The Nigerian Stock Exchange (NSE) has said its newly introduced Corporate Governance Rating System (CGRS) is mandatory for quoted companies.
The CGRS, which is a joint initiative of the NSE and the Convention on Business Integrity (CBi), is aimed at encouraging greater market transparency, competitiveness and better governance for listed companies.
The CGRS is designed to rate companies listed on the exchange based on their corporate governance and integrity practices.
Qualifying companies with certain market capitalisation and liquidity criteria became part of a premium board on the NSE. The NSE also plan to rate all listed companies and place them in a tradable, corporate governance index.
As at January 2014, eight stock exchanges have launched corporate governance indices. They are Brazil BM & FBOVESPA, Shanghai Stock Exchange, Borsa Italiana, Mexican Stock Exchange, Lima Stock Exchange, Johannesburg Stock Exchange, Korea Stock Exchange and Istanbul Stock Exchange. According to the executive director (ED) of CBi, Soji Apampa, the special listing segments of the Brazilian stock exchange, BM&FBOVESPA demonstrates the potential of the CGRS. In 2001, BM&FBOVESPA launched special corporate governance listing segments for companies that voluntarily commit themselves to higher standards of corporate governance over and above that required by the Brazilian law and the Brazilian Securities and Exchange commission.
The rating system
CGRS assesses companies on four dimensions; corporate integrity, compliance with NSE and general governance rules (SEC Code, CAMA with industry-specific rules added as relevant), a dimension reflecting certification of directors, and a dimension reflecting the confirmation of expert stakeholders of a company’s integrity. The CGRS score is a composite of a score for corporate compliance assessment of 50 per cent, a Fiduciary Awareness Certification Testing (FACT) of directors 10 per cent, Corporate Integrity Assessments based on feedback from stratified, random sample of stakeholders 20 per cent and an Expert Multi-Stakeholder Group (EMSG) 20 per cent.
Stakeholders’ view
The chief executive officer, NSE, Mr Oscar Onyema, said at the event that the CGRS would lead to an improvement in the overall perception of capital markets and business practices.
“It is expected that companies will enjoy tangible business advantages from risk-oriented and/or ethically sensitive business partners and investors. In addition, competitors will be challenged to establish the same level of good governance by setting standards of excellence.
“Companies would not only set themselves apart from their peers, but also contribute to improving the climate for doing business in Nigeria,” Onyema.
On his part, Apampa, explained that the design and pilot phase of the CGRS was done between May 2013 and September 2014.
According to him, the rating system is based on a holistic multi-stakeholder approach that uses a diverse information collection and verification approach which relies not only on self-assessments of companies but also on experiences of stakeholders and experts.
“It is envisioned to be more transparent on rating procedures and rating governance than other corporate governance indices,” he added.
He pointed out that regulators may also use the CGRS to diagnose weakness in the extant corporate governance framework and their implementation. To leverage the results of the CGRS, the ratings will be used as part of the criteria for being listed on a new premium board and for a new Corporate Governance Index to rank all listed companies that will be published by the NSE in 2015.
Source : Leadership