PRINCIPLE OF ‘COMPLY AND EXPLAIN’ AS AN ENFORCEMENT MECHANISM TO CORPORATE GOVERNANCE CODES FOR PUBLIC COMPANIES IN NIGERIA

Abstract

This work examined how a mandatory application of codes of corporate governance in Public Companies can be enforced using the principle of comply and explain. The extent and worth of decision making in a firm determines the forward movement of the company, its movement backward or whether it would be stagnant in relation to its corporate interest. In every corporate entity, the gulf between the interest of those who provide external capital and those who have control over the firm often creates a ‘principal-agent problem, this can be resolved through the application of corporate governance. More importantly is the application and enforcement of corporate governance codes. It is observed that the several cases of financial scandal and collapse of companies in Nigeria are characterized by poor regime of corporate governance practices. These failures which gave rise to bank consolidation and recapitalization would have been averted if there were mandatory compliance with the code of corporate governance. The core principle of comply and explain is in response to the need to have a strict compliance financial governance laws particularly with respect to the practices in public companies where members of the public sometimes stake their life savings in investment. This necessity for a regulatory regime brought about the National Code of Corporate Governance which was envisaged by the Financial Reporting Council Act 2011. This work downplayed the need for a self-regulatory system of compliance with the codes of corporate governance. It argued that this self-regulatory regime which underscores flexibility will not strengthen the Nigeria corporate governance structure and values. Attendant challenges of enforcement were examined and recommendations suggested.