INTRODUCTION
On 16th July 2024, the Court of Appeal sitting at Ibadan in Appeal No: CA/IB/469/2022 delivered a pivotal judgment that can significantly alter the Nigerian corporate jurisprudence as it relates to the status of Non-Executive Directors. This article addresses the impact of the Court decision in the case of Odua Investment Company Limited v. Mrs. Bolanle Oguntola (the "Judgment") on the status of Non-Executive Directors within the Nigerian corporate milieu.
The directors of a company are typically regarded as the "eyes and hands" of the company, with continuing obligations to steer and regulate its affairs. The dictum of Viscount Haldane L.C in the case of Lennards Carrying Co. v. Asiatic Petroleum Co. Ltd1 aptly describes this role, likening the company to a human body where directors and managers represent its "mind and will." Nigerian law equally recognizes directors as individuals duly appointed by the company to direct and manage its affairs,2 Collectively, the directors appointed by the company constitute the board of directors (the "Board"), which functions as the highest governing authority of the company. As such, the Board must have the appropriate balance of knowledge, skill, experience, diversity, and independence to discharge its governance responsibilities effectively.
The law recognizes different types of directors, each delineating specific roles and functions within the company. This article focuses specifically on the Non-Executive Director and how the Judgment under review impacts their status.
STATUS OF A NON-EXECUTIVE DIRECTOR
Traditionally, a Non-Executive Director is not regarded as an employee of the company. They do not engage in the day-to-day management or operations of the company. Unlike Executive Directors, who are typically involved in the daily operations and decision-making of the business, Non-Executive Directors serve in an advisory and oversight capacity, ensuring that the interests of the shareholders and stakeholders are adequately represented by providing independent and unbiased perspectives to Board deliberations and resolutions.
Non-executive directors are typically appointed based on their experience, skills, and professional background. Often, their wealth of industry-specific knowledge and leadership experience enables them to provide valuable insights and contribute to the company's long-term strategic objectives. Unlike Executive Directors, who are fully involved in daily operations, Non-Executive Directors maintain a level of independence from the internal workings of the company.3
Prior to the Court of Appeal's decision under review, there were several legal arguments supporting the notion that a Non-Executive Director should not be regarded as an employee of the company. Principle 6 of The Nigerian Code of Corporate Governance 2018 (the "Code") emphasizes the need for a Non-Executive Director to have an independent judgment. The Non-Executive Director is expected to offer unbiased advice and insights to the Board. Thus, to preserve this independence and avoid conflict of interest, it is essential to eliminate any potential conflict of interest that may arise from personal or professional relationships with the company. Principle 6.3 of the Code delineates the roles of Non-Executive Directors and employees. It states that a Non-Executive Director should not be involved in the company's day-to-day operations, which is primarily the responsibility of the Managing Director/CEO and the management team.
THE JUDGMENT
In an appeal emanating from the National Industrial Court ("The Trial Court") to the Court of Appeal, the Court of Appeal, under the auspices of a three-man panel led by Honourable Justice Gabriel Omoniyi Kolawole, JCA, had to evaluate the jurisdictional competence of the National Industrial Court vis-a-vis the Federal High Court to entertain matters concerning the appointment and removal of a Non-Executive Director under the provisions of CAMA.
It was the contention of the Appellant (Odua Investment Company Limited), that the Trial Court lacked the jurisdiction to entertain the suit, as the claim was founded on the enforcement of the right of a Non-Executive Director. The Appellant had argued that being a Non-Executive Director of the Appellant, the Respondent (Mrs. Bolanle Oguntola) was not an employee of the Appellant company, and as such, the Trial Court could not competently entertain and adjudicate on the dispute. The Appellant made copious arguments buttressing the point that while the Respondent was an officer of the company, no employment relationship existed between the parties to clothe the Trial Court with the jurisdiction to entertain the suit, which, per its arguments, was within the purview of the Federal High Court as it bordered on the operations of CAMA.
On the contrary, the Respondent argued that from the letter of appointment issued by the Appellant to the Respondent appointing her as a Non-Executive Director for a 4-year tenure, the appointment had a coloration of employment that gave the Trial Court the jurisdictional competence to entertain the suit.
In delivering its judgment, although the Court of Appeal agreed that the procedure for removal of directors is already amply provided for within the provisions of CAMA, the Court ultimately held that per the letter of appointment, the Respondent's appointment fell within the precincts of employment disputes, and as such, the provisions of Section 254C of the Constitution of the Federal Republic of Nigeria 1999, as amended, (the "Constitution") would be applicable in the dispute. The Court of Appeal held that due to the supremacy clause (the "Notwithstanding clause") through which the provisions of Section 254C were introduced, the legislative draftsmen intended the said section to superimpose the provisions contained under Section 251 of the Constitution, where the subject matter involved a trade or labour related dispute. The Court also took into account, the fact that Section 254C of the Constitution was introduced during the Constitution's third amendment. In the Court's wisdom, this subsequent amendment could only mean that the drafters of the Constitution likely intended Section 254C to take precedence over Section 251 in the event of conflict between the two provisions.
REFLECTIONS ON THE JUDGMENT
Prior to the Judgment, the role of a Non-Executive Director and an Executive Director within the corporate landscape was clearly distinguished. While an Executive Director was regarded as a full-time employee of the company, a Non-Executive Director acted independently, with minimal supervision from the Company, as the Non-Executive Director is typically hired to provide independent foresight and strategic insight into a Company's affairs.4 However, by this Judgment, the employment status of a Non-Executive Director and an Executive Director within a company, which was once clearly defined, now appears blurred.
A critical analysis of the Judgment, when compared with the Nigerian Code of Corporate Governance, 2018, and the previous status of directors in Nigeria, raises a significant question: Will all directors, irrespective of their appointment and service conditions, now be regarded as employees of a company? While the Judgment appears to consolidate the status of executive and non-executive directors, it introduces ambiguity regarding their distinct roles under corporate governance principles.
The Code, through Principles 4, 5, and 6, clearly outlines the intended distinction:
Principle 4
The Managing Director/Chief Executive Officer is the head of management, delegated by the Board to run theaffairs of the Company to achieve its strategic objectives for sustainable corporate performance.
Principle 5
Executive Directors support the Managing Director/Chief Executive Officerin the operations and management of the Company.
Principle 6
Non-Executive Directors bring to bear, their knowledge, expertise, and independent judgment on matters of strategy and performance on the Board.
These principles above, indicate that an Executive Director is expected to be actively involved in the company's daily management and control, whereas a Non-Executive Director primarily serves in a consultative capacity rather than as an employee. However, the Judgment's apparent consolidation of these roles conflicts with this traditional distinction, creating uncertainty about whether all directors, regardless of their role or level of involvement, may now be classified as employees.
Notably, whilst the provision of Section 254C of the Constitution is clear as to the exclusivity of the National Industrial Court on matters pertaining to any workplace, labour, and trade-related disputes even to the exclusion of the Federal High Court, the Court of Appeal had previously held in contradistinction to the case at hand, that not every workplace issue, would fall under the jurisdiction of the National Industrial Court. 5
In addition to the foregoing, another point that requires critical appraisal is the applicability of Section 251(1)(e) of the Constitution, which grants exclusive jurisdiction to the Federal High Court on matters arising from the operation of CAMA. Notably, sections 46(3) and 288 of CAMA outline procedures for the removal of directors, as underscored in the case of Longe v. FBN (2010) LPELR – 1793 (SC).
Admittedly, section 254C of the Constitution vests the National Industrial Court with exclusive jurisdiction on employment matters. However, the substantive law that regulates the appointment and removal of directors is CAMA, which falls under the exclusive purview of the Federal High Court. Given the foregoing, can it now be unreservedly said that the National Industrial Court can entertain matters arising from the operations of CAMA? This dilemma is further accentuated by the fact that the decision of the Court of Appeal in the case of Engr. Jude Ononiwu v. National Directorate of Employment & Another (supra), appeared to have cured mischief that the provision of Section 254C of the Constitution seems to create, by checking the unbridled jurisdictional powers instilled in the National Industrial Court with respect to any matter with the slightest dint of a workplace or labour related dispute.Though the decision of the Court of Appeal on this matter is final5, it is yet to be seen whether the Supreme Court will make a final stand on the status of a Non-Executive Director in Nigeria.
CONCLUSION
The Court of Appeal's judgment potentially alters the corporate landscape by treating Non-Executive Directors similarly as employees in certain contexts, which could have far-reaching implications. This paradigm shift may impact director appointments, the applicability of employment laws, and the interpretation of corporate governance standards in Nigeria.
Furthermore, the implications of this judgment are likely to spark further debates, especially considering other supposedly contradictory judgments of the Court of Appeal, and could trigger amendments to the existing legislature to clarify the distinct roles of executive and non-executive directors in Nigerian companies, as well as the jurisdiction of the Federal High Court to entertain matters pertaining to the appointment and removal of directors under CAMA.
Footnotes
1. (1915 AC 705, at pp. 713 - 714)
2. Section 269 CAMA 2020
3. In Hakair Limited & Anor v. Sterling Bank Plc (2019) LPELR- 47638 (CA) the Court of Appeal had earlier held that the relationship between a company and a non-executive director is not simple as that of master and servant relationship such that the normal rules for termination and engagement under common law would apply. The Court likened the relationship to an investment relationship with a statutory flavour governed by the provisions of the Companies and Allied Matters Act.
4. See the decision of the Court of Appeal in Hakair Limited & Anor v. Sterling Bank Plc (supra)
5. Decisions from the National Industrial Court to the Court of Appeal are final. See the Supreme Court case of C.B.N v. Okpanachi (2023) 6 NWLR (P.1881) 425 on this position of the law.
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.
