- Deadline filing of annual reports by public companies must be sacrosanct
The 2018 federal budget is still not passed. It is still roiled somewhere between executive lethargy and legislative insouciance. We are approaching the half-year mark. Import: some short-term projections and strategic thoughts underpinning the appropriation document are already distorted.
Last year, the federal budget was eventually passed by mid-year and this has been the pattern in nearly a decade; Nigeria has hardly been able to kick off the year with her spending proposals as it was the norm. Reason: largely due to ineptitude and successive poor quality leadership. The effect of this on the economy can be seen all around us.
A country’s budget is not unlike a public company’s annual report and accounts. The Securities and Exchange Commission (SEC) statutorily requires companies to file annual accounts.
In the interest of shareholders and investors who actually own public companies, and in keeping with corporate governance ethos, managers are required by law to prepare and submit a report of their business and financial activities at stipulated intervals. Interim reports are presented at the end of each quarter while a full report is rendered at the end of a 12-month financial year.
Three months are allowed at the end of each financial year for final audited accounts to be filed. With a little exception, this is global standard practice. At the expiration of the grace period, sanctions are levied on errant companies unless there is a cogent reason for defaulting. And it is apposite to state that consistently meeting annual report filing deadline is a sign of a well-wired corporate entity.
It is for this reason that we are worried that some companies in Nigeria are increasingly lax in their filings – both quarterly and year-end.
Last week, news was abroad that about 10 major companies missed filing deadline. Notable among them is First Bank of Nigeria Holding (FBNH), probably Nigeria’s leading banking and financial conglomerate. Others include Diamond Bank, International Breweries, Linkage Assurance, Union Bank, Fidelity Bank, Mutual Benefits and Lafarge Africa.
Many of these have put up reasons for defaulting as the rule requires of them and may well get a few more days’ breather as it is also allowable. However, some would have to face sanctions if reasons for default are found to be untenable.
What we find worrisome though, is the fact that non-timely filing is seemingly becoming the norm; the list continues to grow each year as many more companies join the defaulters’ club. And more remarkably, reasons for default get flimsier.
For instance, one of the companies currently in default (an insurance firm) gave reason to be that it just filed the report to its industry regulator on March 29, 2018; the time it ought to be filed at the Exchange. Some others cite technical hitches, software challenges and consolidation of group accounts.
While it is not our place to determine which reasons are tenable, the rules were not set today and there is a 15-month cycle from the last filing. If one company can meet the deadline, we believe everyone ought to.
It was the same story this time last year; less than 30 per cent of quoted companies met the deadline. Some of the major companies in default today were also in default last year.
SEC was much alarmed by this growing bad behaviour of public companies that in January 2017, it had launched a new sanction regime for laggards which ranges from N100,000 to N100 million in penalties.
While we sympathise with managers who have to endure a peculiarly debilitating business environment in Nigeria today, we must not allow a breakdown of crucial corporate governance rules. Timely filing is sine qua non to the proper running of a corporate entity. Not filing in time is always the first sign of distress and by all means, investors and shareholders must be protected from inept and wayward managers.
We commend the SEC/NSE for their wakefulness. We urge them to monitor closely and engage members of the market widely. But ultimately, we must always remember that the shareholder is the reason for the existence of the market.