THE EFFECT OF CORPORATE GOVERNANCE ON THE PERFORMANCE OF FORTE OIL NIGERIA PLC, KADUNA

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THE EFFECT OF CORPORATE GOVERNANCE ON THE PERFORMANCE OF FORTE OIL NIGERIA PLC, KADUNA

ABSTRACT

This study examined the corporate governance and its impact on the management of Forte Oil Nigeria Plc Kaduna. Research questions guided the study. A survey method was used for this study. The population consisted of all the management staff of Forte Oil Nigeria Plc Kaduna with a total population of twenty five (25) persons. The entire 25 person were selected for the study. A questionnaire developed by the researcher based on liker 5 point scale was used for the study. Mean scores and frequencies were used to analyze the data based on the research questions. Research results shows that internal and external mechanism of corporate governance are used to regulate the performance of Forte Oil Nigeria Plc. The control mechanism put in place by Forte Oil Nigeria Plc include internal and external auditing as well as board of director monitoring and balance of power. The systemic problems militating against corporate governance include high cost of monitoring, inadequate supply of accounting information to shareholders.

TABLE OF CONTENTS

Title page i

Declaration ii

Approval Page iii

Dedication iv

Acknowledgment v

Abstract vi

Table of Contents vii

CHAPTER ONE: INTRODUCTION

Background of the Study 1
1. Statement of the Problem 3
1. Objective of the Study 4
1. Significance of the Study 5
1. Research Questions 5
1. Scope of the Study 6
1. Definition of Terms 6

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction 8

2.1 The Concept of Corporate Governance 8

2.2 Principles of Corporate Governance 10

2.3 The Impact of Corporate Governance on the Performance of Corporate Organizations 12

2.4 Internal and External Corporate governance control mechanism 15

2.5 The Systemic Problems of Corporate Governance 18

2.6 Corporate Governance Models around the World 19

2.7 Regulation in Corporate Governance 22

2.8 Parties to Corporate Governance 25

2.9 Summary of the Literature Review 31

CHAPTER THREE: METHODOLOGY

3.1 Introduction 32

3.2 Research Design 32

3.3 Area of Study 32

3.4 Population of the Study 32

3.5 Sample Size and Sampling Technique 33

3.6 Instrument of Data Collection 33

3.7 Validation of the Instrument 33

3.8 Reliability of Instrument 34

3.9 Method of Data Collection 34

3.10 Method of Data Analysis 34

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction 36

4.2 Characteristics of Respondents 36

4.3 Data Analysis 37

4.4 Summary of Findings 43

4.5 Discussion of Findings 44

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction 46

5.1 Summary 46

5.2 Conclusion 47

5.3 Recommendations 48

References 50

Appendix 52

CHAPTER ONE

INTRODUCTION

Background of the Study

Corporate Governance is a number of process, customers, policies, laws and institutions which impacts on the way a company is controlled. An important theme of corporate governance is the nature and extent of accountability of people in the business and mechanisms that try to decrease the principal agent problem (Wikipedia, 2011).

Corporate Governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. In contemporary business corporations, the main external stakeholder groups are shareholders, debt holders, trade creditors, suppliers, customer and communities affected by the corporation’s activities. Informal stakeholders are the board of directors, executives and other employees. It guarantees that an enterprise is directed and controlled in a responsible, professional, and transparent manner with the purpose of safeguarding its long-tem success it is intended to increase the confidence of shareholders and capital market investors.

The World Bank (2009) states that corporate governance comprises two mechanisms, internal and external corporate governance. Internal corporate governance, giving priority to shareholder’s interest, operated on the board of directors to monitor top management. On the other hand, external corporate governance monitors and controls manager’s behaviors by means of external regulations and force, in which many parties, such as suppliers, debtors (stakeholders), accountants, lawyers, and providers of credit and investment bank.

In the past, so many corporate organizations have been caught of getting involved in unethical practices, for example the discovery of financial scam by the Central Bank of Nigeria after the consolidation exercise, involving seven top bank executives in Nigeria, which puts the credibility of their corporate image under suspicion, which further shocking investors confidence. Consequently, corporate governance mechanism has been a crucial issue discussed again.

It is against this background that the researcher see the subject matter; corporate governance and its impact on the management of Forte Oil Nigeria Plc, Kaduna as an issue worthy of being investigated.

Statement of Problem

In the past, so many organizations in Nigeria have been involved in unethical practices, which puts the credibility of their corporate image doubt. As such Forte Oil Nigerria Limited just like other oil company have been constraint with issues arising form customer’s complaint of exploitations of workers by using contract staff as against direct engagement of workers that would be remunerated according to their condition of service. Previous researches into the subject has brought to light the poor governance of so many companies with indebted accounts in Nigeria economy. Their accounting systems did not reflect the companies financial status. A typical example is the financial scam of Oceanic and Intercontinental Bank after the consolidation. Most management of such outfits were not accountable to stakeholders of the companies. Besides, the counts and the regulatory agencies were short of authority, corruption and kickbacks were part of the system in the companies. The poor governance practices led to the collapse of so many companies in Nigeria. Hence the need to study corporate governance and its impact on the management of Forte Oil Nigeria Plc Kaduna.

Objective of the Study

The main objective of the study is to examine the corporate governance and its impact on the management of Forte Oil Nigeria Plc. The specific objectives are:

To examine the effect of corporate governance on the performance of Forte Oil Nigeria Plc.
To examine the internal and external corporate governance control mechanism in Forte Oil Nigeria Plc.
To identify the systemic problems of corporate governance in Forte Oil Nigeria Plc.
To proffer workable solutions to the identified problem of corporate governance in Forte Oil Nigeria Plc.
1. Significance of the Study

The study will be significant to Forte Oil Nigeria Plc especially as they utilize the findings of this research in enhancing policy governance in their organization. The study will also add to the existing knowledge on the subject matter and will also be a reference material for further research on corporate governance.

Research Questions

The central research question is: What is the impact of corporate governance on the management of Forte Oil Nigeria Plc? The specific questions are:

How does corporate governance affect the performance of Forte Oil Nigeria Plc?
What are the internal and external corporate governance control mechanism in place in Forte Oil Nigeria Plc?
What are the systemic problems militating against corporate governance in Forte Oil Nigeria Plc?
What are the solutions to such problems?
1. Scope of the Study

The study covers the examination of the impact of corporate governance on Forte Oil Nigeria Plc. The collection of empirical data is limited to Forte Oil Nigeria Plc Kaduna main office. The study covers a time from 2006 – 2011.

1.7 Limitation of the Study

The limitation of this study arise from the shortcoming of the research design, the instrument of data collection and the non-challant attitude of respondents. For the fact that the survey study is used it is not certain whether other research design such as the descriptive design, historical design or ex-post design will yield the same result. It is not also certain if the same result would be obtained if other kind of instrument of data collection other than the questionnaire is used to obtain data. Besides, the non-challant attitude of the respondents and the over exaggeration or understatement of their responses when scoring the items in the questionnaire could affect the validity of their responses. These limitations should be taken cognizance of by other researchers conducting similar studies.

Definition of Terms

Corporate Governance: This is relationship that exists between the different participants, and defining the direction of the firm.

Corporation: This refers to corporate entity or a body by means of which capital is acquired, used for investing in assets producing goods and services.

Shareholders: People who have invested in a company through subscribing to the company’s stock.

Board Structure: Management at the top comprising of board of directors.

Ownership Structure: Shareholders and directors.

CEO: Acronym for Chief Executive Officer.

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