Why Corporate Governance Matters: A Case Study of Arik Airline

Why Corporate Governance Matters: A Case Study of Arik Airline

The business dictionary defines corporate governance as, “The framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in a company’s relationship with all its stakeholders (financers, customers, management, employees, government, and the community).” Based on the above – and on our understanding of the crucial role of stakeholder management in ensuring sustainability – it is evident that companies need to set these rules and abide by them from day one. This will ensure that its sense of responsibility is communicated through its business activities, streamline its business process, and prove its accountability to stakeholders.

Unfortunately, it appears that many companies still struggle and fail to imbibe good corporate governance. For instance, let us consider Arik Airline, who on Thursday, 9th February, 2017, had its operation taken over by the Federal Government due to failed attempts to keep its stakeholders’ interests in focus, and its utter lack of accountability and responsibility in service delivery. In an article published by Persecondnews.com on 9th February, 2017, it was stated that, “For some time now, the airline, which carries about 55% of the load in the country, has been going through difficult times that are attributable to its bad corporate governance, erratic operational challenges, inability to pay staff salaries and heavy debt burden among other issues, which led to the call for authorities in the country to intervene before Arik goes under like many before it.”

Over the past few months, the situation has deteriorated significantly owing to the numerous flight cancellations Arik is now infamous for, with the go to explanation being its inability to get Jet Fuel. This is particularly interesting because per Sahara Reporters, this inability to get Jet Fuel is due to large debt incurred by the airline, rather than the scarcity of it they have attempted to portray. “The airline is a bad debtor as it currently owes at least N3 billion to all its suppliers, a situation, which has made them not to supply Jet A1 to the airline,” disclosed by a source to Sahara Repotres in an article published on 13 September, 2016. Every supplier wants a responsible and responsive business partner. Arik Air certainly failed in its responsibility to its suppliers, leading to their expected inability to continue the partnership.

Also, there is a huge shadow cast over its transparency to its customers. There is a clear distinction between Jet Fuel scarcity and inadequate supply, especially considering that, “Jet A1 was available in the local scene as airlines like Med-View, Air Peace and Landover Airways had been operating despite the alleged scarcity of aviation fuel and poor weather by Arik airline,” as published in Sahara Reporters on 13 September, 2016. Rather than focus its energy on communicating clearly to customers, Arik continued to promise a service they could not deliver on, only to flake way past the ‘last minute’. Earlier this year, we all heard the news of customers beating up Arik staff in the airport over a cancelled flight after hours of delays, and then again of Arik management address another such delay flippantly, unaware that passengers were listening. These were clear signs of customer dissatisfaction that were consciously ignored.

Further still, in regards to Arik’s relationship with its employees, sources say the employees went unpaid for months, but were forced to keep working with Arik because of the tough economic situation. As at December 2016, The General-Secretary of the National Union of Air Transport Employees (NUATE), Comrade Olayinka Abioye, disclosed that the staff – including pilots and engineers – had not been paid for over seven months despite efforts to mandate Arik to remunerate staff in full (Source: Sahara Reporters). It is, therefore, no wonder that employees were disgruntled to the point of taking out their frustration on customers – an inadvertent domino effect.

The extent of Arik’s irresponsibility in managing its operations and maintaining positive stakeholder relations is clearly a direct effect of poor governance and decision-making. Unfortunately, its stark disregard for transparency, accountability and fairness to regulators, suppliers, customers, and employees has led to its predictable end. The questions to be asked are: will the Federal Government’s takeover address the foundational issues of bad corporate governance? Or will it be better for the company to fight the takeover and restructure itself before going ahead with its operations? Time will certainly tell. One thing is however clear, a sustainable and inclusive solution needs to be quickly fashioned, before the cracks in the aviation sector become irreparable.

Most importantly, why wait to fail before an attempt at revival or repair is made? With good and effective corporate governance, clear communication, and transparency in its dealings with stakeholders, Arik – and many other companies today – would successfully build lasting institutions that will remain both viable and valuable. It is crucial to note that without this consciousness, the organisation stands the risk of being damaged beyond repair.


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