By Peter OBIORA
Introduction
Following the introduction of the X-Compliance Report by the management of the Nigerian Stock Exchange (NSE) in 2012, about 70 percent of quoted companies and stock broking firms are now filing their quarterly, half yearly and yearly audited accounts promptly. Apart from these, other information relating to their operations and relevant to the market are been disclosed prompt and regularly.
With this trend, corporate governance issues in the Nigerian capital market has made a paradigm shift in recent times and has helped in no small measure to stabilize the market and boost investors’ confidence.
Before the advent of the X-Compliance, issues of corporate governance have bedevilled our nation’s stock market; which led to market instability and lack of investors’ confidence. Also, prior to this time, quoted companies on the Nigerian Bourse no longer abide by the listing rules and regulations as set up by the NSE under the purview of Nigeria’s Securities and Exchange Commission.
There were flagrant disregard for rules and regulations in the Nigerian capital market, companies no longer file financial reports as at when due, they also do not update the market as regards their operations by releasing information to the Exchange for the benefit of investors or when they do, the companies release the ones that may generate tension in the market.
In this essay, we shall look at what the X-Compliance Report is all about, what is corporate governance, how the X-Compliance has boosted corporate governance in the Nigerian Capital Market and the level of compliance by operators both quoted companies and stock broking firms.
What is the X-Compliance Report?
According to the Nigerian Stock Exchange (NSE), the X-Compliance Report is a transparency initiative designed to maintain market integrity and protect the investors by providing compliance related information on all listed companies.
The NSE believed that companies listed on its floor are required to adhere to high disclosure standards which are prescribed in Appendix 111 of the Listing Rules.
“Financial information which is periodic disclosure and on-going material events disclosure should be released to it in a timely manner to enable it efficiently perform its function of maintaining an orderly market,” the NSE said.
Also, the Nigeria’s Exchange X-Compliance Report provides information on companies that are early filers of both quarterly and audited accounts, delinquent filers of both quarterly and audited accounts, companies that have so far released their financials, those performing below listing standards, companies with free-float deficiency.
Apart from these, the X-Compliance provides information on companies that breached listings rules, enforcement actions against defaulting firms, those slated for delisting, applications for new listings on the Exchange, applications approved by the quotations committee of the NSE and meetings of companies.
The X-Compliance since its introduction has elicited a healthy competition amongst capital market players; especially quoted companies and has created more awareness on corporate governance issues, companies that comply with these rules, find themselves getting commendations from the management of the NSE as they are tagged early filers because they have exceeded the minimum listing standards in terms of timely disclosure of their audited accounts, quarterly financial performance and other related information as regards their operations.
While those that default in these areas are tagged as performing below listing standards (BLS). Investors are more likely to be comfortable and confidence with firms that comply to listings rules and would like to invest in such companies rather than the defaulting ones, thereby ensuring market stability.
What is corporate governance?
Corporate governance goes hand in hand with the capital market and there is no one definition to the term corporate governance, according to Wikipedia, this refers to the system by which corporations are directed and controlled. The governance structure specifies the distribution of rights and responsibilities among different participants in the corporation (such as the board of directors, managers, shareholders, creditors, auditors, regulators, and other stakeholders) and specifies the rules and procedures for making decisions in corporate affairs.
Also, Wikipedia affirmed that governance provides the structure through which corporations set and pursue their objectives, while reflecting the context of the social, regulatory and market environment. Governance is a mechanism for monitoring the actions, policies and decisions of corporations. Governance involves the alignment of interests among the stakeholders.
On its part, Organization for Economic Co-Operation and Development (OECD) and the Bank for International Settlements (BIS) have developed core principles of corporate governance which are viewed as representing the moral consensus of the international community.
The OECD principles particularly define corporate governance as involving “a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.”
There is no doubt the concept of equality, transparency; accountability and responsibility appear to be the main concepts in all international corporate governance approaches that are widely accepted.
How the X-Compliance has boosted corporate governance in the Nigerian Capital Market?
The X-Compliance Report has greatly boosted corporate governance in the Nigerian
Capital Market as more and more companies are joining the queue of those that are adhering to high disclosure standards which are prescribed in Appendix 111 of the Listing Rules
On a regular basis, the NSE releases disclosures on companies that are prompt in filing their accounts and other related market information. The NSE also releases information on firms that have breached listings rules, enforcement actions against defaulters, those slated for delisting, application for new listings on the Exchange and applications approved by the quotations committee of the NSE as earlier mentioned in this write up.
As this information is released promptly for the benefit of the investing public in the
Nigerian capital market, investors are furnished with the latest to help them make valuable and useful investment decisions.
With prompt and regular disclosure of a company’s activities through the X-Compliance, corporate governance in the Nigerian capital market will always have a boost.
Take for instance the issue of Union DICON Salt Plc; for some time now, the company is said to be undergoing restructuring to regularize its post-listing status on the Nigerian Bourse. Apart from UNION DICON, companies like Jos International Breweries Plc, Aluminum Manufacturing Company of Nigeria, Plc, Stokvis Nigeria Plc, Nigerian Sewing Machine Plc and Rak Unity Petroleum Plc are all restructuring to regularize their postlisting status at the NSE.
The point is that without the prompt and regular update in the form of disclosure by companies through the NSE’s X-Compliance report, no concrete information would emanate from these companies to enable investors and other Capital stakeholders make informed decisions on them. Before this time, a lot of questions have been asked about some of these companies and little or no information was given.
According to capital market analyst Olufemi Awoyemi, Managing Director of Proshare Nigeria Limited, the X-Compliance is a very good initiative by the NSE and the level of compliance has increased since it was introduced. “I think it’s a very good initiative by the NSE, it forms one of those minimum requirements by quoted companies to adhere strictly to. The level of compliance in our capital market has increased since they introduced it, companies now know that they are being monitored, and some are still trying to increase their level of compliance; but so far it’s better than it was before this time” Awoyemi said.
Awoyemi further affirmed that the X-Compliance may not have resolved all the corporate governance problems in the Nigerian capital market, but companies have now become very consistent in terms of the general atmosphere of conduct in the market. “It may not have resolved all the corporate governance problems; but firms have been very consistent in terms of the general atmosphere of conduct in the market and its good to know that with the X-Compliance, investors and the public will know if a company has complied or not, the NSE is categorizing companies in different aspects to know those who have complied or not and the different penalties to be meted out to them.
This should be encouraged and as we go further, I’m sure that things would improve, companies are trying to adjust themselves, it’s a cultural thing, they are used to doing things in a particular manner before now, but at this time, they know they can’t just do anything and get away with it, because what is contained in the X-Compliance is part of their post-listing requirement” Awoyemi said.
According to him, the issue of the X-Compliance should be something that all have to encourage the companies to abide by. “Generally, I think its building blocks in terms of building confidence,” Awoyemi said.
Though he said the capital market have not been able to measure its direct impact in terms of the public approach. However, people now know they will go to the XCompliance to see who is doing what,” Awoyemi affirmed.
Awoyemi noted that in terms of companies that are complying, the numbers are increasing quarter by quarter and if it continues this way, the NSE can get into things like profit forecast announcement that companies has projected and so on, “it’s a transition, but so far so good it gives room for encouragement,” he said.
The level of compliance by operators both quoted companies and stock broking firms
Currently close to 80 percent of quoted companies and stock broking firms had filed their financials as at date to the NSE, meaning more and more firms are complying and an increase from the 70 percent compliance rate recorded in 2012 when the policy began.
From research, the X-Compliance has awakened the sense of corporate governance amongst quoted companies and stock broking firms operating on the Nigerian Bourse as most; if not all of them are eager to have their names listed as early filers, no company would want to risk been penalized or listed as amongst the defaulters of the X-Compliance rules.
This is because investors both local and offshore and the general public tend to take them seriously and would want to do business by investing in a company that is on the good books of the NSE. No investor would want to take risks on a company that defaults on its minimum listing rules.
As at October 28 2013, 21 quoted companies have filed their 2013 interim accounts for the third quarter, while 49 has filed their 2013 interim accounts for the second quarter and 25 for the first quarter, while five (5) have filed their 2013 audited accounts.
Four (4) out of the five companies had their yearend in December 31 2012 and filed and had their due dates March 31 2013; but they filed before their due date. While on had its year end in March 31 2013 and due date of June 30 2013, but filed before its due date.
Conclusion
The X-Compliance Report which started in 2012 as a transparency initiative designed to maintain market integrity and protect the investors by providing compliance related information on all listed companies has moved the Nigerian capital market to a new and positive direction.
The NSE’s belief that companies listed on its floor are required to adhere to high disclosure standards which are prescribed in Appendix 111 of the Listing Rules has seen about 70 percent of the companies complying at inception; but lately that figure has reached close to 80 percent as quoted companies and stock broking firms struggle to file their financials and make other disclosure relating to their operations.
The X-Compliance Report has no doubt and in no small measure improved corporate governance concerns in the Nigerian capital market, thereby stabilizing the market and boosting investors’ confidence.
End
Email Peter OBIORA on peterobiora@investadvocateng.com, peterobiora@yahoo.com
