Perspectives For The Nigerian Code Of Corporate Governance

Abstract
In recent times, the role of the Board of Directors within the corporate governance framework has increasingly gained prominence. Specifically, there has increasingly been the growing recognition which has emphasised the importance of the Board’s role in ensuring sound operational practices whilst effectively balancing shareholder expectations. Therefore, to ensure that the Board is efficient, significant focus within new corporate governance frameworks within various countries has been geared towards restructuring Board composition to ensure their effective control and management of companies. This paper seeks to analyse how the Board within the corporate structure can be effectively utilised to ensure higher levels of accountability amongst key officials in the company as well as adequately protecting the interests of shareholders and other stakeholders.

Introduction

The definition of a “Director” is contained under the Companies and Allied Matters Act 1990 which states that “directors of a company under this Act are persons duly appointed by the company to direct and manage the business of the company”. The Act, however, does not expressly provide for the essential responsibilities of a Director. The latter is comprehensively explained under the codes of corporate governance. On January 15, 2019, Nigeria, in a bid to keep up with the recent developments in the corporate sector established an all-encompassing Nigerian Code of Corporate Governance 2018 (NCCG 2018).

The Financial Reporting Council (FRC) Council empowered by Section 11c and 51c of the Financial Reporting Council of Nigeria (Establishment) Act issued this Code of Corporate Governance and guidelines to ensure good corporate governance practices in the public and private sectors of the Nigerian economy. Companies are urged to adopt an “Apply and Explain” approach to ensure proper compliance with the Code. The Apply and Explain approach requires that companies explain not only that they have adhered to the guidelines but also to demonstrate what specific activities have been undertaken to achieve the objectives of the Code in their application of the guidelines specified within the Code.

Examining The Board’s Role And Responsibilities Under The Nigerian Code Of Corporate Governance 2018

In many governance guidelines and codes of best practice emphasis has been placed on the notion that the Board’s responsibilities should primarily be focused on the stewardship of the corporation. The key characteristics of an effective Board include ;

• Development and promotion of the collective vision of the company’s purpose, its culture, its values, and the behaviors it wishes to promote in conducting its business
• Provision of direction for the company’s management.
• Demonstration of ethical leadership, displaying and promoting throughout the company behaviors that are consistent with the culture and values it has defined for the organisation
• Creates a performance culture that drives value creation without exposing the company to excessive risk of value destruction
• Making of well-informed and high-quality decisions, based on a clear line of sight into the business
• Accountability to shareholders and other key stakeholders
• High regard for corporate governance practices and embracing evaluation of their effectiveness

The Board of Directors is responsible for ensuring that the Board and its committees act in the best interests of the company under the NCCG 2018. In performing this role, the Board is to ensure the establishment and implementation of a succession plan, appointment process, training mechanism, and remuneration for not only the Board but senior management officers of the company. The Code also empowers the Board to set out directions and standards to attain the appropriate balance of knowledge, skills, experience, and diversity needed for it to function effectively. Notably, the Board is empowered by the Code to periodically appoint new members with the relevant skills and fresh perspectives which will invigorate its capabilities and ensure efficiency in administration.

Concerning the protection of shareholder interest and ensuring adequate protection of shareholder interests, the NCCG 2018 requires that the Board develop a policy that ensures appropriate engagement with shareholders. Laudably, minority shareholders, in particular, should be adequately protected from abusive actions by controlling shareholders. The Code also requires that the Board adopt and implement a stakeholder management and communication policy to keep stakeholders conversant with the activities of the company.

Taking into consideration disclosure measures, the NCCG 2018 requires that the Board ensures that the company’s annual report includes a corporate governance report that provides clear information on the company’s governance structures, policies, and practices. The company’s corporate governance report is expected to state the composition of the Board of Directors, the plan for achieving gender diversity on the Board, and the progress made towards achieving gender diversity. More importantly, this report is also required to specify the nature of any related party relationships and transactions.

The importance of the Board is intrinsically linked to its composition, and more often than not, the effectiveness of the Board in its role is ultimately dependent on the individuals who comprise the Board. In taking into account the members of the Board, the NCCG 2018 requires that there must be an appropriate mix of Executive, Non-Executive and Independent Non-Executive members with a majority of the members being Non-Executive Directors. This system is essential in ensuring that there is proper compliance with the guidelines mentioned not only in the Code but the sector-specific Code that applies to the industry in which that company operates.

Although not a new addition, the NCCG 2018 provides that the positions of Chairman of the Board and the Managing Director/Chief Executive Officer (MD/CEO) of the company should be bifurcated. The role of the latter is specifically required to be adequately defined in a contract of employment, and there is an express prohibition from being a member of the committees responsible for remuneration, audit, nomination, or governance.

Also, directors are not permitted to be members of Boards of competing companies to prevent potential conflict of interest issues, breaches of confidentiality, and diversion of corporate opportunity as well as divulgence of corporate information. In evaluating its performance, the Board is required to establish a system to undertake a formal and rigorous annual evaluation of not only its performance but that of the committees, the Chairman, and the individual directors .

This evaluation process should be facilitated by an independent external consultant at least once in three years. It is evident from the commendable inclusions and changes in the regulations and the codes of corporate governance in Nigeria and across the world, that the role of the Board in ensuring the effective control and management of companies cannot be overstated. Notably, the preference for an increased number of Independent Directors on the Board appears to be a key component that will address longstanding issues that have always dallied in the governance framework.

Therefore, empowering the Board is a move towards ensuring that directors particularly independent directors begin to gain more prominence in decision making and are effectively positioned to monitor the performance of top management in the company and influence management to change the strategic direction and outline lapses where performance has not been in line with the overall expectation. For instance, in countries such as South Africa, the King Report IV requires that Directors continuously act in good faith in the interest of the company and should aim to increase shareholders’ value while having regard for the interests of all stakeholders”. Simply put, the Board is charged with the responsibility of ensuring that shareholder and stakeholder interests are duly taken into consideration.

Key Components Of An Empowered Board Of Directors

Across the world, there are varying methods within corporate governance principles and practices which outline how to empower boards to perform their governance function more effectively. Some key considerations include;

• Selection of Directors: An effective recruitment and selection process is the first step towards strengthening governance in companies. The selection process for the Board should be transparent and structured to ensure compliance.
• Training of Board Directors: Training of directors is important to the performance and management of companies. In many companies, there is minimal training afforded to directors, and the tendency is to concentrate training on lower level management staff or employees. Training of board members should be done with a specific purpose in mind. The whole purpose of the training of board members should be to equip them with the skills and competencies that are necessary for the effective discharge of their duties.
• Enhancing Board Participation: Board members can only perform their functions if they participate fully and effectively in board functions as well as other organisational events. This can also be guaranteed through regular meetings of the Board to discuss issues on the company’s performance. Board Committees are also a useful tool in encouraging Board participation as they allow directors to drill down on specific issues and membership of committees allows Directors to gain better insight into key areas of the business.
• Establishing Performance indicators to evaluating Board Performance: Board performance translates to Board effectiveness and for a Board to be effective specific indicators for monitory performance are essential. These include;
  • Attendance to meetings and other board events
  • Commitment to the organisation
  • Commitment to organisational vision and mission
  • Identifying areas of weakness and identifying opportunities for improving those weaknesses
• Safeguarding the Independence of Independent Directors through transparent modes of appointment to the Board: An independent selection panel should be established and where possible there should be an independent committee comprising of some board members and external independent experts.

Conclusion

In seeking to maximize the role of the Board to ensure effective control and management of companies will be highly linked to how the Code of corporate governance and regulations ensure as well as encourage compliance. In particular, empowering Boards will, in the long run, ensure that many companies are well equipped to deal with the dynamic corporate environment. Most importantly, it will guarantee the sustainability of more companies which will have a continuous positive effect on the economy and development.