Nigeria: Corporate Governance In Nigeria: A Legal Trajectory

Last Updated: 13 November 2018
Article by Johnson Bryant

Corporate governance mechanisms and controls are designed to reduce the inefficiencies that arise from moral hazard and adverse selection. There are both internal monitoring systems and external monitoring systems. Internal monitoring can be done, for example, by one (or a few) large shareholder(s) in the case of privately held companies or a firm belonging to a business group. Furthermore, the various board mechanisms provide for internal monitoring. External monitoring of managers' behaviour occurs when an independent third party (e.g. the external auditor) attests to the accuracy of information provided by management to investors. Stock analysts and debt holders may also conduct such external monitoring. An ideal monitoring and control system should regulate both motivation and ability, while providing incentive alignment toward corporate goals and objectives. Care should be taken that incentives are not so strong that some individuals are tempted to cross lines of ethical behaviour, for example by manipulating revenue and profit figures to drive the share price of the company up.

Furthermore, the CBN through its former Governor Sanusi Lamido Sanusi in Nigeria introduced a corporate governance code or principle where no Managing Director or Chief Executive of a commercial bank who has spent ten years or more should head the bank and no financial or auditing firm who has audited or consulted for the financial institutions for a period of ten years are allowed to audit the financial status of these banks. It is important to state that it is a novel idea for transparency and accountability but these financial advisers or chartered accountants may register a new business name and start to operate in a different corporate entity since Corporate Affairs Commission (CAC) does not prohibit an individual from practicing or registering his business name for purpose of business registration. Opara argues that the corporate profile of the partners should be exhibited at its office nationwide and the professional bodies like ICAN, ANAN, CITN, etc. who regulate the practice of accounting and taxation should also be involved in corporate accountability and governance to checkmate double registration or practice by an individual practitioner who has been prohibited from one financial institution to another[1].


The heightened awareness of effective corporate governance is not without justification. A well-implemented corporate governance regime has tremendous benefits to all stakeholders. These benefits are the endearing attributes of corporate governance. In the first place, it is unarguable that an effective corporate governance mechanism, backed up with adequate monitoring and enforcement regime, would build investors' confidence, eliminate financial scandals and curb corporate failures. President and Chairman of Council, Chartered Institute of Personnel Management of Nigeria (CIPM), Anthony Arabome, at the 19th yearly public lecture of the CIPM held in November 2015 in Lagos, stated that Nigeria as a country aiming to attract foreign investors and national development, cannot underestimate the value of sound corporate governance a first order condition for building successful nations, institutions and businesses. Also, it has the potential of raising the standards of performance and driving reforms for corporate growth and achievement. It readily provides an assessment framework for corporate bodies. In that wise, it facilitates peer and sectorial comparison and analysis. Furthermore, it forms the basis for corporate governance codes for companies.

In a nutshell, therefore, it is certain that corporate governance codes promote efficiency in the use of corporate assets, assist corporate bodies in attracting low-cost capital, ensure overall positive corporate performance and the ability to meet societal expectations.[2]


Apart from the main statute regulating corporate organizations in the country, that is, the Companies and Allied Matters Act (CAMA), there are several corporate governance codes in force; some of them are industry specific. The law has also been seen as an element in governance and the idea that governance is a non-statutory regime. For instance in the United Kingdom(UK) where the listed or quoted company comply or explain regime applies under the United Kingdom corporate Governance Code is a myth[3]. The corporate governance codes applicable in Nigeria are the Code of Best Practices on Corporate Governance in Nigeria 2003, which was issued by the Securities and Exchange Commission; the Code of Corporate Governance for Banks in Nigeria Post-Consolidation 2006, which was issued by the Central Bank of Nigeria; the Code of Corporate Governance for Licensed Pensions Operators 2008, which was issued by the Pension Commission; and the Code of Corporate Governance for Insurance Industry in Nigeria 2009: issued by the National Insurance Commission. This used to be the codification in Nigeria before 2011. However with recent development in the corporate world especially as it relates to corporate governance, there are new corporate governance codes to supplement and complement the old once. These codes include; the Code of Corporate Governance in Nigeria and International Best Practices on Corporate Governance 2011; issue by the security and Exchange Commission(SEC) and the Corporate Affairs Commission(CAC). Another recent code is the Code of Corporate Governance for Banks and Discounting Houses in Nigeria 2014 which was issued by the CBN. In a circular issued by the Financial Policy and Regulation Department of CBN, which was signed by the director of the department Kevin N. Amogun, the circular titled Corporate Governance for Banks and Discounting Houses in Nigeria and Guideline for Whistle Blowing in the Nigeria Banking industry 2014 it stated thus: "This Code supersedes the one issued in March 2006 and the Whistle Blowing Guideline shall be deemed to take effect from October 1 2014".Presently a code is being awaited; it is the National Code of Corporate Governance (NCCG) which is being codified by the Financial Reporting Council (FRC). This code is being drafted since 2014. However the draft has been issued out several times with the various financial organization and institution making contribution and even the CBN. Although this has not been easy as the FRC was sued in 2015 with the court granting an injunction to the stop the drafting of the NCCG however this injunction has been lifted. This code is important to corporate governance in Nigeria because it has private sector code and the not-for-profit code.[4] It was reported that the code will become effective after the first half of this year (2016) (the private sector and the not-for-profit aspect).[5] It is worthy of note to state that these codes though they do not repeal the former once, they supersede them. That is the provision of the new once are to be enforced where there exist any inconsistency or where such provision in not present in the previous code.

From the foregoing, there is a multiplicity of corporate governance codes in Nigeria. There is a specialized court in Nigeria that prosecutes securities matters involving stockbrokers, firms as well as individuals known as Investment Security Tribunal (IST) sitting in major commercial cities in Nigeria such Lagos, Abuja, Kano, Enugu just to mention but a few. This is a novel idea to reduce the delay in federal high courts and fast track cases on stock dealings to bring back the investors' confidence in our jurisdiction and to boost the economy.


Corporations are involved in myriad of offences like natural persons. Though commercial corporations set out primarily for profit maximization, it is imperative to maintain a balance between the profit maximization goal and the general interest of other stakeholders required to be catered for within the corporate life-space. The balance sought to be attained is between the maintenance of the long term growth, sustenance and continued existence of the corporation and the well-being of the beneficiaries of the corporation's activities in the context of protection from acts or omission within. In the course of their profit creation goal, may jeopardize the interest of investors, workers, the public and the society/environment. For example, environmental protection from pollution stems from the need to preserve a fragile balance between the interests of economic activity on the one hand and the public welfare on the other hand.[6]

Regulation therefore is necessary to protect the interest of the economically weak, as we find in the corporate world stakeholders, against the interest of the economically powerful which most modern corporation have come to represent. Thus the first reason for the increasing interest in corporate crime regulation is the growing realization and emergence of a general recognition of the prevalence of corporate irresponsibility, misconduct and crime. This begs the issue of how the corporation can be controlled, related to this is simply the intensifying scale and spread of corporate activity in the question for capitalist expansion, a phenomenon foretold more than a century ago by Marx[7] and Durkheim.[8]

Another reason for an upsurge in concern about regulation is a feature of the economic order, characterized by the sweeping spate of economic democratization. This is a system of reform where government by significant movement, expand the use of market forces in shaping production and distribution patterns and the reduction of direct state ownership and direct state controls over the economy.[9]Specifically, in Nigeria the Structural Adjustment Programme (SAP) was introduced in July 1986, to achieve the objective of SAP (which is to restructure and diversify the productivity base of the economy in order to reduce dependence on the oil sector and on import) other methods introduced by government include deregulation of the economy and privatization and commercialization.

The pervading privatization raises problems of regulation in quantitative and qualitative terms. In quantitative terms the impact has been diversification of ownership of companies and the restructuring of management to reflect the change in the ownership pattern. This simply means there are more corporate actors to be regulated, thus raising the level of the task for regulators and government. More regulatory activity is needed. In qualitative terms, newly privatized companies raise new problems of regulation. This may call for redefining the basis of the operation of such companies to contend with their new status as profit oriented industries, the basis of liability and the reward system for the labour force. For example, where once the state through direct ownership, was able to exercise some control over its utilities, such as electricity and gas industries or telecommunication or rail and so on, the privatization of such corporations has opened myriads of new regulatory problems which have seen states having to contend with the intractable problems of allowing private corporations to pursue profit maximization whilst attempting to force upon them the need to meet certain social needs the provision of electricity to households where bills cannot be made, bus and postal services on loss-making "routes" investment in clean water technologies where this require extensive upfront capital outlay with no prospect of immediate short-term pay-offs for private owners and a host of other problems.[10]

In Nigeria, the deregulation of the telecommunication industry witnessed the influx of companies licensed to carry on telecom business. This raises a new problem of ensuring a uniform billing system by the Nigerian Communication Commission the highest regulatory agency on communication. The insistence that MTN, one of such companies must join the others totally in the per-second billing system forms basis of legal tussle between the companies.[11] Similarly, the deregulation of the downstream sectors of the petroleum industry, engendered a problem of having marketers of premium motor spirit to comply with the Federal government's directive to erect giant electronic bill board in their filling stations displaying the prices of their product to enable consumers decide on which of the stations to patronize.[12]

One final, but equally pungent reason for a growing concern with regulation is the shift in emphasis from the provision of basic necessities of life to improved quality of life. Flowing from the upsurge in corporate actors, who in their unbridled quest for profit maximization may churn out poor quality goods, services and worse still, to the detriment of the environment, consequently, concern shift from the right to work to the right to a safe workplace from women's access to employment to "equal pay for equal work" in employment; from mass house-building of the preservation of rural landscapes and the flora and fauna therein.[13]


Enron Corporation, WorldCom, Parmalat, Barings Bank and so on is multiple examples of global brands that had bit the dust for lack of good corporate governance practices and lessons for corporate organisations world over, including Nigeria. President and Chairman of Council, CIPM, Anthony Arabome noted that events in the global marketplace and in government at all levels over the last three decades and the world's reaction to them, created a global economic order based on rectitude, which demands honesty, transparency and integrity as mandatory prerequisites for doing business responsibly and gainfully. He said that the theme: "Corporate governance: Essential ingredient for national development" was particularly relevant to our current national drive to enthrone probity, annihilate corruption and honour excellent and ethical leadership. Executive Secretary/Chief Executive Officer, Financial Reporting Council (FRC) of Nigeria, Jim Obazee, who oversees the setting, monitoring, and enforcement of financial reporting standards and corporate governance practices in both public and private sectors of the Nigerian economy, explained that the essence of good corporate governance is for boards and managers of organisations to use their freedom to drive their company forward within the framework of effective accountability. Obazee, however said that very little had been achieved in promoting good corporate governance in the country, because it is yet to be linked with improved investment in-flow and national development. While corporate governance exists as a concept, it only becomes good when it is contributing to sustainable economic development by enhancing the performance of the company and increasing their access to outside capital. Good corporate governance is tied to leveraging on internal values and obligations to building reputation, Obazee said. After the scandal of Enron Corp., WorldCom and co, Obazee noted, it was no surprise that government regulators and shareholders and other stakeholders alike in the US and Europe called for reforms and greater transparencies in relation to corporate practices. It was a departure from erstwhile intra-professional self-regulation, with government insisting that the people (shareholders) as well as image of the home country have to be protected beginning from 2002. He said: "Granted that businesses must be allowed to run according to their objectives and their policies, but it must be in line with effective accountability.[14]

Corporate governance has gained ground in Nigeria as an aspect of law which regulates corporation. Some business owners however are yet to know the relevance of this law. Especially the small scale business owners however upon the coming effect fully of the NCCG there will be more enforcement among the general public. Though drastic measures has to be taken as to enlightenment campaign of corporate governance to business owners especially those in the private sectors as majority of them does not know about corporate governance and those who know do not see the relevance of it to their business. So that it is important also to educate these private business owners as to the relevance of these codes. Also the general public needs to be enlightened. Nigeria as a country is not really late to corporate governance as a concept the difference between Nigeria and the developed countries (e.g. US and UK) is the level of education. The people of those countries easily grab this concept unlike Nigeria where the level of illiteracy is high. Corporate governance is a growing field in Nigeria and there is hope that it will reduce the level of corporate malpractice as it has really been welcome by the country.


The foregoing discourse raised some complexities which underscore the imperative for effective corporate governance in Nigeria. It has addressed the nature and role of corporations about economic activity and about the very nature of contemporary economies, state and society. This further begs the question as to what appropriate regulatory model or technique can minimize friction and still maintain the legitimate interests of other corporate stakeholders ensconced within the corporate life space in Nigeria.


[1] Leonard C Opara "The Legal Regime of Corporate Governance in Nigeria: A Critical Analysis," Journal of Law, Policy and Globalization vol.26 (2014) 39

[2] Leonard C Opara Loc cit

[3] Leonard C Opara The Legal Regime of Corporate Governance in Nigeria: A Critical Analysis Journal of Law, Policy and Globalization vol.26, (2014),40

[4] Jim O Obazee (CEO of FRC) speaking at the 12th Annual Corporate Financial Reporting Summit in Lagos in 2015

[5] Babajide Komolafe, National Corporate Governance Code to be Operational in 2016 -FRC, Dec 24, 2015 Vanguard

[6] Keith Hawkins, "Environmental and Enforcement: Regulation and Social Definition of Population" Oxford: Clarendon Press (1849) 9

[7] Karl Marx and Fredrick Engels, Manifesto of the Communist party Moscow : Progress (1849/1977), 39

[8] Emile Durkheim Suicide : A Study in Sociology (London: Routledge and Kegan Paul 1897/1979), 255-256.

[9] Hamza R Zayyad, H. Deregulation of the Banking System: Its Impact on the Nigeria Economy. New Nigerian Development Company (NNDC) Newsletter 11thed, (1994) 10,13 and 14 at 10.

[10] Gray Slapper and Steve Tombs, Corporate crime Great Britain : Longman, (1999), 101-107 at 102

[11] Business Times June 7-13, 2004, 48 and June 14-20, 2004, 8

[12] Business Times May 17-23, 2004, 8

[13] Gray Slapper and Steve Tombs: op cit

[14] Yetunde Ebosele and Wole Oyebade Imperatives of corporate governance in national development (10 March 2017)

Originally published March 2017

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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