Of Corporate Governance and Ethics,……….Why Nigerians should stop complaining about the fines imposed on MTN and Guinness Nig. Plc.
You break the rules, you pay the fine!…………..
Nigeria is any investors’ haven, with a population of almost 180 million and growing at an average of 2.5% annually. Nigeria has a middle class of 23 million making up about 4.1 million households, the largest in Africa and is projected to add an additional 7.6 million middle class household in 16 years. Nigeria has a Return on Investment (ROI) of 36% compared to 6.6% global average and ranked 4th in the world on ROI. Nigeria is a power house for Multinational Corporations.
Africa has for long being a place where Multinationals break the rules and regulations on Corporate Governance without any consequences due to weak laws, corrupt government officials, international pressure on governments, and the exertion of Corporate Power to subvert justice. Billions of dollars leaves the Nigerian shores every year as in profit to the countries of origin of the operating multinationals without a substantial Corporate Social Responsibility (CSR) to the countries where they make the billions.
MTN Nigeria….Communications, South Africa
In 2001 MTN came into Nigeria with a prospect of 10 million Nigerian customers, within 5 years MTN had 32 million customers, though operating across Africa and the Middle East, Nigeria still remains its biggest single source of profit. (The Economist, 2014). In 2013 MTN posted a worldwide revenue of USD$12.9 billion with Nigeria being the highest contributor of 35% of the total revenue, giving the Nigeria share to be USD$4.52 billion. The worldwide Profit after Tax was USD$2.81 billion.
The USD$5.2 billion MTN fine at the present exchange rate only represents 115% of its average revenue in Nigeria and more than 100%.
Guinness Nigeria Plc…….Alcoholic Beverage, United Kingdom
Guinness Nigeria, a subsidiary of Diageo Plc of the United Kingdom, was incorporated in 1962 with the building of a brewery in Ikeja, the heart of Lagos. The brewery was the first outside of Ireland and Great Britain. Products includes Beer Brewing, Bottling and Marketing of Guinness Foreign Extra Stout, Harp Lager, Malta Guinness and other Beverages. In 2013, the company recorded a total revenue of USD$790.1 million, with profit for the year being USD$76.54 million. (Guinness Nigeria Plc. 2013)
The N1 billion fine imposed on Guinness and at the present exchange rate represents 0.63% of the company’s average revenue and less than 1%.
Europe and North America, the law is supreme!
The calculus of crime
Assessed against this methodology, even apparently hefty fines look pretty weak. Recent big penalties, GlaxoSmith-Kline 10.8% of revenue, Abbott Laboratories 12.3% of revenue, BAE Systems 2.1% of revenue, and Barclays 0.5% of revenue have been far lower than a crime calculus of this sort would suggest is needed, even allowing for the fact that some firms, like Barclays, get discounts for co-operating with the authorities. Britain looks particularly lenient. Its antitrust laws impose fines of up to 10% of revenues; American regulators levy penalties of up to 40%, and the European Commission goes up to 30%.
In some cases companies have been made to pay more than 100% of their annual revenue as penalty, depending on the magnitude of such crimes.
While people are crying wolf in Nigeria, let’s look at some of the fines imposed on Multinational Corporations abroad on the breach of Corporate Governance.
1. Abbot Laboratory………Pharmaceuticals
Crime: Promoted anti-seizure drug Depakote for unapproved usage
Revenue: USD$4.7 billion, Fine Imposed: USD$1.5 billion, Percentage of fine to Revenue: 32%, eventually negotiated to USD$500 million representing 12.3% of revenue.
2. Johnson & Johnson………Pharmaceuticals
Crime: Illegal marketing of anti-psychotic drug Risperdal and other medications
Revenue: USD$9.7 billion, Fine Imposed: USD$2.2 billion, Percentage of fine to Revenue: 23%
Crime: Bribing Nigerian officials
Revenue: USD$1.1 billion, Fine Imposed: USD$579 million, Percentage of fine to Revenue: 50%
Crime: Paying manufacturers to favour its products over those of its rivals.
Revenue: USD$4.4 billion, Fine Imposed: USD$1.45 billion, Percentage of fine to Revenue: 33%
Crime: Sham accounts destroying documents, tax evasion.
Revenue: USD$2.2 billion, Fine Imposed: USD$788 million, Percentage of fine to Revenue: 35%
Crime: Kickbacks and Bribes to win contracts in Iraq, Venezuela, Bangladesh, Israel and Russia.
Revenue: USD$8.2 billion, Fine Imposed: USD$1.6 billion, Percentage of fine to Revenue: 19.5%
Crime: Misbranding painkiller Bextra and promoting it for unsuitable uses.
Revenue: USD$8.6 billion, Fine Imposed: USD$2.3 billion, Percentage of fine to Revenue: 27%
8. British Petroleum BP………….Energy
Crime: Gulf of Mexico Oil spill.
Revenue: USD$30.6 billion, Fine Imposed: USD$34 billion, Percentage of fine to Revenue: 110%
9. Eli Lilly & Co………….Pharmaceuticals
Crimes: Marketing of anti-psychotic drugs Zyprexa for non-approval uses.
Revenue: USD$4.3 billion, Fine Imposed: USD$1.42 billion, Percentage of fine to Revenue: 33%
Crimes: International Price Fixing on DRAM memory chips.
Revenue: USD$9.4 billion, Fine Imposed: USD$300 million, Percentage of fine to Revenue: 3%
Crime: Deceiving Investors about the details of a merger with AOL
Revenue: USD$1.3 billion, Fine Imposed: USD$2.4 billion, Percentage of fine to Revenue: 192%
Crime: Contracting scandal
Revenue: USD$2.2 billion, Fine Imposed: USD$615 million, Percentage of fine to Revenue: 28%
13. American International group (AIG)…………..Finance
Crime: Improper accounting, bid-rigging and skipped payments to state workers compensation fund.
Revenue: USD$14 billion, Fine Imposed: USD$1.6 billion, Percentage of fine to Revenue: 12%
Crime: Damage to land in the Niger Delta, Nigeria.
Revenue: USD$26.3 billion, Fine Imposed: USD$1.5 billion, Percentage of fine to Revenue: 6%
15. Prudential Finance……Finance
Crime: Deceptive Trading
Revenue: USD$3.4 billion, Fine Imposed: USD$600 million, Percentage of fine to Revenue: 17%
16. Bank of America…………..Finance
Crime: Allowed a select group of traders to make ‘improper traders’ including after 4pm market close.
Revenue: USD$16.4 billion, Fine Imposed: USD$676 million, Percentage of fine to Revenue: 4%
Crime: Illegally marketed anti-psychotic drugs Seroquel for unapproved and unsafe uses.
Revenue: USD$8.1 billion, Fine Imposed: USD$520 million, Percentage of fine to Revenue: 6%
While Corporations are being made to face the full weight of law in developed market, most are clamouring for the safe landing of multinationals who have broken similar rules in Nigeria. Behavioural changes are the most difficult to achieve, and this difficulty is often underestimated. The dangerous assumptions is that if something makes sense then companies will fall in line and change their ways of doing business to conform with the new or existing demand. Unfortunately, this seldom happens as easily as anticipated. Companies do not fall in line simply because they do not either have the skills for the change or the rules are not in their best interest. Most of the above cases did not just happen but were influenced by the populace who are the market and customers, they pushed for the law to be enforced.
Example was the trouble in the North Sea in September 1991 when Shell UK, a member of the Shell Royal Group of Companies wanted to sink its Brent Spar, a large oil storage tanker facility and loading Bowie, a cylinder that stood 463ft high more than twice the height of Big Ben and weighed about 14,500 tons. Since the company could not justify the refurbishing that the facility needed, they decided to decommission the Spar. While the company had to find a way to dispose the Spar, they never chose the best option of recycling but chose what was economical viable to them at the expense of the environment.
Shell UK decided to sink the Brent Spar with all the sludge contained in it, Shell UK a powerful Multinational Corporation and using Corporate Powers had influenced the regulatory body to overlook the environmental impact of their decision. It took the intervention of Greenpeace International an NGO with global interest on preserving the environment, Greenpeace through confrontations, protects, and boycott of Shell’s products forced Shell to step down from their decisions after months of face-offs. We must play our parts and help government enforce laws and in most cases where government are not living up to the standard, we must push and make sure such laws that breach Corporate Governance and Ethics are enforced, and we must not be seen making excuses for these corporations.
While we might argue that the fine is huge, there is always room for negotiations, most of the companies listed above negotiated their fines, it will surely set the tone for future business ethics, and companies will know that government has woken up to their responsibilities.