Answer ... The selection and appointment of board members will depend on the status of the company. If the company is new, Section 272 of CAMA provides that the first directors will be appointed in writing by the subscribers to the memorandum of association or by a majority of the subscribers; or may be named in the articles of association.
Under Section 273 of CAMA, subsequent directors may be appointed by the members of the company at the annual general meeting. This can be through re-election or rejection of the current director and appointment of the new director(s). Under Section 274, where a vacancy arises due to the death, resignation, retirement or removal of any of the directors, the board may appoint a new director to fill that vacancy. The director so appointed will serve as a director subject to the approval of the shareholders at the next annual general meeting.
Section 47 of the Banks and Other Financial Institutions Act provides that the approval of the Central Bank of Nigeria (CBN) must be sought and obtained before there is an appointment of any director, chief executive or any management staff as may be specified by the CBN. Principle 2.4.6 of the Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014 prohibits a director, whether executive or non-executive, from serving on the boards of a bank and a holding company within the same group. Where such a director is a director of another bank or another company that has a significant influence on the bank, the approval of the CBN must be obtained before such an appointment.
Equally, an insurer is constrained from appointing or having in its full-time employment a partner or a director in a firm of insurance brokers or loss adjusting firm without the approval of the National Insurance Commission.
The criteria for selecting and appointing board members will depend on whether the director is executive or non-executive and, for the latter, whether the member is an INED. However, all board members are expected to disclose their membership of other boards and to notify the board if they are appointed to serve on other boards. Under Principle 2.8.3 of the Nigerian Code of Corporate Governance 2018, board members should not be members of the board of competing companies to avoid a conflict of interest, breach of confidentiality, diversion of corporate opportunity or divulgence of corporate information.
Where the articles of association provide for the share qualification to be held by each director, under Section 277 of CAMA, that shareholding capacity must be held before the appointment or within two months of appointment. Otherwise, the director will be liable to a daily penalty of NGN 500 in case of private companies and NGN 1,000 in case of public companies between the expiry of the period or the date on which he or she ceased being a director and the last day on which it is proven that he or she acted as a director.
Concerning the age of the director, a director who is aged 70 or more and is appointed or is aware that he may be nominated for appointment as a director of a public company is mandated by Section 278 of CAMA to disclose this fact to members at the general meeting. Otherwise, he or she will be liable to a penalty of NGN 10,000 for private companies and NGN 25,000 for public companies.
In the case of financial institutions, the Revised Assessment Criteria for Approved Persons’ Regime for Financial Institutions, October 2015 (issued by the CBN) set out additional criteria that must be fulfilled by NEDs and INEDs. In the case of NEDs, each director must possess:
- a first degree or its equivalent in any discipline plus membership of any other relevant and recognised professional institute;
- a minimum of eight years’ post-graduation experience;
- proven skills and competencies in his or her field;
- knowledge of the operations of banks/development finance institutions/discount houses and relevant laws and regulations guiding the financial services industry; and
- the ability to interpret financial statements and make meaningful contributions to board deliberations
Where such a nominee has limited academic/professional qualifications and industry experience, the CBN may consider the following:
- direct involvement of the nominee in an established business enterprise with total assets of not less than NGN 300 million;
- the quality of courses and seminars attended in the last five years before his or her nomination;
- the size, scope and complexity of the institution;
- the relevant experience and qualifications of other board members;
- the existence and number of independent directors on the board;
- an assurance that the proposed director(s) will be exposed to accelerated training over a short period; and
- the assignment of responsibilities commensurate with their experience.
The Guidelines on Corporate Governance for Pension Fund Operators 2021 provide that a director’s contribution and performance on the board will be considered in re-nominations. This will be handled by the nomination and governance committee, and the appointment(s) must be approved by the shareholders and the National Insurance Commission.
Also, in addition to the requirement to be an INED under the NCCG, an INED is a director who:
- does not possess a shareholding in a pension fund operator (PFO) or its related or associated PFOs;
- has not been an employee and/or executive management of a PFO or its parent, related or associated company;
- does not have an immediate family member (ie, spouse, child, adopted child, stepchild, brother, sister or parent) who is or has been employed by the PFO or any related PFOs within the last three years;
- has not received any compensation or remuneration from the PFO or its parent company for the past five financial years, apart from directors’ fees and allowances;
- is not a substantial shareholder, partner or executive officer of any profit-making organisation to which the PFO made or from which the PFO received significant payments in the past five financial years;
- has not served on the board for more than nine years from the date of his or her first election; and
- has not been appointed to represent the interest of some shareholders.
For telecommunications companies, Principle 3.4 of the Code of Corporate Governance for the Telecommunications Industry 2016 provides that board members should be appointed through a written, formal and transparent process, which is often carried out by the nomination committee. The nomination committee will carry out background and reference checks on the individuals, which must be made available to directors and shareholders before the appointment.