Corporate governance as business driver for Seplat

The Enron debacle focused renewed attention on corporate governance and organizational failures and successes. Since then a number of studies have shown that there exists a nexus between positive implementation of corporate governance and company performance with many scholars connecting the outright failure of a good number of blue chip organizations to lack of good corporate governance.

This failure, which translates into an inability of organisations to meet expectations of their various stakeholders and investors have often been traced to weaknesses in internal control, operating system, and a lack of commitment to the highest ethical standards.

Corporate governance refers to the way in which companies are governed and to what purpose.

It is concerned with the practices and procedures for trying to ensure that a company is run in such a way that it achieves its objectives.

The key consideration in corporate governance is that the company must have an effective board of directors that is dedicated to ensuring that the company achieves its objectives and the affairs of the company must be carried on in such a manner as to ensure transparency, accountability, and information dissemination for the overall benefit of shareholders and other stakeholders.

It is also about running an organization in a way that guarantees that its owners or shareholders receive a fair return on their investment, while the expectations of other stakeholders are also met.

It addresses the need for organizational stewards or managers to act in the best interest of the firm’s core stakeholders, particularly, minority shareholders or investors, by ensuring that only actions that facilitate delivery of optimum returns and other favorable outcomes are taken at all times.

Modern corporate governance is universally recognized as a term that refers to the manner in which companies, agencies and corporate bodies are managed or directed by all functionaries entrusted with the duties and responsibilities of directing or managing such organizations.

It also includes the manner in which duties, functions, rights and responsibilities are apportioned, distributed or shared among the shareholders, the directors and managers of a company.

In Nigeria, the basic statute which primarily sets the standards for good corporate governance with respect to all companies is the “Companies and Allied Matters Act CAP C20 LFN 2004”. However the Investment and Securities Act ISA, Securities Exchange Commission (SEC) Rules and Regulation and Code of Corporate Governance 2011 (for compliance by quoted companies) can also be relied upon where appropriate, to serve as a guide in setting the standards for corporate governance in a private company although those legislations and rules apply primarily to public company.

Seplat Petroleum Development Company Plc, a Nigerian oil and gas independent which has recently transformed into a public company has drawn fresh attention to issues of Corporate Governance with new additions to its board.

The company has strengthened its board in a move that industry watchers believe is a strategic one aimed at firing the company’s growth aspirations and thus making SEPLAT a truly competitive global player and investor’s choice.

Speaking at the company’s Extra-Ordinary General meeting which held in Lagos on Monday January 27, 2014 the Chairman of SEPLAT ABC Orjiakor noted that “SEPLAT has recorded phenomenal strides and continues to grow exponentially.”

The chairman hinged that growth on a few key indices; “an adherence to the company’s core values of Safety, Environment, Partnership, Leadership, Accountability and Teamwork as well as strict compliance with corporate governance best practices.”

Speaking further, Orjiako declared that “Corporate Governance and Best Practices are therefore, the bed rock of our existence. They are pivotal to the sustainability of our growth aspirations. In SEPLAT, we not only comply with International Corporate policies and best practices, we strive to remain best in class at all time. Consequently, we are delighted that we have put in place for our company, a very diverse and experienced Board, made up of people of high intellect and outstanding integrity. We have now moved from a wholly Shareholder board to a broad based board with strong Independent Non-executive representation as well as Executive presence.”

As a public company, SEPLAT’s operations would now be under greater regulatory and public scrutiny. In addition it would have to comply with the listing and post listing requirements of the Nigerian Stock Exchange and those of every market where it is listed.

To ensure that the company continues on the path of growth and compliance, the board has been enlarged to accommodate petroleum industry heavyweight and former Chairman of Shell Companies in Nigeria, Basil Omiyi (Non-Executive Director), Former head of the Federal Inland Revenue Service, Ifueko Omogui-Okaro, Non-Executive;

Brito, Michael Alexander (Non-Executive Director), Stuart Connal and academic, Charles Okeahalam. Stuart Connal, former CEO of Centrica, joined SEPLAT as COO and has now been promoted to the board as an Executive Director.

The diverse nature of the board is expected to reflect SEPLAT’s focus on maintaining and adhering to best Corporate Governance principles as an indigenous company with world class aspirations.

The board membership showcases abundant knowledge and multi-disciplinary experience which is expected to help SEPLAT remain best in class in Corporate Governance, Management and regulatory paradigms within the Nigerian E&P ecosystem.

The full composition of the board according to the SEPLAT website is now: ABC Orjiako, Austin Avuru, Macaulay Ofurhie, Jean-Francois Henin, Michel Hochard, Nasir Ado Bayero, Basil Omiyi Ifueko Omogui-Okaro, Michael Alexander, Stuart Connal and Dr. Charles Okeahalam.

Writing in the Academy of Management Review, Amy J. Hillman and Thomas Dalziel have noted in their article “Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives” that Researchers seeking evidence of links between boards of directors and firm performance commonly follow one of two distinct paths. The most dominant path is that of agency theorists who contend that a key activity for boards is monitoring management on behalf of shareholders and that effective monitoring can improve firm performance by reducing agency costs. The second, relatively less explored, path researchers take to study boards and firm performance is based in resource dependence theory.

Of primary concern in this research tradition is what we refer to as board capital. This capital consists of both human capital (experience, expertise, reputation) and relational capital (network of ties to other firms and external contingencies). Resource dependence theorists examine how board capital leads to the provision of resources to the firm. Empirical studies in the resource dependence tradition have shown a relationship between board capital and firm performance.”

Following from Amy J. Hillman and Thomas Dalziel findings, the assumption is that these men and women will help the SEPLAT remain as Orjiako has promised, that “we not only comply with International Corporate policies and best practices, we strive to remain best in class at all times.”