Introduction
Corporate governance is the set of rules, policies and procedures that directs and regulates a company while ensuring that a balance is maintained between the diverse interests of a company’s numerous stakeholders in the ecosystem such as shareholders, employees, consumers, suppliers, partners, the Government and the community. Corporate governance involves every aspect of management: from action plans and internal controls through to performance assessments and corporate disclosures, as it offers the foundation for achieving a company’s goals while ensuring that there is fairness, accountability and fair participation. The core governance principles are flexible and dynamic in nature meaning that they need to be updated as new issues, legislation and other factors arise. For example, with the increased environmental concerns, corporations throughout the world have started to disclose their environmental governance schemes and standards. An increase in diversity on the board of a Company is another recent trend.
Foreign Companies Operating in Nigeria
While foreign companies are quite stringent in applying their corporate governance rules in their home countries, it is equally important that their employees operating in other countries adhere to the same levels of accountability and governance as required in the home country.
Unfortunately, this is not always the case.
In 2016, a Nigerian company – B4G who were a local partner to SAP (NYSE:SAP) sued the German software giant for a breach of contract when SAP refused to honour a contract that they allegedly entered into. The local partner sued SAP for nearly $3.5 million.
In a more recent development in Nigeria, Oracle Corporation (NYSE: ORCL) is being sued by one of their partners – Plexada System Integrators Ltd for allegedly breaching a contract, non-adherence to their own (Oracle’s) Code of Conduct as well as failing to pay money owed. Plexada is seeking nearly $56 million in revenue denied, damages as well as legal fees.
While the amounts are but a drop in the ocean for foreign companies that can boast of annual revenues in excess of $40 Billion, these situations must be curbed and avoided from the onset as they lead to a conundrum amongst the relevant stakeholders, such as the regulators, judicial authorities and the concerned Parties of course. A deadlock situation like this calls for only two precautionary measures,
namely (a) stringent legal recourse and (b) improved corporate governance practices.In every country, legal action still knows some bounds and can only be made stringent to a regulated point. As a result, foreign corporations have the liberty and autonomy to inculcate corporate governance practices as they deem fit, except so far that they don’t breach any local or home laws and are not publicly in violation of any policies. However, it must be made abundantly clear that all foreign companies owe a duty of care to ensure that their governance rules are followed in other countries where they operate as subsidiaries. This is evidenced in the judgement of Ejieke Maduka v. Microsoft (NASDAQ: MSFT).
The Way Forward
Through this article, we aim to discuss and propose some Corporate Governance guidelines which could potentially reduce concerns such as the matter of Plexada Systems Integrators vs Oracle Corporation and B4G vs SAP above.
a. Strong liabilities on breach of warranties and representations
In the event of a breach or inaccuracy, the representations and warranties serve as the basis for an indemnification claim and divide the risk between the parties. The opposite party may also be entitled to terminate the agreement or refuse to complete the transaction because of a breach or inaccuracy of a representation or guarantee. It is advised that liabilities are solidified in case a party is found to be in a breach of representations or warranties given by it in favour of the other party, ultimately leading to termination of the agreement or a dispute.
As part of corporate governance principles, it is proposed that all parties in an agreement be bound to deposit a certain amount as security towards breach of its representations and warranties. For the sake of equity and security, such an amount may be deposited in an escrow account under the control of a third party. Additionally, corporations shall also ensure record keeping of the agreements under dispute and should also be incentivized for minimal litigation and ongoing disputes.
b. Reassessment of Ethical Standards
There is an urgent need to carry out the reassessment of ethical standards applicable to corporations. The King IV Code followed in South Africa is a good model law when it comes to assessing ethics and curbing ethical concerns. King IV Code is acknowledged as one of the top corporate governance codes in the world. It lays out guidelines and best practices that a company should follow to demonstrate excellent governance, which is expressed in four outcomes, namely good performance, moral culture, efficient oversight and legitimacy.
c. Accountability of Board
The board’s responsibility is to set goals and objectives for the organization’s shortas well as long-term success and to put systems in place to track progress toward those goals. The board of directors must analyse, understand and address the company’s objectives in this regard. Additionally, the scope of the board’s responsibility should be increased to include an accountability standard towards breach of contracts by corporations in host countries where they operate in. This could potentially address the increasing contractual disputes between multi-national corporations and dramatically reduce the onset of litigation as the board, vicariously through its members, shall strive to find amicable solutions to meet its accountability standards.
These minute changes to the corporate governance standards and mechanisms are expected to go a long way. They could potentially reduce the chance of disputes such as the current one between Plexada Systems Integrators and Oracle by increasing the reliance on good practices such as moral culture, efficient oversight and legitimacy while also increasing the accountability of the board members.
R E F E R E N C E S
- Ezra Davids and Ryan Kitcat, “The Corporate Governance Review: South
Africa”, The Law Reviews (March, 2022) Accessible At:
https://thelawreviews.co.uk/title/the-corporate-governance-review/southafrica - James Chen, “Corporate Governance”, Investopedia (June, 2021) Accessible
At: https://www.investopedia.com/terms/c/corporategovernance.asp - Jill E. Fisch, “Governance by Contract: The implications for Corporate
Bylaws”, Accessible At:
https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=2739&context
=faculty_scholarship - Unini Chioma, “Alleged Contract Breach: B4G Seeks Order To Block SAP
Accounts In CBN, 21 Banks” Accessible at:
https://thenigerialawyer.com/alleged-contract-breach-b4g-seeks-order-toblock-sap-accounts-in-cbn-21-banks/ - Thomas Claburn, “Oracle sued by one of its own gold-level Partners of the
Year over government IT contract”, (The Register, June 2022) Accessible At:
https://www.theregister.com/2022/06/16/plexada_sued_oracle/ - National Industrial Court of Nigeria, Ejieke Maduka v. Microsoft, 19
December 2013, Case No. NICN/LA/492/2012 Accessible at: National
Industrial Court of Nigeria, Ejieke Maduka v. Microsoft, 19 December 2013,
Case No. NICN/LA/492/2012 — Compendium of Court Decisions (itcilo.org)