The Nigerian corporate governance structure is bipartite, such that a company acts through the members in the general meeting and the board of directors. The board is primarily charged with the responsibility of managing the company, with further powers being reserved for the members in general meeting. The interface between the board structure and practice and the role of directors is described in detail below.i Board structure and practices
Nigerian companies operate a one-tier board structure, where all the directors sit and make decisions as a single organ except when the functions of the board have been delegated to a committee of the board or to the managing director.
Under the provisions of the CAMA, every company is required to have a minimum of two directors on its board and, where at any time the number of directors falls below two, the company is mandated to appoint another director within one month of the reduction in the statutory number of directors or refrain from carrying on business after the expiration of this period. International best practices dictate that the board should be of a sufficient size relative to the scale and complexity of the company's operations and composed in such a way as to ensure diversity of experience without compromising the independence, compatibility, integrity and availability of members to attend meetings.
In addition, the NCCG Code provides that the board should have an appropriate mix of executive, non-executive and independent directors, with majority of the board being made up of non-executive directors, and it is desirable for most of the non-executive directors to be independent; and the SEC Code provides that there should be, at the minimum, an independent director on the board whose shareholding, directly or indirectly, does not exceed 0.1 per cent of the company's paid-up capital and who should be free of any relationship with the company or its management that may impair, or appear to impair, the director's ability to make independent judgements. The Bank Code provides that banks should have at least two independent directors, while discount houses should have at least one independent director.Legal responsibility of the board
Generally, the primary responsibility of ensuring good corporate governance in the company rests with the board, as it sets the tone at the top on governance issues. The board is mandated to ensure that the company carries on its business in accordance with its articles and memorandum of association, in conformity with the law and in observance of the highest ethical standards.
The board is also accountable and responsible for the performance and affairs of the company; it defines its strategic goals and ensures that its human and financial resources are effectively deployed to attain those goals. The principal objective of the board is to ensure that the company is properly managed to protect and enhance shareholder value, as well as to meet the company's obligations to its other constituencies (i.e., employees, suppliers, customers and stakeholders). The board may exercise any of its functions through board committees consisting of such members of the board as it deems fit or, from time to time, appoint one or more of its number to the office of managing director, and may delegate any of its powers to the appointed committee or managing director.Chairperson's control of the board
The chairperson's primary responsibility is to ensure the effective operation of the board such that it works towards achieving the company's strategic objectives. The chairperson should not be involved in the day-to-day operations of the company. The day-to-day running of the company should be the primary responsibility of the managing director (MD) or chief executive officer (CEO) and the management team. Under the provisions of the NCCG Code, the positions of chairperson of the board and MD or CEO are mandatorily required to be separated and held by different individuals. The purpose of this is to avoid an over-concentration of powers in one individual that may rob the board of the required checks and balances in the discharge of its duties.ii Directors
Although the law requires a mixture of both non-executive and executive directors, the number of non-executive directors is expected to be higher than the number of executive directors, with the NCCG Code going further to state that it as desirable that a majority of the non-executive directors be independent non-executive directors. There is, however, no division in the performance of their functions on the board: non-executive directors are expected to be key members of the board, as they are required to bring independent judgement as well as scrutiny to the proposals and actions of the management and executive directors, especially on issues of strategy, performance evaluation and key appointments. Executive directors are employees of the company who typically report for duty at the company's offices, earn salaries and usually have a contract of employment regulating their powers and functions. On the other hand, non-executive directors are not employees of the company, as they do not earn salaries and do not have a contract of employment regulating their functions and powers. They are appointed pursuant to the provisions of the CAMA. The executive directors give regular reports on the affairs of the company to the non-executive directors and act upon the mandate given by the board at board meetings.Duties of directors
Directors are regarded as trustees of the company, and thus stand in a fiduciary position in relation to the company. By virtue of their position, they are to exercise their powers and discharge their duties in good faith. They are required to:
- act in the best interests of the company as a whole, including the interests of employees of the company;
- exercise their powers strictly for the purpose specified and not for a collateral advantage;
- prevent the fetter of their discretion; and
- avoid conflicts of interest.
When a company is newly incorporated, the first directors are typically appointed by the promoters of the company. SSubsequently, shareholders are vested with the power to appoint directors at general meetings of the company. The CAMA regulates the term of office of directors by providing for the retirement and rotation of directors, and this rule applies in the absence of any provision in the articles excluding its application. All directors are to retire at the first annual general meeting (AGM) of the company, and subsequently one-third of the directors shall retire yearly. In determining the retiring directors, the rule is first in, first out, under which the directors who have been longest in office will be made to retire. However, a director may be appointed as a life director, in which case the rule of retirement and rotation will not apply.
The Bank Code provides that the CEO of banks and discount houses shall have a maximum tenure of 10 years, and that the CEO shall not be eligible for reappointment in that bank or any of its subsidiaries. Similarly, the NCCG Code provides that the tenure of independent non-executive directors should not exceed three terms of three years for each.Conflicts of interest of directors
Directors are under a duty to avoid conflict between their personal interests and their duties as directors. A director should not make secret profit or use corporate information to gain an advantage. This responsibility continues even after the director has resigned or been removed by the company. In instances where a director's duty may conflict with his or her personal interest, this can be managed by disclosing a possible conflict to the board, or by abstaining from voting or taking decisions on such matters. In the event of uncertainty, the SEC Code provides that the concerned director should discuss the matter with the chairperson of the board, or the company secretary, to get advice and guidance. On this matter, the NCCG Code as best practice also recommends the development of a conflicts of interest policy to prescribe the manner in which to deal with any potential conflicts of interest. Furthermore, all directors are required to declare any conflicts of interest annually, and any potential conflicts of interest should be disclosed to the board at the first possible opportunity.Proceedings of directors
Although the CAMA does not stipulate the number of times directors of a company may meet for the purpose of dispatching their business, the SEC Code provides that directors should meet a minimum of four times a year. Similarly, the NCCG Code also requires that the board meets at least once every quarter, with every director encouraged to attend all board meetings. Attendance is a prerequisite for the renomination of a director unless there are cogent reasons for non-attendance, of which the board must notify the shareholders at the AGM. Board meetings are presided over by the chairperson, and if he or she is not present within five minutes of the time appointed for the meeting, the directors shall elect one of their number to be chairperson of that meeting.