transparen,0 in t-e +an3ing institutions( proper ris3 management( adoption of +est pra,ti,es in ,arr0ing
out duties( strong internal ,ontrol s0stem( restoration of pu+li, ,onfiden,e( rapid e,onomi, growt- and in all
pre/ent +an3 distress w-i,- mig-t e/entuall0 lead to +an3 failure.
8orporate go/ernan,e -as +e,ome more prominent toda0 t-an e/er +efore. Fosell( 2002" identif0
se/eral reasons for t-e in,reased interest in ,orporate go/ernan,e( and among t-ose reasons is t-e ta3eo/er wa/e
of t-e 19#0s and t-e 199B east asia ,risis. Ios-i3awa > !-an 2001" noted t-at intensif0ing glo+al ,ompetition
and rapid te,-nologi,al ,-anges result in lower pri,eG,ost margins w-i,- in turn for,e +an3s to fo,us on
ma7imi6ing asset effi,ien,0 and s-are-older /alue if t-e0 want to a,,ess funds to fuel growt- opportunities.
Aggarwal et al. 200B" asserts t-at good go/ernan,e -elps +an3s to -a/e fa/oura+le a,,ess to ,apital mar3ets
alt-oug- t-is +enefit -olds little /alue to +an3s in under-de/eloped ,apital mar3ets or for +an3s wit- limited
growt- opportunities. Better go/ernan,e restri,ts ,ontrolling s-are-olders: e7propriation of minorit0 and t-is
loss of pri/ate +enefits is e/en more in ,ountries wit- low in/estor prote,tion. ?en,e( ,ountries t-at -a/e wea3
prote,tion for in/estors are e7pe,ted to -a/e worse ,orporate go/ernan,e and -en,e en-an,ed firm le/el
go/ernan,e ,an lead to a mar3ed impro/ement in firm /alue.
8orporate failures -a/e ,ome a+out as a result of +ad ,orporate de,isions made +0 its leaders in
attempts to e7propriate rents. 5-e ena,tment of good ,orporate go/ernan,e a,ross t-e glo+e <ustifies t-e
importan,e Nigerian Ban3s adopting sound ,orporate go/ernan,e poli,ies. Curt-ermore( effe,ti/e ,orporate
go/ernan,e redu,es D,ontrol rig-tsE s-are-olders and ,reditors ,onfer on manager( in,reasing t-e pro+a+ilit0
t-at +an3s generates and also ena+le managers to in/est in positi/e net present /alue pro<e,ts S-leifer and
&is-n0( 199B". Effe,ti/e ,orporate go/ernan,e -as +een identified to +e ,riti,al to all e,onomi, and +an3ing
transa,tions espe,iall0 in emerging and transition e,onomies =-arward3ar et al.(2000". At /ar0ing le/els of
agen,0 intera,tions( mar3et institutional ,onditions t-at redu,e informational imperfe,tions and fa,ilitate
effe,ti/e monitoring of agents impinge on t-e effi,ien,0 of in/estment. *i3ewise( ,orporate go/ernan,e -as
assumed t-e ,entre stage for en-an,ed ,orporate performan,e.
8orporate performan,e is an important ,on,ept t-at relates to t-e wa0 and manner in w-i,- finan,ial
resour,es a/aila+le to an organi6ation are <udi,iousl0 used to a,-ie/e t-e o/erall ,orporate o+<e,ti/e of an
organi6ation( it 3eeps t-e organi6ation in +usiness and ,reates a greater prospe,t for future opportunities.
8onse9uentl0( good go/ernan,e ,an +e ,ompared to trustees-ip and as su,-( it is more t-an ,reating ,-e,3s and
+alan,es( +ut rat-er a,,entuates ,ustomers: satisfa,tion and s-are-olders: /alue.

European Journal of Business and Management www.iiste.org
ISSN 2222-1905 !aper" ISSN 2222-2#$9 %nline"
&ol.'( No.25( 201)

11#
*$ Conclusion and recommendation
In /iew of t-e a+o/e anal0sis it ,an +e ,on,luded t-at( 8orporate ;o/ernan,e is ne,essar0 to a,-ie/e t-e proper
fun,tioning of +an3s and t-at 8orporate ;o/ernan,e ,an pre/ent +an3 distress onl0 if it is well implemented.
5-is implies t-at to pre/ent +an3 distress t-roug- ade9uate ,orporate go/ernan,e( emp-asis s-ould not onl0 +e
a+out t-e go/ernment setting rules and regulations +ut a,tuall0 ensuring t-at t-e laid down rules and regulations
are stri,tl0 ad-ered to wit-in t-e +an3ing se,tor.
;i/en t-e sus,esi+ilit0 of +an3s to distress wit-in t-e e,onom0( ,orporate go/ernan,e ser/es as a
useful tool to stem t-e tide of distress( +ased on its emp-asis on ,onformit0 wit- prudential guidelines of t-e
go/ernment.
5-e 8entral Ban3 and ot-er regulator0 agen,ies s-ould en,ourage and ,onse9uentl0 ensure t-at" all
+an3s -a/e appro/ed poli,ies in all t-eir operation areas and -a/e in pla,e strong inspe,tion di/ision and ot-er
enfor,ement me,-anisms" to pra,ti,all0 implement t-ese poli,ies.
5-e management staffs -a/e important roles to pla0 in ensuring t-at t-ere e7ists a sound internal
,ontrol s0stem in t-eir +an3s and t-at laid down pro,edures are re/iewed regularl0. 5-is will -elp to frustrate t-e
a,ti/it0 of t-e fraudsters. It is also important to stress t-e need for all +an3s to ,ompl0 wit- statutor0
re9uirements of rendering returns for effe,ti/eness of all t-e poli,0 measures w-i,- t-e go/ernment( monetar0
and super/isor0 +odies mig-t design to ,ur+ distress in t-e finan,ial industr0.
5-e ,ompensation poli,ies for managers and e7e,uti/es s-ould +e dis,losed and made readil0
a/aila+le to s-are-olders.
5-e in,reasing -omogenous industr0 +e-a/iour and +andwagon effe,t o+ser/ed s-ould +e dis,ouraged.
Ban3s s-ould emp-asi6e t-eir uni9ue strategies and a+andon t-e -erd +e-a/iour t-e0 are noted for.

'eferences
Aname<e A. 8. 200B". Appli,ation of 8orporate ;o/ernan,e in Ban3ing. Nigerian Ban3ers( %,to+er -
=e,em+er( 200B edition.
Ben( E. A( %g-o<afor( S. %( James .. % and %lufemi %. 2010". 8orporate ;o/ernan,e and its ,onse9uen,es on
t-e Nigerian +an3ing se,tor. Ser+ian <ournal of management( 2010.
Berle( A. A and Means( ;.8. 19'#". 5-e Modern 8orporation and !ri/ate !o/ert0( *ar,ourt0 Bra,e > world
In,.( New Ior3.
Business times( Monda0( Mar,- 1$(199)( D5-e untold stor0 of &ne6uaelan Ban3 failure( 199).
8ad+ur0( A. 2000"( ;lo+al 8orporate ;o/ernan,e Corum ;8;C"( @orld Ban3. Fetrie/ed from
www.,smworld.orgGpu+li,est-go/.
8ad+ur0( S.A 1992"( Feport of t-e 8ommittee on t-e finan,ial aspe,ts of ,orporate ;o/ernan,e. ;ee *td(
!rofessional !u+lis-ing ltd( *ondon.
8BN ,ode of 8orporate ;o/ernan,e for +an3s in Nigeria post ,onsolidation. Mar,- 1( 200'.
=ea3in( S and ?ug-es( A. 199B". 8omparati/e 8orporate ;o/ernan,e2 An interdis,iplinar0 agenda( in
Enterprise and 8ommunit0( Bla,3well !u+lis-ers( %7ford( .1.
=enis( =. 1 and M,onnell( J. J. 200$". International 8orporate ;o/ernan,e( Journal of Cinan,ial And
Muantitati/e Anal0sis. $#1"(1-$'.
Maurie N. 2011". 8orporate ;o/ernan,e in t-e Nigerian Ban3ing Industr0. Journal of ;o/ernmental and
Cinan,ial A,,ounting Fesear,-( &olume 1 num+er 2(


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