Corporate Governance is the lifeblood of any corporate entity. It must be distinguished from the daily operational management of a Company. Accordingly, Corporate Governance is a system of rules, policies, practices, and processes that dictates how a firm is directed and controlled by the Board of directors. Corporate Governance involves balancing the interests of the Company’s stakeholders such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Poor corporate governance can cast doubts on the reliability, transparency, and integrity of a Company. These factors are also key considerations to determine the financial health of the Company. Corporate Governance also involves the division of powers between the board of directors and the members in general meeting.

Professor Fabian S.A.N in a further attempt to define what Corporate Governance entails stated as follows:

“ In simple terms, Corporate Governance can be defined as a set of policies, guidelines, and regulations put in place by regulatory authorities to regulate the operation of key officers and encourage an effective governance structure within organizations to prevent failure or collapse of the organization.”

For effective management of every organisation, the organization must as a matter of obligation observe the principles of Corporate Governance as stated in the Code of Corporate Governance.

Basic Principles of Good Corporate Governance.

To ensure that the right foundation for success exists within a company, companies must apply a corporate governance framework that incorporates the core principles of governance. These core principles of good corporate governance are fairness, accountability, responsibility, and transparency.

• Fairness
  Fairness refers to equal treatment of shareholders and stakeholders within the organisation. Fundamentally, every corporation undertakes to protect shareholders’ rights and ensures equal treatment of shareholders. Also, there should be a well-established mechanism for obtaining redress in instances of violations of their rights.
• Accountability
  Corporate accountability refers to the obligation and responsibility to give an explanation or reason for the company’s actions and conduct. This principle rests primarily with the Board of Directors and it is expected that the code of governance should provide for the accountability of the Company’s Board of Directors to all shareholders following the applicable laws, as well as offer guidance to the Board in making decisions and monitoring the activities of stakeholders.
• Responsibility
  It is essential that a company recognises the rights of all interested parties and seeks to ensure that the Board of Directors is given the requisite authority to act on behalf of the company. Responsibility and accountability must work hand in hand, in essence, the Board of Directors should be accountable to the shareholders for how they carry out the objectives and responsibilities of the company.
• Transparency
  The company is expected to ensure that stakeholders are informed about both ongoing and future activities of the company. Transparency requires timely, clear, and accurate disclosure of information on the company’s activities, including its financial situation, ownership structure and governance. The essence of a good corporate governance framework is to ensure increased transparency and accountability particularly amongst the management of the company.

The Evolution of Regulatory Framework for Corporate Governance in Nigeria

In December 1992 the first Code of Corporate Governance in response to corporate failures in the United Kingdom came into existence this was followed by the production of a report known as the Financial Aspects of Corporate Governance by a committee headed by Sir Adrian Cadbury now referred to as the Cadbury Report. The report significantly influenced corporate governance thinking around the world. These reports tried to prevent the abuse of power by corporate entities.

However, in the wake of the 21st century, the world began to experience more corporate challenges, which led to the review of corporate governance practices. One of the remarkable outcomes of these efforts was the United States’ Sarbanes-Oxley Act of 2002, also known colloquially as SOX. The Act requires certification of internal auditing, increased financial disclosure, and it also imposes criminal penalties on directors for non-compliance.

It is noteworthy that Nigeria is not left out in this corporate governance history and evolution. As a matter of fact, prior to the 1990s, the principal regulation for companies in Nigeria was the Companies Act 1968, which was modelled after the Companies Act 1948 of the United Kingdom. The law was repealed and replaced by the then Companies and Allied Matters Decree No. 1 of 1990. This legislation had evolved over the years into the present-day Companies and Allied Matters Act Cap. C20, 2004. The current statute was the product of a rigorous process led by the Nigerian Law Reform Commission. The first corporate governance code in Nigeria was the Code of Corporate Governance for Banks and Other Financial Institutions in Nigeria. It was issued by the Bankers Committee in August 2003 .

In October 2003, SEC’s 17-member committee, headed by Atedo Peterside, issued the Code of Best Practices on Corporate Governance in Nigeria. The SEC code emphasised the role of the board of directors and management; shareholder rights and privileges; and the audit committee. Not only was the code influential, but it was also the first to be issued by any regulator in the country. Although the SEC code contained remarkable reforms, it soon became inadequate in addressing new emerging challenges. This inadequacy led to the formulation of sector-specific regulations tailored to address the respective sector-specific challenges. In 2006, the Central Bank of Nigeria (CBN) issued its Code of Corporate Governance for Banks in Nigeria Post Consolidation. This code was introduced to ensure accountability on the part of bank CEOs.

It specifies fines and penalties, including jail terms for erring CEOs. The National Pension Commission (PENCOM) issued its code in 2008, known as the 2008 PENCOM Code. The National Insurance Commission (NAICOM) also issued its Code of Corporate Governance for the Insurance Industry in 2009. Subsequently, the Corporate Governance for the Telecommunication Industry 2016, was issued by the Nigerian Communications Commission.

These industry-specific codes were meant to address the issues that were not reflected under the SEC legislation. However, in 2011, SEC released the Code of Corporate Governance for Public Companies in Nigeria, which replaced its 2003 legislation. The code is anchored on five main principles, which include: leadership, effectiveness, accountability, remuneration, and relations with shareholders.

Following the establishment of the Financial Reporting Council of Nigeria (FRCN) in 2011, the FRCN through its Directorate of Corporate Governance assumed the responsibility to develop principles and practices of corporate governance.

The FRCN demonstrated its first official duty in this regard with the formulation of the National Code of Corporate Governance 2016 (NCCG), released in October 2016. The NCCG – which provides corporate governance legislation for private and public sectors as well as not-for-profit organizations –was however suspended by the federal government in November 2016 following stiff opposition from various stakeholders.

This led to the enactment of the Nigerian Code of Corporate Governance (the “Code”) which was issued in 2018 by the Financial Reporting Council of Nigeria (the “FRCN”) pursuant to Sections 11(c) and 41(c) of the Financial Reporting Council of Nigeria Act.

The Legal Framework for Regulating Corporate Governance in Nigeria.

The legal regime of corporate governance in Nigeria is primarily governed by three legislations. These are the Companies and Allied Matters Act (CAMA), the Investment and Securities Act (ISA), and the Banks and Other Financial Institution Act (BOFIA). These legislations contain the obligatory provisions on corporate governance in Nigeria. They will be examined below.

The Companies and Allied Matters Act (CAMA): This Act is the grund norm for every company in Nigeria. It covers issues commencing from the incorporation of a Company till the winding up and dissolution of the Company. It specifies the duties and functions of the directors, the powers of shareholders and also provides that a public limited liability company must have an audit committee (made up of an equal number of directors and shareholders not exceeding six). CAMA also prescribes the contents of the annual reports and financial statement of the Company which must be presented by the directors at the Annual General Meeting. CAMA also prescribes that one- third of the directors are subject to retirement and re-election by the members at every Annual General Meeting (except a contrary provision is made in the Articles of Association of the company).

The Investment and Securities Act 2007 (ISA): This Act established the Securities and Exchange Commission (SEC), which is saddled with the responsibility of regulating dealings on the capital market and securities investments in Nigeria. The ISA stipulates certain guidelines that are enforced by the SEC to ensure the protection of investors in Nigeria against fraudulent dealings. The Act mandates that a prospectus must be prepared before shares are offered to the public by a Company as well as other salient provisions. The Act places the responsibility for ensuring the integrity of financing controls and reporting on the Board of Directors.

Banks and Other Financial Institutions Act (BOFIA): This Act saddles the Central Bank of Nigeria (CBN) with the regulation, control and supervision of banks and other financial institutions in Nigeria. The CBN under BOFIA is empowered to make regulations and issue guidelines for businesses operating in Nigeria.
Any person or official of the Company who contravenes and violates the provision of the Act will be duly prosecuted and liable to the penalties stated therein. The Act also ensures that banks and other financial institutions maintain and keep relevant books of account in accordance with extant accounting standards as may be prescribed by the CBN or other legislation from time to time. Further to the provisions of CAMA on the appointment of auditors, the external auditor must be duly approved by the CBN. Further to the powers of the CBN under the Act, the CBN drafted the Mandatory Code of Corporate Governance for Banks in Nigeria.

Regulatory Framework for Corporate Governance in Nigeria

Notwithstanding the various laws in Nigeria which have prescribed the standard of corporate behavior and relationship for a company operating in various spheres and industries in Nigeria, there has been a move in recent years to promote good corporate governance. This change in corporate outlook is primarily due to the recent corporate failures in Nigeria especially during the credit crunch period in 2008. Accordingly, many regulatory bodies have instilled codes of corporate governance to address its weaknesses and to improve the mechanism for its enforceability.

In Nigeria, some codes as discussed below have been issued to tackle the cancer of weak corporate governance; the Code of Corporate Governance 2011 for public companies issued by the Securities and Exchange Commission (SEC) applicable to all public companies registered in Nigeria, the Code of Corporate Governance for Banks in Nigeria Post-Consolidation 2006 (CBN 2006 Code) which was issued by Central Bank of Nigeria (CBN) and applicable to all banks operating in Nigeria; the Code of Corporate Governance for License Pensions Operators 2008, issued by National Pension Commission (NPC) and applicable to all Pension Fund Administrators and Pension Fund Custodians operating in Nigeria.

Also, Code of Good Corporate Governance for the insurance industry in Nigeria 2009 issued by National Insurance Commission (NAICOM) and applicable to all insurance and reinsurance companies operating in Nigeria and the provisions of Financial Reporting Council of Nigeria Act (FRCN Act) as well as the Code of Corporate Governance for Telecommunication industry 2014 issued by the Nigerian Communications Commission (NCC), the National Code of Corporate Governance 2016 (NCCG) , released in October 2016 which provides corporate governance legislation for private and public sectors as well as not-for-profit organizations although it was suspended by the federal government in November 2016 following stiff opposition from various stakeholders.

This led to the enactment of the Nigerian Code of Corporate Governance (the “Code”) which was issued in 2018 by the Financial Reporting Council of Nigeria (the “FRCN”) pursuant to Sections 11(c) and 41(c) of the Financial Reporting Council of Nigeria Act. Notwithstanding the proliferation of codes of corporate governance in Nigeria, we shall briefly examine the SEC Code of Corporate Governance for Public Officers:

The SEC code applies to all public companies in Nigeria, all public companies with listed securities, and all public companies seeking to issue securities or seeking listing by introduction. A few salient provisions of the SEC Code of Corporate Governance are highlighted below:

1. Chairman/ CEO: All public companies with listed securities must ensure that the positions of the Chairman of the Board and Chief Executive Officer are separate and held by different individuals. This is to prevent the concentration of powers in one individual which may hamper the desired checks and balances in the discharge of the duties of the Board.
2. Tenure of directors: Subject to the provisions of CAMA and satisfactory performance, all directors should be subject to re-election at regular intervals of at least once every 3 years.
3. Internal audit: All companies should have an effective risk-based internal audit function; the code however makes it mandatory for public companies. Where the Board decides not to establish such a function, sufficient reasons should be disclosed in the company’s annual report, explaining how assurances of effective internal processes and systems such as risk management, internal control, and the like will be obtained.
4. Rotation of external auditors: To safeguard the integrity of the external audit process, companies should rotate both the external audit firms and audit partners. The audit partners should be rotated by the audit firm while the company should not retain the services of an audit firm continuously for more than 10years. Firms disengaged after continuous service for 10 years can be reappointed after the expiration of 7 years after disengagement.
5. Risk management: The Board is responsible for the process of risk management. The Management of the Company is accountable to the Board for implementing and evaluating the process of risk management and integrating it into the day-to-day activities of the company.
6. Board of directors: The primary responsibility for ensuring good corporate governance in the company lies with the Board. The Board shall define a framework for the delegation of its authority or duties to Management specifying matters that may be delegated and matters that are reserved for the Board. The delegation of any duty to Management does not in any way diminish the overall responsibility of the Board and the directors for being accountable and responsible for the affairs and performance of the company.

Conclusion

Nigeria has a legal and regulatory framework for corporate governance which is based on three core principles of accountability, disclosure, and transparency. It is however sad that despite the proliferation of Codes of Corporate Governance in Nigeria, the Corporate sector is still plagued with issues of corporate fraud and management misdeeds that are yet to be addressed. The foregoing therefore begs the question that the complexities in corporate relationships underscore the imperative for effective corporate governance in Nigeria.