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CGRS will foster transparency, competitiveness – NSE

By on January 31, 2014

The Nigerian Stock Exchange says a new Corporate Governance Rating System it unveiled on Wednesday in partnership with Convention on Business Integrity will encourage greater market transparency, competiveness and better governance.

The Chief Executive Officer, NSE, Mr. Oscar Onyema, who was represented by the Executive Director, Business Development and Technology, Mr. Haruna Jalo-Waziri, said the initiative was the output of the Exchange’s commitment to the entrenchment of good corporate governance in the Nigerian business environment by implementing strong regulatory reforms.

“Sound corporate governance practices are also critical to earning and retaining the trust of all stakeholders, including investors, financiers, team members, customers, suppliers and the general public,” he said.

Onyema, who stressed that “significant thought, research and brain storming went into developing the CGRS,” said he was confident that the system would have several positive impacts.

He added that the ratings and subsequent rankings would feed into two other important projects of the Exchange.

He explained that the first is the Premium Board, which the NSE plans to inaugurate this year.

He said, “The Premium Board will comprise companies that adhere to the highest corporate governance standards based on the ratings and rankings from the CGRS.

“Other factors to be considered for Premium Board qualification include a market capitalisation in excess of $1bn as well as whether the listed company being considered for the Premium Board meets the applicable threshold fixed for market liquidity of its shares.”

Onyema said in the longer time frame, the Exchange intended to use the ratings to develop a tradable Corporate Governance Index.

According to the Executive Director, CBI, Mr. Soji Apampa, the CGRS will facilitate a robust corporate governance system for Nigeria that will incorporate a number of other elements to ensure support for the objectives of regulation.

Some of the expected impacts, according to him, are improved investor confidence, higher valuation of listed companies, access to cheaper funds and longer term investment.

Other benefits include enhanced liquidity and tradability, better operational performance and improved financial performance.

Apampa explained that in designing the CGRS, among other things, questions were asked about what constituted acceptable knowledge pursuits in corporate governance in Nigeria and it was agreed a Corporate Governance Index would be worthwhile.

According to him, the CGRS is based on a combination of approaches; assessment of facts about and reasons for company performance on governance, interpretation of the realities of the context for governance of listed companies and assessment of what is a “good” company and what is not “good” to name and shame.

Apampa said companies would be rated for three things – corporate integrity (40 per cent), fiduciary awareness (10 per cent) and corporate compliance (50 per cent).

Corporate integrity would reflect the level of compliance with NSE rules and listing regulations as well as Securities and Exchange Commission’s Code of Corporate Governance and the company’s reputation.

Corporate integrity rating would involve interviews with employees, managers, investors and regulators, among others.

In rating companies for their fiduciary awareness, the CBI ED said directors would be tested to determine whether they possess a minimum understanding of their fiduciary responsibilities and understanding of their roles and responsibilities on specialist committees.

According to him, listed companies will assess themselves for corporate compliance.

He said the whole process would take about six weeks, adding that at least once in three years, all companies’ submissions would be audited to verify their integrity.

Apampa, who admitted that there   were methodology, governance and result risks with the system, stressed that checks have been put in place against such risks.

For instance, he said the CEOs or managing directors of companies would have to endorse their self-assessment results, while the NSE would not be directly involved in the assessments.

[Punch]