In recent times, there has been an increase in the exit of the top management staff of several companies due to scandals bordering on ethical issues. These scandals are either a result of the leadership of the company making bad and unethical decisions in the company’s business operations or personal decisions of top managers in the company that affect the public’s perception of the leadership of the company.
From the legal perspective, the extant laws impose duties and responsibilities on Companies and their management in the conduct of their business. Whilst the law mandates that Companies and their officials must act honestly and with integrity, Companies and leaders who seek to build a profitable and sustainable business environment must use the law and regulations as a starting point in their quest for ethical leadership. Ethical leadership can be described as leadership that implements the principles of integrity, honesty, and respect. It is crucial to the growth and success of a company as it boosts investor confidence, employee morale, and client/ customer loyalty.
Corporate Governance and a Company’s Quest for Ethical Leadership
Corporate Governance refers to the systems of rules, practices, and processes by which companies are governed. The Organisation for Economic Co-operation and Development (OECD) defines Corporate Governance as a set of relationships between a company’s management, its shareholders, its board, and other stakeholders. It further states that Corporate Governance provides the mechanism through which a company’s objectives are set, together with the means of attaining those objectives and monitoring performance are determined.
On January 15, 2019, the Financial Reporting Council (FRC) of Nigeria released the Nigerian Code of Corporate Governance (“the Code”). According to the Code, it is believed that Companies with effective boards and competent management that act with integrity and are engaged with shareholders and other stakeholders are better placed to achieve their integrity and are engaged with shareholders and other stakeholders are better placed to achieve their business goals and contribute positively to society.
The Code contains 28 principles that cut across the Board of Directors and Officers of the Board; Whistle Blowing and Audit Process (collectively referred to as Assurances), Relationship with Shareholders, Business Conduct with Ethics, Sustainability, and Transparency. Some fundamental principles of the Code that relate to the leadership of the company include the following:
- Principle 1 of the Code states that a successful company is headed by an effective Board that is responsible for providing entrepreneurial and strategic leadership as well as promoting an ethical culture and responsible corporate citizenship.
- Principle 24 of the Code states 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.
Other key provisions include the principles relating to Sustainability and Transparency.
Companies and Allied Matters Act, 2020
By virtue of the Companies and Allied Matters Act, 2020, a director of a Company stands in a fiduciary relationship towards the company and is required to observe utmost good faith towards the company in any transaction with or on its behalf. This fiduciary duty of a director expands to instances where the Director is acting as an agent of a particular shareholder.
Furthermore, Section 305(3) provides that a director shall act at all times in what he believes is the best interest of the company as a whole so as to preserve its assets, further its business, and promote the purposes for which it was formed and in such manner as a faithful, diligent, careful and ordinary skilful director would act in the circumstances. An exciting aspect of the duties of the directors as provided in CAMA is the duty of a director to have regard for the interest of the company’s employees and members in the performance of his function. Section 306 of the CAMA also provides that a director’s personal interest shall not conflict with any of his duties as a director as provided under CAMA.
Recommendation and Conclusion
In order to practice ethical leadership as well as grow the company’s profitability, leaders should imbibe the following practices:
- Determine the company’s values and how they intersect with the society’s culture at large
- Pay close attention to the branding
- Incorporate terms in Director’s contract that require management to act in an ethical manner
- Have regular leadership training, Comply with all applicable laws and regulations
- Ensure honest financial reporting
- Institute and adhere to a Code of Conduct and promote ethical treatment of clients and employees.
In conclusion, while the law mandates that Companies and their leaders must act honestly and with integrity, Companies and leaders who seek to build a profitable and sustainable business environment must rely on the laws and regulations as a starting point in their quest for ethical leadership.
- Principles 17 – 27 of the Nigerian Code of Corporate Governance
- Section 305(1) of the Companies and Allied Matters Act, 2020
Section 305(2) of the Companies and Allied Matters Act, 2020