Upholding the principles of corporate governance is crucial to the survival of corporate organisations. Boards of Directors of Companies that have failed to maintain a system of checks and balances have in times past suffered damage to their reputation and significant decline in fortunes, causing substantial losses to shareholders.

In July 2016, the Central Bank of Nigeria (CBN) effected key changes on the board of a popular commercial bank because the bank had fallen short of the minimum thresholds in critical prudential and adequacy ratios. CBN stated that the bank’s liquidity and Non-Performing Loan (NPL) ratio had been below the required thresholds for some time. With time, there were more revelations that members of the Board of Directors had granted themselves huge non-performing loans, accounting for at least 59.34% of the entire NPL on the bank’s balance sheet.

The excessive insider lending to support personal business ventures of the directors posed a great risk to investors, the banking system and the society at large. The near collapse of the bank was however a situation that could have been avoided if the directors upheld the principles of corporate governance and put proper risk management structures in place. A firm regulatory oversight may also have helped curtail the abuse much earlier.

Such abuse of powers have been recorded in other Nigerian companies, some of which were timely addressed by other stakeholders and in some other cases, delayed responses resulted in the fall of share value and decline in company fortunes. In December 2006, the Board of Directors of Cadbury Nigeria PLC led by Dr. Uduimo Itsueli sacked the company’s Managing Director, Mr Bunmi Oni and the Finance Director, Mr Ayo Akadiri for abuse of the system and deliberate overstatement of the company's financial position over a number of years to the tune of between N13-15 Billion Naira.

The intervention was one of the most notable Nigerian examples of an abuse being checked by the system within the company and the implemented checks perhaps saved the company from a major disaster. A number of other companies where similar systemic abuse took place were not so swift in dealing with the issues for varied reasons including the absence of a strong culture of corporate governance resulting in weak organs of the company.

This report examines some of the major issues involved in corporate governance and provides insight into how company stakeholders can help prevent or address the abuse of powers conferred on directors in upholding sound ethical standards.



As enunciated in the famous case of Salomon v Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22, a company from the point of incorporation acquires a personality distinct from that of its founder(s). It is however also trite that a company acts through persons vested with powers to act on its behalf.

This power to control a corporate organisation is usually vested in three major key players that is, the shareholders, the management and the board of directors. Of the three, a director wields the most power. An effective corporate governance structure ensures that the extensive powers of directors are checked by the interaction of the other key players. As a legal requirement in Nigeria, all companies must have at least two directors at all times and any company with less than two is required to within one month appoint new directors or cease to carry on business until the requirement is met.



The directors of a company collectively constitute the Board of Directors through which they generally carry out such responsibilities as ensuring the effective management of the company and upholding the standards of good corporate governance. By the provisions of the Code of Corporate Governance for Public Companies in Nigeria issued by the Securities and Exchange Commission (SEC Code), the Board has an important duty of protecting and enhancing shareholder value while guiding the company to meet its obligations.

The Board derives its powers from the company particularly as stated in the Articles of Association of the company. The directors constituting the Board therefore stand in a fiduciary relationship towards the company and must exercise a duty of care, skill and diligence in the discharge of their duties. By S. 283(1) CAMA, directors are the trustees of the company as well as its agents. As part of their fiduciary duty, directors must exercise their powers for the purposes for which they were conferred and to benefit the company. Otherwise, they will be viewed as exceeding their powers and may therefore be liable accordingly.

The Board generally has the power to determine the company's vision and mission, to guide and set the pace for its operations and future development, determine and review company goals and policies, set the organizational structure, determine the corporate strategy as well as the business strategies and plans that support the corporate goal; and to determine the right caliber of persons to be employed to implement the company’s strategies.

Under the SEC Code, powers that may be exercised by a Board in the exercise of its duties include the formulation of policies and overseeing the management and conduct of the business, succession planning and the appointment, training, remuneration and replacement of board members and senior management, overseeing the effectiveness and adequacy of internal control systems, overseeing the maintenance of the company’s communication and information dissemination policy, performance appraisal and compensation of board members and senior executives, ensuring effective communication with shareholders, ensuring the integrity of financial reports, ensuring that ethical standards are maintained, and ensuring compliance with the laws of Nigeria.

As is usually the case, the Board can delegate its powers to the Managing Director and/or to certain committees but ultimately the Board remains responsible for the actions and decisions taken.



A Board exercises its powers to take decisions on matters affecting the company through resolutions at board meetings which is usually done by voting. To prevent abuse in the process of arriving at the board’s resolutions, the SEC Code and other relevant industry-specific codes of corporate governance require that the positions of the Chairman of the Board and CEO be separate and held by different individuals. This is to prevent the over-saturation of powers in one individual or group of individuals which may rob the Board of the required checks and balances in the discharge of its duties. In reality however, we may find that there is duality of power vested in one individual whereby the Chairman of the Board of Directors doubles as the Chief Executive Officer of the company.

Acting outside the scope of the powers provided for by the Articles of the Company amounts to an abuse of power by the Board for which it can be questioned by the shareholders. As Gore-Browne on Companies put it: “if the directors exercise a power conferred by the articles for a purpose other than that for which, upon its proper interpretation, it was so conferred, their conduct is open to challenge, and in such a case it is no answer for them to maintain that they bona fide believed their conduct to be in the interests of the company. To this limited extent, their assessment of the company’s interests in the exercise of their powers is open to review, on an objective basis, by the court.”

Acting beyond the objects of the company as stated in the Memorandum of Association of the company also amounts to acting ultra vires and abusing the powers granted to the Board. In addition, directors must not exercise their powers to serve their own personal interests (or that of their friends or of a particular group of shareholders) but to serve the interests of the company. Otherwise, such action will be considered an abuse of power. In the case of the commercial bank earlier discussed, members of the Board of Directors not only failed to carry out their oversight functions to protect the liquidity of the bank but also wrongly exerted their influence to approve billions of Naira to themselves as loans which eventually became bad debts following the inability of the bank management to enforce the security on the non-performing loans.



Responsible Boards

The Board of Directors has a responsibility of ensuring transparency and accountability in the management of a company. There have however been instances where members of the Board failed to carry out their responsibility in this regard. In 2001, Enron Corporation, an energy company in the United States of America saw its shares plummet from about $90 to less than $1 following the failure of the board of directors to address accounting and financial malpractices in the company. The company had created a chimerical reality by falsifying profits and hiding its losses to create an inaccurate appearance of financial buoyancy to shareholders. The energy company ultimately crumbled and filed for bankruptcy in November 2001, becoming the largest bankruptcy in American history. Another American company, WorldCom, which was at the time the world’s second largest telecommunications company similarly filed for bankruptcy in 2002 after the disclosure of massive accounting irregularities and the failure of the Board to uphold corporate governance.

A number of companies have also crumbled in Nigeria due to the absence of checks on the powers of some directors and the complicity of members of the Board. Companies regularly cited to fall within this category are drawn from banking, insurance and the media sectors among others and include Intercontinental Bank, Oceanic Bank, BankPHB, Afribank, Spring Bank, Lion of Africa Insurance, Societe Generale Bank Nigeria, Mtel, Kaduna Textile Mills, Nigeria Airways, Concord Group, HITV and NEXT newspapers. In some instances, directors were alleged to be reckless with investors’ funds, neglected due processes and took biased decisions. A former group managing director of one of the mentioned banks was for instance alleged to have given out depositors’ funds worth over N150 billion as loans to friends and relatives without collateral; including her nanny who got N13 billion loan to cater for personal needs. Such glaring abuse of power could only lead to the downfall of the company and many agree that Cadbury only managed to avoid a similar fate because the Board of Directors acted just in the nick of time.

As a remedy, directors need to set up monitoring and regulatory compliance units within their establishments and heed to the advice provided by such units on the different actions of the board. Directors are further encouraged to create an in-house audit unit or a system of accountability whereby the company’s financial records are reviewed regularly.  

Beyond promoting an auditing culture within the company, directors must equally be willing to subject themselves to other control measures within the company’s structure. Directors may do well to be reminded that shareholders and other stakeholders may be able to alert industry regulators and approach the court under the right circumstances where abuse of powers subsist or persist.

Intervention by Stakeholders

Generally, where directors are suspected of having acted beyond their powers, only the company itself and not its Directors or Shareholders can approach a court to contest a wrong done to the company or ratify an irregular conduct. This principle was laid down in the landmark case of Foss v. Harbottle (1843) 67 ER 189 but has been statutorily enshrined in Section 299 of CAMA.

There are however some exceptions to this rule especially necessary where the Board having been the perpetrators of an abuse would clearly not approach the court, examples of these exceptions include: entering into illegal or ultra vires transactions; purporting to do by ordinary resolution any act which should be done by special resolution; and where the Directors are likely to derive a profit or benefit, or have profited or benefited from negligence or from breach of duty

Where a shareholders right has been violated and he intends to pursue an action in court, remedies available to such shareholders include the following: an order for injunction against the Director/ company, compensation and/ or damages in consideration of the loss suffered by the shareholder, restoration of the company’s property, and rescission of the contract.

 Pursuant to Section 262 of CAMA on the removal of directors which has been reiterated by the Supreme Court in Bernard Longe v First Bank of Nigeria (2010) 6 NWLR (Pt. 1189) 1, shareholders may also be able to remove directors at a general meeting by a special notice of a resolution for the removal of a director which will be followed by a representation by the concerned director.

Beyond the shareholders, other stakeholders such as legal and financial advisors are encouraged to regularly advise the Board on the importance of upholding the rules of corporate governance and caution the Board in strong terms where necessary. Where it becomes inevitable, such professional advisors must be willing to communicate grievous violations of the ethics of corporate governance and abuse of the powers of directors to the industry regulators.

Regulators are also urged to continually put measures in place for shareholders, advisors and other stakeholders to discreetly communicate lapses noticed in the administration of the companies to prevent avoidable failures. In the same vein, regulatory agencies may need to devote more time and resources to carry out investigations of reported incidents of abuse of powers or initiate probes based on performance of companies, as much as their enabling laws allow.



Corporate entities rely on the individual personalities within their structures to thrive and the actions or inactions of these persons who may be directors, shareholders and other classes of stakeholders. Companies that have failed have mainly witnessed such failures because the Board of Directors refused to live up to their responsibility of carrying out necessary checks on the executive management team or misused their powers and influence. 

To prevent a recurrence of corporate governance failures recorded at Cadbury Nigeria, Skye Bank, Enron, WorldCom and other corporate entities earlier referred to in this report, directors, shareholders, professional advisors, regulators and other stakeholders must acknowledge the importance of their roles and live up to their responsibilities. There is a prevalent need for increased awareness on the importance of corporate governance in companies and that duty falls on not just the government and its agencies but also on all stakeholders of the various companies in existence.

The Nigerian government has been taking commendable steps in the above regard in recent years and is urged to do more. While the Public Sector Code of Corporate Governance is still inoperative, Section 17.3 of the Draft Exposure of the Public Sector Governance Code in Nigeria 2016 provides that in the event a Public Enterprise is not performing satisfactorily, the Government may initiate remedial action(s) or the dismissal of the directors of the corporation, provided that a wholesale dissolution of the board of directors does not occur. The prohibition of a wholesale dissolution of the board is to maintain stability and foster continuous knowledge amongst the board members.

It is commendable to note that the SEC Code and the now suspended Private Code for Corporate Governance issued by the Financial Reporting Council (FRCN) have provisions that mandate companies to have a whistle blowing policy embedded in their corporate structures. It is expected that such policies which will help to curtail incidence of abuse of powers by directors by providing an incentive to stakeholders to report unethical conduct and violations of any laws or policies to internal and/or external authorities.

Company directors need to work closely with their Company Secretaries or External Counsel providing company secretarial services to the company for proper implementation of the recommendations contained in this report. The Secretarial Arm of our Law Firm, GE&P Nominees Limited has served as External Company Secretary to diverse companies, efficiently performing secretarial services and ensuring full compliance with the Companies and Allied Matters Act, 1990 and all other attendant legislation(s). GE&P Nominees Limited has also assisted companies in various sectors of the economy to comply with industry-specific regulations and has therefore built the requisite capacity to advise investors, directors, regulators and other stakeholders on sound ethical practices benchmarked on international governance standards.