CORPORATE GOVERNANCE AND ITS IMPACT ON THE MANAGEMENT OF MTN MOBILE COMMUNICATION NIGERIA LTD. KADUNA MAIN BRANCH
CHAPTER ONE: INTRODUCTION
1.1
Background
to the Study
Corporate governance is concerned with ways in which
all parties interested in the well-being of the firm (the stakeholders) attempt
to ensure that managers and other insiders take measures or adopt mechanisms
that safeguard the interests of the stakeholders. Such measures are
necessitated by the separation of ownership from management, an increasingly
vital feature of the modern firm. A typical firm is characterized by numerous
owners having no management function, and managers with no equity interest in
the firm. Shareholders, or owners of equity, are generally large in number, and
an average shareholder controls a minute proportion of the shares of the firm.
This gives rise to the tendency for such a shareholder to take no interest in
the monitoring of managers, who, left to themselves, may pursue interests
different from those of the owners of equity. For example, the managers might
take steps to increase the size of the firm and, often, their pay, although
that may not necessarily raise the firm’s profit, the major concern of the
shareholder.
Corporate governance issues in both the private and
public sectors have become a popular discussion in recent time. There have been
some legislative changes and provisions imposed by governments on public and
private organizations around the world to improve on their governance arrangements.
Telecommunication sector in Nigeria have been one of the ‘interests caught up
in the national surge in governance of organizations’
Particularly
in Nigeria, governance issues such as size and composition of board of
directors and their roles, responsibilities and relationships have been discussed
in several Government business policy reports for more than a decade.
Corporate governance can simply be defined as the
system by which companies are directed and controlled which focuses on the
“hygiene” and “housekeeping” aspects of running a business. As such, corporate
governance can be seen as a set of relationships between a company’s
management, its board, its shareholders and other stakeholders that provides a
structure through which the objectives of the company are set and the means of
attaining those objectives and monitoring performance are determined.
Corporate governance issues are as old as companies
themselves. At its broadest, it concerns the question of who should own and
control the company and at the narrowest; it concerns the relationship between
the shareholders and directors.
Many a research has been carried out world over to
unearth the impact of the corporate governance on listed firms as well as correct
and good practice of corporate governance in developing countries.
However Nigeria have been faced with a myriad of
issues, ranging from “underdeveloped and illiquid stock markets, economic
uncertainties, weak legal controls and investor protection, and frequent government
intervention and coupled with poor economic performance, a predominance of
concentrated shareholding and controlling ownership Therefore, Nigeria demand
higher levels of effective corporate governance practices.
However, until quite recently the issue of corporate
governance has received minimal attention in Nigeria. This is the reason why,
many corporate organizations have been caught of getting involved in unethical
practices. For example, seven top Bank executives in Nigeria that were discovered
to be involved in one of the highest financial scam in the nation’s banking
industry, after the CBN consolidation exercise ; which has put the credibility
of their corporate image under suspicion, and threatening investors’
confidence.
Therefore an important theme of corporate governance
in this regard is the nature and extent of accountability of people in the
business and mechanisms that try to decrease the principal agent problem. Consequently,
corporate governance mechanism has been a crucial issue under discussion with
vested interest. It is against this background that the researchers see the
subject matter; corporate governance and its impact on the management of Mobile
Telecommunication Nig. Ltd Main Branch as an issue worthy of being investigated.
1.2
Statement
of Problem
There has been considerable discussion in the
academic literature of corporate governance especially managerial agency
problems that arise from the separation of ownership and control. For example,
Jensen and Meckling (2006) opined that a number of corporate governance
mechanisms have been proposed to ameliorate this agency problem between
managers and their shareholders. The proposed governance mechanisms include,
for example, CEO incentive compensation, managerial ownership, monitoring by
large shareholders, board size and independence, and stronger shareholder rights.
Many studies have found a positive contemporaneous correlation between firm
performance and good governance, which has led to numerous attempts to reform governance
by institutional investors, stock exchanges and Congress in so many countries
in order to increase accountability in corporate organizations.
But in spite of this, there is, however, little
evidence on whether changing a firm’s governance structure leads to subsequent
firm performance, as such doubt is expressed by previous studies whether firms can improve their longer term
performance by implementing changes to their governance structure. It is
against this gap that the researcher intend to take a survey into the subject
matter:corporate governance and its impact on the management of MTN mobile communication By attempting to
address an important limitation of past
studies which has failed to address this gap. As such, this study aims to
provide additional insights into the relationship between governance mechanisms
and firm financial performance in Nigeria. The need for a study of this kind is
even more important in an environment like Nigeria’s, which is characterized by
growing calls for effective corporate governance, particularly for public
limited liability companies. This call is understandable in view of the
importance of effective governance at both microeconomic and economy-wide
levels
1.3
Objective
of the Study
The main objective of the study is to examine the
corporate governance and its impact on the management of MTN. other specific
objectives are to:
i)
assess the effect of
corporate governance on the performance of
Telecommunication companies.
ii)
examine the internal and external corporate
governance control mechanism in Telecommunication companies.
iii)
identify the systemic problems of corporate
governance in Telecommunication companies.
1.4
Significance
of the Study
This study adds a significant practical importance,
because its results support the application of appropriate regulatory agencies
such as central, stock exchange as well as Nigeria security and Exchange
commission and financial organization in
their various policy formulations as regard corporate governance . As
such the study will be significant to these organinisations and regulatory
Agencies especially as they utilize the findings of this research in enhancing
policy formulation as regard corporate governance in their organization. This
study is important as it provides new insights into governance and performance
of organization in private sector.
The study will also add to the existing knowledge as
well as making an original contribution to the study of corporate governance,
since it is a comprehensive investigation into the comparative roles of
governance in affecting performance of organizations in Nigeria and
elsewhere in the world.
The study will also be a reference material for
further research on corporate governance. As such, it will be a springboard to
students intending to carryout similar research.
1.5
Research
Questions
The central research question is: What is the impact
of corporate governance on the management of MTN Mobile Communication? The
specific questions are:
i)
how does corporate
governance affect the performance of MTN?
ii)
what are the internal
and external corporate governance control mechanism in place in MTN?
iii)
what are the systemic
problems militating against corporate governance in MTN?
iv)
what are the solutions
to such problems?
1.6
Scope
of the Study
The study covers the examination of the impact of
corporate governance in the telecommunication industry with reference to MTN
Mobile Communication. The collection of empirical data is limited to MTN Kaduna
main office. The study covers a time from 2001 – 2011.
1.7
Definition
of Terms
In
this section we define the various proxy variables we use to capture changes in
corporate governance.
Corporate
Governance: This is a set of the structure through which
the objective of the firm and set and the means of obtaining these objectives
and monitoring performance are determined.
Corporation: This
refers to corporate entity or a body by means of which capital is acquired and used
for investing in assets producing goods and services.
Shareholder
rights:
Our first measure of shareholder rights is the G-Index used by Gompers, Ishii,
and Metrick (2003). As in Gompers et al., we use the incidence of governance
rules to construct the G-Index. Firms with low G-Index values have the
strongest shareholder rights and firms with high values of the G-Index have the
weakest shareholder rights.
Insider
Ownership:
Consistent with Himmelberg, Hubbard, and Palia (1999) we calculate the ratio of
insiders’ holdings of common shares over total shares outstanding. Morck,
Shleifer, and Vishny (1988) find a non-monotonic relationship between insider
ownership and firm value and show two inflection points at 5% and 25%
respectively.
Shareholders:
People who have invested in a company through subscribing to the company’s
stock.
Board
Structure: Management at the top comprising of board of
directors.
Ownership
Structure: Shareholders and directors.
CEO:
Acronym for Chief Executive Officer.
MTN:
Mobile Telecommunication Nigeria
AGM: Annual General
Meeting
BOFID: Banks and
Other Financial Institution Decree
CAC :Corporate
Affairs Commission
CAMD: Company and
Allied Matters Decree
CBN: Central Bank
of Nigeria
DPC :Development
Policy Centre
FOS: Federal Office
of Statistics
IAS:International
accounting standard
ISD:Investments and
Securities Decree
MENA: Middle East and
North Africa
NAICOM: national
insurance commission of nigeria
NICON: National
Insurance Corporation of Nigeria plc
NEPA: National
Electric Power Authority
NDIC: Nigerian Deposit
Insurance Corporation
NNPC: Nigerian
National Petroleum Corporation
NITEL: Nigerian
Telecommunications Plc
NSE: Nigerian Stock
Exchange
OECD: Organisation For
Economic Cooperation And Development.
PLC: Public Limited
Company
SEC: Securities And
Exchange Commission
SOE: State Owned
Enterprises
TCPC: Technical
Committee On Privatization And Commercialization