CORPORATE GOVERNANCE AS SEEN THROUGH THE EYES OF THE 2018 NIGERIAN CODE OF CORPORATE GOVERNANCE

July 21, 2020adminNo CommentsCategories: Uncategorized

Corporate governance as defined by the Organization for Economic Co-operation and Development (OECD) is a system that involves a set of relationships between a Company’s management, its board, its shareholders and other stakeholders. 1

Corporate governance simply put can be said to be a system of rules, practices and procedures by which a Company is directed and controlled so as to enable the Company achieve its set objectives.

The Board of Directors and Management of a Company are saddled with the responsibility of ensuring that there are good corporate governance policies. The Board of Directors of the Company is headed by a Chairman who governs and directs the activities of the Company while the Chief Executive Officer/Managing Director is in charge of the day to day management of the Company.

The main objective of the 2018 Code of Corporate Governance is to promote public awareness of essential corporate values and ethical practices. This awareness will in turn enhance the integrity of the business environment and mostly rebuild the lost trust and confidence which the public has in the Nigerian Economy. 2

The Code of Corporate Governance adopts a principle based approach in specifying the minimum standard of practice that Companies are to adopt. Companies are expected to adopt the “Apply and Explain”approach in reporting compliance with the Code. This approach requires Companies to demonstrate how specific activities undertaken have helped the Company in achieving the outcomes intended by the corporate governance principles specified in the Code. This is so because this exercise is not merely supposed to be a box ticking exercise but rather an exercise that will ultimately be for the benefit of the Company. 3

The 2018 Code of Corporate governance is sectioned into 7 parts and is made up of 28 principles.

To understand this Code further we have taken parts of these sections and simplified same.

PART A: Board of Directors and Officers of the Board

The Code explains that a successful Company is headed by an effective Board responsible for providing entrepreneurial and strategic leadership to the company. 4

The Board being a link between the stakeholders and the Company oversees and controls the activities of the Management of the Company. The Board ensures management acts in the best interest of the shareholders and other stakeholders.

An important determinant of good corporate governance practice is the effectiveness of the Board. For a Board to operate at optimum capacity and be effective, certain duties and functions are delegated to well-structured committees comprising of members of the Board. 5

The Board is made up of the following persons:

Chairman who provides overall leadership to the Company and the Board. 6

 

  • A Chief-Executive-Officer/Managing Director who is the head of management and is appointed by the Board to run the affairs of the Company. 7
  • Executive Directors support the CEO/MD in the running and management of the Company. 8
  • Non-Executive Directors bring their knowledge, expertise, independent judgment on issues ranging from strategy to technicality all to help the Company achieve its aims and objectives. 9
  • Independent Non-Executive Directors bring objectivity to the Board and help to sustain stakeholder trust and confidence. 10
  • Company secretary supports the effectiveness of the Board by assisting the Board and Management to develop good corporate governance practice and culture in the Company. 11
  • The main instrument which the Board uses to successfully fulfill the objectives of the Company is the use of meetings. 12

 

The Company has to ensure that good corporate governance principles are adhered to by selecting Directors through a formal, transparent and rigorous process which will ensure that only high quality Directors are appointed. 13 Directors are inducted and trained from time to time on an annual basis. 14 Board evaluations are done on each director to assess how each director is committed to their roles. 15

 

PART B: ASSURANCE (RISK MANAGEMENT)

This section of the Code deals with the formulation of policies and frameworks which will aid the Company in effective risk management and internal control of its affairs with the aim of helping the company achieve its objectives. 16 It can be deduced that the principle behind these policies and frameworks is simply to ensure that the Company complies strictly with the doctrines of transparency and accountability among others so as to promote good corporate governance. 17

The Code recommends that Companies set up an Internal Audit function (IAF) which is to be headed by a member of senior management. The aforementioned individual must have the relevant qualifications, competence, objectivity and experience and must be registered with a recognized professional body. The Code also recommends that there should be an external assessment of the effectiveness of the internal audit function at least once every three years by a qualified independent reviewer to be appointed by the Board. 18

The Code further provides that there should be an effective whistle-blowing mechanism in place in every Company. Whilst the 2016 Code of corporate governance set out a strict procedure for whistle blowing, the 2018 Code allows for flexibility in this. Companies are given more room to construct their own whistle blowing policies as they deem fit. 19

The Code also makes provision for external auditors which may provide to the Company only such services as are approved by the Board on the recommendation of the committee responsible for audit. 20

The Code recommends that external audit firms be retained for no longer than ten years continuously and may not be considered for reappointment until seven years after their disengagement. It also recommends that there should be a rotation of the audit engagement partner every five years. 21

PART C: RELATIONSHIP WITH SHAREHOLDERS

General Meetings, Shareholder Engagement and the Protection of Shareholders Rights are covered in this part of the Code. It covers policies which aim to propel the Companies’ relationship with its Shareholders; these policies also promote and ensure that Shareholders needs and interests are balanced against the objectives of the Company.

The Code recommends that General Meetings be conducted in an open manner allowing for free discussions on all issues on the agenda. Sufficient time should be allocated to shareholders, particularly minorities, to participate fully and contribute effectively at such meetings.

The Code also recommends that the chairmen of all Board committees and of the Statutory Audit Committee be present at General Meetings of the Company to respond to whatever inquires shareholders may have. Also, the Board of Directors should ensure that all decisions reached at the General Meetings are properly and fully implemented.

On the principle of Shareholder Engagement, the Code requires the Board of Directors to set up a policy and system that ensures appropriate engagement and regular dialogue with the shareholders. 22

The Code also emphasizes that it is the duty of the Board to ensure that shareholders understand the ownership structure of the company. It requires the directors to act with integrity and in the best interest of the shareholders at all times in their management of the company. 23

PART D: BUSINESS CONDUCTS AND ETHICS

The principle behind this part is to establish policies that enhance professional business ethical standards, monitor insider trading and manage conflict of interest.

The Code recommends that the Board be responsible for monitoring adherence to the Code of Business Conduct and Ethics and ensure that breaches are effectively sanctioned.

This part of the Code focuses primarily on the fiduciary duties of the Directors and on strict adherence to the Code of Business Conduct and Ethics.

This part also contains guidelines that emphasize the need for protection and enhancement of the Company’s reputation while also promoting good business conduct and investor confidence. 24

PART E: SUSTAINABILITY

The recommendation of the Code with regards to sustainability is that the Board should establish policies and practices regarding its social, ethical, safety, working conditions, health and environmental responsibilities in addition to policies addressing corruption.

Business principles, practices and efforts are to be geared towards achieving sustainability and seeking the most environmental beneficial options in minimising environmental impact especially in regions with delicate ecology.

It is the duty of the Board to monitor the implementation of sustainability policies and report on compliance with the policies set down. 25

PART F: TRANSPARENCY

The principle of transparency according to this Code is basically communication and interaction with stakeholders to keep them up-to-date with the activities of the Company and assist them in making informed decisions.

The Code recommends that the Board and by extension the Company should adopt and implement a stakeholder management and communication policy. The Code also recommends that an investor portal be set up in the Company’s website where annual reports for a minimum of five (5) preceding years and other relevant information about the Company be available in downloadable format.

Communication with stakeholders need to be timely and accurate to give a fair and balanced view of the Company. 26

The Code also recommends full and comprehensive disclosure of all matters material to investors and stakeholders. The annual report which will be sent out to stakeholders would also contain a statement by the Board on the Company’s level of application of the Code arising from the results of its corporate governance evaluation. 27

It is very important to state at this point that the Financial Reporting Council of Nigeria monitor the implementation of this code through sectorial regulators and registered exchange.

CONCLUSION

This Code is a step in the right direction, it gives room for more flexibility in the implementation of its principles and if followed diligently Companies will easily be able to achieve their objectives and in turn raise investor confidence in Nigeria and this will indeed help in boosting the Nigerian economy.

 

  1. 1 ICSAN Corporate governance note (June 2018 diet page 1).
  2. 2 Nigerian Code of Corporate governance 2018 (pg iv)
  3. 3 Ibid (pg V)
  4. 4 Nigerian Code of Corporate governance 2018 Principle 1
  5. 5 Ibid (Principle 2)
  6. 6 Ibid (Principle 3)
  7. 7 Ibid (Principle 4)
  8. 8 Ibid (Principle 5)
  9. 9 Ibid (Principle 6)
  10. 10 Ibid (Principle 7)
  11. 11 Ibid (Principle 8)
  12. 12 Ibid (Principle 10)
  13. 13 Ibid (Principle 12)
  14. 14 Ibid (Principle 13)
  15. 15 Ibid (Principle 14)
  16. 16 Nigerian Code of Corporate Governance 2018 (Principle 17)
  17. 17 Ibid
  18. 18 Ibid (Principle 18)
  19. 19 Ibid (Principle 19)
  20. 20 Ibid (Principle 20)
  21. 21 Ibid
  22. 22 Nigerian Code of Corporate Governance 2018 (Principle 21)
  23. 23 Ibid (Principle 23)
  24. 24 Ibid (Principle 24)
  25. 25 Nigerian Code of Corporate Governance 2018 (Principle 26)
  26. 26 Ibid (Principle 27)
  27. 27 Ibid (Principle 28)