European Journal of Business and Management www.iiste.org ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) Vol.6, No.25, 2014 110 Corporate Governance and Organizational Performance in the Nigerian Banking Industry Lambe Isaac Bingham University, Karu, Nasarawa State. Nigeria E-Mail: talk2ice@yahoo.com Abstract The concept of corporate governance emerged in response to the failures and widespread dissatisfaction with the way corporate organizations function. The Banking reforms in Nigeria brought about the consolidation of banks and based on exploratory analysis, it was found that in the presence of several regulations, weak corporate governance was a contributing factor to the poor performance underlying the subprime crisis in the Nigerian baking sector. In Nigeria It is evidential that banks strongly influence economic development and the efficient allocation of funds resulting in a lower cost of capital to firms, a boost in capital formations, and an increase in overall productivity. Consequently, the passing of various acts which deregulated the banking industry heightened the importance of internal regulatory mechanisms of banks such as corporate governance. In particular corporate governance is expected to affect bank’s valuation, cost of capital, performance and risk taking behaviour. Given the importance of the industry, there is a need to safeguard depositors’ funds and shareholders investments through a continuous entrenchment of sound and effective corporate governance regime within the banking sector. Keywords: Corporate governance, Organizational performance, stakeholders, Banking Industry, Nigeria. 1. Introduction Empherical evidences in the corporate world suggest a positive association between corporate governance and organizational performance. In this regard, sub-optimal or outright failure of governance systems can therefore be argued to be a major contributor to the collapse of many of the well established organizations that abound in the world’s corporate landscape. This failure, which translates into an inability of organizations to meet the expectations of their various stakeholders, has often been traced to weaknesses in the internal controls infrastructures and operating environments, and a lack of commitment to high ethical standards. These weaknesses are sometimes deliberately or intentionally induced by organizational designers and controllers, and at other times they may be a result of the naive assumption that those entrusted with managerial responsibilities will always act in a way that suggests or promotes enlightened self-interest, which should ultimately have positive implications for all stakeholders (Donaldson & Preston, 1995). However, evidences emerging from some of the recently collapsed organizations the world over, hitherto assumed to be run professionally or on sound principles, succinctly demonstrates the point that there is indeed a lack of good corporate governance culture among corporate organizations, with its attendant effect of enormous financial losses to both the stakeholders and the society as a whole. Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Consequently corporate governance is all about running an organization in a way that guarantees that its owners or stockholders receive a fair return on their investment, while the expectations of other stakeholders are also met (Magdi & Nedareh, 2002). It addresses the need for organizational stewards or managers to act in the best interest of the firm’s core stakeholders, particularly, minority shareholders or investors, by ensuring that only actions that facilitates delivery of optimum returns and other favourable outcomes are taken at all times. This is typically facilitated by creating an operational base which promotes the observance of codes of conduct that entrenches accountability, transparency, fairness, ethical behaviour, responsibility and other values designed to act as safeguards against institutional corruption and the mismanagement of scarce organizational resources. The policies, rules, processes, practices, programs and institutions used in administering, directing and controlling the operations and affairs of an organization generally constitute the elements and instruments of its corporate governance. Therefore, the elaborateness, clarity, formality and the degree of compliance with these elements and plans reflect the extent to which an organization is likely to experience good corporate governance. The main responsibility for corporate governance rests with the Board of Directors of a firm. The board is usually made up of executive (full time) and non-executive (part-time and independent) members. The board’s responsibilities include setting the company’s strategic goals, providing leadership towards putting the set goals into effect, supervising the management of the firm and reporting to shareholders on their stewardship. The board also sets financial policy and oversees its implementation, using financial controls systems. The board’s actions are subject to laws, regulations and the