Giwa: Companies That Fail on Corporate Governance are Viewed as High-Risk Investment Option

The Head, Governance and Sustainability, Honeywell Group, Mrs. Yewande Giwa, who is responsible for implementing and managing the governance framework for the group, in a recent interview spoke on the implications of corporate governance on companies. Dike Onwuamaeze brings the excerpts: 

What is your view about the state of corporate governance in Nigeria with emphasis on how it affects investment in the economy? In recent years, regulators have implemented several measures aimed at improving corporate governance in the investment sector. For instance, the Financial Reporting Council of Nigeria (FRCN) developed the Nigerian Code of Corporate Governance 2018, which replaced all existing sectoral codes of corporate governance. In addition, the Securities and Exchange Commission developed additional recommended practices via the SEC Corporate Governance Guidelines. Both the code and the guidelines set out principles for entrenching sound corporate governance practices that seek to promote transparency, accountability, and ethical conduct among companies in Nigeria. These regulatory interventions have helped to enhance governance practices in the corporate sector. But there is still a lot of work to be done to ensure that companies operate transparently and accountably. It is, therefore, in organisations’ best interests to adhere to these principles, not only to drive the right corporate culture but also to prevent the financial and reputational risk occasioned by breach.

How does lax corporate governance affect the flow of foreign investments into Nigeria? Laxity in compliance with corporate governance standards would adversely impact investors’ interest in Nigeria because foreign investors are increasingly demanding for higher levels of transparency in doing business. They often opt to invest their funds in companies that satisfy defined governance metrics. Development Finance Institutions also seek out investment partners that meet various criteria, including adherence to ESG principles and stakeholder satisfaction. Therefore, companies that fail to meet these expectations are often viewed as high-risk investments. The implications may include higher borrowing costs, lower valuations, and reduced access to capital markets. All or any of these will negatively impact a company’s financial performance. It is, therefore, crucial that the Nigerian government and relevant regulatory bodies should continue to prioritise the improvement of corporate governance practices to boost confidence in the investment environment, attract foreign investment, and support sustainable economic growth.

The federal government has set up committees to produce governance codes for both the public sector and not-for-profit organisations. What benefits can these bring to the country? The development of governance codes for the public and not-for-profit sectors is a welcome development, as organisations in these sectors have the same duty as those in the private sector to protect the interests of their stakeholders. Their governance codes are expected to bring about several benefits, including improved accountability and increased transparency. This will build public trust and confidence and deter corruption and other forms of misconduct. In addition, governance codes can help public sector and not-for-profit organisations to operate more efficiently by promoting best practices in areas such as financial management, risk management, and performance measurement.

On a general note, how would you assess the implementation of corporate governance in the country, both in public and private sectors? There has been some progress in the implementation of corporate governance in both private and public sectors in the country. Not too long ago, the term ‘corporate governance’ was an unfamiliar concept to many organisations. Thankfully, there has been a shift in this mindset as organisations have become more cognisant of their responsibility to a wider pool of stakeholders and are beginning to entrench sound governance principles in their operations. However, there is still a long way to go, especially in changing our mindset and approach to doing business generally.

What are the unique challenges facing the private sector face in this regard and how can they be fixed? One of the primary challenges is the issue of transparency. Private companies are not subject to the same disclosure obligations as public companies, which makes it difficult for stakeholders to assess their performance and make informed decisions. To address this challenge, private companies should implement a voluntary reporting framework or adopt best practices that promote transparency and disclosure. Another challenge is ensuring accountability. Private companies usually have a more concentrated ownership structure, with a small number of shareholders or family members exercising significant control over the company. This makes it challenging to ensure that the company’s interests are aligned with those of all stakeholders. But these challenges can be addressed by establishing independent boards of directors, implementing performance-based compensation structures, and adopting ethical standards that promote accountability.

Will the development of the Nigerian public sector governance code in any way affect the private sector? The development of the Nigerian Public Sector Governance Code (NPSGC) is a positive step towards improving public sector governance in Nigeria. The code aims to provide guidelines for public sector organisations to improve their governance practices. Doing so will enhance the performance of public sector organisations and ultimately lead to improved service delivery to citizens. The NPSGC will also have an impact on the private sector, as it will provide a benchmark for good governance practices that private sector organisations will adopt. In addition, the NPSGC will create a level playing field for both the public and private sectors. The code’s guidelines will apply to all public sector organisations and those in the private sector that interact with them will also need to adhere to the code’s principles. This will create a more transparent and accountable business environment and promote fair competition.

What are the objectives of Honeywell Group’s sustainability structure and what is the company doing to achieve these objectives? Honeywell Group identifies sustainability as the delivery of long-term value to stakeholders. This is aptly captured by our vision statement, which says that we are “an investment holding company, committed to creating value that transcends generations.” We are committed to positively impacting all stakeholders, using economic, social, and governance principles as a yardstick for measuring performance. We are a proudly indigenous conglomerate, and through our investments in key sectors of the Nigerian economy, including financial services, technology, oil and gas, real estate, hospitality, and infrastructure, we are able to create value and improve lives. Honeywell Group also funded Itanna, a supporting institute for mentoring and funding innovative and entrepreneurial talents in the tech startup ecosystem. One of the institute’s key support channels was the accelerator programme, a four-month impact initiative where graduates received up to $30,000 or its Naira equivalent from Honeywell Group, mentorship from industry leaders, and more. The impact of the support programme in Itanna has been immense. The organisation has also maintained a partnership with Lagos State Employment Trust Fund (LSETF) for three years, with the intent to equip successful applicants with mentorship and hands-on training opportunities through the Lagos Innovates program. Last year, 260 beneficiaries were selected from a pool of over 1000 candidates for the initiative. The programme successfully graduated beneficiaries from its first cohort in February 2023.

How can sustainability in the investment and financial sectors in Nigeria drive innovation? Sustainable finance refers to the integration of environmental, social, and governance considerations into financial decision-making. So, by promoting sustainable finance in Nigeria, the financial sector will be able to encourage companies to adopt sustainable practices and develop innovative solutions that address sustainability challenges. Also, encouraging green investments, and sustainability initiatives promote investment in renewable energy, energy efficiency, and other sustainable projects that drive innovation in the country. Such investments will lead to the development of new technologies, products, and services that are more efficient and environmentally friendly. Impact investing is a type of investment that aims to generate positive social and environmental impact alongside financial returns. By supporting impact investing in Nigeria, the financial sector can encourage innovation in areas such as healthcare, education, and agriculture, leading to the development of new products and services that benefit society.

How has the CSR of the Honeywell Group improved in the past decade, and your plans for the next decade? Honeywell Group’s strategy is one that aligns with its core values, mission, and vision to create shared value for both the company and its stakeholders. One of our core values as a company is collaboration – working with our stakeholders to deliver outstanding results and foster an environment built on trust.  Honeywell Group has been more intentional in building partnerships and collaborating with partners who share similar values. The partnership with the LSETF on the Lagos Innovates Talent Development Programme is a practical demonstration of this intentionality. Looking to the future, we hope to continue evolving and constantly refining the ways we deliver value to our stakeholders. 

Do diversity, equity, and inclusion in a company’s board of directors positively affect corporate performance? Research suggests that diversity, equity, and inclusion (DEI) in a company’s board of directors positively affect corporate performance. A diverse board brings a wider range of perspectives, experiences, and backgrounds to the table. This can lead to more creative problem-solving and decision-making, which ultimately benefit the company’s performance. When a board is diverse, it reduces the risk of groupthink and increases the likelihood of more informed decision-making. This is because diverse perspectives help identify blind spots and challenge assumptions, leading to more robust and effective decision-making. So, companies that prioritise diversity, equity and inclusion are often seen as more attractive employers to a wider range of job seekers, leading to a broader pool of candidates to choose from, and ultimately resulting in more diverse and talented employees. A board with diverse perspectives helps a company stay ahead of the curve and drive innovation. Diverse perspectives also help identify emerging trends and opportunities that might be missed by a more homogeneous group. Companies that prioritise diversity, equity and inclusion are often viewed more positively by consumers and investors, which lead to enhanced brand reputation and increased customer loyalty. This ultimately benefits the company’s bottom line.