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Friday 27 January 2017

CORPORATE LAW PRACTICE: CORPORATE GOVERNANCE IN NIGERIA (THE CODES)




This area of corporate practice deals generally with the way and manner a company is controlled and directed so as to achieve its objectives. The persons in the affairs of management are expected to be accountable, responsible and more sensitive to the interest of shareholders, interest of creditors, and members of society at large.

.N.B: The effect of incorporation confers on a company legal personality. As a legal entity without a physical body, its affairs are carried out by human. This is the foundation of corporate governance.

The regulatory laws we need to take note of are;
1.      Companies and Allied Matters Act
2.      Investment and Securities Act
3.      Banks and Other Financial Institutions Act
4.      Insurance Act
5.      National Insurance Commission Act
6.      SEC Code of Corporate Governance 2011
7.      Code of Corporate Governance for Bank and Discount House and Guidelines for Whistle Blowing in the Nigerian Banking Industry 2014
8.      Code of Corporate Governance for Insurance Industry in Nigeria 2009
9.      Code of Corporate Governance for Operators (PENSION FUNDS)
10.  Codes of Corporate Governance for Telecommunication 2014.

THE LEGAL REGIME AND CORPORATE GOVERNANCE
COMPANY AND ALLIED MATTERS ACT
N.B: This is the major and mandatory legal document that we would first refer to in relation to company in Nigeria. It major provisions in relation to corporate governance;
1. The duties and functions of directors. See S. 283, 270, 279 CAMA
2. The powers of shareholders
3. The mandates for an audit committee (which is made up of equal number of directors and shareholders not exceeding six. See S. 359(4) CAMA.  ETC
N.B: That the mandatory provision for audit committee applies only to a public company.

                                     INVESTMENT AND SECURITIES ACT
N.B: This is the leading regulatory body on the capital market and securities investment in Nigeria
1.      SEC ensures protection of investors in Nigeria against fraudulent dealings by the maintaining fair, efficient and transparent market and reduction of systematic risk.
2.      Shares and other securities must be registered with SEC before they are offered to the public.
3.      No shares should be offered to the public without a prospectus to that effect being registered and approved by SEC.
4.       The offering of shares without registration with SEC or without a prospectus, are offences under the Act.
5.      The Act places the responsibility for ensuring the integrity of financing controls and reporting on the Board of Directors.
6.      Prosecution for contravention of the provisions of the Act is done through the Investment and Securities Tribunal (IST), and this makes for quick resolution of disputes.

Therefore, we can conclude that CAMA deals with the incorporation, running (including the issue and types of shares and other company securities) and winding up of companies, ISA deals with the offer of shares to the public and the regulation of the capital market.

THE CODES OF GOVERNANCE
We shall focus on;
1.      SEC code of Governance
2.      Code of Corporate Governance for Bank and Discount House and Guidelines for Whistle Blowing in the Nigerian Banking Industry 2014

SEC CODE OF GOVERNANCE
1.       It applies to all public companies whose securities are listed on a recognized securities in Nigeria, All companies seeking to raise funds from the capital market through the issuance of securities or seeking listing by introduction, and All Public Companies. See Article 1.1 of the code.

N.B: Where there is a conflict between the provisions of the SEC code and the provisions of any other code in relation to a company covered by the two codes, the SEC code provides that the code with the stricter provision shall apply.

SALIENT PROVISIONS ON THE SEC CODE
(a) Chairman/CEO: the code provides that for all companies with listed securities, the positions of the Chairman of the Board and Chief Executive Officer shall be separate and held by different individuals. This is to avoid over-concentration of powers in one individual which may rob the board of desired checks and balances in the discharge of its duties.

(b) Tenure of directors: Subject to the provisions of CAMA and satisfactory performance, all directors should be subject to re-election at regular intervals of at least once every 3 years. Also, biographical details of the directors nominated for re-election will be accompanied by the performance evaluation results and other information that can guide the decision of the shareholders.

(c) Directors’ remuneration: There should be a comprehensive policy on directors’ remuneration. The Board should approve the remuneration of each executive director, including the CEO individually, taking into consideration the relevance of skill and experience to the company. Only non-executive directors should be involved in the decisions regarding executive directors. Remuneration for non-executive directors should be fixed by the Board and approved by members in a general meeting.

(d) Internal audit: All companies should have an effective risk-based internal audit function. Where the Board decides not to establish such a function, sufficient reasons should be disclosed in the company’s annual report, explaining how assurances of effective internal processes and systems such as risk management, internal control and the like will be obtained.

(e) Rotation of external auditors: In order to safeguard the integrity of the external audit procees, companies should rotate both the external audit firms and audit partners. The audit partners should be rotated by the audit firm while the company should not retain the services of an audit firm continuously for more than 10years. Firms disengaged after continuous service for a period of 10 years can be reappointed after the expiration of 7 years after disengagement.

(f) Risk management: The Board is responsible for the process of risk management. It should accordingly form its own opinion on the effectiveness of the process. Management is accountable to the Board for implementing and monitoring the process of risk management and integrating it into the day-to-day activities of the company.

(g) Meetings: General meetings should be conducted in an open manner, allowing for free discussion on all issues on the agenda. The chairmen of all board committees and of the statutory audit committee should be present at general meetings to respond to shareholders questions. The venue of a general meeting should be accessible to shareholders. The Board should ensure that shareholders are not disenfranchised on account of choice of venue.

(h) Board of directors: The primary responsibility for ensuring good corporate governance in the company lies with the Board. The Board shall define a framework for the delegation of its authority or duties to Management specifying matters that may be delegated and matters that are reserved for the Board. The delegation of any duty to Management does not in any way diminish the overall responsibility of the Board and the directors for being accountable and responsible for the affairs and performance of the company.

THE SEC CODE V CBN CODE
1.      Family members on the board: The SEC code provides that not more than two members of the same family should be on the board of a public company at the same time. While the CBN code’s provision is to the effect that no two members of the same family should be Chairman and CEO or Executive Director.

2.       Board composition: The SEC code provides that the membership of the Board should not be less than 5 or more than 15. The CBN code provides for a maximum of 20 members on the Board.

3.      Independent directors: SEC code provides that there should be on the board at least one independent director while the CBN code prescribes 2 as the minimum number or 20%.

4.       Board committees: According to the SEC code, the Board is to determine the duties of its committees. The provision of the CBN code is same as SEC here.

5.       Remuneration of non-executive directors: By the provisions of the SEC code, the remuneration of the non-executive directors are recommended by the board and approved by members in general meeting. The CBN code limits remuneration to sitting allowances and expenses.

6.      Remuneration of executive directors: By the SEC code, the remuneration of executive directors is fixed by committees composed solely of non-executive directors. The CBN code is the same with SEC code on this issue.

7.       External auditors: Under the SEC code, the maximum number of years an external auditor can be continuously retained by a public company is 10. The external audit firm can be re-appointed after the expiration of 7 years from the discontinuance. The CBN code provides that the appointment of external auditors is subject to approval by the CBN and the maximum number of years of continuous engagement is still 10.

8.      Internal audit: The SEC code provides that there should be a risk-based internal audit to be headed by a senior management employee and to report to the audit committee. The CBN code provides that the internal audit should headed by at least an employee on AGM grade, and to report to the audit committee. 
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                                                                              TO BE CONTINUED!!!!!!! 
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        PRAY HARD........................................


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