EFFECTS OF CORPORATE GOVERNANCE ON THE PERFORMANCE OF AN ORGANIZATION

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ABSTRACT

Corporate governance is about doing the right things and doing the things right. It is the way in which boards oversee the running of company or organization, its managers and how board members are in turn accountable to shareholders and the company/organization. This study therefore investigated the effects of corporate governance on the performance of an organization using the Nigeria breweries PLC, Sango Ota, Ogun State as a case study. Descriptive research design was used in carrying out this research work and the regression analysis was used to analyse the data. The specific objectives of the study were: to determine the effects of corporate governance on organisational commitment among the workers, to ascertain the ways in which effective communication between top management subordinates affected increase in productivity and to establish the ways in which employees’ involvement in board meeting increase market share.

CHAPTER ONE

                                             INTRODUCTION

1.1              Background to the Study

Universally, corporate governance has received increased attention as a result of high profile scandals emanating from too many managerial compensation, various abuse of corporate power, recent events, like the financial crisis that began in mid-2007 and other corporate governance failures (Transparency International, 2010). Corporate governance also includes the relationships among the many stakeholders involving external stakeholders and internal stakeholders. In modern business corporations, the real external stakeholders are shareholders, debt holders, trade creditors, suppliers, and customers. Internal stakeholders are the board of directors, executives, and other employees. Good and proper corporate governance is considered imperative for the establishment of a Competitive market. Corporate governance practices stabilise and strengthen good capital markets and protect investors. They provide help for companies by improving their performance and attract investment. Corporate governance enables corporations to attain their corporate objectives and to protect the rights of shareholders. Corporate governance enhances performance of the organisation by motivating its manager to maximize investment returns, raising operational efficiencies and also ensuring productive growth (Coughlin & Schmidt, 1985). Good corporate governance practices can strongly contribute to market development and corporate stability. Without governance mechanisms in place in particular, a board to direct and control managers might run away with the profits

The perceived quality of organization corporate governance can impact its share price as well as the cost of raising capital. Corporate governance does not have a single definition and certainly no definition that all countries agree on (Myers, 1997).

Basically, different national systems of corporate governance reflect major differences in ownership structure of firms in different countries and particularly differences in ownership concentration (Shleifer and Visling, 1997). Corporate governance, as a concept, can be viewed from two perspectives (Oluyemi, 2007). A narrow one in which it is merely being concerned with the structures within which a corporate entity or enterprise receives its basic orientation and direction (Rwegasira, 2000), and a broad perspective in which it is regarded as being the heart of both a market economy and a democratic society (Sullivan, 2000).

            Consequently, corporate governance requires that various parties such as the board of directors, the chief executive officer, management and shareholders cooperate. These stakeholders are called the regulatory body. Others are suppliers, employees, creditors, customers and the community at large. The corporate governance structure specifies the rule and procedures for making decisions on corporate affairs. Corporate governance is used as a monitor of outcomes in accordance with plans and the motivation the organization has to be more fully informed in organizational activities. It is the mechanism by which individuals are motivated to align their actual behaviours with the overall participants.

            This study, on the other hand, provides an economic rationale for why corporate governance matters and explores the relationship between corporate governance, corporate performance, economic growth, and where relevant, industry structure. The exploration for good corporate governance is therefore, based on the identification of what works in different countries in order to discover the lessons that can be learnt from such experiences. This study therefore, aimed to establish the factors that affect the effectiveness of different corporate governance methods, and to determine the key policy adjustments that are most needed in individual systems of corporate governance. For the purpose of clarity, Nigeria breweries PLC, Sango Ota, Ogun State shall be used as a case study.

1.2              Statement of the Problem

Increase in productivity in different working place has been recently on decline. The major cause for this is the increase in isolation of corporate governance. This has led to low organizational performance. This study nevertheless investigated the effects of corporate governance on the performance of an organization using the Nigeria breweries PLC, Sango Ota, Ogun State as a case study. The essence of any organisation is to determine the extent of its corporate governance and its effects on organizational performance. Organizations both public and private are laying much emphasis on the decline of increase in productivity and solutions are being sought as to improve organizational performance. The issue now is whether organizational personnel are not given adequate training as to improve their performance.

1.3       Research Questions

The following are some of the questions which this study intends to answer:

i)                   what are the effects of corporate governance on organisational commitment among the workers?

ii)                 what are the ways in which effective communication between top management subordinates affected increase in productivity?

iii)               what are the ways in which employees’ involvement in board meeting increase market share?

1.4       Objectives of the Study

The main objective of this study was to investigate the effects of corporate governance on the performance of an organization using the Nigeria breweries PLC, Sango Ota, Ogun State as a case study. However, the specific objectives are:

i)                   to determine the effects of corporate governance on organisational commitment among the workers

ii)                 to ascertain the ways in which effective communication between top management subordinates affected increase in productivity

iii)               to establish the ways in which employees’ involvement in board meeting increase market share

1.5       Research Hypothesis

The research hypotheses to be tested include:

i)                   there is no significant relationship between corporate governance and organizational commitment

ii)                 there is no significant correlation between effective communication and top management subordinates on increase in productivity

iii)               there is a significant relationship between employees involvement in board meeting and increase market share

1.6       Significance of the Study

This study was designed to investigate the effects of corporate governance on the performance of an organization using the Nigeria breweries PLC, Sango Ota, Ogun State as a case study. It will therefore be of benefit to board of directors, stakeholders, managers of both public and private company/organization to understand the need for corporate governance and its effect on organizational performance. It will also be valuable to both management and employees of Nigeria Breweries plc, Sango Ota, Ogun State.

1.7       Scope of the Study

This study was limited to Nigeria Breweries plc, Sango Ota, Ogun State, therefore the questionnaires will be distributed to the employees of the organisation.

1.8       Limitation of the study

The study faced less challenge apart from the time constraint. The time frame to carry out this study was too short because of the academic activities that the researcher was involved in.

1.9       Definitions of Terms

The following terms were used in the course of this study:

Corporate government:

Organisation:

Performance:

REFERENCES

Coughlin, A. T., & Schmidt, R. (1985). Executive Compensation, Management Turnover, and

Firm Performance: An Empirical Investigation. Journal of Accounting and Economics, 7(2), pp. 43-66.

Meredith, E. & Robyn, C. (2005). Corporate Governance in the Public Sector: An Evaluation

of its Tensions, Gaps and Potential: University of Canberra.

Myers, J. (1997). Determinants of Corporate Borrowing. Journal of Financial Economic 5(5)

147-175.

Oluyemi, S.A. (2007). The implication of banks profitability on implementing the risk based

Capital requirements. Nigeria Deposit Insurance Corporation Quarterly 6 (2) 53-69,

Rwegasira, J. (2000). The capital structure implication of pursuing a strategy of innovation.

Strategic Management Journal, 24:51-88.

Shleifor, A. and Visling. R. (1997). A survey of corporate governance. New York: Prentice

Hall.

Transparency International, (TI). (2010). TI-Kenya’s programme status report for the period

1st of October, 2003–31st March 2004. Nairobi: TI Kenya.

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