1

IWE EKE CHIGOZIE PG/MBA/05/ 45365

ASSESSING CORPORATE GOVERNANCE OF IMO

TRANSPORT COMPANY

Education

A THESIS SUBMITTED TO THE DEPARTMENT OF MANAGEMENT, FACULTY OF

ENVIRONMENTAL STUDIES, UNIVERSITY OF NIGERIA ENUGU CAMPUS

Webmaster’s Name

Digitally Signed by Webmaster’s Name

DN : CN = Webmaster’s name O= University of Nigeria, Nsukka

OU = Innovation Centre

2008

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ASSESSING CORPORATE GOVERNANCE OF IMO

TRANSPORT COMPANY

BY

IWE EKE CHIGOZIE PG/MBA/05/ 45365

DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS

ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU

CAMPUS

3

FEBRUARY, 2008

ASSESSING CORPORATE GOVERNANCE OF IMO TRANSPORT COMPANY

BY

IWE EKE CHIGOZIE PG/MBA/05/ 45365

DEPARTMENT OF MANAGEMENT FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA ENUGU CAMPUS

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF MASTERS OF BUSINESS ADMINISTRATION

(MBA)

SUPERVISOR: DR UJF EWURUM

4

FEBRUARY, 2008 TITLE PAGE

ASSESSING CORPORATE GOVERNANCE OF IMO TRANSPORT COMPANY

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CERTIFICATION

IWE EKE CHIGOZIE an MBA student of the department of management

with REG-No PG/MBA/05/45365 has satisfactorily completed the requirements

for course and research work for the masters in business management

The work embodied in this project is original and has not been submitted in

part or in full for any other Diploma or Degree of this or any other University

………………………. E.C IWE (student)

…………………………. ……………………… C.O. CHUKWU Dr U J F EWURUM (Head of Department) (Supervisor).

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DEDICATION

To God most high who makes what seems impossible possible.

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ACKNOWLEGEMENT

I thank God for seeing to the end of this project which has been arduous

and underwent a tortuous journey of being written in Owerri, Onitsha, Abuja and

Enugu before completion.

My gratitude also goes to my supervisor DR UJF Ewurum for his patience

and guidance in the course of this project.

I am also grateful to the staff of the library of the department of

management UNEC & IMO State University.

I am grateful to my mother Lolo C.A Iwe for being there for me and

encouraging me to complete this project

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ABSTRACT

Corporate Government issues are receiving greater attention in both

developed and developing countries as a result of the recognition that a firm’s

corporate governance affects both its economic performance and its ability to

access long term, low cost investment capital.

Corporate governance concerns have been widely studied. What

constitutes good and bad corporate governance is an on going debate in politics,

civil society and academia

This research was focused on assessing corporate governance in Imo

Transport Company.

A survey design was adopted for the research, primary data being collected

from respondents using questionnaires. Method of data analyses took the form of

frequency distribution percentages

The study was limited by time and financial constraints.

Findings include, -corporate governance of Imo Transport Company

contributes positively to its profitability.

Frequent change of the board of directors does not contribute to increased

profitability.

` Recommendation were made which includes

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-Appointment of board of directors should not be based on political reasons

alone

- The autonomy of the corporation should be maintained.

TABLE OF CONTENTS

Certification……………………………………………………………………….. i

Dedication…………………………………………………………………………….ii

Acknowledgment…………………………………………………………………….iii

Abstract……………………………………………………………………………….iv

Table of contents…………………………………………………………………….v

CHAPTER ONE

INTRODUCTION

1.1. Background of the study ………………………………………………………1

1.2. Statement of the problem………………………………………………………3

1.3. Objectives of the study…………………………………………………………4

1.4. Hypothesis……………………………………………………………………….4

1.5. Significance of the study…………………………………………………........5

1.6. Scope of the study………………………………………………………………6

1.7. Limitations of the study…………………………………………………………6

1.8. Brief history of Imo Transport Company……………………………………...8

10

References……………………………………………………………………13

CHAPTER TWO

LITERATURE REVIEW

2.1. Introduction………………………………………………………………….....14

2.2. History…………………………………………………………………………..16

2.3. Role of Institutional Investors………………………………………………...18

2.4. Parties to corporate governance…………………………………………….20

2.5. Principles…………………………………………………………………….....22

2.6. Mechanisms and control……………………………………………………...24

2.7. Systemic problems of corporate governance………………………………26

2.8. Role of the accountant……………………………………………………......26

2.9. Corporate governance models around the world…………………….........27

2.10. Corporate governance and firm performance………………………........30

2.11. Attention to corporate governance…………………………………………31

2.12. The board of directors……………………………………………………….32

2.12.1. Classification of board of director………………………………………..33

2.12.2. History……………………………………………………………………....34

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2.12.3. Appointment / Election removal………………………………………….35

2.12.4. Exercise of powers………………………………………………………...37

2.12.5. Criteria for the selection of board members……………………............38

2.12.6. Duties of the board of directors…………………………………………..41

2.12.7. The Future………………………………………………………………….45

2.12.8. Problems with the board of directors………………………………........46

2.12.9. Failures……………………………………………………………………..47

2.13. The way forward in an organization………………………………………..48

2.14. Managing board meetings…………………………………………………..51

References …………………………………………………………………..52

CHAPTER THREE

RESEARCH METHODOLOGY

3.1. Introduction………………………………………………………………….....54

3.2. Research design………………………………………………………………54

3.3. Population of study / sample size determination…………………………..54

3.4. Sources of data………………………………………………………………..55

3.5. Data collection Instrument……………………………………………………56

3.6. Questionnaire design and administration…………………………………...56

3.7. Method of data analyses……………………………………………………...56

References……………………………………………………………………58

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CHAPTER FOUR

PRESENTATION AND ANALYSES OF DATA

4.1. Introduction………………………………………………………………….....59

4.2. Analyses of response to questionnaire……………………………………..59

4.3. Test of hypothesis………………………………………………………….....67

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION

5.1. Summary of findings…………………………………………………………..71

5.2. Recommendation……………………………………………………………...72

5.3. Conclusion……………………………………………………………………..73

5.4. Area for further study………………….……………………………………...73

Bibliography…………………………………………………………………..74

Appendix……………………………………………………………………...76

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CHAPTER ONE

1.0. INTRODUCTION

1.1. BACKGROUND OF THE STUDY:

Corporate governance is the set of processes, policies, laws and

institutions affecting the way in which a corporation is directed, administered or

controlled. McGraw-Hill (2004). Corporate governance also includes the

relationship among the many players involved (the stake holders) and the goals

for which the corporation is governed. The principal players are the share

holders, management and the board of directors.

Other stake holders include employees, suppliers, customers, banks and

other lenders, regulators, the environment and the community at large.

An important theme of corporate governance deals with issues of

accountability and fiduciary duty, essentially advocating the implementation of

guidelines and mechanisms to ensure good behavior and protect shareholders.

Monks and Robert S.N (1991)

Another key focus is the economic efficiency view, through which the

corporate governance system should aim to optimize economic results, with a

strong emphasis on share holders’ welfare. There are yet other aspects of to the

corporate governance subject, such as stakeholder view, which call for more

attention and accountability to payers other than the shareholders, e.g. the

employees or the environment.

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Recently there has been considerable interest in the corporate governance

practices of modern corporations, particularly since the high-profile collapses of a

number of large US firms such as Enron corporation and world com.

Board members are those with a responsibility for corporate governance,

are increasingly using the services of external providers to conduct anti-

corruption auditing, due diligence and training.

The board of directors is the highest decision making body of a

company which is responsible for general policies, concerning finance,

appointment of managers, control etc. It is often headed by a chairman who is

elected by the directors themselves. The chairman presides over the meetings of

the board.

Theoretically the control of a company is divided between two bodies; the

board of directors and the shareholders in general meeting.

In practice, the amount of power exercised by the board varies with the

type of company. In small private companies, the directors and the share holders

will normally be the same people and thus there is no real division of power. In

large public companies, the board tends to exercise more of a supervisory role.

Individual responsibility and management tends to be delegated downward to

individual professional directors (such as finance or marketing director) who deal

with particular areas of the company’s affairs.

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1.2. STATEMENT OF THE PROBLEM

A well governed company is one that has mostly outside directors, who has

no management ties, undertakes formal evaluation of its directors and is

responsive to investors requests for information on governance issues.

McKinsey2 (2002)

The Relationship between specific corporate governance controls and firm

performance has been mixed and often weak.

Frequency of board meetings does not necessarily lead to more profitability

and some researchers have found a negative relationship between the proportion

of external directors and firm performance while others found no relationship

between external board membership and performance.

Bagahat and Black (2007) is of the opinion that companies with more

independent boards do not perform better than other companies and board

composition does not likely have a direct impact on firm performance.

Imperfections in the financial reporting process have invariably caused

imperfections in the effectiveness of corporate governance.

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1.3. OBJECTIVES OF THE STUDY

The study will aim to

1. Assess the corporate governance of Imo Transport Company and relate it to

the profitability of the company.

2. Determine whether the autonomy of Imo Transport Company, a

government owned Business Company is related to the profitability of the

company.

3. Ascertain whether the composition of the board of directors has a direct

impact on the performance of the company.

4. Ascertain whether frequency of board meetings leads to increased

profitability of the company

1.4.HYPOTHESIS

1. The autonomy enjoyed by the ITC, has a positive relationship to its

profitability.

2. The composition of the board of directors in ITC has a positive effect on the

performance of the company.

3. Frequent board meetings do not contribute to increased performance in

ITC.

1. Ho the autonomy enjoyed by ITC has no positive relationship to its

profitability.

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Hi, the autonomy enjoyed by ITC has a positive relationship to its

profitability

2. Ho, the composition of the board of directors of ITC has no positive impact

on the performance of the company.

Hi the composition of the board of directors of ITC has a positive impact on

the performance of the company.

3. Ho frequent board meeting do not contribute to increased performance of

the company.

Hi frequent board meeting contribute to increased performance of the

company.

1.5. SIGNIFICANCE OF THE STUDY

Corporate governance issues are receiving greater attention in both

developed and developing countries as a result of the recognition that a firm’s

corporate governance affects both its economic performance and its ability to

access long term, low-cost investment capital

Recently there has been considerable interest in the corporate governance

practices of modern corporations, particularly since the high profile collapse of

firms such as Enron and WorldCom.

More over, all parties to corporate governance have an interest whether

direct or indirect in the effective performance of the organization; directors,

workers, management, share holder.

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Therefore this research will benefit

1. Governments, especially state governments that will wish to establish

Companies, especially Mass transit companies, on the desirable corporate

governance practices to incorporate

2.Board of directors of companies both private and government owned, who

will be enlightened on the best corporate governance strategies to adopt.

3. Share holders/stake holders in firms, in terms of their expectation from their

management.

4. Researchers and people with interests in corporate governance because of

the recent materials sourced in this study.

1.6. SCOPE OF THE STUDY

The main focus of this study is assessing corporate governance in IMO

Transport Company. The scope of the research work covers only the

headquarters of Imo transport company located in Owerri

1.7. LIMITATIONS OF THE STUDY

This research work will point out the difficulties a researcher encounters

during his research.

These problems will make some contributions to the slow rate of progress

of this activity:

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1. TIME: This has to point out the delays a researcher will encounter during

research work. It might be as a result of work which affected this project

adversely, bad roads, traffic jam, accident and breakdown of vehicles. This

causes delays in gathering information from the right source

LACK OF RESEARCH FUNDS - Here a researcher lacks funds to carry out his

research work. This discourages research at all levels.

Government, institution and organizations do not quite appreciate the

contributions of research finding to economic development and therefore do not

provide sufficient funds for research of all types.

CO-OPERATION OF RESPONDENTS: a researcher may be delayed, refused

information from the right source, thinking that the researcher has come to spy

on their organization.

LACK OF FACILITIES AND RESEARCH EQUIPMENT: - This is where a

research work, lacks some vital equipment to help him carry out his work

effectively

SCANTY INFORMATION BASE: - This is the narrowing down of the quantity

and quality of literature available to a researcher.

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ILLITERACY: - This has to do with the uneducated individuals who hamper the

appreciation of the value of research findings.

1.8. BRIEF HISTORY OF IMO TRANSPORT COMPANY

The Imo State transport Company came into being as a result of the federal

government directive on mass transit. The company (ITC) started operations in

August 1989 with 20 Vehicles, outside this, the federal government also provided

spare parts, workshops and organized a nation wide training programmed for

operators. The state government also contributed in providing office

accommodation, Vehicle terminals and manpower.

The Imo transport company offers a number of services which include

1. Intracity services

2. Intercity services

3. Vehicle contract hire services

4. Vehicle recovery services

5. commercial maintenance services

6. Inter-state services.

According to Obi (1998) these services are provided to ensure that buses

cover the intricate areas of the state and beyond. They also serve to alleviate

and help other commuters whose Vehicles are broken down.

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The Imo transport company has come a long way since its inception. It is one

of the few government owned enterprises that are consistently breaking even

and posting profits. It was voted the best mass transit company in 2005.

BUS OPERATIONS

The Imo Transport Company operates a near centralized system of bus

operations. The company has over 35 routes.

The allocation of buses to depots is done at the headquarters in Owerri.

The actual route allocation of buses is drawn at the headquarters and this is

done on weekly basis. The implication of this is that no vehicle has a permanent

route. Each of the depots is managed by a terminal supervisor whose function is

co-coordinated by the assistant general manager.

CORPORATE MANAGEMENT/ORGANIZATIONAL STRUCTURE- ITC is a

limited liability company.

The General Manager is the chief executive officer and is appointed by the

state government.

The executive officers under the manager are the Assistant general

manager Administration, Assistant general manager finance, assistant general

manager engineering and assistant general manager operations.

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Each of these managers has a number of staff reporting to them. The

general manager Admin controls the secretary, public relations officer, insurance,

labour, security. The internal Auditor payroll section, stores unit, revenue

collectors and conductors all report to the assistant general manager finance.

The Assistant general manager engineering has under his care, the head

maintenances, auto electrician, panel beaters, Vulcanizers and mechanics. The

Assistant general manager operation is in charge of the monitoring unit, drivers

and the terminal supervisors.

All the Assistant general managers report and take orders from the general

manager who in turn briefs the director, civil engineering service, state ministry of

works, transport and aviation.

BOARD OF DIRECTORS:-

The boards of directors as well as the chairman of the board are political

appointees of the state government. Presently, as at the time of writing this

project, the board of directors is dissolved. The dissolution was by the new

governor of the state. However the last board had six members.

AUDITORS: - The auditors are external and are appointed by the

government.

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SOURCES OF REVENUE AND FLEET

The ITC is autonomous, with its sources of revenue and pays its workers without

recourse to the government

The ITC since its inception has identified the bus as a cost as well as a

revenue centre. In this respect, the operating costs and revenues for each are

calculated on a regular monthly basis in order to determine the contribution of the

bus unit to the total profit or loss account of the company. This exercise helps the

ITC to identify lapses in fleet utilization and trace same to either the bus crew or

maintenance personnel or other sources.

General Manager

The management of the company has seen the importance in meeting pwith the

challenges of the increase in demand of their services.

Assistant General Manager Administration

Assistant General Manager Engineering

Assistant General Managing Engineering

Assistant General Managing Operations

Insurance

Labour Public relations

Internal auditors

Stores unit

Revenue collectors

Conductors Head Maintenance

Panel beaters vulcanizers

mechanics Monitoring

unit

Drivers

Assistant

AGM

Operations

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There is the establishment of the franchise system where by private individuals

and other corporate bodies give out their vehicles to ITC management who in

turn manages the operations of these vehicles and at the end of the month the

revenue collected is shared between the owners of these buses and ITC. This

scheme has thus increased the initial numbers of buses and other vehicles of the

company.

The vehicles include luxury buses, 911 lorry buses, 1414 buses, 504

wagon, Mitsubishi buses etc.

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REFERENCES

1. Bhagat and Black: “The uncertain relationship between board composition and firm performance “54, business lawyer.

2. Marie-Caroline V.W: How to run a company, Crown business, New York. & Dennis C.C. 3. http://en. Wikipedia. Org /wiki/ corporate governance. 4. Ojigbani J.C. (2003) “Importance of board of directors in enhancing

effectiveness and efficiency in organizations “A study of selected companies in Abia State.

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CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

The term corporate governance has come to mean two things

a. The process by which companies are directed and controlled.

b. A field in economics, which studies the many issues arising from the

separation of ownership and control. (Black well 2007)

Relevant rules include applicable laws of the land as well as internal rules of

a corporation. Relationships include those between all related parties, the most

important of which are the owners, managers, directors of the board, regulatory

authorities and to a lesser extent employees and the community at large.

Systems and processes deal with matters such as delegation of authority.

The corporate governance structure specifies the rules and procedures for

making decision on corporate affairs.

It also provides the structures through which the company objectives are set,

as well as the means of attaining and monitoring the performance of those

objectives.

Corporate governance is used to monitor whether out comes are in

accordance with plans and to motivate the organization to be more fully informed

in order to maintain or alter organizational activity. Corporate governance is the

27

mechanism by which individuals are motivated to align their actual behaviors with

the overall participants.

In “A board culture of corporate Governance” business author

O’Donovan(2007) defines corporate governance as ‘an internal system

encompassing policies, processes and people, which serves the needs of share

holders and other stakeholder, by directing and controlling management activities

with good businesses savvy, objectivity and integrity. Sound corporate

governance is reliant on external market place commitment and legislation plus a

healthy board culture which safeguards policies and processes.

O’Donovan .G. goes on to say that ‘the perceived quality of a company’s

corporate governance can influence its share price as well as the cost of raising

capital. Quality is determined by the financial markets, legislation and other

external market forces plus the international organizational environment, how

polices and processes are implemented and how people are led. External

forces are, to large extent, outside the circle of control of any board. The

internal environment is quite a different matter, and offers companies the

opportunity to differentiate from competitors through their board culture.

Corporate governance international journal (2003) say to date, too much of

corporate governance debate has centered on legislative policy, to deter

fraudulent activities and transparent policy which misleads executives to treat

symptoms and not the cause.

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2.2. HISTORY

In the 19th century, state corporation law enhanced the rights of corporate

board to govern without unanimous consent of share holders in exchange for

statutory benefits likes appraisal rights, to make corporate governance more

efficient. Since that time and because most large publicly traded corporations in

the US are incorporated under corporate administration friendly Delaware law,

and because the US’s wealth has been increasingly securitized into various

corporate entities and institutions, the right of individual owners and share holder

have become increasingly derivative and dissipated.

The concerns of share holder over administration pay and stock losses

periodically has led to more frequent calls for corporate governance reforms.

In the 20th century in the immediate aftermath of the Wall Street crash of

1929, legal scholars such as Adolf Augustus Berle, Edwin Dodd and Gardiner C.

Means, pondered on the changing role of the modern corporation in society.

Berle and Mean’s monograph, “the modern corporation and private property”

(1932 Macmillan) continues to have a profound influence on the conception of

corporate governance in scholarly debates today.

From the Chicago school of economics, Ronald coase’s Nature of the firm

(1937) shows the notion of transaction costs to the understanding of why firms

are founded and how they continue to behave. Fifty years later, Eugene fama

and Michael Jensen’s “the separation of ownership and control” (1983, Journal of

29

law and economics) firmly established agency theory as a way of understanding

corporate governance: the firm is seen as was highlighted in a 1989 article by

Kathleen Eisenhardt (Academy of management Review).

United States expansion after World War II through the emergence of

multinational corporations saw the establishment of the managerial class.

Accordingly, the following Harvard Business school management professors

published influential monographs studying their prominence: Myles mace

(entrepreneurship), Alfred D chandler (business history) Jay lorsch

(organizational behaviour) and Elizabeth maclver (organizational behaviour).

According to lorsch and maclver, “Many large corporations have dominant control

over business affairs without sufficient accountability or monitoring by their board

of directors.

Current preoccupation with corporate governance can be pinpointed at two

events: the East Asian crises of 1997 saw the economies of Thailand, Indonesia

South Korea, Malaysia and the Philippines severely affected by the exit of foreign

capital after property assets collapsed.

The lack of corporate governance mechanisms in these countries highlights

the weaknesses of the institutions in their economics. The second event was the

US corporate crises of which saw the collapse of two big corporations: Enron and

WorldCom, and the ensuing scandals and collapses in other organizations such

as Arthur Anderson, Global crossing and TYCO.

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2.3. ROLE OF INSTITUTIONAL INVESTORS

Many years ago, worldwide, buyers and sellers of corporation stocks were

individual investors, such as wealthy businessmen overtime, markets have

become more institutionalized; buyers and sellers are largely institutions (e.g.

pension funds, insurance companies,, mutual funds, hedge funds, investor

groups, and banks). The rise of the institutional investor has brought with it some

increase of professional diligence which has tended to improve regulation of the

stock market. (But not necessarily in the interest of the small investor or even of

the naïve institutions of which there are many).

Unfortunately, there has been a concurrent lapse in the oversight of large

corporations, which are now almost all owned by large institutions. The board of

directors of large corporations used to be chosen by the principal share holders

who usually had an emotional as well as monetary investment in the company,

and the board diligently kept an eye on the company and its principal executives

(they usually hired and fired the president or chief executive officer – CEO).

Nowadays if the owning institutions don’t like what the president/CEO is doing

and they feel that firing them will be costly and/or time consuming, they will

simply sell out their interest. Also in recent times, the board is mostly chosen by

the president/CEO and may be made up primarily of their cronies or at least,

officers of the corporation, who owe their job to him or fellow CEO’s from other

31

corporation. Since the (institutional) share holders rarely object, the

president/CEO generally takes the chair of the board himself, which makes it

more difficult for the institutional owners to fire them.

Since the marked rise in the use of internet transaction from the 1990s,

both individual and professional stock investors around the world have emerged

as a potential new kind of major (short term) force in the ownership of

corporations and in the markets: casual participant. Even as the purchase of

individual investors diminishes, the sale of derivatives e.g. exchange traded

funds (ETFs) stock market index options has soared (http://invest-

fag.com/articles ideriv-oprians-basics. html). So, interests of most investors are

now increasingly rarely tied to the fortunes of individual corporations.

But, the ownership of stocks in markets around the world varies; for

example, the majority of the shares in the Japanese market are held by financial

companies and industrial corporations.

(http://www.asianresarch.org/articles/1397.html) whereas stock in the USA or the

UK and Europe are much more broadly owned, often still by large individual

investors.

In the latter half of the 1990s, during the Asian financial crises, a lot of

attention fell upon the corporate governance systems of the developing world,

which tend to be heavily into cronyism and nepotism.

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In the first half of the 1990s, the issue of corporate governance in the US

received considerable press attention due to the wave of, (belated?) CEO

dismissals (e.g. IBM, Kodak, Honey well) by their boards. CALPERS led a wave

of institutional shareholder activism (something only very rarely seen before) as a

way of ensuring that corporate value would not be destroyed by the now

traditionally cozy relationships between the CEO and the board of directors.

In the early 2000s, the massive bankruptcies (and criminal malfeasance) of

Enron and world com, as well as lesser corporate debacles, such as Adelphina

Communications (http:www.washingtonpost.com/wp-dyn/articles/A39143-2004jul

9.html), AOl, Arthur Andersen, Global crossing, Tyco and more recently Freddie

Mac and led to increased share holder and government interest in corporate

governance culminating in the passage of the Sarbanes-Oxley Act of 2002

(http://www.nhbar.org/publications/archives/display-journal-issue.asp?id=13).

Since then the stock market has greatly recovered, and shareholder zeal has

waned accordingly.

2.4. PARTIES TO CORPORATE GOVERNANCE

Parties involved in corporate governance include the regulatory body (e.g.

the chief executive officer, the board of directors, management and shareholder.)

other stakeholders who take part include suppliers, employees, creditors,

customers and the community at large.

33

In corporations, the share holder delegates decision rights to the manager

to act in the principals best interests. The separation of ownership from control

implies a loss of effective control by share holders over managerial decisions.

Partly as a result of this separation between the two parties, a system of

corporate governance controls is implemented to assist in aligning the incentives

of managers with those of shareholders. With the significant increase in equity

holdings of investors, there has been an opportunity for a reversal of the

separation of ownership and control problems because ownership is not so

diffuse.

A board of directors often plays a key role in corporate governance. It is

their responsibility to endorse the organization’s strategy, develop directional

policy, appoint, supervise and remunerate senior executives and to ensure

accountability of the organization to its owners and authorities. All parties to

corporate governance have an interest, whether direct or indirect in the effective

performance of the organization- Directors, workers and management receives

salaries, benefits and reputation, while shareholder receives capital return.

Customers receive goods and services, suppliers receive compensation for their

goods and services. In return these individuals provide value in the form of

natural, human, social and other forms of capital

A key factor in an individuals decision to participate in an organization e.g.

through providing financial capital and trust that they will receive fair share of the

34

organisational returns. If some parties are receiving more than their fair return,

then participants may choose to not continue participating, leading to

organizational collapse.

2.5. PRINCIPLES

(OECD (2004) outlines key elements of good corporate governance

principals to include honesty, trust and integrity, openness, performance

orientation, responsibility and accountability, mutual respect and commitment to

the organization.

Of importance is how directors and management develop model of

governance that aligns the values of the corporate participants and then evaluate

this model periodically for its effectiveness. In particular, senior executives should

conduct themselves honestly and ethically, especially concerning actual or

apparent conflicts of interest, and disclosure in financial reports

Commonly accepted principles of corporate governance include

a. Rights and equitable treatment of shareholders:- organizations should

respect the rights of shareholders and help shareholders to exercise those

right. They can help share holders exercise their rights by effectively

communicating information that is understandable and accessible and

encouraging shareholders to participate in general meetings.

35

b. Interest of other stakeholders. Organizations should recognize that they

have legal and other obligations to all legitimate stake holders.

c. Role and responsibility of the board: the board needs a range of skills and

understanding to be able to deal with various business issues and have the

ability to review and challenge management performance. It needs to be of

sufficient size and have an appropriate mix of executive and non-executive

directors. The key roles of chair person and CEO should not be held by the

same person

d. Integrity and ethical behaviour: organization should develop a code of

conduct for their directors and executive that promote ethical and

responsible decision making. It is important to understand though that

systemic reliance on integrity and ethics is bound to eventual failure.

Because of this, many organizations establish compliance and ethics

programs to minimize the risk that the firm steps outside of ethical and legal

boundaries.

e. Disclosure and transparency: organizations should clarify and make

publicly known the roles and responsibility of board and management to

provide shareholders with a level of accountability. They should also

implement procedures to independently verify and safeguard the integrity of

the company financial reporting. Disclosure of material matters concerning

36

the organisation should be timely and balanced to ensure that all investors

have access to clear factual information.

Issues involving corporate governance principles include

- Oversight of the preparation of the entity’s financial statements

- Internal controls and the independence of the entity’s auditors

- Review of the compensation arrangements for the chief executive officer and

other senior executives

- The way in which individuals are nominated for positions on the board

- The resources made available to directors in carrying out their duties

- Oversight and management of risk

- Dividend policy.

2.6. MECHANISMS AND CONTROLS

Becht. .A. etal (2002) says corporate governance mechanisms & controls

are designed to reduce the inefficiencies that arise from moral hazard and

adverse selection. E.g. to monitor managers behaviour, an independent third

party (the auditor) attests the accuracy of information provided by management

to investors. An ideal control system should regulate both motivation and ability.

Internal corporate governance controls; includes

- Monitoring by the board of directors

37

- Remuneration – performance based remuneration is designed to relate

some proportion of salary to individual performance. Such incentive

schemes however are reactive in the sense that they provide no

mechanism for preventing mistakes or opportunistic behaviour, and can

elicit myopic behaviour.

- Disclosure – Detailed annual report

- Audit committees

- Proxy fights

- Financial structure: leverage.

External corporate governance controls:-

This encompasses the controls external stakeholders exercise over the

organisation. Examples include;

- Debt covenants

- Government regulations

- Media pressure

- Takeovers

- Competition

- Managerial labour market

- Telephone tapping.

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2.7. SYSTEMIC PROBLEMS OF CORPORATE GOVERNANCE

A. supply of accounting information: - financial accounts form a crucial link in

enabling providers of finance to monitor directors’ imperfections in the financial

reporting process will cause imperfections in the effectiveness of corporate

governance. This should ideally be corrected by the working of the external

auditing process

B. Demand for information- A barrier to shareholders using good information is

the cost of processing it, especially to a small shareholder. The traditional answer

to this problem is the efficient market hypothesis, which suggests that the

shareholder will free ride on the judgments of larger professional investors.

c. Monitoring costs: in order to influence the directors, the shareholders must

combine with others to form a significant voting group which can pose a real

threat of carrying resolutions or appointing directors at a general meeting.

2.8. ROLE OF THE ACCOUNTANT

Whittington. G (1993) says financial reporting is a crucial element

necessary for the corporate governance system to function effectively.

Accountants and auditors are the primary providers of information to capital

market participants. The directors of the company should be entitled to expect

that management prepare the financial information in compliance with statutory

and ethical obligations and rely on auditors competence

39

Current accounting practice allows a degree of choice of method in

determining the method of measurement, criteria for recognition and even the

definition of the accounting entity. The exercise of this choice to improve

apparent performance (popularly known as creative accounting) imposes extra

information costs on users. In the extreme, it can involve non-disclosure of

information.

One area of concern is whether the accounting firm is both the independent

auditor and management consultant to the firm they are auditing. This may result

in a conflict of interest which places the integrity of financial reports in doubt due

to client pressure to appease management.

The Enron collapse is an example of misleading financial reporting. Enron

concealed huge losses by creating illusions that a third party was contractually

obliged to pay the amount of any loss. However the third party was an entity in

which Enron had a substantial economic stake.

However, good financial reporting is not a sufficient condition for the

effectiveness of corporate governance if users do not process it or if the informed

user is unable to exercise a monitoring role due to high cost.

2.9. CORPORATE GOVERNANCE MODELS AROUND THE WORLD.

ANGLO- AMERICAN MODEL There are many different models of corporate

governance around the world. According to Clarke Thomas (2004) these differ

according to the variety of capitalism in which they are embedded.

40

The liberal model that is common in Anglo-American countries tends to

give priority to the interests of the shareholders. The coordinated model that one

finds in continental Europe and Japan also recognizes the interests of workers,

managers, suppliers, customers and the community.

Both models have distinct competitive advantages but in different ways, the

liberal model of corporate governance encourages radical innovation and cost

competition, whereas the coordinated model of corporate governance facilitates

incremental innovation and quality competition.

They rule. net(2004) says that in the United States, a corporation is governed by

a board of directors, which has the power to choose an executive officer usually

known as the chief executive officer. The CEO has broad powers to manage the

corporation on a daily basis, but needs to get board approval for certain major

actions. The UK has pioneered a flexible model of regulation of corporate

governance known as the “comply or explain” code of governance. This principle

based code that lists a dozen of recommended practices such as the separation

of the CEO and chairman of the board, the introduction of a time limit for CEO’

contracts, the introduction of a minimum number of non executive directors, of

independent directors, the designation of a senior non executive director, the

formation and composition of remuneration, audit, and nomination committees.

Publicly listed companies in the UK have to either apply those principles or if they

choose not to, to explain in a designated part of their annual reports why they

41

decided not to do so. The monitoring of those explanations is left to shareholders

themselves. The code has been in place since 1993 and has had drastic effects

on the way firms are governed in the UK.

NON ANGLO-AMERICAN MODELS

In East Asian countries, family owned companies dominate. A study by

Claessens Djankov and Lange(2000) investigated the top 15 families in East

Asian countries and found that they dominated listed corporate assets. In

Countries such as Pakistan, Indonesia and the Philippines, the top 15 families

controlled over 50% of publicly owned corporations through a system of family

cross-holdings, thus dominating the capital markets. Family owned companies

also dominate the Latin model of corporate governance, that is companies in

Mexico Italy Spain France (to a certain extent) Brazil Argentina and other

companies in south America.

Europe and Asia exemplify the Insider system with share holder and stake

holder, a small number of listed Companies, an illiquid capital market where

ownership and control are not frequently traded, high concentration shareholding

in the hands of corporations, institutions, families or government. The insider

model uses a system of interlocking networks and committees.

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2.10. CORPORATE GOVERNANCE AND FIRM PERFORMANCE

In its Investor opinion survey of over 200 Institutional Investor first undertaken in

200 and updated in 2002 MC Kinsey found that 80% of the respondents would

pay a premium for well governed companies. They defined a well governed

company as one that had mostly outside director, who had no management ties,

undertook formal evaluation of its directors and was responsive to investors

requests for information on governance issues. The size of the premium varies

by market from 11% for Canadian companies to around 40% for companies

where regulatory backdrop was least certain (those in Morocco, Egypt and

Russia.

Other studies have limited broad perceptions of the quality of companies to

superior share price performance. In a study of five year cumulative returns of

fortune magazine survey of most admired firms, Antunovich etal found that those

“most admired” had an average return 125% whilst the least admired firms

returned 80%. In a separate study Business week enlisted institutional investors

and experts to assist in differentiating between boards with good and bad

governance and found that companies with the highest rankings had the highest

financial returns.

43

On the other hand, research in to the relationship between specific

corporate governance controls and firm performance has been mixed and often

weak.

In board composition some researches have found support for the

relationship between frequency of meetings and profitability. Others have found

a negative relationship between the proportion of external directors and firm

performance, while others found no relationship between external board

membership and performance. In a recent paper, Bagahat B and Black B (2007)

found that Companies with more independent boards do not perform better than

other companies. It is unlikely that board composition has a direct impact on firm

performance.

2.11. ATTENTION TO CORPORATE GOVERNANCE

Corporate governance issues are receiving greater attention in both developed

and developing countries as a result of the increasing recognition that a firms’

performance and its ability to access long-term low cost investment capital. In

response to OECD ministers a reversed version of its “principles of corporate

governance”was produced in 2004.

Numerous high profile cases of corporate governance failure have focused

the minds of governments companies and the general public on the threat posed

44

to the integrity of financial markets although it is not clear that any system will or

should prevent business failures, or that it is possible to provide a guarantee

against fraud.

2.12. THE BOARD OF DIRECTORS

A potent theoretical justification for the existence of board of directors is

that they are established by law and the boards are indispensable to all

government parastatals, Koonts (1973) observed that the corporation is an

artificial entity, established by a sovereign power through contract with a group of

owners and therefore must have real persons responsible for managing.

The instrument establishing government owned companies requires them

to have a board of directors to manage their affairs.

The government usually appoints the members of these boards. In many

cases, particularly where appointments are based on merit, board members

posses qualification and experience from a variety of backgrounds or areas

relevant to the operations of an enterprise.

This multiplicity of experiences and expertise are brought to bear on the

functioning of an enterprise with a resultant increase in effectiveness and

efficiency.

45

2.12.1. CLASSIFICATION OF BOARD OF DIRECTOR

Directors are traditionally divided into executive directors and non-

executive directors broadly; executive directors tend to be persons who are

dedicated full time to their role in relation to the management of the company.

Non-executive directors tend to be ‘outsiders’ brought in for their expertise and to

lend a more impartial view in relation to strategic decisions. Many corporate

reforms in the late 1990s and early 2000s were focused on increasing the

number and role of non-executive directorships in public companies in the belief

that an impartial view was more likely to restrain corporate excess and egos and

reduce the likelihood of another major corporate scandal.

In practice, executive directors tend to dominate board meetings simply by

virtue of their much greater familiarity with the company and its internal workings.

Some countries also classify persons who are not actually directors as

either defacto directors, or ‘shadow’ directors. A defacto director is a person who

is not actually appointed as a director, but acts as if he were (often because he

wrongly believes that he has been properly appointed as a director). A ‘shadow’

director is also not a director at all, but seeks to control the direction and

management of the company without putting himself forward as being able to do

so.

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2.12.2. HISTORY

The development of a separate board of directors to manage the company

has occurred incrementally and indefinitely over legal history until the end of the

nineteenth century, it seems to have been generally assumed that the general

meeting was the supreme organ of the company, and the board of directors was

merely an agent of the company subject to the control of the share holders in

general meetings.

By 1906 however, the English court of appeal had made it clear in the

decision of automatic self cleansing filter syndicate co v Cunningham (1906) 2 ch

34 that the division of powers between the board and share holders in general

meeting, depended upon the construction of the articles of association and that

where the powers of management were vested in the board, the general meeting

could not interfere with their lawful exercise. The articles were held to constitute a

contract by which the members had agreed that “the directors and the directors

alone shall manage.

The new approach did not secure immediate approval, but it was endorsed

by the house of lords in Quin & Artens v salmon (1909) Ac 442 and has since

received general acceptance under English law, successive versions of Table A

have reinforced the norm that unless the directors are acting contrary to the law

47

of provisions of the articles, the powers of conducting the management and

affairs of the company are vested in them.

The modern doctrine was expressed in Shaw & Sons (Sal ford) Ltd v Shaw

(1953) 2 KB 113 by Greer LJ as follows “A company is an entity distinct alike

from its share holders and its directors. Some of its powers may, according to its

articles, be exercised by directors; certain other powers may be reserved for its

share holders in general meeting. If powers of management are vested in the

directors, they and they alone can exercise these powers. The only way in which

the general body of share holders can control the exercise of powers by the

articles in the directors is by altering the articles or if opportunity arises under the

articles, by refusing to reflect the directors of whose actions they disapprove.

They cannot usurp the powers which by the articles are vested in the directors

any more than the directors can usurp the powers vested by the articles in the

general body of share holders.

It has been remarked that this development in the law was somewhat

surprising at he time as the relevant provisions seemed to contradict this

approach rather than to endorse it.

2.12.3. APPOINTMENT/ELECTION AND REMOVAL

Maccor M (1958), noted that in the case of semi-state companies, the

share holders is the state minister who carries the responsibility for the relevant

48

department of state. He holds all the shares either through nominees under the

companies’ acts or where the corporation is formed by status, the total share

capital is held directly by the minister; in both instance the minister acts for the

government or state as the controlling shareholder and therefore he or the

government on his advice appoints the member of the board.

In the private sector, it used to be customary for the board to be elected by

the shareholders. Ideally this is desirable, however, the shareholders are not

known to be very analytical or evaluational body to examine the credentials of the

candidates and make rational elections. Therefore, there is an increasingly

tendency today for the chief executive officer to select members for the board

and recommend ratification of his action by the shareholders. Alternatively it is

also common for some firms to use a board committee which is charged with the

responsibility of selecting and screening potentials candidates for

recommendation to the share holders who approves or disapprove as the case

may be. Even more recently, there are many firms, in which the board of

directors is given the responsibility of selecting new directors and in effect,

perpetuating itself.

It is not yet known which method is more effective since effectiveness is

influenced by many other variables that are independent of the selection process.

49

A case can be made however that powers to select or elect directors are lawful

representatives of the shareholders.

Directors according to Wikipedia (2007) may leave office if voted upon by

share holders in a general meeting as is obtained in most legal systems as well

as by resignation or death. In some legal systems, the directors may also be

removed by a resolution of the remaining directors.

In practice, it is quite difficult to remove a director by a resolution in general

meeting. In many legal systems, the director has the right to receive special

notice of any resolution to remove him; the company must often supply a copy of

the proposal to the director, who is usually entitled to be heard by the meeting.

The director may require the company to circulate any representations that he

wishes to make. Further more, the directors contract of service will usually entitle

him to compensation if he is removed and may often include a generous “golden

parachute” which also acts as a deterrent to removal.

2.12.4. EXERCISE OF POWERS

The exercise by the board of directors of its powers usually occurs in

meetings, most legal systems provide that sufficient notice has to be given to all

directors of these meetings and a quorum must be present before any business

50

may be conducted. Usually a meeting which is held without notice having been

given is still valid so long as all the directors attend, but it has been held that a

failure to give notice may negotiate resolutions passed at a meeting, as a

persuasive oratory of a minority of directors might persuade the majority to

change their minds and vote otherwise.

In most common law countries, the powers pf the board are vested in the

board as whole and not in the individual directors. However, in instances an

individual director may still bind the company by his acts by virtue of his

ostensible authority.

2.12.5. CRITERIA FOR THE SELECTION OF BOARD MEMBERS (BOARD

MEMBERS SPECIFICATION)

Ojigbani J.C (2003) listed some of the criteria that have been used for the

selection of members to include the following:

A. SKILLS AND EXPERTISE

This should be those that are needed by the company. The skill therefore

will vary from company to company and from industry to industry. The wealth of

the skills and expertise will be profitable to operating managers as they make

crucial decisions for company’s survival.

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B.EXPERIENCE AND GENERAL COMPETITIONS

Directors should understand the total operation of the company and

industry. This helps directors in the use of the systems approach to solving the

problems of the corporation. The directors should be concerned with the total

system survival.

C.OBJECTIVITY

Directors should be able to analyse or evaluate the performances of

corporate management without any biases. Objectivity prepares the ground for

constructive criticism.

D. RISK ATTITUDE

The potential director’s attitude towards risk should be evaluated. Very

conservative directors, kill creativity and innovations while directors with too

liberal attitude tend to lead the company to very risky ventures that almost

approach gambling.

E. TIME AVAILABLE

Directors should comprise people who have the time not VIPs, who are

already over loaded with other professional responsibilities.

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F. CIVIC INVOLVEMENT

Directors are supposed to be socially visible and as it were, they ought to

act as the public relations officials for the firm. This improves company’s image.

G. ELEMENTS FOR BOARD DIVERSITY

The directors should represent different spheres of opinion.

H. REPRESENTATION OF PUBLIC SERVED BY THE CORPORATION

This suggests that directors should be fully representative of all the public

which have some interest in the organization.

It ought to be noted that after the board is selected and constituted, the

directors can be grouped into various committees and sub-committee of the firms

operation. This committee report periodically to the full board. The size and

composition of boards vary with the size of the firm itself, industry practice,

number of share holders, nature of company operation etc.

In evaluating the composition of board of directors, some of factors ought to

be considered, Milton F.H (1978) lists some of these factors as:

1 The size diversity and geographical scope of the organization’s

operation (local regional national and international)

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2 Complexity of the organizations production process and products,

services and operations (technical/non-technical)

3 Nature of company’s market (industrial/consumer) or the public

agency’s clientless

4 Dominance of a particular organizational function (such as

research and development, manufacturing, marketing and

consultative skills)

5 Stability of the organization (rapid growth through internal

development acquisition/level of decline of sales volume

relationship of economic cycle to public expenditure

6 Needs for new or additional financing (frequency size and nature)

7 Degree of concentration of ownership incorporation or

representation among constituent groups on government board

8 Importance of the boards in building and maintaining external

relationships (companies image, trade relationship, government

relation etc)

2.12.6. DUTIES OF THE BOARDS OF DIRECTORS

Because directors exercise control and management over the company,

the law imposes strict duties on directors in relationship to the exercise of their

54

duties. The duties imposed upon directors are fiduciary duties similar to those

that the law imposes on those in similar position of trust: agents and trustee.

1. ACTING IN GOOD FAITH

Directors must act honestly and in good faith. The directors must act “bona

fide” in what they consider- not what the court may consider is in the interest of

the company. However the directors may still be held to have failed in this duty

where they fail to direct their minds to the question of whether in fact a

transaction was in the best interest of the company.

Difficult questions can arise when treating the company too much in the

abstract. For example it may be for the benefit of a corporate group as a whole

for a company to guarantee debt of ‘sister’ company even though there is no

ostensible ‘benefit’ to the company giving the guarantee. Similarly, conceptually

at least, there is no benefit to a company in returning profit to share holders by

way of dividends.

Lemon etal (2006) illustrates a more pragmatic approach that directors are

not required by the law to live in an unreal region of detached altruism and to act

vague mood of ideal abstraction from obvious facts which must be present to the

mind of any honest and intelligent man when he exercises his power as a

director.

55

2. PROPER PURPOSE

Directors must exercise their powers for a proper purpose. Whilst in many

instances an improper purpose is readily evident, such as a director looking to

feather his or her own nest or divert an investment opportunity to a relative, such

breaches usually involve a breach of the directors duty to act in good faith, is

serving a purpose that is not regarded by the law as proper

2. UNFETTERED DISCRETION

Directors cannot, without the consent of the company, fetter their discretion

in relation to the exercise of their powers and cannot bind themselves to

vote in a particular way at future board meetings. This is so even if there is

no improper motive or purpose and no personal advantage to the director

This does not mean however that the board cannot agree to the company

entering into a contract which binds the company to a certain course, even if

certain actions in that course will require further board approval.

56

The company remains bounds, but the directors retain the discretion to

vote against taking the future actions (although that may involve a breach by the

company of the contract that the board previously approved.

4. “CONFLICT OF DUTY AND INTEREST”.

As fiduciaries, the directors may not put themselves in a position where

their interest and duties arein conflict with the duties that they owe the company.

The law takes the view that good faith must not only be done but must be

manifestly seen to be done and zealously patrols the conduct of directors in this

regard and will not allow directors to escape liability by asserting that his decision

was infact well founded.

Conflicts of duty and interest has three sub categories

a. Transactions with the company

By definition where a director enters into a transaction with a company there is a

conflict between the directors interest (to do well for himself out of the

transaction) and his duty to the company(to ensure that the company gets as

much as it can out of the transaction) This rule is so strictly enforced that even

where the conflict of interest or conflict of duty is purely hypothetical the directors

can be forced to disgorge all personal gains arising from it.

b. Use of corporate property, opportunity or information.

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Directors must not without the formal consent of the company, use for their own

profit the companies assets, opportunities or information. This prohibition is much

less flexible than the prohibition against transaction with the company

c. Competing with the company

Directors cannot clearly compete directly with the company without a conflict of

interests arising. Similarly they should not act as directors of competing

companies as their duties to each company would then conflict with each other.

2.12.7. THE FUTURE

Historically director’s duties have been owed almost exclusively to the company

and it members and the board was expected to exercise its powers for the financial

benefit of the company.However more recently there have been attempt to soften the

position and provide for more scope of directors to act as good corporate citizen. For

example in the united kingdom the companies act 2006, not yet in force will require a

UK company “ to promote the success of the company for the benefit of its members

as a whole”, but sets out six factors to which a director must have regards in fulfilling

the duty to promote success. These are

1 The likely consequences of any decision in long term.

2 The interest of the company’s employees

3 The need to foster the company’s business relationships with suppliers,

customers and others

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4 The impact of the company’s operations on the community and the

environment

5 The desirability of the company maintaining a reputation for high

standard of business conduct

6 The need to act fairly as between members of a company

2.2.8. PROBLEMS WITH THE BOARD OF DIRECTORS

Ojigbani (ibid) highlighted that one of the greatest problems with board of

directors is that they are not sufficiently rewarded/motivated for their job to really give

it an effort.

The average director gets a token payment or allowance for his time and this

eventually is reflected in his performance. Most outside directors have other

business interest that must take preference. Because of these reasons it is often

very difficult to get complete attendance from any board.

To this must be added that in order to make any intelligent contribution, the

directors must be informed and educated on the issues and this takes a

considerable amount of time. What is worse, management often does not provide

this information and therefore the directors are not given the opportunity to render

effective service. In some organization, the board of directors seldom meets

frequently enough to be of any real value to the organization. This may be because

the management does not like the board to look over its shoulder and question the

59

operating decisions of the enterprise. As it turns out quite often, the level of

utilization of the board of directors rests solely with top management upon whose

recommendations the board members were selected.

2.12.9. FAILURES

While the primary responsibility of the boards is to ensure that the corporation’s

management is performing its job correctly, actually achieving this in practice

can be difficult. In a number of “corporate scandals’ of the 1990s, one notable

feature revealed in subsequent investigations is that board were not aware of

the activities of the managers that they hired, and the true financial state of the

corporation. A number of factors may be involved in this tendency.

a. most boards largely rely on management to report information to them thus

allowing management to place the desired ‘spin’ on information or even

conceal or lie about the true state of a company

b. Board of directors are part-time bodies whose members meet only

occasionally and may not know each other particularly well.

This unfamiliarity can make it difficult for board members to question

management.

c. CEOs tend to be rather forceful personalities.

In some cases CEOs are accused of exercising too much influence over

the company’s board.

60

d. Directors may not have the time or the skill required to understand the

details of corporate business allowing management to obscure problems.

e. The same directors who appoint the present CEO oversee his or her

performance. This makes it difficult for some directors to dispassionately

evaluate the CEO’s performance.

f. Directors often feel that a judgment of a manager particularly one who has

performed well in the past should be respected. This can be quite legitimate

but poses problems if the managers judgment in indeed flawed.

g. All of the above may contribute to a culture of not rocking the boat” at board

meetings.

2.13. THE WAY FORWARD IN AN ORGANIZATION

There are some essential principles which when applied by managers,

superiors and board of directors of an organization would sustain productivity

and high quality management

The principles are as follows

a. Accept your mistake, don’t try to blame others for your mistakes, admit it

when you are wrong and always use it as a learning opportunity.

b. Avoid gossiping and unconstructive criticisms especially in the office or in a

public place.

61

c. Consider everyone important. In any organization everybody is important

from the lowest officers to the chief executive officers.

d. Avoid unnecessary complaints. It is useful to appraise situation from

various perspectives before finding faults.

e. Competence and commitment: competence means being adequately

equipped with the knowledge and skills needed for the performance of specific

duties while commitments imply the willingness to perform.

f. Courtesy: visitors and callers deserve some courtesy from every officer in

any organization.

g. Effective and efficient communication: this is one of the keys towards the

achievement of the organizational goals and objectives.

h. Firmness and fairness: this implies ensuring that all are treated equally

without favoritism

j. Manpower development: this involves training and retraining of staff. This

may be through in service or educational programmes.

Any organization that desires to achieve its goals and objectives should not

overlook the need to develop its manpower.

k. Positive self image: this entails self confidence and having high self esteem

of oneself. It helps one to adjust very well to his environment, encourage good

relationship with others, ability to face problems positively and shape his

environment when it is possible and necessary.

62

l. Respect for authority: Any officer worthy of his professional calling needs to

be very sensitive to people’s feelings, situation, happiness and miseries. If the

staff is sensitive he will contribute meaningfully to any given circumstance. All

officers should respect the rules and regulation of the organization.

m. Staff motivation: Everyone that is worthy of incentive should be duly given,

for the staff to put in their best towards the attainment of organization

objectives and goals.

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2.14. MANAGING BOARD MEETINGS

Marie .c.etal (2003) posits that getting the maximum out of each board

meeting takes considerable work. Successful board meetings do not just happen.

It requires

1. PREPARATION – A board meeting is not meant to be a spontaneous

interaction. It has to be planned. Chief executive officers should prepare for each

board meeting as they would for a major-customer sales pitch.

2. ORGANISATION – it is important to think through the agenda carefully before

hand and segment the items based on what is actually required from the board.

3. APPROPRIATE STYLE OF MEETING MANAGEMENT.-. A board meeting is

not just another meeting. A CEO must consciously think about how to conduct it.

It is important to think about the format – should it be formal or informal? It is

important to think of the length- should be a half day or a full day, should it be

kicked off with a pre meeting dinner? It is not necessary or even desirable to

continue the style employed by the former CEO. In fact, it makes sense to

deliberately change some aspect of the way the meeting is conducted to

establish that it is not just continuation of the same process and a routine.

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REFERENCES

Becht, M etal: “ Corporate governance and control” August 2004, ECGI- finance working paper No 02/2002 (http://ssrn.com /abstract = 343461).

2. Bhagat and Black: The uncertain relationship between board compositions

and firm performance” 54, business lawyer. 3. Clarke & Thomas (2004) “Theories of corporate governance: the

philosophical foundations of corporate governance” London and New York: Routeledge ISBN-X.

4. Corporate Governance International Journal “ A board culture of corporate

Governance” vol 6 issue 3 2003. 5. Drucker P (1968) “Practice of management, London: pan books limited. 6. Hanson A.E.D. (1968) “Organizational and Administration of public enterprises

New York. 7. Higson C.J. (1986), Public enterprise and economic development, the Korean

Case” Seoui, Korean development Institutes. 8.http: //en. Wikipedia. Org/wiki/Board-of – Directors (2007) Board of Directors. 9. http: //en. Wikipedia. Org/wiki/corporate governance. 10. Kayode M.O. (1973): Management of Public enterprises in Nigeria,

proceeding of the annual conference of the Nigerian economic society, Ibadan.

11. Koontz O.D.W. (1980) “Management” Japan MC Grawhill.

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12. Marie- Caroline V.W: How to run a company, Crown business, New York.

& Dennis C.C. 13. OECD (2004) “Principles of Corporate Governance” Paris OECD. 14. Ojigbani JC (2003): Important of board of Directors in enhancing

effectiveness and efficiency in organizations “ A study of selected companies in Abia State.

15. They rule, net (http: // they rule. Net/) 16. Whiltington. G “ Corporate Governance and the Reputation of financial

reporting Accounting and business research, Vol.21993, Corporate Governance special issue pp 311-319.

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CHAPTER THREE

RESEACH METHOLOGY

3.1. INTRODUCTION

This chapter deals with the research methodology adopted for this study.

Issues to be discussed include the research design, population of study. Sources

of data for the study, the design of the questionnaire and its administration,

method of data analyses.

3.2. RESEARCH DESIGN

Any research study must be based on specific research design as to guide

the researcher in collecting and analyzing data for a given study and also

determine the relationship among variables and making an inference about the

variable so determined.

Abadella and Divine (1979) shows that research design is like a guide in

collecting and analyzing data for study.

In this study, the survey design was adopted. Data was collected from the

respondents using questionnaires

3.3. POPULATION OF STUDY/SAMPLE SIZE DETERMINATION

The population for this study comprises the staff of Imo Transport

Company; about 100 questionnaires were issued considering the small

number of middle and senior staff of the company

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The sampling size answers the questions of how many people are to be

surveyed. The sampling size of a population is important except when the size of

the population is small.

There is no fixed number that could be considered satisfactorily, the size

can be determined in so many ways

An example is the formula propounded by Yare Yamens (1973)

n = N

Where n = sample size

N = population size

e = margin of error

i = constant

3.4. SOURES OF DATA

The researcher made use of primary and secondary data

Primary source of data: this refers to the statistical materials which the

investigator originates for the purpose of inquiry in hand. The primary data used

here was collected through questionnaires administered.

Secondary source of data: these are all other data used in this project which was

not collected through any of the means previously mentioned. This was obtained

through extensive research and involves various studies, articles, books and

journals.

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3.5. DATA COLLECTION INSTRUMENT

The questionnaires were used to collect primary data; the questionnaires were

administered to the respondents through their sectioned heads. The library and

the internet served as the main resource centre for secondary data.

3.6. QUESTIONNAIRES DESIGN AND ADMINISTRATION

The questionnaire used contained close ended questions. The respondents

were required to tick the appropriate response. The objective was to make the

completion of the questionnaire as simple as possible for the respondents. And

also it was envisaged that it will make for easy classification and analysis of data.

Questionnaires were administered through the chief administrative officer, via

their sectional heads. The completed questionnaires were collected back through

the same route

3.7. METHOD OF DATA ANALYSIS

Data collected through the questionnaires were first classified and arranged in

frequency tables.

The analysis of questionnaires was done using the percentage method of analyses found by A% = a x 100 N

A%=percentage of responses to one option over the total responses to the

item.

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A = Number of responses to one option of each item of the

questionnaire

N = Total number of responses to an item.

The chi-square (x2) was also applied, in analyzing the hypothesis.

The chi-square measures the difference between the expected

frequencies and the observed frequencies. It is calculated by the formula

x2 = E (0 – E)2 E

Where O = Observed frequency

E = the expected frequency

0.1 is the level of significance.

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REFERENCES

1. Aham A. (2000), Research Methodology in business and social science, Owerri, Canon Publishers Nigeria Limited.

2. EG BUJOR A.A. (2006), An analyses of the impact of Internal control system on the effectiveness and efficiency of a business organization, a case study of Rancco Food and Packaging Company Limited Enugu, Department of Management University of Nigeria.

3. Ojigbani J.C. (2003), Importance of board of directors in enhancing effectiveness and efficiency in organizations, a study of selected Companies in Abia State. Department of Management, Imo State University Owerri.

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CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1. INTRODUCTION

This chapter deals with the presentation, interpretation and analyses of the

various data collected using appropriate analytical tool. Firstly the data collected by

means of questionnaires were tallies and presented in frequency tables.

The analyses of the data in respect of a particular question are immediately

followed by the presentation. This allows for clarity and simplicity.

The resulting hypothesis is also tested to show the result obtained.

4.2. ANALYSES OF RESPONSE TO QUESTIONNAIRE

The staff strength of the Administration unit of ITC is rather small. 100

questionnaires were distributed and all were returned.

TABLE 1

SEX NUMBER PERCENTAGE

Male 34 34

Female 60 66

Total 100 100

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From the above table, 66 percentage of the respondents are females and

34% males.

TABLE 2

AGE (YRS) NUMBER PERCENTAGE

Below 21 18 18

21-30 52 52

31-40 20 20

41-50 10 10

51 and above 0 0

Total 100 100

From the above table 18 of the respondents are below 21 years of age,

52 percent are between 21, 30 years, 20% is between 31-40 years, and

10 percent is between 41-50 years while there was no respondent above

51 years.

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TABLE 3

MARITAL STATUS NUMBER PERCENTAGE

Single 48 48

Married 52 52

Divorced / Separated 0 0

Widowed 0 0

Total 100 100

From the above table, 48 percent of the respondents are single, while 52 percent

are married. None of the respondents were divorced / separated nor widowed.

TABLE 4

LEVEL OF EDUCATION NUMBER PERCENTAGE

Primary 0 0

Secondary 62 62

Tertiary 26 26

Postgraduate 12 12

Total 100 100

From the above table, 62 percent of the respondents have secondary

school education, 26% tertiary and 12% postgraduate education.

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TABLE 5

STAFF CATEGORY NUMBER PERCENTAGE

Senor 16 16

Middle 28 28

Junior 56 56

Total 100 100

From the above table 60 percent of the respondents are senior staff, 28

percent middle level staff and 56 percent junior staff.

TABLE 6

LENGTH OF SERVICE (YRS) NUMBER PERCENTAGE

1-5 62 62

6-10 24 24

11-15 8 8

Above 15 6 6

Total 100 100

From the above table 62 percent of the respondents have put in between

1-5 years of service, 24 percent 6-10 years 8 percent 11-15 years and 6%

above 15 years.

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SECTION B

RESPONSE TO QUESTIONNAIRES

QUESTION 7

HAVE YOU HEARD ABOUT CORPORATE GOVERNANCE

RESPONSE NUMBER PERCENTAGE

YES 78 78

NO 22 22

TOTAL 100 100

From the above table, 78 percent of the respondents have heard about

corporate governance, While 22 percent have not heard of it.

QUESTION 9

DO YOU FEEL THE COOPERATE GOVERNANCE OF ITC CONTRIBUTES

POSITIVELY TO ITS PROFITABILITY

TABLE 8

RESPONDENT NUMBER PERCENTAGE

Yes 86 86

No 24 24

TOTAL 100 100

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QUESTION 10

DO YOU BELIEVE THAT THE WAY THE BOARD OF DIRECTORS ARE

APPOINTED (POLITICAL) IS GOOD FOR THE PROFITABILITY OF THE

COMPANY

TABLE 9

RESPONDENT NUMBER PERCENTAGE

YES 38 38

No 62 62

TOTAL 100 100

QUESTION 11

DO YOU AGREE THAT FREQUENT BOARD MEETINGS CONTRIBUTE

POSITIVELY TO THE PROFITABILITY OF THE COMPANY

TABLE 10

RESPONSE NUMBER PERCENTAGE

Yes 48 48

No 52 52

TOTAL 100 100

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QUESTION 12

DO YOU AGREE THAT FREQUENT CHANGE OF THE BOARD OF

DIRECTORS CONTRIBUTE POSITIVELY TO THE PROFITABILITY OF THE

COMPANY

TABLE 11

RESPONSE NUMBER PERCENTAGE

YES 48 48

No 52 52

TOTA