IJBFMR 1 (2013) 21-34 ISSN 2053-1842 Board of directors and corporate governance in Nigeria Kunle Aina Department of Private and Business Law, Faculty of Law, University of Ibadan, Ibadan, Nigeria. E-mail:kunleaina@hotmail.com. Article History ABSTRACT Received 10 July, 2013 The board of directors of a company is a very important organ not only Received in revised form 20 responsible for management but also for adopting good corporate governance September, 2013 Accepted 27 September, 2013 and practice in the company. This paper discussed and analyzed with the aid of comparative law, the Code of Corporate Governance in Nigeria and its effect on Key words: the board structure, the role, effectiveness and duties of the non-executive Corporate governance, directors (NEDs) and how their independence can be assured, guaranteed and Code, monitored to enhance the board’s effectiveness, ensure full compliance with the Board of directors. codes of corporate governance. The regime of compliance and regulation is extremely weak and a case is made for a specialized regulator agency to monitor compliance with the codes, upgrade standard and harmonize the different Review codes. ©2013 BluePen Journals Ltd. All rights reserved INTRODUCTION An efficient, effective and accountable Board of Directors relatively little attention has been paid to the processes is not only essential to every company but is now by which companies are governed. It is clear that good demanded by the Code of Corporate Governance in corporate governance practice adopted by a board of almost all civilized jurisdictions of the world. The Board of directors is reflected in the value it adds to its operations Directors in fact is the most important organ of the and insulates generally the company from corporate company solely responsible for the management of the failures. The failure of big corporate organizations all over 1 company. The principal objective of the board is to the world without any prior sign or indications ultimately 2 ensure that the company is properly managed. The points to loose and fraudulent practices which ordinarily board must act responsibly in ensuring an effective would have been detected by the regulators where a 5 performance of the management in order to protect and good corporate governance practice had been in force. enhance shareholder value and to meet the company‟s Nigeria like most other jurisdictions has also developed 3 obligations and other stakeholders . The Cadbury its peculiar Code of Corporate Governance, which 4 6 Report defined corporate governance as “the system by unfortunately, is yet to be combined . Therefore, different which companies are directed and controlled”. Whilst codes are applicable to different sectors of the economy. management processes have been widely studied This paper looked at the board of directors as currently structured under CAMA 2004 and the impact of the different Codes on Corporate Governance. Also, the 1Section 63 (1) and (3) Companies and Allied Matters Act 1990. Cap C20, author considered the one-tier board structure and their Laws of the Federation 2004 (hereinafter called CAMA). 2 effectiveness, the role of non-executive director (NED) on Code of Corporate Governance for Public Companies in Nigeria issued by the Securities and Exchange Commission (hereinafter called SEC Code) the board and conclude with recommendations for 3SEC Code 4The Report of the Committee on the Financial Aspects of Corporate Governance otherwise known as the Cadbury Report published in 1992 and 5Sir Adrian Cadbury‟s speech on the 20th Anniversary of the Corporate was later described as a „landmark in thinking on Corporate Governance”. The Governance Code Event – October 2012. report included a Code of Best Practice (The Cadbury Code). 6Unlike the English Combined Code or the South African King‟s Code IV. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 22 reform. and concluded that the issue of corporate governance is not a matter for legislation. The Cadbury Report also produced a code of best practice divided into 19 WHY IS CORPORATE GOVERNANCE IMPORTANT? provisions and 14 notes dealing with board of directors, and setting up of board committees structure, A Company should have objectives. Generally, the most remuneration, financial reporting and the relationship important objectives are required to be written out in the between the board and auditors. The Securities and 7 companies memorandum and articles of association . Exchange Commission (SEC) Listing Rules in London Historically, this is so mandatory and serious that where was modified in compliance with the Cadbury Report and the company goes beyond its stated objects such act is part of the Listing Rules was that companies are to state 8 beyond its powers and illegal and must be rendered null in their Annual Returns whether they have complied with 9 and void . The important objectives and essentially, the the Cadbury Code or to explain why the non- 10 way and manner of achieving these objectives are never compliance . stated in the registered documents and may only be In 1995, following the alarming and unregulated ascertained in the internal documents of the Company. remunerations being paid to the directors and senior Corporate governance is therefore not about the day to executives of newly privatised utility monopolies by the so day operational management of the company by the called „Independent Remuneration‟ Committees, the managers and executives, but is concerned with the Greenbury Committee on Directors‟ Remuneration was overall strategic plan to move the company forward. convened in January 1995 and submitted its report in Good corporate governance enhances the value of the July 1995. The Greenbury Report also issued a Code of company and attracts investment to the company. It Best Practice on establishing remuneration committees enables the company to meet its objectives and for disclosure of much more important disclosures on the contributes to its growth and profits. On a national scale, remuneration of directors. The Code was also adopted 11 countries that adopt good corporate governance models into the Listing Rules on comply or explain basis . attract more direct foreign investments than those that The same year, a working group was set up to look into ignore its principles. The root cause of most corporate the relationship of companies and institutional investors. failures can be attributed to failure of corporate The group was chaired by Paul Myners and produced the governance. Due to the importance of some of these big Myners Report. The report included suggestions on the companies to the economy of the nation and stability of operational behaviour of institutional investors, their role the economy, the governments of developing countries as shareholders and as responsible investors; they ought like Nigeria have now taken the issue of corporate not to sell their shares when a company is not doing well, 12 governance more seriously. but to contribute their quota by assisting the company. 13 A review was carried out by Government in 2004. A Committee on Corporate Governance was set up to DEVELOPMENT OF CORPORATE GOVERNANCE IN review the recommendation of the Cadbury and UK Greenbury Reports. The Committee was chaired by Sir Ronald Hampel. The Committee was referred to as the In the United Kingdom, following the scandals that Hampel Committee and its report was published in 14 brought down big companies like Maxwell, Polly Peek, 1998 . The important addition to the development of Barrings, which affected the City of London and the corporate governance by the Hampel committee stems financial markets during the late 1980s. The Sir Adrian from the criticism leveled against the earlier committees Cadbury Committee was set up to look into the financial that the companies only “box tick” and do not in fact aspects of corporate governance by the Financial comply with the principles and rationale that underpin Reporting Council, the London Stock Exchange and the these set of principles. Listed companies must therefore Accounting profession. The Committee reported in 1992 “comply with not only the principles but also the provisions that forms the basis of these principles”. Where they are unable to do this, they must explain such 7Section 27 CAMA 2004. 8 non-compliance. This suggestion was adopted in Brian Coyle, 2010, Corporate Governance, ICSA study text, London; ICSA Publishing. p. 4. 9The first version of the UK Code on Corprorate Governance was produced in 1992 by the Cadbury Committee. In paragraph 2.2. thereof, the codes states as 10U.K. SEC Listing Rules and Cadbury Report. follows „Corporate Governance is the system by which companies are directed 11Greenbury Report. and controlled. Boards of directors are responsible for the governance of their 12Myners Reports companies. The responsibilities of the Board include setting the Company‟s 13Myners principles for institutional investment decision-making, Hon strategic aims, providing the leadership to put them into effect, supervising the Treasury, 2004 . management of the business and reporting to shareholders on their stewardship. 14The Companies are to “apply” with the 18 principles drafted by the Hampel The board‟s actions are subject to laws, regulations and the shareholders in Committee and to state whether they “complied” with the 42 provisions which general meeting. forms the basis of the SEC Rules. UNIVERSITY OF IBADAN LIBRARY Aina 23 15 “The Combined Code . was first published in 2002 by Institutional Shareholders In September 1999, the Institute of Chartered Committee (ISC) and later converted to a Code in 2009. 16 Accountants of England and Wales published a report The FRC took responsibility for the code after the Walker on internal control pursuant to the provisions of the Review. In 2010 the FRC published the first version of 17 Combined Code. The Combined Code provided that the UK Stewardship Code and was reviewed resulting in companies should “maintain a sound system of internal the current Code published in September 2012. control” and should conduct an annual review of “the effectiveness of the system of internal control” which should be reported to shareholders. The Turnbull CORPORATE GOVERNANCE CODES IN NIGERIA Committee produced a short booklet known as “Turnbull 18 Guidance on Internal Control” and made a number of Development of company in Nigeria important guidelines which companies can introduce to assist in their internal control mechanism and avoidance Evolution and development of company in Nigeria of risk. coincided with the discovery of the wider world such as By the year 2003, two important committee works were Columbia, West Indies etc. The aim of the adventurers added to the growing literature and development of was trading; this period also opened the way for corporate governance in UK. These are the Higgs Report companies like Royal Niger Company to come to sub- commissioned by the government which considered the Saharan Africa and had been involved in trading activities role and effectiveness of the NEDs. The second report in the Niger-Delta zone of the territory later known as 25 was the Smith Report which was commissioned by the Nigeria . The first legislation on companies was enacted Financial Reporting Council (FRC); the Smith Committee in 1921 known as Company Ordinance 1912 which for 19 Report provided the much needed guidance for audit the first time made provisions for incorporation of 26 committees. The responsibility for the combined code companies in Nigeria . This Act was based on the 1908 was transferred to the FRC, and in 2003, a revised Consolidation Act of Great Britain. After the amal- combined code was published incorporating the Higgs gamation of the country in 1914, the Companies 20 and Smith recommendation . In 2010, the FRC which Amendment and Extension Ordinance extended the had been responsible for the combined code and the provisions of the Act to cover the entire country. In 1922 guidelines reviewed the combined code and published the earlier ordinance was repealed and replaced with the 27 the UK Corporate Governance Code. The FRC also Companies Ordinance of 1922 . This ordinance was incorporated in the UK Corporate Governance Code the later changed to Companies Act and appeared as Walker report of 2009, which dwelt on the corporate Chapter 37 of the 1958 Laws of the Federation. This was 21 governance in the Banking Industry in UK. The current the Law in force in Nigeria until the Companies Act of 22 Code of Corporate Governance was issued in 2012. 1968. The 1968 Act was based on the English 23 The European Union (EU) and the EU Directives Companies Act of 1948 and the only deviation was the have also imposed stricter rules on disclosure of provisions on mandatory registration by foreign com- 28 directors‟ remuneration which are now part of the UK panies in Nigeria. The 1968 Act was in force in Nigeria Listing Rules. The Companies Act 2006 statutory duties for about Twenty-two years until the enactment of the 24 29 on directors that had been basically Common Law Companies and Allied Matters Act 1990. The CAMA duties. 1990 is currently the law in force in Nigeria. It is quite The FRC also issued the UK Stewardship Code which interesting that while major jurisdictions and especially can be traced to „The Responsibilities of Institutional UK had continued to review their laws, the Nigerian law Shareholders and Agents: Statement of Principles‟ which had remained stagnant and unprogressive. 15 Published in June 1998 . 16www.kalew.c.uk/internal control. The road to the codes 17 Principle A2 and relevant provisions of the Combined Code. 18 Higgs Report. Following the independence of Nigeria in 1960, the 19 Smith Report. 20 Government due to the exigencies of the period and the Combined Code. 21WalkeR Committee was commissioned following the collapse of Banks in the government‟s anxiety to cause rapid development, the wake of the global financial problems, the collapse of big bankslike the country kick start the industrial growth and economic self- Lehman Brothers in USA, Northern Rock Bank in UK (2007), Royal Bank of Scotland etc. see the Walkeer Report. 22The UK Code of Corporate Governance issued in September 2012 and which 25Section 2 of the Companies Ordinance 1912. took effectin October 2012. 26Cap 38, The provisions of the 1922 Companies Ordinance was not altogether 23UK Stewardship Code 2012 retrieved on the 23rd November 2012 from different from the 1912 Companies Ordinance. http/www.ecgi.org/codes /documents/stewardship_ code_uk_sept 2012_enpf 27See Part X Section 369 of The Companies Act 1968. 24Kunle Aina, 2012, Company Law I; National Open University may be 28Companies and Allied Matters (Amendment) Decree No. 32 of 1990. accessed on http://www.nou.edu.ng/noun/NOUN_OCL/ 29Ahunwon B, 2002 Corporate Governance in Nigeria, J. Bus. Ethics 1(37):3. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 24 dependence of the post-colonial Nigeria. The state not Peterside Committee on Corporate Governance in Public only did not permit individual control of public utilities Companies. The committee submitted its report in such as electricity, water, telecommunications, postal October 2003. This led to the issue of the code of 30 services, air travel etc. The virtual monopoly of corporate governance for public companies. The same government in the provision of infrastructure and year saw the Central Bank also issuing a code of development in many ways contributed to the under- corporate governance for banks and other financial development of the country. The government enacted institutions in Nigeria. This code came about as a result two important pieces of legislations, these are the of the work done by the Bankers‟ Committee of the bank, Foreign Exchange Control Act 1962 and the Nigerian chaired by the United Bank for Africa. However, in spite Enterprises Promotion Decree (now Act) No 4, of 1972 of the codes in 2003, the banking subsector in Nigeria 31 and 1980 . The Foreign Exchange Control Act 1962 was characterized by weak and fragile banks, as far back prohibited the transfer of any security or interest in a as 1989-1991 there has been noticeable financial crisis security in favour of a person resident outside Nigeria as some seven distressed banks failed and caused huge except with the permission of the Minister; in fact it is a disruptions in the economic stability of the country. The criminal offence to do so. The effect is to discourage interbank market also collapsed in 1993 and which foreigners from investing in Nigeria generally. Whilst the spread to all segments of the financial system in 1995. Indigenisation Decree even with the several amend- The Banking system was characterized with poor ments, was calculated to encourage Nigerians to own corporate governance, poor monitoring and reporting 32 37 certain enterprises in Nigeria and also restrict foreign mechanism, very low minimum capital requirements . 33 investment in manufacturing sectors of the economy . There were eighty-nine small banks most at the brink of 38 The plan of government in enacting these laws was to failure . This was the position before consolidation of 39 transfer the control of the economic activities from the Banks in Nigeria . The Central Bank of Nigeria (CBN) foreign control to indigenous control by local thereafter, realizing that the “Ongoing industry businessmen. Unfortunately, the laws failed to achieve consolidation is likely to pose additional corporate these lofty ideals and have no significant impact on the governance challenges arising from integration 34 corporate governance and development in the country . processes, IT and culture. Research had shown that two- Unfortunately, until the two enactments were repealed thirds of mergers, worldwide, fail due to inability to there was no significant impact on the economy. The integrate personnel and systems as well as due to laws do not mention anything on corporate governance. irreconcilable differences in corporate culture and The government also enacted the Nigerian Enterprises management, resulting in board and management 35 Promotion Act of 1995 (NEPC) to encourage and squabbles. In addition, the emergence of mega banks in 36 promote investment in the Nigerian economy, also with the post consolidation era is bound to task the skills and no reference to corporate governance of companies. competencies of boards and managements in improving shareholder values and balance same against other stakeholder interests in a competitive environment. A Intervention of government in corporate governance well-defined code of corporate governance practices 40 should help organizations overcome such difficulties”. Not until the enactment of the CAMA 1990 can we say The above was one of the avowed rationales for the that the government was really interested in corporate review of the Bankers Committee Code of Corporate governance in Nigeria. However, there was no conscious Governance for the Banking industry. The CBN issued effort made in this direction until the SEC set up a the current Code of Corporate Governance with effective committee to look into the issue of corporate governance date fixed for the April, 3, 2006. Compliance with the 41 under the chairmanship of Atedo Peterside known as provisions of the Code is mandatory . In 2008, the SEC inaugurated a national committee chaired by M.M.B. Mohammed for the “review of the 2003 30Otherwise known as Indigenization Decree. Code of Corporate Governance for Public Companies in 31Yerokun O., 1992; „The Changing Investment Climate Through Law and Policy in Nigeria‟ in C.O Okonkwo (ed.), Comtemporary issues in Nigerian Law, Lagos; Taiwo Fakoyede, p.219. 37Minimum Capital for Banks was N1 billion. 32Kachikwu E.I, 1988, Nigerian Foreign Investment Law and Policy, Mikzek 38See Aig-Imoukhuede A, 2009, Nigerian Banks in Sub-Saharan Africa Law Publications, Lagos, p.143. Frontier Markets Keynote Address at the Nigerian Development & Finance 33Yerokun O., op cit p. 228. Forum 2009 at Gusman Cunderland Hotel, London. 34Achebe I, 1989, „The Legal Problems of Indigenization in Nigeria: a lesson 39See Adeyemi K.S.; Banking Sector Consolidation in Nigeria: Issues and for developing countries‟, Hastings International of Comparative Law Review, Challenges for a full discussion on the pre-and post consolidation issues in 663. Nigeria Banking Industry, accessed on 26th November 2012 35Formerly Decree No. 16 of 1995 now in Chapter N117, Laws of the http//www.efiko.org/material/Banking Sector Consolidation in Nigeria. Federation of Nigeria 2004. 40Code of Corporate Governance for Banks in Nigeria Post Consolidation, 36http//www.nigeria-law.org/Nigerian Investment Promotion Commission (effective date April 3, 2006) issued in March 1, 2006 para. 1.4. Act.htm. 41Code of Corporate Governance 2006, para 1.7. UNIVERSITY OF IBADAN LIBRARY Aina 25 Nigeria to address its weaknesses and to improve the SEC Code. It is not clear in cases of conflict, whether the mechanism for its enforceability”. The Committee was to SEC Code will prevail over the PenCode and which code identify the weaknesses in and constraints to good ought to be observed by the PFA or PFC that is also corporate governance and to recommend ways of listed with the Stock Exchange. effecting greater compliance. The SEC issued the new 42 code in April, 2011. National Insurance Commission also issued a separate THE BOARD OF DIRECTORS Code of Corporate Governance for Insurance Industry in February, 2009 (hereinafter called NAICOM Code) which Meaning of directors was sector specific though stated to be in consonance with the 2003 version of Code of Corporate Governance The Companies Act do not define the term „director‟ but issued by the SEC. The NAICOM Code considered the seemed to describe or ascribe a meaning to it. Section following as the basis for the sectorial mode: 244(i) of CAMA 1990 merely stated that “directors of a company under this Act are persons duly appointed by 1. Compliance with rules, laws, regulations and the company to direct and manage the business of the principles guiding insurance business; company”. Section 650 also defines the director as including “any 2. Differences between Board and Management person occupying the position of directors by whatever giving rise to board squabbles; name called”. It may be easier to understand the position 3. Ineffective board oversight functions; of the director by simply understanding their role and 4. Fraudulent and self-serving practices among duties in the Company. The law is that the board of directors is the sole organ of the company responsible for members of the board, management and staff; 46 the management of the company. In Nigeria, every 47 5. Overbearing influence of chairman or MD/CEO, company must have a minimum of two directors , while especially in family controlled business; in UK a private company must have at least one director 48 and a public company must have two directors . The Act 6. Weak internal controls; is silent on the day to day role and power of the directors 7. Passive shareholders; and has been left to the company articles. There is also 8. Power of controlling shareholders over minority no mention of the way and manner the board ought to be shareholders; organized and it follows that each company apart from appointing members of the board must also specify the 9. Ineffective management information system; structure, role and powers of its directors in the articles of 10. Increasing level of societal awareness about the 49 association. The first directors are appointed by the sector; subscribers to the memorandum and articles of 43 50 11. Conflict of interest . association while subsequent appointments are made 51 by the general meetings . The Act does not also give The NAICOM Code made some important contributions any indication as to the type of person that may be to development of corporate governance in Nigeria far appointed and the quality or qualification they possess. 44 This is also left to the discretion of the members. beyond the SEC Code . However, the law listed certain categories of persons that A year earlier, the National Pension Commission (PENCOM) a body established under the Pension are disqualified from being appointed as directors in 45 Reform Act 2004 with the principal object of regulating, Nigeria. Section 257 listed the following: supervising and ensuring the effective administration of pension matters in Nigeria. The PENCOM also issued a 1. An infant, that is, a person under the age of 18; 2. A lunatic or person of unsound mind; Code of Corporate Governance to guide and regulate the 3. A person disqualified under Sections 253, 254, and registered Pension Fund Administrators (PFA) and Pension Fund Custodians (PFC). The provisions of the 258 of the Act; PENCOM Code was based on the principle of comply or explain basis. The Pension Code (PenCode) is another 46Section 63(3) CAMA 1990. important sectorial code existing side by side with the 47Section 246(1) CAM 1990. 48Section154 UK Companies Act 2006 (UK Act). 49Davies, P.C. 2008, Gower and Davies Principles of Modern Company Law, 42The Code may be accessed from SEC website. 8th edition, Sweet & Maxwell, London 366. 43The Code may be accessed from the NAICOM website. 50Section 247 CAMA 1990, The names may also be listed in the articles of 44NAICOM Code para. 3.0. association. 45Cap A29 Laws of the Federation 2004. The Act may be accessed from the 51Section 248; „The members in general meeting shall have the power to re- Pencom website. elect or reject directors and appoint new ones‟. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 26 4. A corporation other than its representative appointed to underground and „pull the strings‟ to control the de facto the board for a given term. directors, the law will ascribe the role to such a person and he will be held liable for any breach of duty by the de We must note quickly that the disqualification of these facto directors. But a professional person may not be a categories of persons is not only uncalled for but may be shadow director if he only acts in a professional capacity. difficult to enforce. For instance, the disqualification of an If however, his conduct amounted to effectively con- infant in this jet age where it is possible for a child under trolling the company‟s affairs, he will be held to be a 56 18 to be enterprising enough to establish his own shadow director. Millet J. in the case of Re Hydrodam 52 57 business, though the Act allows an infant if he joins with (Corby) Ltd identified four factors to consider in two other persons not disqualified as subscriber to the determining whether or not an individual is shadow memorandum. If the so called infant understands the director. effect of his action, there ought not to be any restrictions on his right to be appointed a director; in any case, it is 1. The de jure directors of the company must be 53 the preference of the shareholders of the Company . In identifiable; Nigeria, there are no proceedings to declare a person a 2. That the person is question directed those directors lunatic or person of unsound mind, and only except on how to act in relation to the company‟s affairs or where the unsoundness is obvious, it will be difficult for that he was one of the persons who did; this subsection to disqualify anybody. The other provi- 3. That the directors did act in accordance with his sions on disqualification are obviously unenforceable. instructions; 4. That they were accustomed to so act. Types of directors Millet J. went further when he stated that, it must be shown a pattern of behaviour, „in which the board did not There are two main categories of directors, the executive exercise any discretion or judgment of its own but acted and the NEDs. The executive director is a full time officer in accordance with the directions of others‟. of the company, who may generally be appointed under a The shadow director must also be proved to have contract of service with the company. The articles exercised control over the whole board and not individual normally provide for the appointment of the executive director. director and he is normally part of the management team but usually as the head of specific department in the company. They are professionals who are required to be Size and composition of the board qualified for their office either by educational qualification or cognate experience or both. The executive director One of the primary responsibilities of the board is to 54 has been described as an employee of the company ensure good corporate governance in the company. The with a proper contract of service with the company. SEC Code states thus, „… the board should ensure that The NEDs are normally appointed to the board (mainly the company carries on its business in accordance with in public companies) to act as monitors of the executive its articles and memorandum of association and in management. Their appointments are typically on part- conformity with the laws of the country observing the time basis and are only expected to attend meetings highest ethical standards and on an environmentally without having any office in the company. Their position sustainable basis‟. is adversarial mainly and is not expected to participate in The above is unattainable unless the board is properly the day to day management of the company. A shadow constituted in terms of size and composition. The SEC director is simply a person on whose instructions and Code provides that membership of the board should not 55 58 directions the directors are accustomed to act . In order be less than five, but on a general note the “Board to avoid the duties imposed on directors by the Act and should be of a sufficient size relative to the scale and common law, certain persons may decide to stay complexity of the company‟s operations and be com- posed in such a way as to ensure diversity of experience 52 without compromising independence, compatibility, Section 20 (2). CAMA 2004. 53In the U.K the minimum age is 16, but the restrictionon age ought to be integrity and availability of members to attend meeting”. removed entirely from the Act and leave the discretion to the shareholders. The While the Act does not specify or make it mandatory that 2006 Act ade copious provisions on the issue including exceptions from companies should appoint NEDs, the SEC Code makes it minimum age requirement etc, if the issue of minimum age had been left to the mandatory for all companies to appoint executive and General Meeting, the Company will be in the best position to ascertain the desirability of appointing an infant as director. 54Per Salami JCA in Longe v. First Bank Plc (2006)3NWLR (pt967) p.228 CA; you may see also the Supreme Court decision that overruled the Court of 56Re Tasbian Ltd (No. 3) (1993) BCLC297. Appeal decision in SC116/2007 delivered on 5-3-2010. 57(1994) BCCL 61. 55Section 254 CAMA 1990. 58SEC Code para 4.1. UNIVERSITY OF IBADAN LIBRARY Aina 27 69 NEDs and must be mixed in such a way that the majority and is answerable to the Board ; of the board are NEDs and also at least one of whom 3. Executive Directors; should be an independent director. 4. Non-executive directors (NEDs); The board‟s effectiveness is dependent on its size and 5. Independent Directors. composition. The board must not be too big as to become unwieldy and uncontrollable which will result in time In the UK, a key principle of good corporate governance waste before simple decisions would be arrived at, or too is that there should be a balance of independent NEDs small that will exclude the necessary knowledge, skills on the board to create a balance of power between the and experience to make effective decisions. The right mix 59 executive and NEDs. In South Africa, which adopted the also of the executive and NEDs is also very important , unitary board, the King III Code also recommended that Executive directors are in a better position to ascertain 60 the majority of the directors should be NEDs and majority the core professional issue and decisions to be taken 61 of them should be independent. In South Africa, the code while a proper and proportionate balance of the provides that there should be at least two executive executive and NEDs will bring a proper and genuine 62 63 directors on the board, that is, the managing director and growth and quality decision backed by experience. In 70 director of finance. The SEC code failed to make an ideal world, all boards of directors would comprise a definite provision on the number of each cadre of diverse group of experienced and talented individuals all directors required for the board. of whom would expose and practice the characteristics and values of good commercial sense, courage, 64 65 openness and integrity . The Higgs Review suggested Governance responsibility of the board thus, an effective board should not be so large as to become unwieldy. It should be of sufficient size that the The Board is the most important decision making body of balance of skills and experience is appropriate for the the company. A company should have a dedicated and requirement of the business and that changes in the responsible board to ensure that the company continues board‟s composition can be managed without undue to achieve its objectives. The SEC Code listed the disruption. responsibilities of the board as follows: In England, Principle A3 of the Combined Code states, the board should include a balance of executive and 1. The Board is accountable and responsible for the NEDs (or in particular independent non-executive performance and affairs of the company; directors) such that the individual or small group of 66 2. The principal objective of the board is to ensure that individuals cannot dominate the Board decision-taking. the company is properly managed; In Nigeria, the SEC Code provides that the majority of 3. The responsibility of ensuring good corporate the board members should be NEDs and at least one of 67 governance lies with the board; them should be an independent director . The officers of 4. The board must define the framework for the the board will therefore comprise the following: delegation of its authority or duties to 71 68 management. 1. The chairman who should be a NED ; 2. The chief executive officer (CEO) or Managing 72 The UK Code 2012 on the role of the board provides Director, who is the head of the management team that: “Every company should be headed by an effective board which is collectively responsible for the long-term 59American Law Institute, 1982, Principles of Corporate Governance and success of the company”. The supporting principles: “The Structure, Restatement and recommendations, New York American Law Institute. board‟s role is to provide entrepreneurial leadership of 60Weldo C.H. 1985, Board of Directors; Their changing roles, structure and the company within a framework of prudent and effective information needs. Westport CT. controls which enables risk to be assessed and 61Baysinger B and Hoskisson P.E.; 1990, the Composition of Boards of managed. The board should act as the company‟s Directors and Strategic Control: Effects on Corporate Strategy, The Academy of Management Review, .15. 1 p.72. strategic aims, ensure that the necessary financial and 62Vance S.C. 1964, Boards of Directors Structure and Performance, Eugene, human resources are in place for the company to meet its University of Oregon Press. objectives and review management performance. The 63Vance S.C. 1983, Corporate Leadership: Boards, Directors and Strategy. New board should set the company‟s values and standards York, McGraw Hill. 64Smerden R, 2007, A Practical guide to Corporate Governance, London; and ensure that its obligations to its shareholders and Sweet and Maxwell, pg 49-50 65Higgs Review of the role and effectiveness of Non-Executive Directors, January 2003 accessed on 26th November 2012 See http//www.ecgi.org/codes/documents/higgs report.pdf, 69SEC Code para 5.2. 66Principle A3 Combined Code 70Kings Code III. 67SEC Code para. 4. 71SEC Code para 5. 68SEC Code para 5.1. 72UK Corporate Governance Code 2012 para. A1. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 28 73 others are understood and met”. He identified the role of a chairman, complimentary The Kings Code of Corporate Governance Principles relationship with the chief executive and the other (King III) made extensive provisions on the role and members of the board and who is able to relate and duties of the board in corporate governance. The code coordinate all the activities of the executive and non- 74 divided the role into three important aspects : executive members of the board as the most important factor for an effective board. The review also i. Responsible Leadership – This listed the leadership demonstrates that a culture of openness and constructive responsibilities of the board which includes, the dialogue in an environment of trust and mutual respect is 75 strategy and operations to sustainable business ; also an important underlying factor for an effective board. 76 ii. impact of the board‟s decisions on the society , The chairman has a central role to play in fostering these 77 economy and environment ; conditions through their own actions and through 78 79 84 iii. ethical issues ; environmental issues and impact engagement with the members of the board . 80 on the stakeholders . Where there are mutual suspicions between the NEDs and the executive on the board, the NEDs may feel they From the above comparative analysis it is obvious that do not have enough information to arrive at a good the Nigerian SEC Code falls far short of international decision, while the executives believe that the quality of 85 standard and best practices. The board having been decisions from the board does not enhance productivity . recognized as the most important decision making organ The quality and effectiveness of the board could easily of the company and corporate governance, standard be improved by presence of a dominant personality on ought to be as high as possible and to ensure that the board or a dominant group. This must have informed Nigerian companies are responsible corporate citizens the provisions in the CBN Code which limited government that can stand with their peers all over the world. The direct and indirect equity holding in any bank to 10% by 86 issue of ethical conduct, sustainability of the business in the end of 2007 and also no individual is permitted to the long and short term, responsibility to the stakeholders own more than 10% equity in banks without CBN 87 and their immediate environment are some of the issues approval . This provision has been effected and has that must be included in the next review of the SEC substantially reduced the dominant effect of owner/ Code. founder status in Nigerian banks. The post of chairman and CEO has also been split so that no one person is 88 allowed to hold the two positions. Also, no two Effectiveness of the board members of the same extended family are allowed to occupy the position of chairman and that of the CEO or 89 Decision making is an important board activity and the executive director of a bank at the same time. quantity and quality of the board‟s decision will translate The American based National Association of Corporate 90 into effectiveness and progress for the company. The Directors also identified a number of important issues CAMA 2004 is silent on the selection of the directors and for an effective Board: the choice is left to the discretion of the shareholders, unfortunately, the codes have continued to hammer on 1. Knows and understands the company‟s business and the standards and role of the board while leaving the competition; important issue of selection to the discretion of the 2. Focuses on strategic issues; shareholders. The quality of the directors will reflect most 3. Provides intelligent “capital” including performance 81 82 certainly on the effectiveness . The Higgs Review on enhancing ideas, networking and strong support of the role and effectiveness of NEDs identified a number of corporate best practices; 83 important characteristics of an effective unitary board. 4. Demands high but realistic standards of performance; 5. Enhances decision making with rigorous analyses; 73The King Code of Corporate Governance Principles King III retrieved on 29th 6. Energizes management by empowering management November 2012. and holding them accountable; 74King III para 1.1.1. 75King III, para 1.1.2. 76King III, para 1.1.3. 84See also DTI publication; Building Better Boards: www. Dti.gov.uk/lbf/corp- 77King III para 1.1.4. governance/betterboards/page 17362.htm/ 78King III para 1.1.5. 85Baysinger B.D and Butler H.N; 1985, „Corporate governance and the board of 79King III para 1.2.1. directors: performance effects of changes in board composition, J. Law, Econ. 80King III para 1.2.2. & Organ. 4:1 p.101. 81Elsenberg M. 1979, A Larger role for a non –executive director in D. 86CBN Code, 2006, para 5.1. Schwartz, Ed. Commentaries on Corporate Governance and Structure, New 87CBN Code, 2006, para 5.1.2. York. 88CBN Code, 2006, para5.2.2. 82Higgs Review on the role and effectiveness of Non-Executive Directors, 89CBN Code, para 5.3.3. retrieved on 29th November 2012. 90www.macdonlive.org-NACD.BRC on Board Evaluation–2005 edition. 83Higgs Review, para. 6.9. Retrieved on 29 November 2012. UNIVERSITY OF IBADAN LIBRARY Aina 29 7. Tracks and retains a top leadership team and has a engaged to direct and manage the business of the 94 strategy for the orderly succession and replacement company” . both of the leadership team and of the Board itself; The NED being a director is also subject to the duties 8. Links executive compensation to shareholder value. directors owe the company, both the duty of care and skill 95 96 and fiduciary duties, under common law and statute . Boards may consider taking extra measures in ensuring that they arrive at a good decision in their deliberations by contacting experts for advice or commissioning an Current status independent report or form a sub-committee on any important matter, or insist on getting better information The law has moved away from the subjective duty of care from the Executive. and skill laid down by Romer J in Re City Equitable Fire 97 In Nigeria, the code ought to include specific provisions Insurance to a more objective standard. In the 98 on the type of gift and emoluments outside the prescribed Australian case of Deniole v. Anderson the Court of allowances that can be received by the members of the Appeal of NSW, applied the objective test and found out board as we shall discuss below. Corruption is another that NEDs were not liable for failure to discover fraud in important factor militating against the effectiveness of the one of the subsidiaries of the company, while the CEO 99 board. was held liable. The NED must therefore ensure that they monitor the activities of the executive as strictly as possible. The level The role of non-executive directors and extent may not be too clear now. In the Australian 100 case of Awa Ltd v Daniels the Court of Appeal in New Legal status South Wales stated; “In our opinion the responsibilities of directors require that they take reasonable steps to place There is no difference between the legal role and duties themselves in a position to guide and monitor the 101 of the executive and the NEDs, the CAMA 2004 do not in management of the Company”. fact distinguish between the two. The distinction sought The NED must therefore play a more active role in the to be introduced by the Court of Appeal in Nigeria in the company. The days of merely attending meetings 91 102 case of Longe v. First Bank of Nigeria Plc where Salami intermittently is over, and the statutory intervention has JCA attempted to draw a distinction between the placed a much strict burden on the NED to ensure that executive and NEDs when he stated thus: “The they not only attend meetings but also take interest in the 103 104 respondent‟s board in the instant case, consists of two affairs of the company. Where they delegate, they classes of directors, executive and non-executive. The have the duty to supervise their delegate failure of which 105 non-executives are directors appointed directly under they will still be held liable. It is no longer an excuse to Sections 247, 248 and 249 of the Companies and Allied state that the director was absent while a particular Matters Act, Cap. 59. The second tiers of directors are decision was taken that is in breach of duty, unless 106 not employees of the company as they do not have justified, the director will be held liable. contract of employment and do not draw salaries”. It is therefore the duty of the NEDs to not only depend The learned Justice of the Court of Appeal went on to on the information supplied by the executives but to go draw a distinction between the NED and executive further and source for information upon which to address directors, and classified the latter as “employees” who owes their tenure of office to their contract of service; that 92 their appointment is not recognized by the CAMA 1990 . 94 per Ogundare JSC. 95 The Learned Justice was of the view that, “… executive Re City Equitable Fire Insurance Co. (1925) C. 407, Dorchester Finance Co. v. Stirlling (1989) BCLC 498. directors are mere senior managers appointed by the 96See Sections 282 on the Duty of care and skill, and Section 279. On fiduciary board under the Articles of Association for governance duties in England you may see Sections 171 to 179 CA 2006 for the duties. and interest of running the company”. 97Re City Equitable Fire Insurance Co supra. 98 This position is far from the truth. The Supreme Court (1995) 16 ACCR 607. 99See also Hoffman J. decision in Norman v. Theodre Goddard (1991) BCLC had the opportunity of correcting the position taken 93 1027. above, on appeal . Ogundare JSC after explaining the 100(1995) 37 NSWLR 438. position of the law laid down the correct position by 101Sections 174 (duty to exercise reasonable care, skill and diligence) and 172 clearly stating that “all directors whether executive or (duty to promote success of the company) of UK 2006 Act reinforces the position; contrasts with Sections 279 (fiduciary duties of directors) and 280 non-executive are the same as long as they are all (conflict of duties and interests) in the CAMA 1990. 102Romer J. in Re City Equitable Fire Insurance Co. op. cit. 103Section 279 CAMA 1990. 91(2006) 3NWLR (Pt 967) p. 228. 104Section 279(7) CAMA 1990. 92 Ibid. 105Section 282(3) CAMA 1990. 93Longe v. First Bank of Nigeria Plc supra. 106Section 282(3) CAMA 1990. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 30 107 issues before them. This seemed to have been given a may have to be on very genuine reasons and terms. judicial pronouncement and approval by Morrat C. J. in Re Barings Plc (No. 5) where the Court of Appeal in England approved the summary of the law given by The role of non-executive directors and their Pauleon J. at first instance in these terms: effectiveness 1. Directors have both collectively and individually a Through the codes continuing duty to acquire and maintain a sufficient knowledge and understanding of the company‟s The SEC Code provided for the appointment of NEDs to business to enable them properly discharge their the board, by providing that, there should be a mix of duties as directors; executive and NEDs so that a majority of the board 2. Whilst directors are entitled (subject to the articles of members should be NEDs and at least one of whom 110 association of the company) to delegate particular should be an independent director . The NEDs are functions to those below them in the management expected to be key members of the board. They are to chain, and to trust them; their power of delegation develop independent judgment as well as necessary does not absolve a director from the duty to scrutiny to the proposals and actions of the management supervise the discharge of the delegated functions; and executive directors especially on issues of strategy, 111 3. No rule of universal application can be formulated as performance evaluation and key appointments. They to the duty referred to in (2) above. are expected to be persons of high caliber with broad 112 experience, integrity and credibility. They are to be The NED must therefore take care not only to diligently provided with conducive environment for the effective 113 attend to the affairs of the company, but cannot say that discharge of their duties. . The Code added that they relied on the information or judgment of the adequate and comprehensive information on all board 114 executive to escape liability. In the case of Equitable Life matters are to be provided in a timely manner. The 108 Assurance Society v Bowley & Others former non- CAMA 2004 made it clear that there is no distinction in executive directors with the executive directors of the relation to the standard of care expected from both claimant had been made defendants in proceedings executives and NEDs in terms of their duties to the 115 commenced by the society through its current Board in a company. The Cadbury Report 1992 stated that, NEDs claim for breach of duty and damages. The NEDs have should bring “an independent judgment to bear on their applied that the case does not disclose any case against work as of strategy, performance, resources including them because they were entitled to rely on the executive key appointments and standard of conduct”. The Hampel directors and should be relieved under Section 123 of the Report also stated that “non-executive directors are Companies Act 1985. The Hon. Justice Langley refused appointed for their contribution to the development of the to strike out the claim against them and said; “I do not Company‟s strategy”. That they are appointed into the think this statement (that is, directors are entitled to trust board based on their immense technical knowledge, their the full time executives for information) does represent knowledge of overseas markets or their political 116 the modern law, at least, if (as the applicant were inclined contacts. to submit) it means unquestioning reliance upon others to Higgs Review (2003) looking into the role and do their job. It is well known that the role of NEDs in effectiveness of NEDs identified two important roles for 117 corporate governance has been the subject of some the NEDs. These are, monitoring executive activity and 118 debate in recent years. For the present purposes, it contributing to the development of strategy. Higgs went suffices to say that the extent to which a NED may on to say that, the key to NED effectiveness lies much in reasonably rely on the executive directors and other behaviors and relationships as structures and processes. professionals to perform their duties is one in which the The UK Corporate Governance Code 2012, supporting law can fairly be said to be developing, and is plainly „fact principles on the NEDs, provided inter alia, that „NEDs sensitive‟. It is plainly arguable, I think, that a company should scrutinize the performance of management in may reasonably at least look to NEDs for independence meeting agreed goals and objectives and monitor the of judgment and supervision of the executive 109 management. For the NEDs, the position has changed drastically and 110SEC Code, para. 3.1. 111 with the codes, their duty to the company is now further SEC Code, para 5.4(a) 112 SEC Code, para 5.4(b) entrenched and escape from liability, for breach of duty 113 SEC Code, para. 5.4(c) 114 SEC Code, para 5.4(c) 115 Section 282(4). 107See Hampel Report 1998. 116 Hampel Report para. 3.8, 3.15 108(2003) EWHC 2263 (Comm). 117 Higgs Review, para 5.002 109Ibid, see also Re-Barrings Plc (No.5) (2000) 1BCLC 523 at 525. 118 Higgs Review, para 5.004 UNIVERSITY OF IBADAN LIBRARY Aina 31 reporting of performance. They should satisfy themselves to the deliberations of the board. The solution on the integrity of financial information and that financial recommended in the UK Code is that the NEDs should controls and systems of risk management are robust and be selected from a formal process. In Nigeria, we suggest 119 defensible. that the nomination and appointment be done in an open All the other Codes in Nigeria made provisions for and fair election after a committee has been set up for NEDs almost in line with the SEC Code. this purpose. The committee must have advertised and received applications from interested individuals who must have satisfied the qualifications required by the Effectiveness company. The interview and eventual appointment could also be handled by professionals outside the control of 124 The NEDs carry with them substantial responsibilities the company. 120 towards their company. Their effectiveness and The UK Code and the King III Code do not consider a capability to carry out their duties must be examined and NED that has served for more than nine years to be constraints removed. Rather than increasing their duties independent as the longer time he serves on the board is only without correspondingly removing the constraints to likely to diminish his independence. There have been their effectiveness, the law is placing upon them an arguments as to whether in fact a NED that has served 121 onerous task not easily attained. for nine years could be considered non-independent. The point is that, the NED would have gained much ex- perience and is capable of contributing much more Independence effectively than those who are just being appointed and who do not know the rudiments of their duties. In view of Both the Nigerian Codes and the UK Code do not imply these arguments, the UK Code is more practical in its that all NEDs should be independent. The SEC Code approach. Where the company is satisfied that the made provision for only one independent NEDs, where all director is independent, he may still be considered the other NEDs are not independent. The obvious „independent‟ for the purposes of the corporate gover- conclusion is that they are likely to tow the line of their nance provisions. In fact, the entire purpose for the sponsors and will create problems not only for the board corporate governance code will be defeated if the code 122 but also the company. Where they are nominees of a fails (as in the Nigerian Codes) to make provisions strong and dominant person or a majority shareholder adequately for appointment of substantially independent 125 they are likely to voice the opinion and direction of their NEDs. master. The probability of achieving any serious purpose is jeopardized. The executive directors are not independent as they rely on the company for their Senior independent director (SID) remuneration. The problem therefore is that the existence of the company and the effective deliberations of the All the Nigerian Codes make provisions for appointment board is most likely going to be affected where all the into the board of an independent NED. The CBN Code in board members have different objectives in mind that is fact provided for appointment of two (2) non-executive not likely to be of a general but selfish end. Where the board members who do not represent any particular NEDs appointment was sponsored by the chairman or interest and hold no special business interest with the the CEO, he is not likely to give any independent opinion bank, appointed by the Bank on merit. and not likely oppose the suggestions of these people In UK, the UK Governance Code made provisions for 123 and is constrained in his inputs to the board. the appointment of senior independent director (SID) The NED who accepts contracts from the company, or whom shareholders could approach to discuss problems serves as its consultant, or accepts any remuneration and issues when the normal communication route from the company outside the normal allowance is not through the chairman has broken down. The SID stands likely to be independent and cannot effectively contribute in between the shareholders and the board, he creates the enabling environment through which the NEDs, 119 shareholders and the chairman can interact and discuss UK Corporate Governance Code 2012 para A4. 120 Ghosh D.N; 2000, „ Corporate Governance and Boardroom Politics. especially in times of disagreement on the board. Economic and Political Weekly, 35.46 .4010. In view of the Nigerian Codes, which is silent on the 121Mcnulty T, Roberts J and Stiles P; Creating accountability within the board: 126independence of the chairman, the chairman is The work of the effective Non-Executive Director, A report for the review of the role and effectiveness of the Non-Executive Director conducted by Mr. Derek Higgs. 124 Ibid. 122Agrawal A, Knoeber C.R, 2001; „Do some outside directors play a political 125 Ferris S.P, Jagnathan M and Prichard A.C. Too busy to mind the business? role‟, Vol. 44 No. 1, P.179, retrieved on 2 june 2013 from Monitoring by directors with multiple board appointments. The J. Fin., 58, 3. http://www.jstor.org/stable/10.1086/320271. 1087. 123Baxt B, Corporate Governance – Is this the answer to corporate failures 126 See also UK Code provision A 3.1. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 32 therefore most likely to be biased and close to the the corporate governance in banks, whether unitary management. The position of the SID will become very boards may have contributed to the financial problems in important, as he will likely provide an independent 2007-2009 and whether the two-tiers board structure leading role within the board. Critics may argue that the might be more suitable for large banks. It concluded with SID‟s position and role is better played by the chairman a critical assessment of the two-tier structure. and the position is superfluous and unnecessary. In practice, two-tier structures do not appear to assure However, the practical implication of the position of the members of the supervisory board of access to the chairman as a head of the board is that he always have quality and timelessness of management information flow close ties with the executive and never independent. The that would generally be regarded as essential for non- SID position therefore is important because he provides executives on a unitary board. independent leadership for the board and he will set the In spite of the above, we will recommend that the two- agenda for board meetings and acts as the main tier structure be adopted for Nigeria, as the unitary spokesman for the independent members of the board. system has not fostered good corporate governance The ICGN (International Corporate Governance Network) practice in the country. The unitary structure has been a Global Corporate Governance Principles also advanced source of serious corruption and ineptitude. The NEDs reasons why a SID is necessary as an important even if they seem independent at inception are quickly „alternative conduit for communication with the coerced and manipulated by the executive with loans, 127 shareholders‟. contracts and other free gifts like holidays abroad, with these they lose their independence and easily become 131 „rubber stamps‟ in the hands of the management. Unitary and two-tier boards In January 2010, the Economic and Financial Crimes Commission (EFCC) filed fraud related charges against Nigeria and most commonwealth countries follow the seven NEDs of Intercontinental Bank for granting over position in UK on the adoption of the unitary board N60 billion naira loans to companies in which they 132 system. In Germany, Austria and some others adopted a allegedly have interests. The constant interaction two-tier board system. The executive board is the first between the management and the NEDs in Nigeria tier, while the non-executives sit as the supervisory instead of assisting in the progress of the company and board. The chairman of the supervisory board good corporate governance but only helps to destroy it. coordinates and cooperates with the management board. The two-tier structure will ensure a total separation of the The strategy for the company is developed by the management from the supervisory arm of the board and supervisory board and ensures general supervisions of ensures discipline and real supervision of the the management boards. In Germany, the German management. 128 Corporate Governance Code provides that „the supervisory boards appoints, supervise and advises the members of the management board and is directly Relationship with shareholders involved in decisions of fundamental importance to the 133 enterprise. The chairman of the supervisory board The UK code main Principle D.I states: There should coordinates the work of the supervisory board. The be dialogue with shareholders based on the mutual members of the supervisory board are elected by the understanding of objectives. The board as a whole has shareholders at the general meeting. In enterprises responsibility for ensuring that there is a satisfactory having more than 500 to 2000 employees in Germany, dialogue with shareholders. employees are also represented in the supervisory Until the Higgs Review, it was generally assumed that 129 board. The criticism against the two tiers board had NEDs should not have direct interaction with been that the employee representation is a source of shareholders that was reserved for the chief executive or unnecessary antagonism against the management. Other chairman. Higgs rejected the argument that the annual criticism, is the large number of board members which general meeting should be the main or only mechanism may increase the financial burden on the company, the through which major shareholders and NEDs have large number may also cause unnecessary delay in contact. The Nigerian SEC Code only provided for the 130 decision making. The Walker Report which considered general meeting as the primary avenue for meeting and interaction between the shareholders, management and 127Except stating in para 4.5 that the board should be independent of management to carry out its oversight functions in an objective and efficient 131The Walker Report, 2009. manner. 132See www.marahand.com/315059/non-executive-directors-of-intercontinental 128ICGN. bank, www.thenigerianvoice.com/.../non-executive-directors-of- 129German Corporate Governance Code (as amended on May 15, 2012) intercontinental bank. www.ecgi.org/codes/documents/cg_code_germany/15may2012_enpdf 133This Day Newspaper report of 21st January 2010. It can be accessed on 130Ibid. allafrica.com/stories/201001210416. Html accessed on 5th December 2012. UNIVERSITY OF IBADAN LIBRARY Aina 33 board. of course will reduce effectiveness, loyalty and For a good corporate governance practice, the competence. The NED position is no longer of an shareholders ought to have more direct participation in intermittent nature, but must be taken serious for the affairs of their company. They need not wait until the effective corporate governance. next general meeting; they should have the opportunity to 2. Many NEDs bring inefficient knowledge about the express their views, suggestions and questions. The affairs of the company into office, due to the short annual general meeting may be a venue where they can tenure they enjoy in the office, provision for ask a few questions, but detailed enquiries of serious continuous education may be wasteful and unfruitful. concern or follow up to resolutions and decisions of Many of them are only beginning to understand the importance cannot be done at the same venue until a office and its demands and were quickly removed. It year later. There must be an avenue created to treat is of importance to understand that the more years issues arising before the next meeting. The best option is spent in the office will enhance productivity and to encourage a meeting with the NEDs, who should be in experience and a sense of belonging and loyalty. The a better position to communicate with the board. continuous education should be made compulsory Institutional investors must be encouraged to hold regular and not optional, and the term of a director should be meetings with NEDs, and the NEDs will in turn ensure made not less than ten years, subject to section 262 that the views of the shareholders are adequately of CAMA 1990. represented at board meetings. Higgs who conducted an extensive research on the subject clearly stated the best approach which is: “… one Conclusion approach to strengthening relationships which has been noted is for NEDs to meet with some of the company‟s Every company should be managed by an effective major shareholders, individually or collectively, on a board, which is responsible for the long term success of regular formalized basis without executive management the company. The Corporate Governance Codes not only present. The purpose of the meeting would be for NEDs acknowledge this fact but also principally address the to communicate the company‟s strategy or to account for conduct and responsibilities of the board. The SEC Code its performance. NEDs would attend such meetings to applies to all public companies in Nigeria, especially listen to investors‟ views and to answer questions about those whose securities are listed on a recognized 134 governance. securities exchange. The compliance seems to be The SEC Code must be reviewed urgently to mandatory because the Code used the word „shall‟ accommodate the modern trends in the corporate comply with the principles and provisions of the Code and governance. Shareholder participation in governance and it is supposed to be the minimum standard expected from the role of institutional investors must be recognized. The any public company in Nigeria. There is in fact no NEDs relationship with shareholders as a potent source modality for enforcement, there is no facility for of communication must also be recognized. monitoring compliance and there is no penalty whatsoever for non observance of the Code. The Code standard of corporate governance is extremely lower than Other issues affecting NED’s effectiveness expected from a country looking for foreign direct investment and the provisions are of a general nature The SEC Code must address in a more serious manner that it cannot be easily enforced. the following issues that not only affect the performance Due to the very deep propensity of Nigerian directors to of the board but may be an impediment to good corporate benefit themselves from their position, it is good not only governance practice in Nigeria. These are: to raise the corporate governance standards, but to adopt the two-tier board structure as is practiced in Germany. 1. There is currently no limit to the number of NED This will reduce the influence now daily exercised on positions an individual may hold in companies. The NEDs by the management. It will also assure of wider only exception is that two members of the same involvement by all other stakeholders like the family should not sit on the board of a public shareholders, employees and the immediate community. 135 company at the same time. Also, memberships on There is currently no specialised agency or department the boards of two or more companies are only to be monitoring and enforcing the Corporate Governance 136 discouraged not prohibited . The NEDs may Code. There should be established a body independent therefore hold as many NED position as possible; this of SEC to monitor the public companies, because it is a specialized organ, it is in a better position to identify lapses quickly and correct or punish the erring Company 134 Dialogue with institutional shareholders. as at when due. It will also be able to monitor directors, 135 Higgs Review, para. 15.12. 136 and keep a register of all directors of public companies in SEC Code, para 7.1. UNIVERSITY OF IBADAN LIBRARY Int. J. Bus. Financ. Manage. Res. 34 Nigeria. The Section 254 of the CAMA 1990 which states German Corporate Governance Code (2012). As amended on May 15, that any person who has been found guilty of fraud 2012. Ghosh D. N. (2000). Corporate governance and boardroom politics. related offence in the management of a company is Economic and Political Weekly 35(46):4010. disqualified from being appointed a director for a period Greenbury Report (1995). Greenbury Report on directors remuneration not exceeding 10 years is unenforceable unless there is a 1995. body that will be empowered to keep the record, and Hampel Report on Corporate Governance. Higgs Review (2003). Higgs Review of the role and effectiveness of insist that there shall be compliance with this provision. non-executive directors 2003. Lastly, we recommend that all the existing Codes be Myners Report (2004). Myners Report on Institutional Investment harmonized and merged. This will assist the companies Decision-Making 2004. to determine which code to apply and comply with. Smerden R. (2007). A Practical guide to corporate governance. Sweet and Maxwell, London. Currently, the SEC Code that is more of a general stThis Day Newspaper (2010). This Day Newspaper report of 21 applicability should be urgently reviewed, upgraded and January 2010. standardized to meet with current global standard. UK Stewardship Code (2012). The King Code of Corporate Governance Principles King III. Vance S. C. (1964). Boards of directors structure and performance, Eugene, 1964, University of Oregon Press. REFERENCES Vance S. C. (1983). Corporate leadership: Boards, directors and strategy. New York, McGraw Hill. Adeyemi K. S. (2009). Banking sector consolidation in Nigeria: Issues Weldo C. H. (1985). Board of directors; Their changing roles, structure and challenges for a full discussion on the pre-and post consolidation and information needs. Westport CT. issues in Nigeria Banking Industry. Available online at: http//www.efiko.org/material/Banking. Agrawal A. & Knoeber C. R. (2001). Do some outside directors play a political role? J. Law Econ. 44(1):179. Baxt B, Corporate Gov, Ferris S. P., Jagnathan M. and Prichard A. C. (2010). Too busy to mind the business? Monitoring by directors with multiple board appointments. J. Financ 58:3. Baysinger B. & Hoskisson P. E. (1990). The composition of boards of directors and strategic control: Effects on corporate strategy. The Academy of Management Review 15 (1):72. Baysinger B. D. & Butler H. N. (1985). Corporate governance and the board of directors: Performance effects of changes in board composition. J. Law, Econ. & Organ. 3(1)101. Brian Coyle Corporate Governance (2010). ICSA study text, ICSA Publishing, London. Cadbury Report (1992). Report of the committee on the financial aspects of corporate governance otherwise known as the Cadbury Report 1992. Code of Corporate Governance for Licenced Pension Operators. Code of Corporate Governance for Public Companies in Nigeria issued by the Securities and Exchange Commission. Code of Corporate Governance for the Banking Industry in Nigeria (post consolidation). Code of Corporate Governance for the Insurance Industry. Davies P. C.(2008). Gower and Davies principles of modern company th law, 8 edition, Sweet & Maxwell, London. Elsenberg M. (1979). A larger role for a non-executive director in D. Schwartz, ed. Commentaries on Corporate Governance and Structure, New York. UNIVERSITY OF IBADAN LIBRARY Int. 1. Bus. Finane. Manage. Res./Vol. 4 Issue 6 file:/ //D:/lnt. J. Bus. Finane. Manage. Res._ Vol. 4 '- HOME ABOUT US CONTACT US NEWSLETTER Illuel'en Journals JOURNALS EDITORIAL POLICIES PUBLICATION ETHICS • t.JBF\IR Home Table of content: August 2016; Vol. 4 Issue 6 ~m Research Article• \bout J.lln • lnstructions For Authors Influence of capital structure, size and growth on profitability and corporate value • Publication Ethics Yuanita, Missy, Budiyanto, and Slamet RiyadiInt. J. Bus. Finane. Manage. Res. (2016) 4(6): pp. 80-101 • Call For Papers [Abstract] [Full Text] [Full Text - PDF] • Submit vlanuscripts • Arr hiv e • tdiwrilll Board © 2016 - BluePen Journals I Terms I Privacy Policy I Advert I Help I I] C ~ m UNIVERSITY OF IBADAN LIBRARY