The Impact of Socio-Political Environment on Corporate Governance of Multinational Corporations in Emerging Economies- Nigeria in View

Contributed By Udoka Janet

Introduction

The relationship between politics, sociology, and corporate governance has grown in importance in the ever-changing world of international business, especially when it comes to emerging economies. With an emphasis on the Nigerian context, this article explores the complex subtleties of the socio-political environment and how they significantly affect the corporate governance frameworks of multinational corporations (MNCs) operating within them. The interplay between social dynamics, governmental frameworks, and corporate governance practices becomes a crucial predictor of organisational performance as societies experience fast economic development. Analysing Nigeria’s situation offers important insights into the difficulties and possibilities MNCs encounter as they attempt to maintain international norms of corporate governance while navigating the complexity of the local socio-political environment. For researchers and practitioners looking to promote sustainable and ethical business practices in emerging economies, it is essential to comprehend how these complex aspects affect decision-making procedures and operational methods.

Multinational Enterprises

The 20th century saw the growth in popularity of multinational corporations, and the proportion of these businesses in Nigeria dates back to the colonial era. When oil was discovered in the Niger Delta, international organisations converged in the nation, creating jobs for thousands of young people.^[1] Multinationals aid the improvement of manpower via the exchange of knowledge and experience^[2]. Still, questionable stories concerning the actions of foreign companies in the nation abound in today’s social, political, and economic discourse. The phrase “Multinational Enterprise” refers to businesses that have a strong sense of national identity; they are corporations that deliberately conduct business internationally.^[3]

The multinational corporation or enterprise typically consists of the parent company and at least one affiliate. Multinational enterprises have a global presence and can drive economic activities in third-world countries, providing opportunities for increased job satisfaction, financial development, economic growth, etc.^[4]

These activities lead to greater production in the economy as well as employment prospects; international corporations pay better wages and give fringe benefits than local firms; this goes a long way towards raising the employees’ standard of life. Multinational corporations add capital to the manufacturing process and guarantee that diverse sectors of an economy are operational.^[5] To qualify as a multinational corporation, a corporation must have a functional productive presence in two or more countries; the enterprise must be involved in foreign direct investment and operate outside of its parent country; and must have a production facility or distribution channel in multiple countries^[6].

Overview of the legal framework for corporate governance in Nigeria

The principal legislation that governs corporate governance for companies in Nigeria includes the following.

1. The Companies and Allied Matters Act 2020 (Companies Act).
2. The Investment and Securities Act 2007.

In addition to the above, some key sector-specific governance codes and regulations include the following^[7]. The Nigerian Code of Corporate Governance (the Governance Code) – The Financial Reporting Council of Nigeria (FRC) developed the Governance Code to unify the standards of private regulated and public firms. The Governance Code creates a framework for excellent corporate governance in both the public and private sectors. Some regulators have imposed the extra standards listed below on enterprises operating in their respective industries^[8]:

• 1. the Nigerian Communications Commission Code of Corporate Governance for Telecommunication Companies;
  2. the Guidelines on Corporate Governance for Pension Fund Operators;
  3. the National Insurance Commission Corporate Governance Guidelines for Insurance and Reinsurance Companies;
  4. the Securities and Exchange Commission Rules and Regulations (the SEC Rules)
  5. the Securities and Exchange Commission Guidelines – these guidelines were issued as a replacement to the SEC Code of Corporate Governance for Public Companies 2011, and are additional guidelines to the Governance Code which all public companies are required to comply with;
  6. the Rulebook of the Nigerian Stock Exchange 2015 (the Listing Rules) – the Rulebook is a compilation of all the Rules, Regulations and Guidelines of the Nigerian Stock Exchange;
  7. the articles of association of a company are also one of the sources of corporate governance requirements in Nigeria–the articles of association specify the regulations for the company’s operations and define the company’s purpose^[9].

There is a need for corporations to adhere to the codes of corporate governance which in simple terms means the mode and nature in which the companies are run, to reflect the company’s economic strength while assuring existing shareholders. The recent Nigerian Code of Corporate Governance 2018 was released on January 15th, 2019, by the Financial Reporting Council (FRC). The implementation of the codes is based on the “Apply and Explain” principle. This assumes the application of all principles and requires corporate entities to explain how the principles have been applied to suit their unique organizational context while still achieving the intended outcome of the principles^[10].

Impact of Multinational Enterprises on Nigeria’s Economy

The inflow of capital from multinationals’ activities has greatly alleviated the problem of unemployment in Nigeria; the inflow of capital from multinationals’ activities has a multiplier effect on the economy as it increases the purchasing power of employees, who then patronise the local food vendor, who in turn patronises the local former, and so on^[11].

The government’s revenue is raised by royalties and project taxes paid by MNEs as a result of their operations in the nation. MNEs have greatly contributed to the expansion of the Nigerian economy, and they dominate the private sector, which includes oil and gas exploration.^[12]

Some multinational firms, particularly oil and gas companies, have caused economic and social deterioration in their host towns, and as a result, people immediately affected see them as agents of degradation and economic difficulties. The importance of multinational corporations on Nigeria’s economic status cannot be overstated, as they have introduced every type of technology. Multinational corporations operating in Nigeria have contributed to the growth of the economy through their strong revenue-generating activities and tax contributions to both local and federal governments. This technical know-how may not have been acquired by the Nigerian government or local entrepreneurs on their own. This also explains why the government relies on international corporations to maintain its economic strength. The telecommunications industry, which is dominated by international corporations, increased by 12% and contributed around 8% of GDP (National Bureau of Statistics article on rebasing the economy Q2 2014)^[13].

Shell Corporation, for example, has developed and provided several educational facilities to oil-rich areas in Nigeria. Unilever contributed a faculty building to the University of Lagos, while MTN, Africa’s largest telecommunications company, provided numerous cancer screening devices to the university teaching hospitals. These contribute to growth while also reaching residents, with the understanding that an educated and healthy citizen will be able to live a long and productive life^[14].

Environmental, Social and Governance Considerations in corporate governance.

Companies throughout the world are under growing pressure from both internal and external stakeholders to demonstrate their ability to contribute to the resolution of environmental, social, and governance (ESG) issues in Africa, particularly those related to climate change.

The Nigerian government has taken aggressive measures to execute important climate change policies, such as passing laws relating to climate change^[15]. The Nigerian government pledged to attain net-zero emissions by 2060. In accordance with this commitment, the Climate Change Act serves as a foundation for identifying actions targeted at ensuring that the national emissions profile is compatible with the carbon budget targets, as well as creating national goals, objectives, and priorities for climate change adaptation.

The Nigerian government has also undertaken the establishment of the National Council on Climate Change, membership in the African Carbon Markets Initiative, and the launch of Nigeria’s Energy Transition Plan 2022, to achieve carbon neutrality and net-zero emissions in terms of the country’s energy consumption^[16].

Nigerian companies have also started to take action on climate and social risk issues, such as investing in renewable energy, reducing emissions, and implementing sustainable business practices, empowering corporate boards with oversight of sustainability strategy and progress. Some companies have also established corporate social responsibility programmes to support local communities and address societal challenges, such as poverty and inequality.

Despite these valuable efforts, it is clear that more needs to be done to address Nigeria’s growing climate and societal challenges. Stakeholders are increasingly expecting companies to demonstrate a clear commitment to attaining significant environmental, social, and governance goals, as well as to use their societal power to make meaningful contributions. Companies that prioritise a purpose-driven approach to people, planet, and profit are better positioned for long-term success that is both sustainable and socially responsible.

Furthermore, the growing emphasis on the role of sustainability fosters an environment of accountability and trust among businesses and stakeholders. In this setting, Nigerian firms are pushed to incorporate strong ESG-related information in their annual sustainability or integrated reports. These companies must create internal capacity to collect, evaluate, and authenticate ESG-related data across all business activities, as well as ensure that their boards are ESG-fluent and that an effective sustainability governance and management structure is in place. By adopting a more comprehensive and inclusive approach to ESG considerations and improving their communication and reporting practices, companies can foster greater transparency for stakeholders, and create impact-withstanding strategies, while enhancing trust and loyalty from their customers and stakeholders.

Ultimately, policy and regulation must be accompanied by collaboration and partnerships to achieve sustainable development in Nigeria^[17].

Conclusion

In conclusion, the complex relationship that exists between Nigeria’s socio-political climate and corporate governance, especially when it comes to multinational companies (MNCs) highlights the potentials and difficulties that come with encouraging ethical and sustainable business practices. The diverse environment in which multinational corporations (MNCs) operate is reflected in the historical contribution of MNCs to Nigeria’s economic growth, as well as the changing legislative framework for corporate governance. Even though multinational corporations (MNCs) have a major positive impact on job creation, economic growth, and technological advancement, this article has stressed the significance of matching corporate governance practices to Nigeria’s particular socio-political environment.

In addition, the discourse surrounding Environmental, Social, and Governance (ESG) factors underscores the growing demands placed on corporations, both local and global, to tackle issues related to climate change and society. The governments and companies in Nigeria have demonstrated a favourable trajectory towards a more responsible and transparent business environment through their proactive efforts in response to these difficulties, as well as their commitment to adopting international sustainability standards. The attainment of sustainable development in Nigeria necessitates the sustained cooperation, strong alliances, and joint dedication of all involved parties. This highlights the crucial influence of sociology and politics in moulding the corporate governance terrain of developing nations, such as Nigeria.

1. Ajayi, Ezekiel Oluwole & Omolekan, Olushola Joshua, 2013. “THE IMPACT OF MULTINATIONAL CORPORATIONS (MNCs) ON SUSTAINABLE DEVELOPMENT OF NIGERIAN ECONOMY,” Annals – Economic and Administrative Series -, Faculty of Business and Administration, University of Bucharest, vol. 7(1), pages 111-125, December. https://ideas.repec.org/a/but/anneas/v7y2013i1p111-125.html accessed November 2023. ↑
2. Abdulai, Abdul‐Gafaru. (2009). Are Multinational Corporations Compatible with Sustainable Development in Developing Countries?. https://www.researchgate.net/publication/242585463_Are_Multinational_Corporations_Compatible_with_Sustainable_Development_in_Developing_Countries/citation/download accessed November 2023. ↑
3. Udoka, U.E., (2015). The impacts of multinational corporations on the Nigerian economy. International Journal of Social Science and Humanities Research, 3(2), 107-115. https://www.researchpublish.com/upload/book/The%20Impacts%20of%20Multinational%20Corporations%20to%20the%20Nigerian%20Economy-1466.pdf accessed November 2023 ↑
4. Kim, W. C. (2000). The changing nature of multinational business. Strategic Management Journal, 18(3): 145-152. ↑
5. Ibid. ↑
6. Nseobong Sunday George (2021) EFFECT OF MULTINATIONAL ENTERPRISES ON ECONOMIC DEVELOPMENT IN NIGERIA. International Journal of Business Management and Economic Review

   Vol. 4, No. 06. https://ijbmer.org/uploads2021/BMER_4_320.pdf accessed November 2023. ↑

7. Bola Tinubu, Enobong Shittu, Stephen Ijiola, Tayo Mustapha (2023) Corporate Governance Nigeria 2023; Trends and Developments https://practiceguides.chambers.com/practice-guides/corporate-governance-2023/nigeria/trends-and-developments accessed November 2023 ↑
8. Ibid. ↑
9. Ibid. ↑
10. Olusola Jegede, MCIArb and Winifred Idiaru; PRINCIPLE OF CORPORATE GOVERNANCE IN NIGERIA; https://www.resolutionlawng.com/principle-of-corporate-governance-in-nigeria/ accessed November 2023. ↑
11. Ake, H. (2018). Multinational corporations and development. A contraction in after and goodman (ed) the multinational corporations and social change. Freager ↑
12. Ibid. ↑
13. Ibid. ↑
14. Ibid. ↑
15. Climate Change Act 2021. ↑
16. On August 24, 2022, the Nigerian FGN launched its Energy Transition Plan (ETP), designed to simultaneously tackle the challenges of energy poverty and the climate change crisis. https://energytransition.gov.ng/ accessed November 2023. ↑
17. IbId. ↑