The core principle of corporate governance in Nigeria is on how to make those in the management of the companies more accountable, responsible and sensitive to the interest of shareholders, the interest of creditors and members of the public.
The main laws, which are the fulcrum of the corporate governance principles in Nigeria are:

  • The Companies and Allied Matters Act: this establishes the Corporate Affairs Commission which is responsible for the supervision, formation and winding up of companies in Nigeria.
  • Investment and Securities Act: This provides for the establishment of the Securities and Exchange Commission charged with the responsibility of regulating the capital market, securities investment and mergers and acquisitions.
  • Banks and other Financial Institutions which governs financial institutions in Nigeria
  • Insurance Act; among others
  • Financial Reporting Council of Nigeria Act

The major parties involved in corporate governance in Nigeria are the board of directors, the management and shareholders, creditors, customers, and regulators or government agencies.
The Companies and Allied Matters Act Cap c20 has been a major law regulating corporate governance in Nigeria. It provides some mechanisms for corporate governance for appointing directors of a company, removal of directors, the provisions for auditors and audit committees and the mandatory involvement of shareholders in making corporate decisions. However, the Securities and Exchange Commission (SEC) regulates and constantly enacts codes or rules for corporate governance in the public sector. The various sector regulators such as the Central Bank of Nigeria (CBN) also makes several rules for corporate governance in various sectors of the economy.
The various codes that regulate corporate governance in Nigeria include the followings:

  • Code of corporate governance for public companies, 2011 (Sec code) which applies to all public companies and quoted private companies in the capital market in Nigeria.
  • Code of corporate governance for banks and discount houses in Nigeria and for guidelines of whistleblowing in the Nigerian banking industry.
  • Code of corporate governance for other financial institutions in Nigeria, 2019 which applies to microfinance banks, finance companies, and bureau the change.
  • Securities and exchange commission rules 2013
  • Listing rules of the Nigerian Stock Exchange
  • Code of business ethics and principles on corporate governance for the insurance industry.
  • Financial Reporting Council (FRC) code of corporate governance.

There is a need for corporations to adhere and to the codes of corporate governance to reflect the company’s economic strength while providing assurance to existing shareholders.
The recent Nigerian code of corporate governance 2018 was released on January 15th, 2019 by the Financial Reporting Council (FRC). The implementation of the codes is based on the “Apply and Explain” principle. This assumes the application of all principles and requires corporate entities to explain how the principles have been applied to suit their unique organizational context while still achieving the intended outcome of the principles.
Some key principles of the corporate governance of 2018 code are as follows:

• Section 2 of the Code empowers its users to determine the size and composition of their boards while considering the scale and complexity of their operations, the need for sufficient members to serve on its committees, the need to secure the necessary quorum at meetings; as well as ensuring diversity. The Code also recommends an appropriate mix of executive directors, non-executive directors and independent non-executive members, with a majority of non-executive directors. However, the Code does not specify the number of independent non-executive directors required on boards but recommends that the majority of the non- executive directors be the independent non-executive directors.
The implication of this code is that Companies will now be granted the autonomy to determine the size and composition of their Boards within the confines of the requirements set out. This flexibility gives the users of the Code significant control over their cost of governance.

• Section 3 of the Code states the responsibilities of the chairman of the board in providing overall leadership to the company and driving effective board operations. It also recommends that the chairman should not be involved in the day-to-day operations of the company. The implication of this code is that the board will need to ensure a clear separation of roles between the Non-Executive Directors including the chairman and the Executive Directors. The roles and responsibilities of each director position should be formally stated in the appointment letters to directors.

• Section 8 of the code highlights the major role that a company secretary plays in supporting the effectiveness and management of the board and also mandates that the secretary provides independent guidance and support. The Code mandates that the board should properly empower the company secretary as well as approve the performance evaluation, appointment, and removal. The implications of this code are that in order to empower and strengthen the independence of the company secretary, the company would need to ensure that the company secretary is not a member of the board to guarantee the continuous provision of objective and independent guidance to the board.

• The Code further recommends the establishment of committees to be responsible for the nomination and governance, remuneration, risk management and audit of the company. However, companies can combine these responsibilities in board committees taking into consideration the size, needs, and activities of the company. The Code also recommends that the board committees responsible for the nomination, governance, remuneration and audit should comprise of only Non-Executive Directors (a majority of whom should be Independent Non-Executive Directors if possible. possible).

• Section 11 of the Code introduces additional responsibilities for the audit committee of the company. Specifically, they are expected to ensure the development of a comprehensive internal control framework and obtain annual assurance and report annually, in the audited financial and operating effectiveness of the company’s internal controls to promote reliability and safeguards of company’s assets.

• The Code also recommends an annual board evaluation to assess the performance of the board, board committees and individual directors in executing their role and responsibilities in the company. It also introduces that a Corporate Governance Evaluation is performed annually, to be focused on the implementation of the Code. Both evaluations are to be externally facilitated by an independent consultant at least once every three years. The summary report of this evaluation is to be included in the company’s annual report and investors’ portal.

• On compliance, the Code encourages the board as part of its responsibilities to ensure that the company is in compliance with the laws of the Federal Republic of Nigeria and other applicable regulations. It further requires external auditors to report to any regulatory agency where companies or anyone associated with the companies commit an indictable offence under any law whether or not such matter is or will be included in the management letter issued to the committee responsible for audit and/ or the board.

• On whistleblowing, the Code requires the board to establish and review periodically an effective whistleblowing framework for stakeholders who wish to report any illegal or unethical behaviour, as well as ensure that there is no retaliation or consequence against the whistleblower for making reports. Whistleblowers who suffer retaliation may be entitled to compensation or reinstatement as found appropriate.

In conclusion, corporate governance is a key driver to the establishment of any sustainable company. The practices recommended in the Code will require companies particularly those who have not previously been regulated by any corporate governance Code to conduct an assessment of their existing operations, and to ensure it is in line with the principles articulated in the Codes highlighted above and put in place appropriate processes and practices to address any observed gaps found in its operations.

By Olusola Jegede, MCIArb and Winifred Idiaru
Resolution Law Firm, Nigeria.