Jurisprudence and ethics in corporate governance

As a general proposition, ethics encapsulates a sense of right and wrong and a conscious decision to aspire to do the right! It is in that sense a zero: sum game of good versus bad, kindness versus wickedness, morality versus immorality, truthfulness versus falsity, where the ethical choice must always be that which is just, kind, right, moral and truthful.

However, that thesis is premised upon absolutes. The anti-thesis is anchored upon the foundation that man’s frailties, and by extension, societal imperfections, the practical realities of life as it is, not as it ought to be, circumscribes heroic binary claims of right and wrong! Who defines “rightfulness” and “wrongfulness” and how?

Notwithstanding, the Abrahamic faiths of Christianity, Islam and Judaism roundly emphasise morality in the ten Commandments, the Hadith and the Torah. Buddhism, Hinduism, Sikhism all emphasise inter alia goodness over badness. Atheists and indeed sentient people ascribe to the universality and importance of rightfulness over wrongfulness.

Around 1857, the Scottish composer Norman Macleod, wrote the famous hymn, Trust in God and Do the Right! The first stanza reads “Courage, brother! do not stumble, though thy path be dark as night, there’s a star to guide the humble, trust in God and do the right.” Likewise, Constitutional frameworks, policies and regulations around the progressive, albeit culturally heterogeneous, world, aspire to rightness over wrongness for the preservation of societal order, justice according to law and equity.

The Latin phrase, pacta sunt servanda or “agreements must be kept” testifies to the latter hypothesis in contract law, as it does in jurisprudence, and in public international law. The key point is that it is underpinned by ethics!

The English Court of Appeal case of Meek v Fleming (1961) 2 Q.B. 366-385, affords an interesting elucidation of the pivotal importance of ethics and responsibility in law and, by extension, governance and wider society. The facts are briefly summarised.

Victor Durand Q.C., was instructed to defend a case of assault and wrongful imprisonment concerning an incident on Guy Fawkes night, November 5, 1958, against the Metropolitan Police (“the Met”). Chief Inspector Richard Fleming was a material witness in the case at the time proceedings were issued against the Met. However, at the trial proper, Fleming had been demoted by a disciplinary board to station sergeant on grounds of misconduct for being a party to a scheme to mislead a Court of law in the execution of his duties as a senior police officer.

This material fact was known to Victor Durand Q.C. However, a decision for which Durand assumed full responsibility was taken not to disclose this key fact to the Court. In cross-examination, Fleming was asked “Q. You are Chief Inspector, and you have been in the Force, you told us, since 1938?” In answer, Fleming replied “Yes, that is true.”

In actual fact, Fleming’s answer was a lie! However, Victor Durand QC did nothing to correct that lie during the trial. Although Durand won the case at the trial, he lost on appeal leaving his reputation in tatters. Importantly, the case reinforced the principle that the duty of a lawyer to the Court is higher than that to the client.

The foregoing, and the relevance of the extant case law, strikes at the beating heart o f ethics, integrity and morality in governance, law, politics and global affairs. Because often times, there is a tension given the prevalent deficiency of ethics in those realms on the one hand, and the legitimate expectation of citizens, investors, shareholders, stakeholders and others, that leaders, ought reasonably, to possess the requisite ethical fibre, and demonstrable competence, to lead corporations, to lead nations and to lead people, on the other hand.

This proposition is by no means seeking perfection which does not, and cannot, exist in an imperfect world. No! Rather, it aims to reassert public confidence in governance, irrespective of whether it is national governance, or corporate governance, which is the focus of this treatise, that ethics not only matters, but that it is an essential, non-negotiable, sine qua non within the arena of leadership, however it is defined.

Because corporate governance is not an exact science, it cannot be exactly defined. Accordingly, its definitions tend to be context or purpose specific. The latter for example, adopts a strict definition of corporate governance as “a system of law and sound approaches by which corporations are directed and controlled focusing on the internal and external corporate structures with the intention of monitoring the actions of management and directors and thereby, mitigating agency risks, which may stem from the misdeeds of corporate officers” (Sifuna, Anazette Pacy (2012) Journal of International Banking Law and Regulation).

A wider definition simply characterises corporate governance as the modus operandi of corporations. That is, how they are run, to what objectives, the effectiveness of their decision making, board leadership, ethical practices and performance management processes; within the compass of sound risk management, financial stewardship. This broader definition of corporate governance encapsulates the evaluation of business impacts from an environmental sustainability, social and governance perspective.

In the main, corporate governance is underpinned by ten key interdependent fundamentals. These are: (i.) Effective board and strategic leadership. (ii.) Consistent legal and regulatory compliance anchored on best practice. (iii.) Sustainably maximising shareholder value. (iv.) Consistently exemplifying and upholding ethical practices in corporate strategy, values and organisational culture. (v) Adaptability to dynamic economic, market and socio-political contexts. (vi.) Competitively exploiting technology and innovations within operational processes, product development and service offerings; (vii.) Competent human resources and effective capacity development systems; (viii.) Fit-for-purpose qualitative and quantitative performance metrics; (ix.) Viable risk management methodologies; and, (x.) Catalysing environmental sustainability strategies.

Reinforcing the criticality of ethics in corporate governance, Principle 1 of the Nigerian Code of Corporate Governance 2018 establishes that “a successful Company is headed by an effective Board which is responsible for providing entrepreneurial and strategic leadership as well as promoting ethical culture and responsible corporate citizenship. As a link between stakeholders and the Company, the Board is to exercise oversight and control to ensure that management acts in the best interest of the shareholders and other stakeholders while sustaining the prosperity of the Company”.

Harping on the integrity theme, Principle 24 of the Code provides that “the establishment of professional business and ethical standards underscores the values for the protection and enhancement of the reputation of the Company while promoting good conduct and investor confidence”. Furthermore, under recommended practices the Code, in section 8.6.6, encourages Company Secretaries to “advice the Board and the Company on matters of ethics, conflict of interest and good corporate governance”.

The Companies and Allied Matter Act 2020 via the combined effects of the provisions of section 43 (2) which prohibits corporate donations to political parties and imposes joint and several liability against any officer who violates the provisions; section 44 which prohibits ultra vires acts; section 79, which imposes penalties against foreign companies operating in Nigerian without lawful authority; section 120, which imposes reporting obligations on persons with substantial shareholdings i.e. five per cent direct or indirect ownership of the unrestricted  voting rights  at any general meeting of the company and section S.307 (1), which prohibits a person from exercising the role of director in more than five companies concurrently; taken together with the Code provisions, seek to impose effective corporate governance and ethical conduct in the running of Nigerian corporates; whilst imposing tough sanctions for breaches thereof.

To put the subject into sharper focus, based on the Drucker Institute’s five key corporate performance evaluation criteria of Customer Satisfaction, Employee Engagement and Development, Innovation, Social Responsibility and Financial Strength, the best run American public companies in 2022 were: 1.) Microsoft. 2.) Apple. 3.) International Business Machines (IBM). 4.) General Motors and 5.) Whirlpool. A connecting thread interweaving these five principles are the ten interdependent corporate governance fundamentals referenced above.

Take Microsoft, the international technology firm founded by Bill Gates and Paul Allen in 1975. The company has had three CEOs since its founding almost 50 years ago. Bill Gates ran it for 25 years from 1975 to 2000, Steve Ballmer for 14 years from 2000 to 2014 and Satya Nadella’s being at the helm for nine years since 2014.

In 2005, the company had 61,000 employees which had increased 262 per cent to 221,000 in 2023. Back in 2005, its total assets were $70.8billion, revenue was $39.7billion and net income was $12.2billion. Based on its Q4 FY 2023 returns, Microsoft’s total assets were $411.9 billion, revenue was $211.9 billion and net income was $73.3billion.

Aside financial stewardship, the firm possesses credible environmental sustainability credentials. Through 2020 and 2021, the firm announced: a strategy to eliminate all its carbon emissions since its founding in 1975; permanent remote working for its staff; it had joined the Climate Neutral Data Centre Pact which exploits cloud infrastructure and data centre industries to attain carbon neutrality in Europe by 2030.

Unsurprisingly, the company received the Environmental Protection Agency’s Green Power Leadership Award for the company’s 100 per cent use of renewable energy in 2014. The clear inference is that this is a transparent, well-run, highly innovative technology firm. It is led by people with high ethical standards, with an empowering organisational culture and robust business continuity with effective embedded environmental, social and governance (ESG) protocols. Combined, these factors are more likely than not to optimise investor confidence, productivity and returns on investment.

Certainly, not every company can be like Microsoft or even aspires to be. Even so, there are key lessons to be learned by large and small organisations, governments in the developing and developed economies, leaders, widely and narrowly defined, multilateral agencies and others that ethics, competence, effective leadership, performance, strategic foresight and innovation, matter a great deal in corporate governance and increase, on a balance of probabilities, the odds of success.

And in the African context, no serious study of ethics in corporate governance would be complete without an assessment of Mr Akintola Williams (1919-2023). Of South Western Nigerian Yoruba extraction, he was the first African accountant, having qualified in England in 1949, co-founder of the Nigerian Stock Exchange in 1960, pioneering President of the Institute of Chartered Accountants of Nigeria amongst other striking accomplishments.

In and out of office, he conducted his affairs with highest degree of ethics and integrity. Assuredly, everyone can learn from this.
Ojumu is the Principal Partner at Balliol Myers LP, a firm of legal practitioners and strategy consultants in Lagos, Nigeria.