February 23, 2018 /1:25 PM / NSE
Distinguished ladies and gentlemen, it is my pleasure to welcome you to this Certificate Award Dinner designed to recognize listed companies and directors who excelled in the recently concluded Corporate Governance Rating System (CGRS) certification exercise, and to highlight the benefits for strong corporate governance.
I would like to begin by congratulating these companies and directors for successfully undergoing and passing the various stages of the CGRS. You all deserve praise for making it through the rigorous certification process.
Recall that we had only eight (8) companies that volunteered and submitted themselves for evaluation when we launched CGRS in November 2014. These companies were found worthy to bear the CGRS mark of recognition after going through the stringent CGRS processes. For today’s occasion, thirty-five (35) companies and four hundred and thirty-seven (437) directors, will be recognized and awarded CGRS certificates, consequent upon the successful CGRS rollout to all listed companies. This is a testament that our listed companies and their directors are embracing the CGRS certification process which is aimed at promoting ethical business practices, transparency and fair competition in listed corporates. Indeed, good corporate governance should result in improved profitability.
As world trade increases, so does the number of countries which attract investment and trade rise. The level of a company’s compliance to the tenets of corporate governance will determine the attractiveness of such a company to international investors. This could increase or decrease the level of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) into a country through its well-run companies as international investors are averse to companies with low levels of corporate governance practices and reputational risk. A company that is regarded as having good corporate governance typically has access to a variety of financing options. Moreover, it is well established that companies with good corporate governance generally receive higher market valuations than those that are regarded as poorly governed.
We all know that sound corporate governance practices in a nation will lead to higher performance in its economy, provide more sources for capital investment and increase the creditability of shareholders. In line with our commitment of making our listed companies attractive and creating value for investors, we have created and today launched the NSE Corporate Governance (CG) Index which tracks the performance of all CGRS qualified companies on the NSE. It will showcase companies with good corporate governance.
Corporate Governance Index has become a global best practice as more countries and markets have embraced the culture of establishing Corporate Governance Indices. In a 2013 comparative analysis for the World Bank and IFC PGS Advisors, three principal motives were identified as drivers for stock exchanges’ launch of corporate governance indices:
• To raise the national corporate governance “ceiling” by supplementing the existing national corporate governance framework of law, regulation and code.
• To give companies the opportunity to differentiate themselves by showing good CG practices.
• To gain access to funds committed to good CG practices and sustainability.
Helping companies to distinguish themselves with a label of governance excellence is a key reason for creating a corporate governance Index. It allows for the build-up of positive reputation that benefits companies, the stock exchange and the market-place as a whole. Companies on the Index can expect to increase their access to capital, particularly from foreign investors.
The NSE CG Index, which has a base date of December 2015 and base value
of 1000 recorded a 26- month average return of 20.1%. The NSE CG Index
outperformed the NSE All-share Index (ASI) and NSE 30 index, but was
outperformed by the NSE Premium Board Index.
Also, the NSE CG Index is highly correlated with other NSE Indices. By far, the highest correlation coefficient was recorded with NSE 30 Index at 99.6% and closely followed by the NSE ASI at 99.3%. In essence, all indices moved in tandem in nearly all cases. The observed correlation between the CG Index and ASI reinforces observed trend in some emerging markets, including Brazil, China and Italy. It can therefore be inferred that companies that determine the direction of the ASI in these markets are mostly companies with good corporate governance practices.
The Corporate Governance Index will therefore be a veritable tool for investors in their investment decision-making process, and will provide opportunity for new products such as Exchange Traded Funds.
The CGRS Certification is also a prerequisite for companies to migrate or list on the Premium Board of The Exchange.
The Premium Board features companies that adhere to international best practices on corporate governance and satisfy the Exchange’s highest standards of capitalization and liquidity. The Premium Board Index serves as a benchmark for investors looking to track the performance of large firms with excellent corporate governance and sustainable business models.
Empirical studies show that similar indices in other jurisdictions outperform their marketwide index by double digits and this is also evident with the NSE Premium Board. From inception to date, the Premium Board Index continues to outperform the benchmark NSE ASI with the PB recording a total return of 92.93% versus the NSE ASI’s 53.80%. The Premium Board’s performance continues to reinforce the sentiments of both foreign and domestic investors on the importance of corporate governance to sustainability.
This is also reflected in the recorded growth of the Global Sustainable Investment Assets to $22.8 trillion in 2016 (representing a 25% increment from the 2014 figures). These assets have investment preference for companies with strong corporate governance ratings and generally track corporate governance indices globally.
Companies aspiring to be listed on the Premium Board of The NSE must attain a minimum market capitalization of N200bn as at the date of application, a minimum score of 70% on the Corporate Governance Rating System (CGRS), and maintain a minimum free float of 20% of their issued share capital or a free float value equal to or above N40 billion, as well as meet other standard listing criteria.
As more companies become CGRS certified, we expect to receive more applications for migration to the Premium Board from companies that have met the Premium Board criteria.
Once again, I congratulate the companies and directors being honoured today and I urge them not to relent in their efforts to sustain the high level of corporate governance that has brought them thus far. Today’s celebration is not a destination, but a continuous process that should be consistently maintained and further improved upon.
Let me use this opportunity to call on other listed companies that were unable to complete the CGRS process during the last rollout due to one deficiency or the other to improve on the identified gaps and conclude the process during the new review period which is now open. This call also goes to companies that did not participate in the last exercise to immediately commence the process to meet the timeline of the new review period as the certification is now compulsory for all listed companies.
Before I close, I wish to condole with the Board and Management of Studio Press Nigeria Plc on the demise of one of their directors, Mr. John Akande, who assiduously participated in the CGRS exercise and passed the Fiduciary Certification Test before his death. Mr. Akande’s certificate is available for collection here today by the company for transmission to his family.
Distinguished Ladies and Gentlemen, thank you for gracing this occasion and have a good evening.
9. The pilot phase of the Corporate Governance Rating System kicks off