Corporate Governance Worsens as Companies Withhold Financial Results

There are indications that more companies are now failing to comply with the post-listing requirements of the Nigerian Exchange Limited (NGX) with regards to rendition of periodic financial reports and accounts in apparent disregard of corporate governance practice.

Financial Vanguard  findings in the compliance status of the quoted companies as at end of November 2021  shows a significant increase in penalties as the total monetary fine imposed on the defaulters within the period stood at N730.53 million. 

Specifically, the financial sanctions imposed on the companies rose to N730.53 million as at end November 2021, a 243.3 percent increase compared to N212.80 million in the whole of 2020.

Also the number of defaulting companies increased to 24 from 21 in 2020.

Periodic and timely rendition of financial results to the NGX, is one of the key elements in the post-listing requirements of the Exchange which failure attracts penalties.

According to the rule book of the NGX, “Companies listed on NGX are required to file their financial statements on a timely basis in accordance with the Rules for Filing of Accounts and Treatment of Default Filing.

“Every listed company is required to provide NGX with timely information to enable it efficiently perform its function of maintaining an orderly market.”

A breakdown shows that insurance companies constitute bulk of the defaulters with seven of the 24 companies so far this year being operators from the sector.

Shareholders have, therefore, called on the NGX to adopt a name and shame strategy to deter companies’ board of directors from continuously flouting the rule, while at the same time considering possible incentives for complaint companies.

Details of defaults

Meanwhile, a breakdown of the sanction for 2021 shows that Omakek Ventures Plc accounted for 73.5 percent of the total monetary fines imposed on the companies for failure to file its audited full year accounts on time for 2015 to 2018 financial year. This is followed by the seven insurance companies, which accounted for 12.9 percent of the total fines at N94.2 million, while Juli Plc ranked third with 9.6 percent of the sanction in 2021.

Others are FTN Cocoa Processors Nigeria Plc (N500,000), NPF Microfinance Bank Plc (N1.6m), C & I Leasing Plc (N1.3m), Notore Chemicals Industries Plc (N200,000), Vitafoam Nigeria Plc (N200,000), Juli Plc (N70.2m), Greif Nigeria Plc (N500,000) and Omatek Ventures Plc (N537.2m). 

Shareholders worry

Shareholders, who spoke to  Financial Vanguard  recommended incentives for compliant companies, forbearance as well as naming and shaming to stem the tide. They said that the Exchange should go beyond imposition of financial sanctions and engage the companies with a view to ascertain the reasons for the default.

Patrick Ajudua, Chairman, New Dimension Shareholders Association (NDSA) said:  “The rate of default is of great concern not only to the NGX but investors and all stakeholders alike. Every company listed on the stock exchange do subscribe to post listing rule of the exchange and therefore, they are to render timely financial reports to the exchange. Therefore, non-rendition and non-compliance with the  rule should earn them appropriate sanction. We as shareholders are not happy with the default.

“If there is a problem, the necessary things to do is to find out why the problem kept on reoccurring despite the huge financial sanction imposed on them.”

Giving possible reasons for the failure, he said: “The first is the problem of delayed approval from their primary regulators. Second is the delay experienced from the external auditors in completing their work which might be from them or the companies. Third is the deliberate delay from the management of the companies due to reasons known to them. 

“Lastly is reasons beyond their control as seen during the Covid-19 pandemic or other natural disasters.

“It is, therefore, incumbent on the exchange to go beyond sanctions and   try to address the issues listed above frontally. They engage each company and join them to address those issues causing the delay in rendition of financial accounts.” 

He said there is the need for the Exchange to also engage the primary regulators of the various companies to see how they can jointly resolve the problem. 

“Also, there is need to sanction directly any officer of the company causing the delay. There is also need to publish these sanctions in the newspapers as a warning to would-be investors of the companies to know that the company is always in default of rendering its financial returns,” Ajudua said.

Moses Igbrude, President, Issuers and Investors Alternative Dispute Resolution Initiative (IIADRI), speaking, said: “Regulations is necessary in the capital market, otherwise, it becomes an all comers affairs. Sound regulations are supposedly aimed at strengthening and making companies to be well managed and governed. It is supposed to be advantageous to the companies, so why are some companies not seeing it like that? 

“It is when regulations turn to mere revenue generation source that it loses its advantages and becomes a burden.   Failure to comply with these rules attract different sanctions and penalties which is making many companies to be indebted to the various regulatory bodies. The prevailing harsh economic situation combined with COVID-19 pandemic have driven many companies to the red zone, these companies need forbearance, debt forgiveness and even needs working capital.”

On the way forward, Igbrude said there is the need for the NGX and the Securities and Exchange Commission (SEC) to adopt other means of punishment like naming and shaming, rewarding those who comply fully, persuasion and other incentives to encourage companies to comply instead of punishment only.

Corroborating them, Moses Ayodele Ogundeji, member of Independent Shareholders Association of Nigeria (ISAN), said default filing has  negative impact on investors’ confidence as non-filing of accounts regularly could be an indicator of a company’s liquidity failure and going concern issues.

He said: “There is a system failure already in Nigeria. The rate of default can be due to both a harsh economic situation on one part and lack of transparency on the part of management of some quoted companies.

“The NGX should make filling more attractive, remove all discouraging conditions and also introduce  persuasion. Penalty should not be too punitive.”

He asserted that the best companies in terms of compliance should be rewarded and celebrated annually to encourage other non-compliant companies to improve.(vanguardngr)

(info@diamondbead.com.ng)