Corporate Governance is a key driver of the sustainability of any company. This is distinct from the daily operational management of a company. Governance involves balancing the interests of the company’s stakeholders which include shareholders, management executives, customers, suppliers, financiers, the government, and the host community.
Corporate Governance is described as a system of rules, policies, practices, and processes by which a company’s affairs is directed by the Board of Directors. These rules and processes serve to promote sound corporate values of fairness, transparency, accountability and to ensure that controls are put in place to prevent fraud.
Poor governance impacts negatively on the reliability, transparency, and reputation of a company and, ultimately, on its financial health. The long-term growth and sustainability of a business organization is, therefore, hinged on the efficiency of its governance.
Welcome to another edition of our Governance and Compliance Digest. If you are a first-time reader, please see the link to previous editions of the digest here.
In today’s digest, we examine the legal and regulatory framework of Corporate Governance in Nigeria and the benefits of Corporate Governance while the subsequent edition of this Digest will treat the principles and recommendations of the Nigerian Code of Corporate Governance 2018, issued by the Financial Reporting Council of Nigeria (the Council), and the compliance obligations for companies of interest.
Legal and Regulatory Framework of Corporate Governance in Nigeria
The idea and emergence of corporate governance in Nigeria can be traced to the Companies and Allied Matters Act (CAMA) 1990, which replaced the Companies Act of 1968. The CAMA 1990 was, in 2020, repealed and replaced with the CAMA 2020, in appreciation of prevalent economic and business realities.
CAMA makes provisions which are fundamental to corporate governance practice such as:
- Directors’ responsibilities to their company.
- Qualification of the members of the board of directors.
- Procedure for the removal of a director.
- Rotation of directors.
- Remuneration of directors.
- Required accounting and auditing standards.
- Significant ownership disclosure and disclosure of director’s interest.
- Minority shareholders’ rights and equality of members.
- Requirement for filing of annual returns comprising of a company’s audited financial statements.
- Prescription of the contents of the annual reports and financial statement of the Company which must be presented by the directors at the Annual General Meeting, amongst others
The Corporate Affairs Commission (CAC) serves as the regulator of the activities of the companies.
Apart from the CAMA, there are other industry/sector specific legislations which companies are obligated to comply with. These are the Investment and Securities Act (ISA), and the Banks and Other Financial Institutions Act (BOFIA), Central Bank of Nigeria (CBN) Act, National Insurance Commission (NAICOM) Act, Pension Commission (PENCOM) Act, Nigerian Deposit Insurance Corporation (NDIC) Act, Nigerian Communications (NCC) Act and Investment and Securities Act (ISA), amongst others.
Codes of Corporate Governance:
Various codes of corporate governance have been issued over time by regulatory agencies in Nigeria to address issues that were not adequately and specifically covered by the legislations.
The Code of Corporate Governance for Banks and other Financial Institutions in Nigeria was issued by the Bankers’ Committee in 2003 for application by all banks and other financial institutions operating in Nigeria. The Code of Best Practices on Corporate Governance in Nigeria was subsequently issued by the Securities and Exchange Commission (SEC) in October 2003 and was eventually replaced with the Code of Corporate Governance for Public Companies in Nigeria, 2011. This Code was anchored on five main principles of leadership, effectiveness, accountability, remuneration and relations with shareholders and was adjudged the most comprehensive code on corporate governance in Nigeria.
Other codes that have been issued by industry regulators in Nigeria include the Code of Corporate Governance for Banks in Nigeria (Post-Consolidation) issued by the Central Bank of Nigeria (CBN) in 2006, the PENCOM Code issued by the National Pension Commission (PENCOM) in 2008, the Code of Corporate Governance for the Insurance Industry issued by the National Insurance Commission (NAICOM) in 2009.
The Code of Corporate Governance for Banks and Discounts Houses in Nigeria and Guidelines for Whistle Blowing in the Nigerian Banking Industry was issued by the CBN in 2014. The Code of Corporate Governance for the Telecommunications Industry was issued by the Nigerian Communications Commission (NCC) in 2016.
The responsibility for the implementation of the foregoing Codes lies with the Board of Directors.
In 2018, the Financial Reporting Council of Nigeria (FRCN) pursuant to its objectives and functions under Sections 50 and 51(1) of the Financial Reporting Council of Nigeria Act issued the Nigerian Code of Corporate Governance (NCCG Code) 2018, which was the first national code of corporate governance to cut across all sectors of the Nigerian economy.
The NCCG Code was issued with the objective to institutionalise best governance practices in Nigerian companies and adopts an ‘apply and explain’ principles-based approach, which requires companies to take responsibility of best practice of the Code to suit their type, size and growth phase while still achieving envisaged outcomes embedded in the principles.
This NCCG Code will be treated in detail in our next edition.
Benefits of Good Corporate Governance
The right foundation for the success of a company begins with the application of a corporate governance framework which incorporates the core principles of good corporate governance such as fairness, accountability, responsibility, and transparency.
The practice fosters growth and stability of a company. Some of the benefits of good governance enjoyed by all the stakeholders are:
- Increased profitability and productivity.
- Reputational boost – Good will.
- Increased public trust and investor confidence.
- Sustainable business operations resulting from efficient risk mitigation or risk management, minimized exposure to losses and financial crisis.
- Minimised conflict between stakeholders particularly shareholders and the management.
- Ease of compliance with legal and regulatory obligations.
For further discussion and assistance with filing any of your organization’s returns, as well as providing you with Board Evaluation and Nominee services, please contact us below.