Effects of Corporate Governance on Organisational Performance in Nigeria Case Study of Nestle Nig PLC
Chapter One
Research Objectives
The study focused at achieving the outlined objectives:
- To establish the relationship between corporate governance and the Organizational Performance of Nestle Nig PLC in Nigeria.
- To examine the effect of the board size composition on the Organizational Performance of the Nestle Nig PLC in Nigeria.
- To establish how independent committees of corporate governance influence Organizational Performance of Nestle Nig PLC in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
Introduction
The chapter briefly presents the overview of corporate governance, Organizational Performance and the literature reviewed on similar studies. This chapter also reviews significant theories in corporate governance which are relevant to this study. The relevant theories include agency theory, stewardship theory, stakeholder theory and resource dependency theory. This chapter also provides the conceptual framework of the study.
The Industrial Development Corporation of Nigeria and Its role
The Industrial Development Corporation (IDC) was incorporated in January 2014 and is wholly owned by the government through the Minister of Finance pursuant to the Minister of Finance (Incorporation) Act Cap 349 of the Laws of Nigeria. IDC’s corporate Strategy for 2017 outlines its strategic focus and it is governed by principles such as active investor and shareholder, forward looking and institution trusted-steward. The President of the Republic of Nigeria chairs all board meetings and has the power to appoint, reappoint, or remove Board members. The Board is accountable to the President to ensure that every disposal of investment is transacted at fair market value. The Board comprises Cabinet Ministers of Finance, Commerce Trade and Industry, and Agriculture [3]; civil servants [2], the Secretary to the Treasury and Permanent Secretary for Commerce Trade and Industry; private sector members [7] and Executive Directors of the IDC as ex-officio members [3] (KPMG, 2018).
The main role of IDC is to enhance industrial capability of Nigeria thereby boosting economic growth and industrial development as well as to oversee the functions of Nestle Nigeria PLC so that they deliver or operate effectively and efficiently (Mwanawasa, 2016). Although IDC may claim to have independent directors, this may be in name only as undue political influence is involved such that directors are given positions on the board based on their political connections rather than skill and expertise. This causes governance from the independent director’s point of view so difficult to make informed and independent decisions. These governance challenges affect the industry performance.
The concept of Corporate Governance
The show on the Organization for Economic Co-activity and improvement 2004(OECD) characterizes corporate administration in wording the connections between the associations executives, the administration and all partners.’ In different discussions corporate administration has been characterized as a blend of the two procedures and frameworks used to direct and control associations just as making them responsible. Corporate Governance along these lines, can be taken a gander at as the manner by which firms practice their compelling in the stewardship of the organization’s resources and assets with the point of augmenting investors’ riches while mulling over of different partners with regards to Business organizations (PSCGT, 1999).
In an increasingly intricate manner corporate administration is a mix of guidelines, practices and procedures by which associations are guided and controlled as they endeavours to adjust the enthusiasm of every one of their partners. As indicated by Bauer et al. (2004) corporate administration includes coordinating and dealing with the exercises of the association with the point of expanding the investors’ riches while placing into thought other partners’ inclinations.
Corporate administration may consequently be seen as the arrangement of decides and guidelines that oversee the partnerships’ administration conduct every day. These principles incorporate individual hierarchical culture and different practices that enable it to keep up great administration rehearses even without solid checking foundations. The practices among others incorporate the accompanying; the partnership’s directorate qualities, the possession structure of the organization, money related straightforwardness and data divulgence (Wasike, 2012).
Corporate Governance and Organizational Performance
Organizational Performance alludes to the degree which an association accomplishes its money related objectives and targets. It essentially implies estimating the organization strategies and activities in money related terms. It is the general budgetary wellbeing proportion of an association that can be contrasted with another association with comparable attributes (Hales, 2005). As per Rutagi (1997) budgetary execution of an association is the way well that association is performing while Namis, (2002) characterized execution as the degree to which associations meets its objectives. This type performance is also measured in terms of solvency, profitability, liquidity, financial efficiency and how fast the organization repays its obligations (Brealey et al., 2009). The Organizational Performance measure used for this study is the return on assets (ROA).
ROA measures how an organization converts its assets into earnings. It shows how efficient the management is using the organizations assets to generate revenues. Pandey (2010) states that corporate governance through the size of board can affect the financial position of the Nestle Nig PLC in two distinctive ways; the first way is that when the board size is big, more money is paid to the members of the board which as result will decrease the profitability of the Nestle Nigeria PLC. The second way is that the financial position goes up when the board size is reduced. This therefore shows how important it is to have corporate governance managed effectively.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter introduces the strategy applied in accomplishing the planned objective of this research. The chapter looked at the research design (section 3.2), population of the study (section 3.3), sampling design (section 3.4), research approach (section 3.5), data collection (section 3.6), data analysis (section 3.7) and validity and reliability of data (section 3.8).
Research design and approach
Descriptive research design was used in this research. The suitability of this plan was that it enabled the researcher to utilize quantitative information in attempting to build up the impact of corporate administration on the money related execution of Nestle Nig PLC in Nigeria. Descriptive survey structures was utilized by the researcher to assemble data, abridge, display and translate it so as to get more explanation on issues. This investigation along these lines had the option to sum up the discoveries to the entire populace of study. The Quantitative methodology was utilized in this research. This approach does help accumulate information in a numerical structure which can be placed into classes, or in rank request, or estimated in units of estimation (Denzin, 2014). This kind of information can be utilized to build diagrams and tables of crude information.
Population of the Study
Saunders, Lewis and Thorn (2003) refers to population as a gathering of individuals, articles, people or things on which an example is separated for investigation and from which speculation can be made of the entire population. The population of this study consisted of Nestle Nig PLC in Nigeria. The employees in management in Nestle Nig PLC formed the target population for this study because they were considered to be well vested on corporate governance matters and therefore well placed to properly answer the questionnaire.
CHAPTER FOUR:
RESULTS AND DISCUSSION
Introduction
This chapter comprises data analysis, presentation and discussion of the findings. The data presented includes response rate, background information of the respondents and a presentation of the findings against each individual objective of the study. The analysed and presented data was built on the responses to the items contained in the questionnaires. Descriptive statistics are equally used in analysing the results of this research.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
introduction
The main aim of this chapter was to provide a summary, conclusion and make necessary recommendations based on the findings in this research. It also outlines the contribution to the body of knowledge and suggestions for further study. The research’s conclusions and recommendations driven were aimed at attending or addressing the main goal of this research which was to assess the Effect of Corporate Governance on The Organizational Performance of State- Owned Enterprises in Nigeria. A Case of Nestle Nig PLC in Lagos.
Summary of the research
As stated by Maina (2017), Nestle Nigeria PLC are set up by government to provide goods and services to the general public which private sector cannot provide much especially at lower cost. That being said, the research found that for Nestle Nig PLC in Nigeria, Government is the largest shareholder and substantial voting level and that IDC is involved in appointing board of directors. The research discovered that holding other things constant, corporate governance plays an important role in the Organizational Performance of Nestle Nig PLC.
Correlation and regression analysis carried out on the research variables discovered that all the study variables apart from firm size had a negative relationship with Organizational Performance of Nestle Nig PLC in Nigeria. The findings are contrary to those of Maina (2017), Uadiale (2010) and Armstrong (2011) who found all corporate governance attributes influence positively Organizational Performance of organizations.
The negative relationship found between Organizational Performance of Nestle Nig PLC and board size, board composition and independent committees were in agreement with the reviewed literature that there is a negative relationship found between Organizational Performance of Nestle Nig PLC and board size, board composition and independent committees (lipton, 2012; Yermarch, 2016 and Jones, 2014). Furthermore, the research found a positive relationship between firm size and Organizational Performance of Nestle Nig PLC thereby agreeing with Mansfield (1962) cited in Maina (2017) that bigger organizations take advantage of economies of scale and therefore perform much better than the smaller ones. The results are however contrary with the findings of Yang and Cheng (2009) cited in Maina (2017) who stated that firms that are small in size exhibit flexibility which is idea in changing business environment hence performing far much better that bigger firms.
Conclusion
The research focused on the effect of Corporate Governance on The Organizational Performance of Nestle Nigeria PLC in Nigeria. A Case of Nestle Nig PLC in Lagos. The corporate governance attributes applied in this research composed of firm size, board size, independent committees and board composition.
The study found that there is a positive relationship between firm size and Organizational Performance of Nestle Nig PLC thereby agreeing with Mansfield (1962) cited in Maina (2017) that bigger organizations take advantage of economies of scale and therefore perform much better than the smaller ones. The study findings just as was conceptualized in the empirical and theoretical framework show that there is an influence of corporate governance on the Organizational Performance of Nestle Nig PLC in Nigeria just as was theorized in stakeholder theory. The research also found that there is a negative relationship between board size, independent committees and body compositions with Organizational Performance of Nestle Nig PLC in respect to ROA. These results do not resonates with those of Otieno (2010) who contemplated the impact of corporate administration on the exhibition of organizations recorded at the Nairobi Securities Exchange (NSE), discovered that there is a positive connection among execution and board arrangement, administration exposure issues, investor rights and pay.
The research therefore concludes that excellent corporate governance practices are positively correlated to the performance of Nestle Nigeria PLC. The research also concludes that Nestle Nig PLC in Nigeria should focus their efforts towards these variables if they want to improve their Organizational Performance, however caution must be exercised because there other factors outside the parameters of corporate governance that could significantly impact the performance of Nestle Nig PLC.
Recommendations
Based on the findings of this research, the following are the recommendations;
- Nestle Nig PLC should focus their efforts towards board size, independent committees and board compositions if they want to improve their Organizational Performance as these showed a negative impact on Return on Assets for the Nestle Nig PLC.
- Decrease Finance regulatory cost (Finance Leadership)
- Permanent survey of Gross Margins (Financial Planning)
- Cost regulation projects (following framework) (Controllership)
- Nestle Nigeria PLC should continue to invest in project that will enable them to grow as the research found that firm size has positive impact on the Organizational Performance of
- To the policy formulation agencies; just as suggested by Maina (2017), good corporate governance practices is an important attributes of every established organization either owned by the government or fully private, profit making or not for profit making therefore Nestle Nig PLC should continue carrying out corporate governance
- Administrators should look at their organizations current Corporate Governance procedures to decide in the event that they are successful in arriving at authoritative objectives or if changes are expected to improve authoritative execution
- Senior-level administrators and every day operational administration ought to be required to take at least 20 hours of proceeding with instruction courses in Corporate Governance for their industry.
REFERENCES
- Abatecola G, Caputo A, Mari M, & Poggesi S (2012). Relations among corporate administration, sets of principles, and the benefit of open utilities: an observational investigation of organizations on the Italian stock trade. Int J Manag 29(2):611–626
- Afsharipour A (2009). Corporate administration union: exercises from the Indian experience. NWJ Int’l 29:335.
- Alchian, A. A., & Damtez, H.(2012). Production, Information Costs, and, and Economic Organization. The American Economic Review, 62, 777-795.
- Arif K, Syed N (2015). Impact of corporate administration on execution of a firm: an examination between business banks and monetary administrations organizations of Pakistan. European Journal of Business and Management 7(10):54–60
- Ashraf M, Bashir A, & Asghar N (2017). Impact of corporate administration on firms’ monetary exhibition: material segment of Pakistan. Global Journal of Business and Management Invention 6(5):13–19
- Bauer R, Frijns B, Otten R, & Tourani-Rad A (2008). The effect of corporate administration on corporate execution: proof from Japan. Pac Basin Financ J 16(3):236–251
- Beiner S, Drobetz W, Schmid MM, & Zimmermann H (2006). An incorporated system of corporate administration and firm valuation. Eur Financ Manag 12(2):249–283
- Bhagat S, & Bolton B (2008). Corporate administration and firm execution. Journal of Corporate Finance 14(3):257–273
- Botosan C.A. (2006). Disclosure and the expense of capital: what do we know? Record Bus Res 36(sup1):31–40
