Corporate Governance can be defined according to one opinion as the structure of rules, practices and processes used to direct and manage a company.
In Nigeria, Corporate Governance as a concept has since been recognized as exemplified by the Code of Corporate Governance 2018 which repealed and combined the different jurisdictions of :-
– The Code of Corporate Governance For the Telecommunications Industry 2018
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– The Code of Corporate Governance For Banks and Discount Houses in Nigeria 2014
– The Code of Corporate Governance For Public Companies in Nigeria 2011
– The Code of Corporate Governance For The Insurance Industry in Nigeria 2009
– The Code of Corporate Governance For Licensed Pension Fund Operations 2008.
Implementation of the code is the responsibility of the Financial Reporting Council of Nigeria (FRC) and the code applies a principle-based approach to specifying the minimum Corporate Governance expectations placed on companies.
This article will be focused on the most important provisions of the code which are as follows :-
Company Secretaries :- Under the code, a company should not be a member of a company’s board of directors. The role of the company secretary remains to provide administrative, compliance and secretarial duties to the board and then the company.
Board Committees:- The code recommends the establishment of committees (to be made up preferably of Non-Executive Directors)for the purpose of risk management, nomination, governance and remuneration.
Tenure/Term Length of Directors :- The code recommends that the tenure of Independent Directors not exceed 3 years and a period of 10 years for external audit firms.
Information Technology :- The code requires that the Information Technology Management structure of a company should be annually updated and incorporated in the company’s risk management policy.
Company Directors : The code now requires that a board of directors of a company should have a combination of Non-Executive Directors, Executive Directors, and Independent Directors, the size of a board being left to the directors in line with their sector-specific requirements where applicable.
Company Chairman Positions :- The code now requires that a company chairman should not be involved with the day-to-day operations of a company and his position should be separated from those of the Executive Directors of a company.
Under the code, chairmen are not to transition to the position of a Managing Director without a 3-year break.
Independent Director Appointment Criteria :- To ensure true independence of judgment and fitness of character in a company’s selection of independent directors, the code states that independent directors to be appointed must –
a). Have shareholdings of not more than 0.01% of the paid-up capital of the company they are appointed to.
b). Have never been employed staff they are to be appointed to in the preceding last 5 years.
c). Have never had any business relationship with the company in the last preceding 5 years.
d). Have never had a family relative who has worked with the company in the capacity of a director, senior employee, vendor or substantial shareholder or senior staff of the company.
Internal Control :- Under the code, Internal control policies of a company should be structured to avoid or reduce the risk of discrepancies in the company’s financial statements.
Performance Evaluation :- The code provides for the requirement of annual evaluations of the performances of the board, board committees if a company and evaluation implementations.
Protection of the rights of Shareholders/Shareholder Engagement :- The code requires that shareholders of all categories must be treated fairly especially in relation to minority shareholder rights as well as the need for healthy relationships between shareholders and the boards of companies.
Risk Management/Whistle-Blowing :- The code requires the need for companies to have a clear Risk Management Framework & a clear policy plan for safeguarding the invested interests of shareholders.
Sustainability and Communication :- This is required by the code to be practiced by companies through the development by companies of clear policies for Environmental, Social & Governance (ESG) responsibilities.
Business Conduct & Ethical Culture:- This is a principle espoused by the code on the need for companies to develop models for compliance with sector and company-specific business ethical rules from the entry to top-management levels of a company.