[caption id="attachment_78851" align="alignright" width="225"] Olufemi Mosaku-johnson[/caption] ...and How are We Affected by His Conjecture Today? By Olufemi Mosaku-johnson I traced the root of Corporate Governance to the theory proposed by Montesquieu. The doctrine of separation of power to me is the root of everything that is corporate governance. To this end corporate governance is not new. Montesquieu laid down this doctrine with a view of ‘sharing’ power by the three arms of government viz Legislative , Executive and judiciary. The root meaning of corporate governance is share. He postulated that if the three powers enumerated are glued in one hand the result will be tyranny, oppression, and annihilation. He further said the effect, is that life will be brutish and shortish and everything will be reduced to the survival of the fittest. He spoke pointedly about the necessity of check and balance. Harvard Business review had maintained that although corporate governance is a hot topic in boardrooms today, it is a relatively new field of study. Its roots can be traced back to the seminal work of Adolf Berle and Gardiner Means in the 1930s, but the field as we now know it emerged only in the 1970s. I strongly disagree with this submission. Corporate governance is to ensure that no one arrogates power to him or herself undeservedly. It ensures that institutions are governed and controlled with check and balance in place to prevent human callousness, voracity and greediness. The essence of good corporate governance is ensuring trustworthy relations between the corporation and its stakeholders. Therefore, good governance involves a lot more than compliance. Good corporate governance is a culture and a climate of Consistency, Responsibility, Accountability, Fairness, Transparency, and Effectiveness that is Deployed throughout the organisation (the ‘CRAFTED’ principles of governance). Trust is the foundation of sustainable development. Why is it that we do not have organization that is 100 year in our country? The progenitors of these companies find it difficult to trust anyone to hand it over to before their demise. Thus almost all our companies goes to burial ground with their owners. In some cases they hand over to their children and wife whose interest lies elsewhere. As the world continues to get smaller, our mutual interdependence increases and we all need to be able to mobilise the resources and goodwill of others to achieve success. That can only be achieved through gaining their trust. Therefore, the ability to gain the trust of other and of all the stakeholders in the value chain is becoming the key to success. The board of directors is the most important element in corporate governance structures. The tone at the top determines the tune in the middle.In particular, clear separation ofmanagement rights (taking initiative and implementation) and governance rights (guidance, approval, and oversight), is critical in minimising potential ‘agency’ risks of the management such as: • fraud • cronyism, building a personal fiefdom with company resources • lethargy, focusing on excuses as opposed to results • being too risk averse that may lead to overinvestment • nepotism the mother of corruption Issues such as the composition of boards, their agenda and processes for decision-making, and how they learn to continuously improve the governance of the corporation, critically influence the both the quality of decisions and of management.The main responsibilities of the board is to provide effective Oversight and strategic Guidance for the management.Only that in most cases in practice , board through ignorance and overbearing concern usurp the roles of the management. The quality of their decisions is critically dependent on the quality of the Information they have. Establishing a Culture that sets the right tone at the top is critical for establishing the ‘trust’ for the corporation with all its stakeholders. The success of the board depends on making sound judgments in numerous situations that involve balancing different interests: • risk versus reward; • short term versus long term; • effective oversight versus motivating management; • ethical considerations versus market practices; and • competing interests of different stakeholders. In short, good corporate governance is very important for sustainable development, not only for the individual company, but also for the economy as a whole. Therefore, the quality of governance should be continuously improved and good governance should be promoted. However, what is not measured, cannot be improved. Hence, there is a need for a model to measure the quality of corporate governance. Our society is built around communities which exist within, and in turn generate democratic principles and processes. Multitudes of organisations contribute to the functioning of our communities and in the majority of cases these organisations and bodies are run by committees. Governance is the system by which a entities ensure an organisation’s responsibilities are met. Governance is not a separate activity, but an overarching framework for running an organisation. It refers to the processes by which organisations are operated, guided and held to account. Several institutions in our country including government never give account. What a tragedy! Governance involves authority, accountability, leadership, direction and control in an organisation. Governance keeps our organisations and communities functioning soundly and democratically. This is all that Montesquieu affirms. The two main components of governance PERFORMANCE Every organisation is formed for a purpose. The performance of an organisation determines whether it is meeting its purpose. Performance can be measured through planning, reporting and feedback. COMPLIANCE Community organisations are set up to be accountable. They must fulfil (or comply with) the requirements of legislation, government contracts and community expectation. These obligations include matters such as taxation, workcover, insurance and the meeting of contractual and service obligations. What did we have today? The same problem Montesquieu tried to prevent about 300 years ago still bedeviled us today. We have noticed with acute dismay where the executives pocket the legislators and judiciary. These two arms were so handicapped that they have to go cap in the hand to the executive for them to be able to function at all. Corruption reigns supreme from garage to the villa, because there is no check and balance. I am of the opinion that it’s a waste of time to fight corruption. EFCC and ICPC is needless. The best any nation could do is to prevent corruption, greed and graft, by instituting check and balance with digital means available today rather than fighting it. But what we are experiencing is contrary to the best practice. I have worked in organisations meant to be the bastion of corporate governance, but itsevery act and conduct is repugnant to good corporate governance. In one of the places a lady President/chair who resides outside the state flies in almost on a daily basis to resume work as she has her office in the premises.She causes chaos, abuse and bullies officials of the organization on daily basis. She presides over all the management meetings and the CEO was totally helpless. She arrogates to herself terrible power unbridled and inhibited. In fact she said if you want to hire someone to abuse people for you, she can take up the contact. On one occasion, we were a having an impromptu meeting and she suddenly picked on a woman who was an accountant in the place; abuse her thoroughly for forty five minutes. This happened in the presence of her Vice Chairman, a male, who said nothing while the abuse lasts. Therewas nothing she didn’t compare her with including market woman etc. She keep on misbehaving in an unruly manner and outrightly threw caution to the wind until the staff summoned the courage, confronted frontally and ban her from coming to that institution, despite the fact that her term of two years was still running. The major fiasco was the co-council/board members were so afraid to stop her in her evil enterprise. In another place that I worked that is supposed to be the flagship of corporate governance culture in the country. Though there is nothing like corporate governance in their memorandum and Article of Association, they claim to be owner of corporate governance in the country. As soon as a particular man became the president/chair of the board, twelve people resigned immediately. None has an alternative job, but decided to go because of the high handedness and maltreatment meted out to them by the man. Who is going to stand up to him? Noone! I witness a situation where his peers in the board would be talking about him. As soon as he shows up, they will change the topic. The man used the machinery of the place as his own personal tool. He it was that engages cleaner, that recommend contactors. He employed his town people as staff without any form of interview to the organization that is incorporated trustees by nature. In my stay in the place there was no one that was promoted. I learnt people are in one position for twenty years. In the place, appraisal hardly was ever conducted. The man held everybody to ransom including his peers at the board and the staff. The place is an example of unstructured, uncharacteristic and unorganized entity. It was in the news recently how the President of the Institute of Directors, UK,Barbara Judge, was made to face the panel for forty one count charge bothering on bully, assault, derogatory statements, sexist and racial comments. She was said to have said that there is a department in IoD UK that you have pregnant woman and black, that how do you expect such department to perform? She has been made to resign. I must quickly riposte that what has she done that we have not experienced even worse, a million times in Nigeria and no one ever face any panel or asked to resign. At the national level, we just heard what the legislators are earning. A nation that spends 80% of its earning to feed legislators is doomed. Professors are earning less than N300,000 per month and some half-baked, barely literate so called law breakers that people call lawmakers would be carting home over 30 million every month. There is no cancer that is more cancerous than this. This I have said on Kakaki AIT in the past which earned me a ban from speaking on AIT platform. I was informed that the legislators sent a delegate to the station that I should not be allowed to speak on their programmes, that I was inciting the public against the hallowed chamber of the house. I had said during the programme that we never needed two houses. One house (Unicameral) is apposite for us as we have many countries and two are more than us in terms of population that has unicameral legislation and the quality of their legislation is far superior to ours. I had recommended N20, 000 sitting allowance. This will send the charlatans parking and the people who really want to serve, good nurtured people who really are selfless will come to the stage.I had said the constituency allowance given to legislators is wickedness of the highest order as it is ending up at the wrong side of these people’s pockets. The more the place becomes unattractive to miscreants the better for all of us. Governors collect allocation for states without having to give account of trillion of Naira they have collected from the national purse. No tragedy is worse than the tragic of unaccountable public office holders. Where there is no accountability, people perish. [caption id="attachment_78851" align="alignright" width="225"] Olufemi Mosaku-johnson[/caption] The governance of institutions remains a complex subject despite the many advancements that have been made over the years. This complexity stems from the highly dynamic and constantly evolving nature of the corporate system. With much at stake, board members must take seriously their responsibility to drive the corporate governance agenda forward. One important lesson we ought to learn is that weak governance causes the failure of institutions and obliterates the sustainability of such business. The costs of salvaging a failed institution far outweigh the costs incurred to prevent such a failure. Over the long term, the failure of institutions would also cause businesses and households that depend on those institutions for funding to be in a difficult position, erode public trust that would take many years to restore ie Nigeria Capital Market, and consequently result in more intrusive and prescriptive regulation of the industry. As stewards of institutions, boards and senior management bear the responsibility of ensuring that regulatory policies translate into operational practices. Rules must be embedded into the day-to-day business and operations that suit an institution’s business environment. Good corporate governance will not emerge from mere compliance with regulatory checklists as each institution is different and unique. With careful introspection, each individual institution needs to continuously reflect on whether its governance arrangements, practices and business models are effective and still relevant. In doing so, each institution must continuously assess and take into consideration the nature, scope and scale of its business. In some instances, conventional and proven governance approaches might not work anymore and therefore new thinking and methodologies are required. Real change cannot be dictated by regulation alone. This is neither sustainable nor possible. Instead, principles of good governance need to be deeply woven into the fabric - or DNA - of an organisation. Directors and senior management, are in the position to foster a positive organisational culture. The board and senior management should work in harmony to cultivate an environment which appropriately balances between performance and stability. For instance, the structuring of remuneration schemes should reward long-term performance and encourage sound risk-taking. There should always be a balance between innovation and excessive risk-taking. While an equilibrium is not easy to attain, it cannot be achieved accidentally. But an equilibrium can be realised through careful design, taking into consideration an institution’s internal structures and behavioural norms. Needless to say, the accepted behaviour and values promoted and demonstrated by the senior leadership will influence the business culture and values throughout the organisation. Talking about cultures and values, we should also be mindful about the need to educate and instil into the new generation of workers the importance of integrity, ethics, probity, accountability, honesty and professionalism. Good governance ultimately depends on the existence of strong and competent boards and a pool of professional senior management. To remain effective, boards are often confronted with the challenge of achieving an optimal balance between the need for continuity and the need for fresh perspective. Going back to Montesquieu,hewas one of the great political philosophers of the Enlightenment. Insatiably curious and mordantly funny, he constructed a naturalistic account of the various forms of government, and of the causes that made them what they were and that advanced or constrained their development. He used this account to explain how governments might be preserved from corruption. He saw despotism, in particular, as a standing danger for any government not already despotic, and argued that it could best be prevented by a system in which different bodies exercised legislative, executive, and judicial power, and in which all those bodies were bound by the rule of law. This indubitably is the root of modern day corporate governance. Charles-Louis de Secondat, Baron de La Brède et de Montesquieu, was born on January 19th, 1689 at La Brède, near Bordeaux, to a noble and prosperous family. He was educated at the Oratorian Collège de Juilly, received a law degree from the University of Bordeaux in 1708, and went to Paris to continue his legal studies. On the death of his father in 1713 he returned to La Brède to manage the estates he inherited, and in 1715 he married Jeanne de Lartigue, a practicing Protestant, with whom he had a son and two daughters. In 1716 he inherited from his uncle the title Baron de La Brède et de Montesquieu and the office of Président à Mortier in the Parlement of Bordeaux, which was at the time chiefly a judicial and administrative body. For the next eleven years he presided over the Tournelle, the Parlement’s criminal division, in which capacity he heard legal proceedings, supervised prisons, and administered various punishments including torture. During this time he was also active in the Academy of Bordeaux, where he kept abreast of scientific developments, and gave papers on topics ranging from the causes of echoes to the motives that should lead us to pursue the sciences. In 1721 Montesquieu published the Persian Letters, which was an instant success and made Montesquieu a literary celebrity. (He published the Persian Letters anonymously, but his authorship was an open secret.) He began to spend more time in Paris, where he frequented salons and acted on behalf of the Parlement and the Academy of Bordeaux. During this period he wrote several minor works: Dialogue de Sylla et d’Eucrate (1724), Réflexions sur la Monarchie Universelle (1724), and Le Temple de Gnide (1725). In 1725 he sold his life interest in his office and resigned from the Parlement. In 1728 he was elected to the Académie Française, despite some religious opposition, and shortly thereafter left France to travel abroad. After visiting Italy, Germany, Austria, and other countries, he went to England, where he lived for two years. He was greatly impressed with the English political system, and drew on his observations of it in his later work. InThe Spirit of the LawsMontesquieu’s aim in The Spirit of the Laws is to explain human laws and social institutions. This might seem like an impossible project: unlike physical laws, which are, according to Montesquieu, instituted and sustained by God, positive laws and social institutions are created by fallible human beings who are “subject ... to ignorance and error, [and] hurried away by a thousand impetuous passions” One might therefore expect our laws and institutions to be no more comprehensible than any other catalog of human follies, an expectation which the extraordinary diversity of laws adopted by different societies would seem to confirm. According to him, In despotic states “a single person directs everything by his own will and caprice” Without laws to check him, and with no need to attend to anyone who does not agree with him, a despot can do whatever he likes, however ill-advised or reprehensible. His subjects are no better than slaves, and he can dispose of them as he sees fit. The principle of despotism is fear. This fear is easily maintained, since the situation of a despot’s subjects is genuinely terrifying. Education is unnecessary in a despotism; if it exists at all, it should be designed to debase the mind and break the spirit. Such ideas as honor and virtue should not occur to a despot’s subjects, since “persons capable of setting a value on themselves would be likely to create disturbances. Fear must therefore depress their spirits, and extinguish even the least sense of ambition” Their “portion here, like that of beasts, is instinct, compliance, and punishment”), and any higher aspirations should be brutally discouraged. Montesquieu writes that “the principle of despotic government is subject to a continual corruption, because it is even in its nature corrupt” This is true in several senses. What is this if not conjecture of corporate governance? First, despotic governments undermine themselves. Because property is not secure in a despotic state, commerce will not flourish, and the state will be poor. The people must be kept in a state of fear by the threat of punishment; however, over time the punishments needed to keep them in line will tend to become more and more severe, until further threats lose their force. If it is to provide its citizens with the greatest possible liberty, a government must have certain features. First, since “constant experience shows us that every man invested with power is apt to abuse it ... it is necessary from the very nature of things that power should be a check to power” This is achieved through the separation of the executive, legislative, and judicial powers of government. If different persons or bodies exercise these powers, then each can check the others if they try to abuse their powers. But if one person or body holds several or all of these powers, then nothing prevents that person or body from acting tyrannically; and the people will have no confidence in their own security For our country Nigeria to be great, we will need to ensure that no single individual is accorded such power that he/she will use to oppress others. We cannot expect any human being to check himself; we need to put machinery in place for institutionalization of every facet of operation in the government, commerce and industry. No one should be trusted with absolute power. He that fries the popcorn of the group should be whistling. Corruption of power is more than any form of corruption. Corruption of silence in the face of evil is the next. OLUFEMI MOSAKU-JOHNSON, IFC CERTIFIED CORPORATE GOVERNANCE BOARD LEADERSHIP TRAINER. REGISTRAR/CEO, ASSOCIATION OF CORPORATE GOVERNANCE PROFESSIONALS OF NIGERIA Femi.mjohnson@acgpnigeria.org www.acgpnigeria.org