By Franklin Nakpodia, Philip Shrives, & Karim Sorour

Religiosity refers to the extent to which religion influences a particular society. It focuses on rituals and appearances rather than on faith and beliefs. But does religiosity support the emergence of a robust corporate governance system? Using a high-religiosity environment, we show that religiosity does not produce robust corporate governance. Rather, we find evidence of rational ordering as religious adherents in organisations relegate religious principles in their decision-making, favouring instead a rationalisation that aligns with their economic leanings.

Religion in society is a subject of great importance, present both in governments and organisations as well as communities and individuals. It is, therefore, unsurprising that there is extensive research investigating the effect of religion on corporate systems. Yet, owing to a combination of factors, religion has attracted minimal interest in organisational and management scholarship. Religion detaches from the exertions of commercial organisations because pursuing corporate goals demands the adoption of a consequentialist stance that conflicts with religious norms. Hence, it pays to redirect scarce corporate resources away from religious considerations to entrepreneurial objectives during corporate deliberations.

However, prior literature, though limited, highlights the contrasting effects of religion on organisational performance. A stream of research suggests that high-religiosity deters unethical corporate behaviour, but alternative studies hint that religion may frustrate responsible behaviour e.g. faith-based discrimination. An interesting factor here is the contextual effect, as findings fluctuate between organisations based in high and low religiosity economies. Given the inconsistency and the need to generate insights to understand how religion affects organisations, we select one of the most religious countries in the world – Nigeria – to examine the link between religion and corporate governance.

Two central themes emerge from our research, the first being the nexus between religion and the conduct of stakeholders. Owing to religious intrusion in organisations, religious leaders influence corporate decisions, particularly in board decision-making. We notice that board membership reflects the dominant religion in those organisations, but there is a variance in the conduct of stakeholders in religious settings (e.g. churches) compared to their behaviour in non-religious environments, e.g. corporate organisations. This is because the economic preferences that inform the decisions of stakeholders are not only inconsistent with fundamental religious doctrines, but also overwhelm religious dispositions, especially in poor economies.

Our second principal theme relates to religious herding. In developing economies, low economic power, escalating death rates, social inequalities, and poverty amplify the influence of religious leaders. A BBC Survey shows that 85% of Nigerians prefer to seek advice and support from religious leaders to address their problems. Based on their growing relevance, wealth, and followership, religious leaders occupy sizeable executive positions in corporate Nigeria, despite many lacking the requisite skills and experience to fulfil such responsibilities. In managing corporate obligations, they engage their social power as a pressure instrument, allowing them to attract the sympathy of their devotees.

Our research suggests that there is a widespread belief in God, heightened by gains that accrue from religion and religious affiliations. A participant notes that “we do not have the underlying religious commitment”, adding that much of the religious posturing is shallow. This reinforces the perception and practice of religion as a “means to an end”, typifying the functional religion notion. Notably, this notion challenges the distinctiveness of religion and articulates it as an expression of social cohesion.

In societies where institutional characteristics (such as religion) shape stakeholders’ consciousness, a transformation of that consciousness is necessary for improving governance practices in organisations. We conclude that high religiosity is unlikely to facilitate such a transformation. Rather, governance regulators must pay greater attention to guidelines that motivate the desired transformation as well as provide the lever for good corporate governance.

Reference:

Nakpodia, F., Shrives, P.J., Sorour, M.K. 2020. Examining the Link Between Religion and Corporate Governance: Insights From Nigeria. Business & Society, 59(5): 956–994.