The Nigerian corporate governance regime is characterised by a combination of a statutory framework and subsidiary legislation enacted by the relevant regulatory authorities. These laws can be divided into two categories: general laws and sector-specific laws. While the general laws govern every entity incorporated in Nigeria, the sector-specific laws govern only companies that operate within their specific sector or industry in Nigeria. The general laws are: Companies and Allied Matters Act (CAMA); Investments and Securities Act 2007 (ISA); and Financial Reporting Council of Nigeria Act 2011 (FRCN Act). The sector-specific laws include, among others, the Banks and Other Financial Institutions Act (BOFIA) 1991 and the Insurance Act (IA) 2003.

The Nigerian corporate governance space has a number of corporate governance codes applicable to publicly listed companies and for sector-specific companies. Of importance in this regard is the recently published Nigerian Code of Corporate Governance 2018 (NCCG Code). The NCCG Code was published by the Financial Reporting Council of Nigeria on 15 January 2019 and seeks to promote public awareness of essential corporate values and ethical practices by recommending practices and principles that affected companies are to adhere to. The NCCG Code generally applies to all public companies as well as regulated private companies, and to private companies that are the holding companies of public companies.

It is interesting to note that the NCCG Code does not abolish the previously existing corporate governance codes; nor does it contain a superiority provision for circumstances where there is a conflict between the NCCG Code and the existing codes. It thus seems that companies would be required to comply with all applicable codes as necessary. The resultant effect of this is that in certain instances there is over-regulation, depending on the industry in which a company operates.

CORPORATE LEADERSHIP

Board structure and practices

Nigerian companies operate a one-tier board structure, where all the directors sit and make decisions as a single organ except when the functions of the board have been delegated to a committee of the board or to the managing director.

Under the provisions of the CAMA, every company is required to have a minimum of two directors on its board and, where at any time the number of directors falls below two, the company is mandated to appoint another director within one month of the reduction in the statutory number of directors or refrain from carrying on business after the expiration of this period. International best practices dictate that the board should be of a sufficient size relative to the scale and complexity of the company's operations and composed in such a way as to ensure diversity of experience without compromising the independence, compatibility, integrity and availability of members to attend meetings.

In addition, the NCCG Code provides that the board should have an appropriate mix of executive, non-executive and independent directors, with majority of the board being made up of non-executive directors. It is also desirable for most of the non-executive directors to be independent; the SEC Code provides that there should be, at the minimum, an independent director on the board whose shareholding, directly or indirectly, does not exceed 0.1 per cent of the company's paid-up capital and who should be free of any relationship with the company or its management that may impair, or appear to impair, the director's ability to make independent judgements.

Legal responsibility of the board

Generally, the primary responsibility of ensuring good corporate governance in the company rests with the board, as it sets the tone at the top on governance issues. The board is mandated to ensure that the company carries on its business in accordance with its articles and memorandum of association, in conformity with the law and in observance of the highest ethical standards.

Directors

Although the law requires a mixture of both non-executive and executive directors, the number of non-executive directors is expected to be higher than the number of executive directors, with the NCCG Code going further to state that it is desirable that a majority of the non-executive directors be independent non-executive directors. There is, however, no division in the performance of their functions on the board. Non-executive directors are expected to be key members of the board, as they are required to bring independent judgement as well as scrutiny to the proposals and actions of the management and executive directors, especially on issues of strategy, performance evaluation and key appointments. 

DISCLOSURE

Disclosure by the company

By law, a company's disclosure obligations include financial statements, corporate actions, etc, and ever since the introduction of corporate governance within the Nigerian regulatory framework, they are to report on corporate governance structure of institutions.

In the past few years, companies have started reporting on their corporate governance activities in the annual report. It should also be noted that the NCCG Code requires the submission of annual reports containing, among other things, a statement by the board on the level of application of the NCCG Code.

Under the SEC Code, the obligation to disclose goes beyond financial disclosure and extends to social disclosure. The board is enjoined to report annually on the nature and extent of its corporate social responsibility (CSR), social, ethical, safety and anti-corruption policies, and its health and environmental policies and practices. This obligation includes disclosure of:

a.the company's business principles and its efforts towards the implementation of the same;

b.the nature and extent of employment equity and gender policies and practices;

c.information on the number and diversity of staff, training initiatives, employee development and the associated financial investment;

d.the conditions and opportunities created for physically challenged persons or disadvantaged individuals; and

e.the company's policies on corruption and related issues.

f.Disclosure of interest.

g.Disclosure by the directors and shareholders.

CORPORATE RESPONSIBILITY

There has been an interesting movement in the corporate responsibility sphere in Nigeria, driven mostly by regulation. Several corporate governance codes have provisions that require companies to report on their Corporate Social Responsibility (CSR) activities to employees, stakeholders and the wider society. Interestingly, some companies carry out their charitable activities under the umbrella of CSR, while other companies are strategically evolving and crafting their CSR policy as a strategic aspect of business, leading to the development of their host communities and ultimately economic growth and development. The NCCG Code recommends that companies engage in sustainability policies and programmes covering social issues such as corruption, community service, environmental protection and serious diseases, as well as matters of general environmental, social and governance initiatives; and that such activities should be included in the company's annual report.

The SEC Code similarly provides that a company's annual report should contain a corporate governance report that includes the company's sustainability policies and programmes covering issues such as corruption, community service, environmental protection, and general CSR issues. The Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses in Nigeria also provides that banks shall demonstrate a good sense of CSR to their stakeholders.

Whistle-blowing

The NCCG Code recommends the development and review of adequate whistle-blowing policies and procedures, and that any issues reported through the whistle-blowing mechanism are summarised and presented to the board. The board is also required to ensure the existence of a whistle-blowing mechanism that is reliable and accessible, and that guarantees the anonymity of whistle-blowers. The board is also to ensure that all disclosures resulting from whistle-blowing, as well as the identities of whistle-blowers, are treated in a confidential manner. The SEC Code provides that companies should have a whistle-blowing policy that should be known to employees, shareholders, contractors and the general public. The board has the responsibility of implementing this policy. The company's whistle-blowing mechanism should ensure whistle-blower protection and should include a means of communication that can be used to anonymously report unethical practices.

SHAREHOLDERS

Shareholder rights and powers

Shareholders act as a watchdog for the corporate governance practices of their companies. They are entitled to receive annual reports and accounts, attend and vote at general meetings and query the actions of the company’s management and board amongst other things.

Although shareholders of a company generally look out for their interests and are concerned with getting the highest return on their investment in the company, the SEC Code emphasises that shareholders of public companies should play a key role in good corporate governance, and states that institutional shareholders and other shareholders with large holdings should demand compliance with the principles and provisions of the SEC Code.

It appears that Nigerian institutional investors are typically not as aggressive as their global counterparts in their engagement with the management of companies and the regulators. In a perceived bid to bridge this gap, the NCCG Code recommends that a policy be developed by the board to ensure appropriate engagement with shareholders. The chairperson is also encouraged to interact with shareholders in order to develop a balanced understanding of shareholder issues and ensure that their views are communicated to the board. It is hoped that this would have the desired effect of improving shareholder engagement.

For further questions or enquiry, please contact:

Moyo Maku (Associate Counsel, Imperial Law Office)

David Edoziem (Associate Counsel, Imperial Law Office)

info@imperiallawoffice.com