In a 2013 comparative analysis for the World Bank and IFC[1], PGS Advisors identified three principal motives by stock exchanges to launch corporate governance indices

  1. To raise the national corporate governance “ceiling” by supplementing the existing national corporate governance framework of law, regulation and
  2. To give companies the opportunity to differentiate themselves by showing good CG
  3. To gain access to funds committed to good CG practices and sustainability

Raisthe Corporate Governance “Ceiling”: This is perhaps the overriding objective in most cases. It refers to the motive to address actual and perceived weaknesses in the national corporate governance and integrity framework by introducing more stringent and credible criteria via a governance rating/evaluation mechanism. Incentivizing corporations to apply higher standards of corporate governance can be an effective policy tool for improving a country’s overall corporate governance environment.

The best international example of such an approach is Brazil’s Novo Mercado. In Brazil, corporate governance and investor protection had been shareholder concerns for many years. However, reformers found it difficult to attack the problem through changes to the legal and regulatory framework. In December 2000, the Brazilian Stock Exchange BOVESPA launched a new listing segment, the Novo Mercado, and its sister segments, Level 1 and Level 2. These listing segments have corporate-governance requirements that go far beyond Brazil’s legal and regulatory framework.

Provide a platform for companies to differentiate themselves: Helping companies to distinguish themselves with a label of governance excellence is a key reason for creating a CG Index. It allows for the build-up of positive reputation that benefits companies, the stock exchange and the market-place as a whole. Companies in the index or market segment can expect to increase their access to capital, particularly that of foreign investors. These investors value information on company governance, especially for emerging-market companies.

Gain access to funds seeking high CG standards: Lastly, CG factors play an ever more important role in investment decisions, often as part of a broader ESG (environment, social, governance) analysis.  Assets under   Management (AUM) actively integrating ESG factors have grown exponentially over the last decade. According to the “Global Sustainable Investment Review 2012”, US$13.6 trillion   of professionally managed assets incorporate ESG concerns into their investment selection and management. This represents 21.8% of the total assets under management in the regions covered by the report. Therefore, creating a CG or ESG market index in the local stock market to draw investor capital has serious potential.

These objectives are by no means mutually exclusive; in fact, all three can be achieved with the right index setup. These objectives are also sequential to a certain degree, as companies will only gain better access to external funds once trust in the differentiation achieved by the index has been built.


Given the actual and perceived weaknesses in Nigerian corporate governance and business integrity, the CGRS primary and overriding objective is to provide a comprehensive, trustworthy diagnosis of Nigerian companies’ corporate governance and business integrity practices. n becoming a diagnostic tool of the strengths and weaknesses of Nigerian corporate governance, the CGRS can become a critical mechanism in advancing Nigerian corporate governance and business culture, build trust and improve the perception of Nigerian capital markets.

[1] Grimminger, Di Benedetta,” Raising the Bar on Corporate Governance – A study of eight Stock Exchange Indices”, IFC/World Bank 2013