Introduction
On January 15, 2019, the Nigerian Federal government introduced the Nigerian Code of Corporate Governance in adherence to sections 11(c) and 51(c) of the Financial Reporting Council of Nigeria Act. Following extensive consultations with various stakeholders, the Financial Reporting Council of Nigeria, the regulatory authority with the necessary powers, published the code. The primary objectives of the code are to enhance accountability, promote business sustainability, encourage the adoption of international best practices, and bolster the integrity of the Nigerian business environment, thereby fostering investor confidence in the Nigerian business terrain.
Scope of the Code
Unlike the suspended 2016 version, there were identifiable differences in the structure. For example, the 2018 code extinguished the coverage to nonprofit sector thereby limiting itself to public companies and private companies in Nigeria.
The Code of Corporate Governance also adopted the ‘Apply and Explain’ principle, which assumes application of all principles and requires entities to explain how the governance principles are applied in their operational and management strategies. The code also lays emphasis on how the specific activities entities have undertaken to best achieve the outcomes intended by the code. The issues below are the highlights of the new code.
Relationship with Sectoral Codes
The new code acknowledges the existence of codes of corporate governance being operated by sectoral regulators such as the Central Bank of Nigeria (CBN), Nigeria Communications Commission (NCC), National Insurance Commission (NAICOM), National Pension Commission (PenCom) and Securities and Exchange Commission (SEC). The code is silent on its relationship with the corporate governance codes already released and practiced by the above industry regulators.
Structure and Composition of the Code
The code is divided into seven parts which include board of directors and officers of the board, assurance, relationship with shareholders, business conduct with Ethics, Sustainability, transparency and explanatory notes.
The code also consists of twenty-eight principles with recommended practices to achieve the implementation of the code.
A point of obvious reference under the section deals with directors holding concurrent directorships. According to the code, concurrent service on too many Boards may interfere with an individual’s ability to discharge his responsibilities. The code however went ahead to provide procedures on how to deal with such situations which includes the provision that prospective directors should disclose memberships on other boards, and current directors should notify the board of prospective appointments on other boards.
Under the principle of officers of the board a provision of the code stipulates that the Chairman of the Board should not serve as the Chairman or a member of any Board committee. This provision in the opinion of the writer is designed to further glorify the position of the Chairman as an independent Non-Executive Director.
It is also interesting to note that the MD/CEO or an Executive Director (ED) is prohibited from ascending to the position of the chairman of the same Company. However, there is an exception which says that where Board decides that a former MD/CEO or an ED should become Chairman, a cool-off period of three years should be adopted.
The Position of the Company secretary
According to Principle 8 of the code, the Company Secretary plays an important role in supporting the effectiveness of the Board by assisting the Board and management to develop good corporate governance practices and culture within the Company. The Code goes further to express how sacrosanct the position of the company secretary is by stipulating that the Company Secretary should be a senior management staff and the process of recruiting the secretary should be as rigorous as that of a director of the company.
Internal Audit Function
Internal audit function is key to guaranteeing assurance to the integrity, governance, risk management and internal control systems. As issued in some of the existing codes of corporate governance, the national code also lays emphasis on the Head, Audit’s unfettered access to the chairman of the Audit Committee and the Chairman of the Board as well.
Independent Non-Executive Directors
The code itemized the qualities of Independent Non-Executive Director. The underlining factors of the qualities as highlighted in the code are “conflict of interest” and whether or not there is a pecuniary relationship with the organization.
Relationship with Shareholders
The code talks about the importance of general meetings of the company as an opportunity to engage shareholders being the owners of the company. It also talks about the equitable treatment of shareholders most especially the interest of minority shareholders.
Board Committee responsible for Risk Management
In addition to its usual function of monitoring and making recommendations on risk management, the code further expanded the responsibility of the committee into Information Technology. According to the code, the risk management Committee shall review and recommend for approval of the Board (IT) data governance framework to ensure that IT data risks are adequately mitigated and relevant assets are managed effectively. This provision is important as the global trend of business cannot thrive without the influence of Information technology. Hence, the code has been able to lay a good foundation for Information technology administration in corporate governance. This addition is commendable.
Whistleblowing
Following the launch of federal government of Nigeria’s policy on whistleblowing, it dawned on the Nigerian Corporate community that whistleblowing should be encouraged in order to check unethical business practices. The code recommends that the Board should establish a whistle-blowing framework to encourage stakeholders to bring unethical conduct and violations of laws and regulations; The Board should ensure the existence of a whistle-blowing mechanism that is reliable, accessible and guarantees the anonymity of the whistle-blower. The principle also places an assurance that the whistleblower should not be subjected to any detriment on the grounds that he/she has made a disclosure. This will assist in ensuring that there is no victimization of courageous whistleblowers in the system.
Sustainability
Sustainability implies that a process such as a company’s operations should be managed in a way that it can be maintained at a certain level indefinitely. The most common definition of sustainable development is “development which meets the needs of the present without compromising the ability of future generations to meet their own needs” a definition that was created in 1987 by the World Commission on Environment and Development (the Brundtland Commission).
The drafters of the code in trying to ensure adaptation to international best practices made room for sustainability in the code. Principle 26 of the code states that” paying adequate attention to sustainability issues including environment, social, occupational and community health and safety will project the Company as a responsible corporate citizen contributing to economic development.”
Transparency and Disclosures
The Code encourages companies to present full and comprehensive disclosure of all matters material to investors and stakeholders. It also stipulates that the company’s board should ensure that the reports and other communication issued to stakeholders are in clear and easily understood language and are posted on the Company’s web portal.
Remarks and Conclusion
The emergence of the National code of corporate governance is long overdue. However, it is believed that the commencement of the operation of the code will help in achieving its objectives and will also gear the Nigerian economic sector towards creating a uniform set of rules guiding corporate governance as it is admirably practiced in the United Kingdom, South Africa etc. It is recommended that the Financial Reporting Council of Nigeria should make some issues very clear to all stakeholders. First of such issues is the commencement of the code. The code is silent on its expected commencement date. However, at its draft stage, it stated that companies should report the application of the code on their annual reports for period ending on or before January 1, 2020. Presently, a number of business operators may be at sea on this matter. Therefore, it becomes imperative for the Financial Reporting Council of Nigeria to give further clarifications on this. Second of the thought is the silence of the code on how it plans to operate alongside the already existing codes by SEC, CBN, PenCom, NAICOM and the NCC This should perhaps be done via an expected guideline for the operation of the code subsequently.
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