THE EXPOSURE DRAFT OF NATIONAL CODE OF CORPORATE GOVERNANCE BY THE FINANCIAL REPORTING COUNCIL (FRC) 1990: A REVIEW BY OLAGOKE AKEUSOLA.ESQ.
The idea of having a code of corporate governance in Nigeria is not a
novel one. It has been done severally in other jurisdictions; especially in the United Kingdom which Nigeria has an affinity with,
due to the common law origin of our company law. Thus, a code of corporate
governance must always co-exist with a company law enactment, but here in
Nigeria it seek to supersede the Company Law enactment. The previous codes
which were enacted in the United Kingdom include the Cadbury report (1992), the
Hamel report on Corporate Governance (1998) and the combined code for listed
companies (1999). In Nigeria we have the
Atedo Peterside Corporate governance committee report (2003) and the Mahmood
Corporate governance review (2011)
Corporate Governance has been defined as a relationship among
stakeholders which can be used to determine and control the strategic direction
and performance of an organisation ″it is concerned with identifying ways to
ensure that strategic decisions are made effective. It has been said that in
modern corporate, a primary objective of corporate governance is to ensure the
interests of top level managers are aligned with the interest of shareholders.
Corporate governance involves oversight in areas where owner, managers and
members of the board of directors may have conflict of interest.”
There have been attempts
generally worldwide to formulate measured principles about corporate governance
to advance the best practices in corporate governance. Several countries have
enunciated their own codes and concepts of corporate governance, to enhance the
development of corporate governance ideals in corporate practice. There is a
multi-national approach by Commonwealth Association of corporate governance
(CACG), who have developed their own guidelines.
Codes of conduct on corporate
governance are resorted to in order to spare the government from legislating on
corporate governance issues. However, they are meant to supplement existing
corporate laws and not to subsume or replace them..
The exposure draft on Corporate Governance (Private sector) 2016 is
divided into eleven parts:
a) Preliminary Matters.
b) Application of the Code.
c) Board of Directors.
d) Risk Management and Audit.
e) Relations with Shareholders.
f) Minority Shareholders protection.
g) Relations with other Shareholders.
h) Transparency.
i) Code of business conducts.
j) Enforcement.
k) Miscellaneous.
According to the introduction chapter of the
preliminary matters (Part A), the remit of the committee led by Dr Victor
Odiase is to″ harmonize and unify all the existing sectoral corporate governance
codes in Nigeria ″. These sectoral corporate governance codes were identified
to include the following, Code of Corporate governance for banks in Nigeria,
post-consolidation 2006 . Code of Corporate governance for licensed pensions operators 2008 , Code of
Corporate governance for insurance industry in Nigeria 2009. SEC Code of
Corporate governance in Nigeria 2011. Also, the CBN Code of Corporate
governance for banks and discount Houses 2014 .This is quite an ambitious
target for the committee and very all-encompassing .This need for harmonization
is based on the need to have a unified code of corporate governance .
The terms of reference of the committee was such that
it would enable the Financial Reporting Council , amongst other things, to
promote the highest standards of corporate governance, promote public awareness
about corporate governance principles and practices, act as the national
co-ordinating body responsible for all matters pertaining to Corporate
governance in both private and public sectors of the Nigerian economy,
encourage sound systems of internal controls and information systems control,
to safeguard stakeholders investment and assets of public interest entities. To
promote sound financial reporting and accountability based on true and fair
financial statements duly audited by competent auditors so as to ensure that
the Audit committee of such public entities keep under review the scope of their audit and its
cost effectiveness, the independence and objectivity of the auditors.
While some of
these intentions will be perceived as noble and well-meaning, some will be
perceived as empire building by the Financial Reporting Council of Nigeria.
In the preliminary part of the draft, the committee
rightly stated that its strategic objectives “were dictated by perceived
challenges to good corporate governance practices in the Nigeria environment”.
The committee further identified the Nigeria corporate governance system as
being predicated on wide dispersal having adopted the Anglo-Saxon corporate
governance unitary board structures in which there are conflicts between the
shareholders and the managers.
According to part B of the draft code, the National
Code of Corporate governance for the private sector in 2016 shall be applicable
to, all public companies(whether listed or not) and all private companies that
are holding companies or subsidiaries of public companies and all regulated
private companies.
Furthermore, though it states that the Code provides
the minimum standard of corporate governance in Nigeria, the draft code states
that compliance with the provision i mandatory .This gives the code the
appearance of being a law, even though it is not.
The topic of
the Board of directors seems to be the raison d’etre , for the Code of
corporate governance 2016. This topic covered in part C, commands a lion share
of the attention of the committee. The committee in part C focused on the main
purpose of the boards, responsibilities, structure and composition , officers
of the board ,meetings of the board ,board committees ,appointment of the board
committees and continuing education.
To underscore
the importance attached to the issue of board of directors of committee , the
Committee further went into, terms and conditions of services, access to
information ,tenure and re-election of directors and performance evaluation.
The focus of the committee on the topic of board of
directors, is quite understandable as the board of directors are the engines
that power many a company .However its focus is too microscopic and bothers on
micro-management of the company by the Financial Reporting Council of Nigeria
(FRCN).
The responsibilities of the board as enumerated in the
draft code is akin to legislating for the board of director of companies. Also,
the Code’s proposal on board structure
and composition while desirable, is too prescriptive and one dare say,
suffocating on the independence and powers of Boards of Directors .
The idea of independent non-executive directors, while
being a welcome idea has been further augmented by the idea of the appointment
of a leading independent non-executive director by the non-executive directors
INED to lead them. The idea of a leading INED is required where you have the
preponderance of the combination of the positions of the Chairman and C.E.O in
one person (such as the United States of America) .In Nigeria’s Corporate
governance environment in companies sought to be covered by the Code, the
duties of the Chairman and C.E.O are almost separated and not combined in one
person.
Therefore, the need for a leading independent
non-executive director is superfluous and uncalled for .This will only further
exacerbate the wranglings in board relationships .The draft Code goes on to
prescribe for the officers of the company such as the Chairman, the MD/CEO,
executive directors and the Company secretary .This is almost duplicating the
provisions of Companies and Allied Matters Act (CAMA) and the micro-management
of companies by a regulator.
In part D of the draft Code, the issue of Risk
management and Audit is examined and the board is placed with the responsibility
of the oversight on risk management, while the management is said to be
accountable to the board for implementing
and monitoring the process of risk management and its integration into
the day-to-day activities of the company.
Furthermore, the board is tasked with the oversight of
establishment of a risk management frame work that defines the company’s risk
policy and risk limits. The said framework will be formerly approved by the
board and risk management policy shall be communicable in simple and clear
language to all employees of the company to ensure the integration of risk
awareness at all levels of the company.
This is among other responsibilities placed on the
board as regards risk management in the Company. There is also a touch on the internal
audit function of the company .The requirements on companies to have a whistle
blowing policy which shall be known to employees, stakeholders and to the
general public .One is hopeful that its implementation in practice will adhere
to the spirit intended by draft Code. Also, there is an elaborate attention
rightly given to external auditors under part D.
The committee
in part E of the draft Code looks at the issue of relationship with
shareholders in great details .It requires the board to establish a system of
consistent dialogue with shareholders,
majority and minority based on mutual understanding of the objectives of
the company .The committee also put the responsibility on the Chairman or
leading independent non-executive director to ensure that the views of the
shareholders are communicated to the board as a whole and that the Chairman
shall discuss governance and strategy with majority and minority shareholders.
The idea of discussing strategy with shareholders (majority and minority ) although
seems well-intended, might not be in the best interest of the company for many
reasons.
The committee also talks in part E of the annual
general meetings, the protection of shareholders rights, venue and notice of
meetings, resolutions. These last two times have been well provided for, by the
Companies and Allied Matters Act 1990(CAMA). Further issues discussed in part F
include, shareholders associations, institutional investors, minority shareholders protection(expropriation)
, related party transactions and conflict of interest.
In a similar vein, part G of the draft Code deals with
relations with other stakeholders- which requires companies to pay attention to
the interest of their stakeholders such
as employees, creditors, consumers, suppliers, trade union, host community, government, and the general
public.
The draft Code of
Corporate Governance in part J is devoted to enforcement. This part makes
compliance with the provisions of Code as being mandatory and that violations
of the provisions of the code will occasion both personal sanctions against the
persons directly involved in the violation and sanctions against the companies
and firms involved in such violation. It
goes on further to say that the enforcement of the code shall be responsibility
of the Financial Reporting Council (FRC) as the primary sectoral regulator
,where applicable.
Considering the fact that the Code is not a
law, but a Code of Conduct ,the issue of enforcement will be interesting and
lawyers will have a field day on behalf of
their clients on this issue .
The final part of the draft Code of corporate
governance is the miscellaneous part, which is about the commencement of the
code, and that it supersedes any other Corporate Governance Code in Nigeria. There
is also a transitional arrangement under the miscellaneous part.
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