Corporate Governance, Ethics and Social Responsibility
Corporate governance
Governance is the system by which companies are directed and controlled. The agency problem arises because owners (principals) delegate to directors and managers (agents) whose interests may diverge. Mechanisms align them: independent non-executive directors, separation of chair and chief executive, board committees (audit, risk, remuneration, nomination), disclosure, external audit and shareholder rights. The Cadbury Report (1992) established comply-or-explain and the audit committee norm; the G20/OECD Principles set international benchmarks; Sarbanes-Oxley (2002) imposed chief-executive certification and internal-control reporting; King IV applies 'apply and explain'. In Nigeria, CAMA 2020, the SEC code and the Financial Reporting Council's Nigerian Code of Corporate Governance (2018) supply the framework.
Ethics
Three lenses: utilitarian (greatest good for the greatest number), deontological (duties and rules regardless of outcome), virtue (the character of the actor). Codes of ethics, whistleblowing channels and tone at the top convert principle into practice.
Social responsibility
Carroll's pyramid: economic, legal, ethical and philanthropic responsibilities. Stakeholder theory widens accountability beyond shareholders; the triple bottom line reports profit, people and planet; ESG measures environmental, social and governance performance.
Worked example
A non-executive director's private company supplies packaging to the firm. Correct handling: disclose the interest in writing, withdraw from the board discussion and vote, ensure entry in the register of interests, and let the audit committee review the contract terms. Reasoning: the fiduciary duty runs to the company, not to the director's other interests; disclosure and recusal protect the decision's legitimacy even where the price is at market level.
Traps
- Saying non-executives run the business day to day.
- Equating legal compliance with ethical behaviour - ethics goes beyond statute.
- Reducing CSR to charitable donations.
- Treating comply-or-explain as optional compliance with no disclosure duty.