1 Legal and enforcement framework
1.1 Which legislative and regulatory provisions and codes of practice primarily govern corporate governance in your jurisdiction?
- The Banks and Other Financial Institutions Act No 5 of 2020;
- The Central Bank of Nigeria's Circular on the Guidelines for the Appointment of Independent Directors, October 2007 (Circular BSD/DIR/GEN/CIR/VOL.1/ 013);
- The Code of Corporate Governance for Banks and Discount Houses in Nigeria, May 2014;
- The Code of Corporate Governance for Public Companies in Nigeria 2011;
- The Code of Corporate Governance for the Telecommunications Industry 2016;
- The Companies and Allied Matters Act No 3 of 2020;
- The Code of Conduct Form for Directors of Licensed Pension Operators;
- The Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria 2021;
- The Financial Reporting Council of Nigeria Act No 6 of 2011;
- The Insurance Act, Cap I17, Laws of the Federation of Nigeria (LFN) 2004;
- The Nigerian Communications Act, Cap N97, LFN 2004;
- The Pension Reform Act, No 4 of 2014;
- The Investment and Securities Act, No 29 of 2007;
- The Regulation on the Adoption and Compliance with Nigerian Code of Corporate Governance 2018;
- The Revised Assessment Criteria for Approved Persons' Regime for Financial Institutions, October 2015;
- The Guidelines for Appointment to Board and Top Management Positions of Pension Funds Administrators and Pension Funds Custodians;
- The Guidelines on Corporate Governance for Pension Fund Operators, February 2021;
- The Code of Corporate Governance for Public Companies 2011; and
- The Nigerian Code of Corporate Governance 2018.
1.2 Is the corporate governance framework in your jurisdiction primarily based on hard (mandatory) law and regulation or soft (eg, ‘comply or explain') codes of governance?
The Nigerian Code of Corporate Governance 2018 applies the ‘apply and explain' approach – that is, the principles must be applied. Entities should explain how the principles have been applied and how the specific activities undertaken best achieve the outcomes intended by the principles specified in the code. Under Principle 1.1 of the Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014, the code has mandatory application. Under Principle 1.3 of the Code of Corporate Governance for Public Companies in Nigeria, this code is a guide rather than a mandatory code for public companies.
1.3 Which bodies are responsible for drafting and enforcing the rules and codes that make up the corporate governance framework? What powers do they have?
Different bodies are charged with drafting and enforcing the codes in Nigeria. The major regulatory body is the Financial Reporting Council of Nigeria (FRCN) through its Directorate for Corporate Governance (Sections 7(2)(a) and 50 of the Financial Reporting Council of Nigeria Act).
Other (sectoral) regulatory bodies – such as the Securities and Exchange Commission (SEC), the Central Bank of Nigeria, the National Insurance Commission (NAICOM), the National Pension Commission (PenCom) and the Nigerian Communication Commission (NCC) – also issue some codes.
The powers of the FRCN include the power to:
- enforce and approve enforcement of compliance with accounting, auditing, corporate governance and financial reporting standards in Nigeria; and
- order the forfeiture, by chief executive officers and chief financial officers, of certain bonuses received from the company and profits realised from the sale of company shares owned by them, where the company is required to prepare an accounting restatement.
Under Section 8(1)(d) of the Companies and Allied Matters Act 2020 (CAMA), the Corporate Affairs Commission (CAC) ensures that companies comply with the provisions of CAMA and other regulations issued by the CAC. Exercising this power may entail ordering changes to the directors of the company.
The powers of PenCom include the power to:
- impose administrative or civil sanctions due to non-compliance;
- appoint a management committee for failing pension operators; and
- investigate any pension fund administrator, pension fund custodian or other party involved in the management of pension funds.
NAICOM has the power to establish standards for the conduct of insurance business in Nigeria.
The SEC has the power to intervene in the management and control of capital markets operators which it considers to have failed or to be failing or in crisis, including entering their premises and doing whatever it deems necessary to protect investors.
2 Scope of application
2.1 Which entities are captured by the rules and codes that make up the principal elements of the corporate governance framework in your jurisdiction?
There are various sectoral codes and a generic code that applies to companies in Nigeria. The sectoral codes will apply only to the entities in that sector. However, pursuant to Section 1 of the Regulation on the Adoption and Compliance with the Nigerian Code of Corporate Governance 2018, the Nigerian Code of Corporate Governance 2018 applies to:
- all public companies (whether listed or not);
- all private companies that are holding companies of public companies or
other regulated entities;
- all concessioned or privatised companies; and
- all regulated private companies being private companies that file returns to
any regulatory authority other than the Companies and Allied Matters Act
and the Corporate Affairs Commission (CAC).
Per the Code of Corporate Governance for the Telecommunications Industry 2016, any telecommunications operator that meets any or more of the following criteria will be covered:
- The spread of operations of the licensee covers a minimum of three geo-political zones;
- The turnover of the licensee is in excess of NGN 1 billion;
- The number of staff employed is in excess of 200; and
- The licensee has a subscriber base of 500,000 or more.
The Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014 applies to all banks and discount houses.
2.2 What exemptions, if any, from the principal elements of the corporate governance framework are available in your jurisdiction?
Exemptions from the corporate governance frameworks will be determined according to whether companies fall within the above-mentioned categories. Where a company does not fall within those categories, the codes will not apply.
2.3 What are the principal issues covered by the codes of governance in your jurisdiction?
The Nigerian Code of Corporate Governance 2018 covers the following topics and issues:
- the board structure and committees;
- assurance, which includes risk management, whistleblowing, external auditors and so on;
- shareholder relationships, including general meetings, shareholder engagement and the protection of shareholders' rights;
- business conduct and ethics;
- sustainability; and
- transparency, which includes stakeholder communications and disclosures.
3 Ownership and control
3.1 What are the typical ownership structures in your jurisdiction?
For companies established by statutory instrument, the ownership structure is often specified in the enabling legislation. For private and public companies, provision is made for direct shareholdings (stake held directly by the shareholder) and indirect shareholdings (stake held through another corporate vehicle or trustee/trust arrangement). Section 868 of the Companies and Allied Matters Act 2020 (CAMA), while defining persons with significant controls, identifies indirect shareholdings as one of the means of owning shares. CAMA now recognises trust arrangements for shares: Section 27(3) requires trustee subscribers to disclose the fact of their trusteeship and the name of the beneficiaries in the memorandum and articles.
3.2 How are companies typically controlled in your jurisdiction, both structurally and in practice?
The control of companies is primarily determined by the shareholding. Section 140 of CAMA provides that, subject to any other enactment, a share carries one vote. However, Section 168 of CAMA provides that a preference shareholder can be entitled to more than one vote per share in limited circumstances, such as variation of the rights attached to such shares. Hence, the volume of shares by each shareholder will determine the ability to influence corporate and management decisions. The voting rights of every shareholder of a bank, under Section 10 of the Banks and Other Financial Institutions Act 2020 , are determined and will be in proportion to their contribution to the paid-up share capital of the company.
Section 239 of CAMA, for example, empowers the holders of one-tenth of the paid-up capital of the company to requisition an extraordinary general meeting. Equally, Section 248 of CAMA provides that the following parties can demand voting by poll:
- the chairman;
- three members present in person or proxy;
- member(s) present or by proxy representing at least one-tenth of the total voting rights and having the right to vote at meetings; and
- any member(s) that holds an aggregate of one-tenth of the paid-up capital.
Another way to exercise control is through control of the composition of the board of directors, with the ability to influence the appointment and removal of the directors. Sometimes, a shareholder or group of shareholders may have a contractual right to nominate persons to fill certain (strategic) board positions.
4 The board: structure and appointment
4.1 How is the board typically structured in your jurisdiction?
For companies established by statutory instrument, the board is often structured by the enabling legislation; while for companies other than those established by legislation, the articles of association, as the charter of the company, will determine the structure of the company. Where the company operates in a highly regulated sector, the sectoral regulator (eg, the Central Bank of Nigeria, the National Insurance Commission or the Securities and Exchange Commission) may dictate how the board should be structured.
Section 294 of the Companies and Allied Matters Act 2020 (CAMA) provides that, except in case of a small company (as defined under Section 394 of CAMA), every company must have at least two directors. Section 88 of CAMA provides that the board, subject to the provisions of CAMA and the articles of association of the company, may exercise its powers through committees appointed from the members of the board or through the managing director(s).
In the telecommunications sector, Principle 3.2 of the Code of Corporate Governance for the Telecommunications Industry 2016 (CCGTI) provides that the boards of large telecommunications companies must have at least five directors. The majority of the board should be non-executive directors (NEDs), with a minimum of two executive directors and at least one independent director whose shareholding (directly or indirectly) must not be more than 0.1%.
For companies that are covered by the Nigerian Code of Corporate Governance 2018, Principle 2 suggests that the board be constituted to reflect an appropriate balance of skills and diversity (including experience and gender), without compromising competence, independence or integrity. Principle 2.3 further suggests that the membership of the board should reflect:
- an appropriate mix of knowledge, skills and experience, including the business, commercial and industry knowledge needed to govern the company effectively; and
- an appropriate mix of executive directors, NEDs and independent non-executive directors (INEDs) (with most of the NEDs being independent).
4.2 Are board committees recommended or mandated? If so, which areas should/must they cover?
Board committees are both recommended and mandated. For example, an audit committee is mandated for public companies by Section 404(2) of CAMA. Also, Principles 11.2, 11.3, 11.4 and 11.5 of the Nigerian Code of Corporate Governance 2018 (NCCG) suggest that a board should consider having committees for nomination and governance, remuneration, audit and risk management.
Principle 2.5.1(i) of the Code of Corporate Governance for Banks and Discount Houses in Nigeria 2016 does not classify the statutory audit committee as a board committee.
Principle 2.2 of the Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria 2021 states that in addition to the committees set out in the NCCG mandates, insurers and reinsurers should have two additional committees: a finance, investment and general purpose committee, and a compliance committee.
For telecommunications companies, Principle 3.3(a) of the Code of Corporate Governance for the Telecommunications Industry 2016 mandates that the board should additionally have an audit and risk management committee, a governance committee and a nomination and remunerations committee, among others.
Under Principle 2.6 of the Guidelines on Corporate Governance for Pension Fund Operators 2021, in addition to the committees recommended by the NCCG, the boards of licensed fund operators must have an investment strategy committee, a risk management committee, a nomination and governance committee and an audit committee.
4.3 Are there any requirements or recommendations to appoint independent board members? If so, how is ‘independence' defined?
Principle 2.3(b) of the NCCG 2018 suggests that the board should have a certain number of INEDs. It is recommended that most directors be NEDs and most NEDs be INEDs. Meanwhile, Section 275 of CAMA requires that a public company have at least three independent directors.
Under Principle 7.1 of the NCCG, an INED is "independent in character and judgment and accordingly free from such relationships or circumstances with the Company, its management, or substantial shareholders as may, or appear to, impair his ability to make independent judgment". In addition, an INED is a NED who:
- does not possess a shareholding in the company whose value will impair his or her independence or in excess of 0.01% of the paid-up share capital of the company;
- does not represent any shareholder with the ability to control or significantly influence the management of the company;
- has not been an employee of the company in the past five years;
- is not a close family member of any of the company's advisers, directors, senior employees, consultants, auditors, creditors, suppliers, customers or substantial shareholders;
- does not have, and has not had within the last five years, a material business relationship with the company either directly or as a partner, shareholder, director or senior employee of a body that has, or has had, such a relationship with the company;
- has not served at directorate level or above at the company's regulator within the last three years;
- does not render any professional, consultancy or other advisory services to the company or the group, other than in the capacity of a director;
- does not receive, and has not received, additional remuneration from the company apart from a director's fee and allowances;
- does not participate in the company's share option or a performance-related pay scheme, and is not a member of the company's pension scheme; and
- has not served on the board for more than nine years from the date of his first or her election.
Meanwhile, Section 275(3) of CAMA defines an ‘independent director' as a director of the company who, or whose relatives either separately or together with him or her or each other, in the two years preceding the time in question:
- was not an employee of the company;
- did not:
- make to or receive from the company payments of more than NGN 20 million; or
- own more than a 30% share or other ownership interest, directly or indirectly, in an entity that made to or received from the company payments of more than NGN 20 million or act as a partner, director or officer of a partnership or company that made to or received from the company payments of more than such amount;
- did not own directly or indirectly more than 30% of the shares of any type or class of the company; and
- was not engaged directly or indirectly as an auditor for the company.
Apart from the shareholding threshold, which is higher under CAMA than the NCCG, the NCCG's requirements is stricter. However, the rationale behind the NCCG may allow for slight non-compliance, unlike that of CAMA.
4.4 Do any diversity requirements or recommendations apply with regard to board composition?
Principles 2.2 and 2.3 of the NCCG suggest that diversity, among other requirements, should be considered to objectively and effectively discharge the board's governance roles and responsibilities.
Principle 3.2(a) of the Code of Corporate Governance for the Telecommunications Industry 2016 suggests that the board's composition should include a mix of skills, experience and genders.
The practices of most listed public and affiliated multinational companies often reflect a gender diversity approach in constituting the board.
4.5 How are board members selected and appointed? What selection criteria (if any) apply in this regard?
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.
4.6 How are board members removed?
Board members can be removed either by the regulatory body – for example, where there is a breach of any provision of the law – or by the shareholders.
Section 288 of CAMA sets out the procedure for the removal of board members by the shareholders, as follows:
- Special notice of at least 28 days must be given to the company prior to the passage of the required ordinary resolution (Section 261). Upon receipt of the notice, the company must provide members with the same notice as for a meeting or, where this is impracticable, must provide notification through an ad in a newspaper with wide circulation or another mode allowed by the articles of association at least 21 days before the meeting;
- Notice of the proposed resolution must be given to the director sought to be removed. If the director makes representations in writing within a reasonable time and requests that the members of the company be notified, the company must circulate the same accordingly. However, the director may require that the representation be read out at the meeting;
- Upon receipt of the notice of the proposed resolution of his or her removal from the directors, the director can make written representations and request that such representations be sent to members. The representations must be circulated to members unless they are received too late.
- The company may then pass an ordinary resolution removing the director and may have a new director appointed to replace him or her.
4.7 Do any tenure restrictions or recommendations apply to individual directors?
In the case of insurance companies, Paragraph 2.01(viii) of the Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria 2021 provides that NEDs shall not be renominated and appointed for more than three terms of three years each.
Principle 11.9 of the Code of Corporate Governance for the Telecommunications Industry 2016 restricts the tenure of any director to three terms of five years each and a maximum period of 15 years. All directors subject to satisfactory requirements and are expected to submit themselves for reappointment at regular periods of five years. Principle 3.2(i) of the code provides that subject to the provisions of CAMA, one-third of NEDs should retire periodically by rotation at the company's annual general meeting, but retiring directors may present themselves for re-election.
For banks and discount houses, NEDs can serve a maximum of three terms of four years each; and the chief executive officer of a bank, subject to the terms of engagement, a maximum period of 10 years, broken into periods not exceeding five years at a time.
4.8 What best practice is recommended when composing the board and appointing board members?
The board should reflect a mix of skills, diversity, gender and experience. The size of the company and the industry (especially sectoral requirements) in which it operates should also be considered.
5 The board: role and responsibilities
5.1 What are the primary roles and responsibilities of the board?
According to Principle 1 of the Nigerian Code of Corporate Governance 2018 (NCCG), the major role of the board of a company is to serve as a link between stakeholders and the company. It is expected to:
- exercise oversight and control, and ensure that all acts are carried out in the best interest of the shareholders;
- steer and set strategic direction; and
- approve policy and planning.
The primary responsibilities of the board in line with Principle 1.1 of the NCCG are as follows:
- overseeing the internal audit function, approving the internal audit plan and appointing and removing the head of the internal audit function on the recommendation of the audit committee;
- establishing the company's risk management framework and monitoring its effectiveness, setting the company's risk appetite and receiving and reviewing risk reports;
- providing oversight on IT governance;
- defining a formal schedule of matters specifically reserved for board decisions and matters delegated to board committees and management;
- overseeing the effectiveness and adequacy of the internal control system;
- overseeing the company's communication and information dissemination policy;
- conducting appraisals of board members and executive management; and
- ensuring the integrity of annual reports and accounts and all material information provided to regulators and other stakeholders.
5.2 How does the board exercise those roles and responsibilities?
The board exercises its roles and responsibilities by:
- delegating to board committees, which help to ensure efficiency and effectiveness;
- establishing policies to mitigate abuses on the company and promote good conduct for the benefits of the company (eg, whistleblowing policies); and
- conducting regular meetings, which serves as the principal vehicle for conducting the business of the board, and successfully fulfilling the strategic objectives of the company.
5.3 What specific role does the board play in relation to: (a) Strategic planning? (b) Risk management? (c) Major and related-party transactions? and (d) Conflicts of interest?
(a) Strategic planning?
The board's role in strategic planning entails:
- identifying the long-term focus and priorities;
- finding and allocating resources; and
- leveraging knowledge and connections to support the decisions that need to be made around strategic planning.
The board is also responsible for monitoring the execution of strategic plans.
(b) Risk management?
The board must ensure the establishment of a risk management framework that:
- defines the company's risk policy, risk appetite and risk limits; and
- identifies, assesses, monitors and manages key business risks to safeguard shareholders' investments and the company's assets.
It also approves the risk management framework and ensures it is integrated into the day-to-day operations of the business (Principle 17 of Nigerian Code of Corporate Governance NCCG).
(c) Major and related-party transactions?
The board, through the audit committee, must develop a related-party transactions policy and monitor its implementation. It will also consider related-party transaction that may arise within the company (Principle 126.96.36.199 of the NCCG).
In addition, through the nomination and governance committee, the board must ensure the periodic review of the related-party transaction policy (Principle 188.8.131.52 of the NCCG).
(d) Conflicts of interest?
The board must establish and approve a conflict of interest policy, which should be communicated, supported and monitored to provide reasonable assurance that all potential conflicts of interest will be disclosed (Principle 4.6 of the NCCG).
The board, through the nomination and governance committee, must also establish "a formal and transparent process for Board appointments, including establishing the criteria for appointment to the Board and Board committees, reviewing prospective candidates' qualifications and any potential conflict of interest; assessing the contribution of current Directors against their re-nomination suitability, and making appropriate recommendations to the Board" (Principle 184.108.40.206 of the NCCG).
The board, through the nomination and governance committee, should also ensure that the conflict of interest policy is periodically reviewed (Principle 220.127.116.11 of the NCCG).
5.4 Are the roles of individual board members restricted? Is this common in practice?
Yes. For instance, board members are prohibited from carrying on business on behalf of the company that is expressly forbidden by the company's memorandum. This same principle applies to individual directors; hence, directors will be liable for their own ultra vires acts just as they are for ultra vires acts authorised by the board as a whole (Section 44(1) of the Companies and Allied Matters Act 2020 (CAMA)).
Also, the managing director (MD)/chief executive officer (CEO) or an executive director cannot go on to be the chairman of the same company, unless in exceptional circumstances where the board decides that a former MD/CEO or an executive director should become chairman. In this instance, a cooling-off period of three years must be adopted (Principle 3.3 of the NCCG).
5.5 What are the legal duties of individual board members? To whom are these duties owed?
The legal duties of individual board members (directors) are as follows:
- to act in accordance with the memorandum and articles of association;
- to exercise reasonable care, skill and diligence and observe utmost good faith towards the company in any transaction with it or on its behalf (Section 305(1) of CAMA);
- to promote the success of the company by ensuring that the business is properly managed with interests of all stakeholders taken into account at all times (Section 305(3)(4) of CAMA);
- to exercise independent judgement for the purpose for which he or she is specified and not to do so for collateral purposes (Section 305(3)(4) of CAMA);
- to avoid conflicts of interest that may arise from having a direct or indirect interest in matters that may conflict with the interests of the company. A director is not allowed to make secret profits and any profits will be accountable to the company (Section 306 of CAMA);
- not to fetter his or her discretion to vote in a particular way (Section 305(6) of CAMA);
- to fix the company's accounting reference period (ie, the 12 calendar months that make up the company's financial year);
- to prepare the financial accounts annually to be laid before the company at the general meeting (Section 377(1) of CAMA); and
- to appoint the first auditors of a company (Section 401(5) of CAMA).
The board primarily owes its legal duty to the company, since it represents the company, but it is also expected to perform its duties in the interests of all its stakeholders – shareholders, employees and the public in general – for example, through compliance with regulatory requirements. The interests of the company must always come first, even though this indirectly affects the shareholders.
5.6 To what civil and criminal liabilities are individual board members primarily potentially subject?
The general rule is that acts of the board of directors or of an MD while carrying on the usual business of the company shall be treated as acts of the company itself and the company will be criminally and civilly liable to the same extent as if it were a natural person (Section 89 of CAMA).
However, the director will be personally liable, criminally and civilly:
- if he or she had actual knowledge at the time of the transaction in question that the general meeting, board of directors or MD, as the case may be, had no power to act in the matter or acted in an irregular manner or if, having regard to his or her position with or relationship to the company, he or she ought to have known of the absence of such power or of the irregularity (Section 89 of CAMA); and
- if there is collusion between the officer or agent and the third party, notwithstanding that the officer or agent has acted fraudulently or forged a document purporting to be sealed by or signed on behalf of the company (Section 94 of CAMA).
6.1 What rights do shareholders enjoy with regard to the company in which they have invested?
- The right to attend, speak and vote at meetings of the company (Section 107 of the Companies and Allied Matters Act 2020 (CAMA));
- The right to receive, upon request, certain statutory books and records of the company (eg, audited financial statements);
- The right to inspect statutory registers such as the register of members (Section 112 of CAMA);
- The right to inspect the minutes of meetings and to request copies;
- The right to call for winding up of the company, although this is subject to the holding of the prerequisite percentage;
- The right to receive dividends as recommended by the directors and approved at the annual general meeting (AGM);
- The right to sue as minority shareholders in protection of their rights (Section 341 of CAMA); and
- The right to injunctive or declarative relief to restrain the company or its officers from entering into an illegal or ultra vires transaction, or perpetuating a fraud (Section 343 of CAMA.
6.2 How do shareholders exercise these rights? Do they have a right to call shareholders' meetings and, if so, in what circumstances?
Shareholders can exercise these rights as registered members by:
- calling for the winding up of a company, although this is subject to the holding of prerequisite percentage;
- attending the AGM;
- requisitioning meetings of the company as required;
- inspecting the minutes of meetings;
- receiving upon request certain statutory books and records of the company (eg, audited financial statements); and
- attending, speaking and voting at meetings of the company (Section 107 of CAMA).
They have the right to call for shareholders' meetings in the following circumstances.
- Shareholder class meetings: These are called when the rights of the holders of a class of shares are to be varied by the company. Shareholders in a particular class of shares can hold a class meeting to ensure that they can vote on the matter. The consent of all class members is also required at this meeting to vote on a matter. At a class meeting, only matters that concern that class of shares are discussed (Section 268 of CAMA).
- Extraordinary general meeting: Under Section 239 of CAMA, members holding not less than one-tenth of the paid-up capital or not less than one-tenth of the total voting rights of members, where the company has no share capital, can requisition an EGM. If, after 21 days, the directors fail to call a meeting, those requisitioning the meeting may themselves call the meeting.
6.3 What influence can shareholders exert on the appointment and operations of the board?
The shareholders in a general meeting have the power to appoint or remove directors at an AGM by simple majority of votes cast in person or by proxy (Section 273 of CAMA).
Unless the articles of association provide otherwise, when acting within the powers conferred upon them by CAMA or the articles of association, directors are not bound to obey the directions or instructions of the shareholders in general meetings, provided that they act in good faith and with due diligence. Shareholders have the power to make recommendations to the board regarding actions to be taken and may ratify or confirm their actions too.
A shareholder can, by injunction or declaration, restrain the company or its officers from entering into an illegal or ultra vires transaction, or perpetuating a fraud (Section 343 of CAMA).
A shareholder (member) can bring a derivative action on behalf of a company where it can show that:
- the directors are the wrongdoers and will not take necessary actions;
- a notice of its intention to apply to court has been given to the directors; and
- the shareholder is acting in good faith and in the best interests of the company (Section 346 of CAMA).
Minority members can requisition a meeting under Section 239(2) of CAMA notwithstanding the provisions of the articles of association.
6.4 What are the legal duties/responsibilities and potential liabilities, if any, of shareholders?
While holding shares in a company confers a proprietary interest, it also imposes certain duties and liabilities on shareholders, including the following:
- In the case of public companies, shareholders are expected to disclose within 14 days any substantial holding in shares (Section 120 of CAMA).
- Anyone that directly or indirectly holds shares in a company entitling it to exercise a minimum of 10% of the unrestricted voting rights is deemed to have a substantial shareholding in the company (Section 120(2) of CAMA);
- Shareholders have a duty to pay any call when made on any arrears of payments (Section 158 of CAMA);
- Shareholders have a duty to act in accordance with the articles of association and the memorandum of association); and
- In the event of a winding up process, members both present and past will be liable to contribute to the assets of the company up to an amount that is sufficient for payments of the company's debts and liabilities.
6.5 To what civil and criminal liabilities might individual shareholders be subject?
- A shareholder with significant control over a company must, within seven days of becoming such a person, indicate to the company in writing the particulars of such control. However, where it fails to comply, the person will be liable to such fines as the Securities and Exchange Commission (SEC) may prescribe by regulation for each day the default continues (Sections 119(1) and (5) of CAMA).
- Shareholders of a public company have a duty to disclose within 14 days any substantial shareholdings (ie, up to 5% of the company's ordinary shares). If they fail to comply, they will be liable to such fines as the SEC may prescribe by regulation for each day the default continues (Section 120 of CAMA).
6.6 Are there rules governing the issuance of further securities in a company? Do rights of pre-emption exist and, if so, how do they operate? Can they be circumvented? If so, how and to what extent?
Yes, pre-emptive rights exist. In line with Section 142 of CAMA, public and private companies must first offer newly issued shares to their existing shareholders, in proportion to their existing holdings. The offer to existing shareholders must be by notice specifying the number of shares and a reasonable timeframe on the expiry of which the offer will be deemed declined.
Where a shareholder declines to accept the shares offered or the specified timeframe expires, the board may dispose of the shares at a price not less than the amount specified in the offer. Pre-emption rights cannot be circumvented.
6.7 Are there any rules on the public disclosure of levels of shareholding and/or stake building?
Yes, under Section 119 of CAMA, anyone with significant control over a company must, within seven days of becoming such a person, inform the company in writing of the particulars of such control. Within one month of receipt of this information or any change thereto, the company must notify the SEC; and in every annual return, must disclose the information required in respect of the year for which the return is made. Failure to comply will incur such fines as the SEC may prescribe by regulation for each day that the default continues.
Also, according to Section 120 of CAMA, anyone that is a substantial shareholder in a public company must, within 14 days of becoming aware that it is a substantial shareholder, give notice in writing to the company stating its name, address and full particulars of the shares held by it or its nominee (naming the nominee). The company in turn must, within 14 days of receipt of this information, inform the SEC accordingly. Failure to comply may incur such fines as the SEC may prescribe by regulation for each day that the default continues.
7 Shareholder activism
7.1 What role do institutional investors and other activist shareholders play in shaping corporate governance in your jurisdiction?
Institutional investors are mostly major contributors to a company and can thus exert some form of control over the governance of the company, whether directly or indirectly. For instance, directly, they can:
- exert their influence on management through dialogue and resources as an important means of strategically improving business productivity;
- vote against directors to demand greater transparency and accountability from management in order to ensure better decision making and improved financial performance; and
- suggest changes in strategy through a public shareholder proposal or a private letter to management and by suing management.
Indirectly, they can:
- sell their shares when dissatisfied, which in turn will push down the share price or maximise their profits; and
- threaten to exit, which in turn will motivate management to maximise value and be more productive.
7.2 Is there any legislation or code of practice which applies to institutional shareholders? If so, what issues does it primarily address and how is it policed/enforced?
There is no particular code of practice for institutional shareholders; like other stakeholders, they are guided by the rules of the Nigerian Code of Corporate Governance 2018 (NCCG), which enjoin institutional investors to positively influence the standard of corporate governance and promote value creation in the companies in which they invest. They must further monitor conformance with its provisions and raise concerns as appropriate (Principle 22.3 of the NCCG).
7.3 How do activist shareholders typically seek to exert influence on corporations in your jurisdiction?
Institutional shareholder activism: Institutional shareholders, as a bloc, can directly try to influence management through dialogue, private engagement (eg, private letters to management) and input to discussions at board meetings, especially regarding how to improve operating performance. They can also use their votes (through nominated directors or as shareholders) to advance their viewpoints on the matters at issue (eg, strategy, risk management, financial performance). They can also make director or shareholder proposals and sue the management or the company.
Indirectly, they can threaten to exit or even sell their shares when dissatisfied with management results, effectively pressuring management, which may want to avoid the potentially negative signal effects of these prospective actions.
Participation in associations: Shareholder participation in various associations is becoming increasingly important, not least due to the fact that this is being encouraged and supported through private initiatives and government intervention. For instance, the Nigerian government supported the establishment of zonal associations across the country by enforcing the registration of all shareholders' associations at the Corporate Affairs Commission (CAC) (Principle 1(b) of the Code of Conduct for Shareholders' Associations and Their Members).
Representation on the board committee: Shareholders can also be nominated to join the audit committee of public companies (Principle 3 of the Code of Conduct for Shareholders' Associations and Their Members).
However, the increase in the number and activities of such shareholder associations has led to the Securities and Exchange Commission (SEC) to ensure that their activities are run in an ethical and transparent manner. For example, the Code of Conduct for Shareholders' Associations and Their Members requires them to:
- maintain books of accounts and file annual returns with the CAC;
- file an annual report of activities with the SEC; and
- comprise at least 50 shareholders.
7.4 Which areas of governance are shareholders currently focused on?
Shareholders are currently focused on strategy, risk management, compliance, stakeholder communications and financial reporting. Principle 21 of the NCCG provides shareholders with an opportunity during the general meeting to exercise their ownership rights and express their views to the board on any issues of interest. At the company's annual general meeting, the shareholders have the effective powers to appoint and remove directors of the company (Principle 23.1.1 NCCG).
7.5 Have there been any high-profile instances of shareholder activism in recent years?
Yes, examples include the following:
- In 2011, disgruntled shareholders of nine troubled Nigerian lender banks sued the Central Bank of Nigeria (CBN) over its intention to liquidate them if they did not enter into recapitalisation deals with new investors within a stipulated period.
- In 2014, Shareholders of Mass Telecommunication Innovation Plc reportedly petitioned the SEC over the alleged fraudulent misappropriation of NGN 5.2 billion of the company's funds raised from the capital market.
- In 2014, Proactive Shareholders Association of Nigeria, a minority shareholder of Oando Nigeria Plc Company, petitioned the House of Representatives against the SEC over allegations that the SEC was deliberately protecting Oando Nigeria Plc Company from a forensic audit.
- In 2018, shareholders of the defunct Skye Bank Plc rejected the sudden takeover of the bank by the CBN on the grounds that they needed more clarifications from the CBN on their investments in the bank.
- Also in 2018, the shareholders of five banks (Sterling Bank, Zenith Bank, Guaranty Trust Bank, United Bank for Africa and First Bank of Nigeria) rejected requests to continue contributing 0.5% of their total assets into an Asset Management of Nigeria (AMCON) sinking fund. They could not see the impact of the funds on the economy and hence argued that AMCON should be wound up by the government.
- In 2020, a shareholder group objected to the delisting of the ordinary shares of Allianz Insurance from the NASD Over-the-Counter Securities Exchange and rejected the proposal of NGN 1.50 per share as a pay-off to shareholders for its fully paid ordinary shares. Instead, they demanded NGN 2.50 per share and rejected the delisting, threatening that their legal adviser would become involved if their demands are not met. Eventually Allianz delisted and became a private company.
- In 2020, the Pragmatic Shareholders Association of Nigeria sued the National Insurance Commission (NAICOM) in other to restrain it from taking further steps or issuing further directives or circulars on the recapitalisation of insurance and reinsurance firms operating in the country.
- Also in 2020, the Standard Shareholders Association of Nigeria sued NAICOM over its proposed increase in the paid-up share capital of insurance and reinsurance firms operating in the country. They requested the court to halt any further steps by NAICOM towards implementing the directive for companies to recapitalise.
7.6 Is shareholder activism increasing or decreasing in your jurisdiction? If so, how and why?
It is increasing – mainly to act as a check on management and hold them accountable. Ever since the emergence of shareholder associations in the early 1990s, such associations and activism have grown exponentially in a way that makes clear that Nigerian investors are no longer solely interested in the economic value of their shares. Key associations include:
- the Association for the Advancement of the Rights of Nigeria Shareholders;
- the Renaissance Shareholders Association; and
- the Independent Shareholders Association.
The increasing number of associations led to moves by the SEC to regulate associations which currently have over 100 approved shareholders as members.
8 Other stakeholders
8.1 What role do stakeholders such as employees, pensioners, creditors, customers, and suppliers play in shaping corporate governance in your jurisdiction? What influence can they exert on a company?
A vital role of stakeholders is to ensure the board's accountability to the company and to shareholders. They also help to ensure that the company takes into account the interest of all areas within which it operates for the benefit of society as a whole:
- Stakeholders can at any point seek additional information from the management about any aspect of the company's business. For instance, the board is expected to adopt and implement a stakeholder management and communication policy, to ensure effective communication and interaction with shareholders (Principle 27 of the Nigerian Code of Corporate Governance (NCCG)).
- They can act as whistleblowers and:
- report any illegal or unethical behaviour; and
- disclose any information related to a violation or suspected violation of any laws, internal policies or similar connected with the business of the company, its employees or stakeholders (Principle 29.1.26 of the NCCG).
- Creditors can initiate a creditors' voluntary winding up where the company's financial position is insufficient to cover all obligations.
- Stakeholders can also weigh in on matters of the company through their votes.
9 Executive performance and compensation
9.1 How is executive compensation regulated in your jurisdiction?
Executive compensation is regulated by:
- the Companies and Allied Matters Act 2020 (CAMA);
- the Nigerian Code of Corporate Governance 2018 (NCCG); and
- other sectoral codes, such as the Code of Corporate Governance for the Telecommunication Industry 2016 (CCGTI).
Section 293 of CAMA regulates executive compensation by stating that the remuneration of directors is determined by the company in general meeting. Section 295 of CAMA prohibits tax-free payments to directors. Also, Section 296 forbids the grant of loans, security or guarantees to directors, except to enable the director to discharge his or her duties with the approval of the general meeting.
Principle 16.7 of the NCCG also provides that the managing director (MD)/chief executive officer (MD/CEO) and executive directors must not be involved in the determination of their remuneration. However, Principle 4.4(a) of the CCGTI seems to permit executive directors to participate in deciding their remuneration. That said, as a matter of good practice, Principle 4.4(a) of the CCGTI will give way to Principle 16.7 of the NCCG.
Also, Section 293(3) of CAMA provides that where remuneration is fixed by the articles of association, it can be altered only by special resolution. Principle 4.1 of the CCGTI states that companies should implement remuneration policies that are sufficient to attract, retain and motivate executives of the quality required to run the company successfully; it is aligned with the CAMA provisions as well as other leading practices and standards on directors' remuneration. It further states that the board should develop a formal remuneration policy for executive directors and senior executives, which must be done transparently. Principle 4.3 of the CCGTI requires companies to develop and implement remuneration policies for non-executive directors (NEDs), which should reflect the differing roles of executive directors and NEDs. Principle 4.5 of the CCGTI provided for the benchmarking of directors' remuneration by the board using peer or other benchmarks as comparisons in developing the directors' remuneration package; however, such comparisons should be used with caution, to suit the company's individual needs.
Principle 16.11 of the NCCG states that the MD/CEO and executive directors should not receive sitting allowances for attending meetings of the board or its committees and directors' fees from the company, its holding company or subsidiaries. However, their remuneration should encompass recompense for time spent on the board and its committees, and related work.
9.2 How is executive compensation determined? Do shareholders play a role in this regard?
Section 293(1) of CAMA states that the remuneration of the directors is determined by the company in general meeting and is deemed to accrue from day to day. Principle 16.6 of the NCCG further provides that the remuneration of the MD/CEO and EDs should:
- be structured to link rewards to corporate and individual performances; and
- include a significant component that is related to long-term corporate performance, such as stock options and bonuses.
Under Principle 16.5 of the NCCG, the remuneration of NEDS is approved by the shareholders once it has been fixed by the board. As the remuneration of directors is determined by the company in general meeting, shareholders that are eligible to attend the general meeting will also be involved. Guideline 8.0(ii) of the Corporate Governance Guidelines for Insurance and Reinsurance Companies in Nigeria 2021 states that shareholders have the right to make known their views on the remuneration policy board members and key executives of the company.
9.3 Do any disclosure requirements apply in relation to executive compensation?
Principle 16.8 of the NCCG requires the company's remuneration policy, as well as the remuneration of all directors, to be disclosed in the company's annual report. This principle is replicated in Principle 2.7.3 of the Code of Corporate Governance for Banks and Discount Houses 2014.
Also, Section 257 of CAMA mandates that the compensation of managers of a company be disclosed to the members of the company at the annual general meeting. Furthermore, a combination of Sections 382(1) and (2)(d) of CAMA provides that emoluments of directors (including emoluments waived), pensions of directors and compensation for loss of office to directors and past directors must be disclosed in the company's annual financial statements.
9.4 Have any measures to address the gender pay gap been introduced in your jurisdiction?
The NCCG requires the board to establish policies and practices which state the nature and extent of employment equity and diversity (gender and other issues). Also, Principle 14.3 of the NCCG recommends an annual board evaluation which considers the mix of skills, experience, objectivity, competence and diversity of board members (including gender). However, the NCCG does not stipulate a ratio or percentage in determining the gender gap. There is no verifiable evidence of a gender pay gap in corporate Nigeria.
9.5 How is executive performance monitored and managed?
Principle 14.1 of the NCCG (akin to Principle 15.1 of the Code of Corporate Governance for Public Companies 2011) recommends that the board undertake an annual evaluation of its own performance and that of its committees, the chairman and individual directors. It is also recommended that this process be facilitated by an independent external consultant at least once every three years. Furthermore, it is recommended that where the performance of a director is considered to be unsatisfactory, the board provide appropriate training to address the identified gaps. The NCCG also recommends that the results of a director's performance evaluation be considered in that director's re-election process.
Executive performance can also be managed via whistleblowing. Principle 19.6 of the NCCG provides that a whistleblower can disclose any information related to a violation or suspected violation of any laws, internal policies or similar connected with the business of the company, its employees or stakeholders. The board must ensure that no whistleblower is subject to any detriment on the grounds that he or she has made a disclosure.
9.6 What best practices should be considered with regard to executive performance and compensation?
The board must not unilaterally determine its compensation; this is rather subject to approval at the annual general meeting. Principle 16.7 of the NCCG states that the MD/CEO and executive directors should not be involved in the determination of their remuneration. The NCCG recommends that the remuneration of the MD/CEO be structured to link rewards to corporate and individual performances. Principle 16.8 of the NCCG provides that the company's remuneration policy as well as the remuneration of all directors should be disclosed in the company's annual report.
Principle 5.3.1 of the Code of Corporate Governance for Licensed Pension Fund Operators, June 2008 (CCGLPO) provides that the board should report to the shareholders each year on remuneration and this report should be annexed to, or form part of, the company's annual report and accounts. Principle 5.3.2 of the CCGLPO further adds that this report should set out the company's policy on director's remuneration.
As regards performance, Principle 14.1 of the NCCG mandates the board to establish a system to undertake a formal and rigorous annual evaluation of its own performance and that of its committees, the chairman and individual directors. This process is to be facilitated by an independent external consultant at least once every three years. The evaluation should consider the mix of skills, experience, objectivity, competence and diversity of the board, including gender and other factors relevant to the effectiveness of the board as outlined in Principle 14.3 of the NCCG. Where the results of this evaluation reveal that a director's performance is unsatisfactory, the board should provide appropriate training to address the identified gaps. Furthermore, the results of a director's performance evaluation should be considered in his or her re-election process in line with Principle 14.6 of the NCCG.
10 Disclosure and transparency
10.1 What primary reporting obligations relating to corporate governance apply in your jurisdiction?
Paragraph C, Introduction of the Nigerian Code of Corporate Governance 2018 (NCCG) requires companies to adopt the ‘apply and explain' principle in relation to their reporting requirements. A similar principle is set out in Principle 5.4.1 of the Code of Corporate Governance for Licensed Pension Fund Operators 2008, which stipulates that pension fund administrators and pension fund custodians should include a statement of compliance with the code in their annual report and on their website. Guideline 10.0 of the National Insurance Commission's Corporate Governance Guidelines for Insurance and Reinsurance Companies 2021 (NCGIRC) states that the annual report should sufficiently disclose the manner of the company's compliance with, or explain any deviation from, the NCCG and/or the NCGIRC.
Principle 28 of the NCCG sets out the primary reporting obligations regarding corporate governance that the board is expected to indicate the following in the company's annual report. They include the following:
- the composition of the board of directors, which must also be made available on the company's website and in other company publication;
- the board's diversity policy and the progress made towards implementing this, including women in executive management positions and women on the board;
- the board appointment process and training for board members;
- the evaluation process for the board, board committees and individual directors as well as the assessment of corporate governance practices in the company;
- directors standing for re-election;
- the composition of board committees, including the names of the chairman and the members of each committee;
- a description of the board committees' roles and responsibilities and how they have been discharged;
- the number of board and committee meetings held during the year and the frequency of directors' attendance;
- the cumulative years of service of each director, the external auditor and the external consultant who performs the board evaluation or corporate governance evaluation at the end of the reporting period;
- a statement on the availability or otherwise of the company's code of business conduct and ethics for directors, management and other employees;
- highlights of the company's HR policies and internal management structure, including relations with employees, employee share ownership schemes and other workplace development initiatives;
- highlights of the company's sustainability policies and programmes covering social issues such as corruption, community service, including environmental protection, serious diseases and general environmental, social and governance (ESG) initiatives;
- highlights of the (conflicts of interest) policy and cases of clawback being pursued by the company; and
- a list of all fines and penalties (including date, amount and subject matter) imposed on the company by regulators at the end of the reporting period.
The annual report should also specify the nature of any related-party relationships and transactions engaged in by the company (Principle 28.3 of the NCCG). The aim is to understand whether the company's transactions have been at arm's length and to ensure that the company has not suffered any loss or disadvantage from them. The report must indicate any direct or indirect interests that a director has with the company or its subsidiaries and holding companies (Principle 28.3.2 of the NCCG). Other information to be specified in this regard includes:
- the director's details;
- the classification, nature and details of the transaction, and the director's interest therein (excluding the director's service contract);
- any contracts with controlling shareholder(s), their group networks and associates; and
- the parties' names and the nature of the transaction, and the value involved (Principles 28.3.3 to 28.3.5 of the NCCG).
Principle 19 of the NCCG sets out an effective whistleblowing framework for reporting illegal or unethical behaviour, to minimise the company's exposure and prevent such behaviour from recurring.
10.2 What role does the board play in this regard?
Under Principle 27 of the NCCG, the board plays an important role in communicating and interacting with stakeholders by keeping them updated on the company's activities and assisting them in making informed decisions. To achieve this, the NCCG recommends the following practices for the board:
- Adopt and implement a stakeholder management and communication policy (Principle 27.1);
- Ensure that reports and other communication (eg, board structures, management, frameworks, company policies) issued to stakeholders are clear and are posted on the company's website (Principle 27.2);
- Ensure the timely, accurate and continuous disclosure of material information on the company's activities, including non-financial matters, to give a balanced and fair view of the company to stakeholders and the general public (Principle 27.3);
- Establish an investors' portal on the company website, where the company's communication policy, the annual reports for at least the five preceding years and other relevant information about the company are published and made accessible in a downloadable format;
- Ensure full and comprehensive disclosure of all matters material to investors and stakeholders, and of matters set out in the NCCG, through the proper monitoring and implementation of such corporate governance practices (Principle 28);
- Use its best judgement to disclose any material information not specifically required by the NCCG that may affect the present or future financial condition of the company (Principle 28.4); and
- State in the annual report the level of the company's application of the NCCG based on its corporate governance evaluation (Principle 28.5).
The board should also include a statement in the annual report on the company's compliance with ESG requirements. The report should be reviewed by an appropriate board committee and may be subject to independent review.
10.3 What role do accountants and auditors play in this regard?
Accountants and auditors play a major role as watchdogs for external stakeholders by facilitating the provision of a true and fair account of the financial status of the company. Under Principle 20 of the NCCG, external auditors provide an independent assessment of the true and fair value of the company's financial statements. This role is critical in ensuring the transparency, integrity and accountability of management. Also, Principle 20.8 of the NCCG recommends that the external auditors report any indictable offence committed by the management to the regulator.
Internal auditors also play a crucial role in corporate governance. For instance, they:
- provide assurance to the board on the effectiveness of the company's governance, risk management and internal control system (Principle 18 of the NCCG);
- conduct periodic evaluations to determine the effectiveness and efficiency of the company's internal control systems, and make recommendations for improvement; and
- develop an annual risk-based internal audit plan approved by the audit committee.
10.4 What best practice should be considered in relation to reporting and disclosure?
Building a competent board: The board plays an important role in steering the affairs of the company. Hence, if the board refuses to disclose relevant information to stakeholders, this may have a negative effect on the general outlook of the company. Therefore, the board members should have the requisite skills and knowledge to make sound decisions for the company. This also applies to the members of the various board committees.
Accountability: To attract foreign investment, accurate and transparent disclosure of the target's books is required. Thus, the board should avoid any inflated figures on the company's liquidity. There have been major scandals in the past which can be traced directly to the ineffectiveness of the board.
Independence of the auditors: Both the external and internal auditors, including the audit committee, should be given adequate opportunity and information to ensure that they can perform their duties optimally.
Integrity and high level of ethics: Integrity is the hallmark of a good company. Hence, under Principle 23.2 of the NCCG, the directors should at all times act in good faith and with integrity in the best interests of all shareholders, and provide adequate information to shareholders to facilitate their investment decisions.
11 Audit and auditors
11.1 What rules relate to the appointment, tenure and removal of auditors?
Sections 401 and 409 of the Companies and Allied Matters Act 2020 (CAMA) govern the appointment, tenure and removal of an auditor or auditors. Under Section 401 of CAMA, auditors are appointed at each annual general meeting (AGM) of the company. Interestingly, there is nothing in this provision that prohibits a member of the company from being appointed as an auditor. If the procedure specified in CAMA for the auditor's appointment is not followed, the appointment will be invalid. In AVOP Plc v AG Enugu State  7 NWLR (Pt 664), 260 at 276, the Court of Appeal held that the appointment of the auditor by the respondent to audit the books and accounts of the appellant was contrary to Section 357(1) (now Section 401(1)) of CAMA.
Auditors are to hold office from the conclusion of the AGM at which they are appointed until the conclusion of the next AGM (Section 401(1) of CAMA). Thus, the auditors' tenure is basically one year, although the auditors may be reappointed without a resolution being passed at the AGM. Accordingly, Section 401(2) of CAMA further provides for the reappointment of a retiring auditor at any AGM without a resolution being passed unless:
- he or she is not qualified for reappointment;
- a resolution has been passed at the meeting appointing some other person instead of him or her, or providing expressly that he or she shall not be reappointed; or
- he or she has given the company notice of his or her unwillingness to be reappointed:
However, if notice is given of an intended resolution to appoint some person or persons in place of a retiring auditor, but due to the death, incapacity or disqualification of that person or all those persons, as the case may be, the resolution cannot be proceeded with, the retiring auditor shall not be automatically reappointed by virtue of Section 401(2).
Under Section 412 of CAMA, an auditor may resign voluntarily by depositing a notice at the company's registered office stating:
- that there are no circumstances connected with his or her resignation that should be brought to the attention of the members or creditors of the company; and
- any such circumstances as are mentioned.
A resigning auditor has the right to:
- requisition an extraordinary general meeting to discuss the circumstances connected with his or her resignation;
- request the circulation of his or her statement, provided that this was sent in time;
- attend and receive all notices and communications relating to such meeting; and
- be heard at a meeting that concerns him or her as a former auditor of the company.
If there is no appointment or reappointment of auditors at the AGM, the directors have the power to appoint someone to fill such vacant position. However, the directors must give notice to the Corporate Affairs Commission (CAC) within seven days of such appointment to avoid any penalty being imposed by the CAC (Sections 401(3) and (4) of CAMA).
Principle 11.4.6. of the Nigerian Code of Corporate Governance 2018 (NCCG) provides that every public company, subject to the provisions of extant laws, should establish a statutory audit committee focused on making recommendations to the board regarding the appointment, removal and remuneration of the external auditors of the company. The tenure of external auditors under Principle 20.2 of the NCCG must not exceed 10 years and the auditors may not be reappointed for a further seven years after their disengagement. If the cumulative tenure of the auditors exceeds 10 years at the date of commencement of the NCCG, the auditors should cease holding office at the AGM.
To remove auditors, Section 409(1) of CAMA provides that the company must pass an ordinary resolution for the auditor' removal before the expiration of their term of office, notwithstanding the company's agreement with the auditors. Where the resolution is passed at a general meeting, the company must notify the CAC within 14 days of its passage; failure to do so exposes the company and its officers to such penalty as the CAC may specify in its regulations (Section 409(2) of CAMA).
11.2 Are there any rules or recommendations that limit the scope of services as regards the provision of non-audit services by an auditor?
The audit committee plays an important role in limiting the provision of non-audit services by auditors. Principle 18.104.22.168 of the NCCG recommends that the audit committee be responsible for developing a policy on the nature, extent and terms under which the external auditors may provide non-audit services. Also, Principle 22.214.171.124 of the NCCG (akin to Principle 30.4(k) of the Code of Corporate Governance for Public Companies 2011) enjoins the audit committee to review the independence of the external auditors in line with the policy set out in Principle 126.96.36.199 before appointing them to perform non-audit services. The aim is to prevent any conflict of interest or other legal or ethical impediment by such external auditors. Similarly, under Principle 12.0(e) of the Code of Corporate Governance for the Telecommunication industry 2016, the audit committee is responsible for maintaining and recommending to the board a policy regarding the provision of non-audit services by the external auditors and approving the contracts for such services.
11.3 Are there any rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services?
There are no rules or recommendations under the NCCG or CAMA that cap the remuneration of auditors as regards payment for the provision of non-audit services. However, Principle 188.8.131.52 of the NCCG provides that the audit committee should develop a policy that will guide the provision of non-audit services by external auditors.
12 Trends and predictions
12.1 How would you describe the current corporate governance landscape and prevailing trends in your jurisdiction?
Corporate governance in Nigeria has improved of late. The Central Bank of Nigeria recently dissolved the board of First Bank of Nigeria Limited for non-compliance with regulatory directives and prescribed procedures, and appointed new non-executive directors. The regulators now keep companies on their toes as regards sound corporate governance. Previously, there was little or no enforcement of corporate governance codes, due to endemic corruption in the system, as companies with prominent politicians on their board could find ways to circumvent corporate governance compliance. While the situation has improved, this issue has not yet been entirely resolved. For instance, on several occasions the National Insurance Commission (NAICOM) has tried to introduce new policies, such as the tier-based minimum solvency capital policy and a recapitalisation exercise – but has met with fierce resistance from industry stakeholders. For example, Sir Nnamdi Nwosu v NAICOM (FHC/L/CS/1483/18) was filed with the Federal High Court; and an action was instituted on 15 December 2020 by the Incorporated Trustees of the Pragmatic Shareholders' Association of Nigeria seeking an interim injunction in order to restrain NAICOM from taking further steps to recapitalise the insurance industry, which was granted on 21 December 2020.
Another corporate governance infraction was put to rest when the Economic and Financial Crimes Commission proceeded against the former chairman of a defunct bank over the illegal diversion of NGN 29.5 billion in cash from the bank. In 2021, the Central Bank of Nigeria, the Securities and Exchange Commission and the Financial Reporting Council of Nigeria sanctioned 10 banks to the tune of NGN 2.5 billion for diverse market infractions, ranging from non-compliance with anti-money laundering procedures to improper handling of customers' accounts.
Previously, there were numerous accounting scandals and corporate governance failures involving both financial and non-financial firms in Nigeria. The period from the mid to late-1990s was anecdotally referred to as the ‘failed banks' era, due to the sheer number of corporate failures; while the mid-2000s were referred to as the ‘banking consolidation era', due to efforts to address the poor health of financial institutions, especially banks. The subsequent restructuring exercise resulted in the acquisition of non-performing loans by the Asset Management Corporation of Nigeria and the acquisition of insolvent or weak banks According to a recent interview with Lynda Onefeli, chairman of the Publicity and Advocacy Committee of the Institute of Chartered Secretaries and Administrators of (The Guardian, 12 February 2020), the number of corporate governance scandals in Nigeria has fallen.
The prevailing corporate governance trends in Nigeria can be summarised as follows:
- a slow but gradual increase in the enforcement of corporate governance policy due to institutional corruption, political patronage and weak or reactive regulatory oversight of firms;
- continued non-adherence to corporate governance policies due to the unsavoury economic situation in Nigeria; and
- the existence of multiple corporate governance codes, which allows the board to cherry-pick compliance with the least stringent.
12.2 Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
The Corporate Governance Guidelines for Insurance and Reinsurance Companies 2021 aims to clarify and fill some gaps in the Nigerian Code of Corporate Governance 2018 (NCCG).
The Data Protection Bill 2020 will likely be passed into law in 2021. It will further encourage the implementation of Principle 184.108.40.206 of the NCCG on mitigating IT data risks under the review of the risk management committee. It is thus anticipated that there will be many other industry-specific codes geared towards clarifying the NCCG's provisions. There will also be increased efforts by sectoral regulators to enforce the NCCG's provisions.
The Whistleblowers Protection Bill 2019 is currently at its first reading at the House of Representatives; its enactment should further enhance corporate governance in Nigeria.
13 Tips and traps
13.1 What are your top tips for effective corporate governance in your jurisdiction and what potential sticking points would you highlight?
- Reduction in the number of corporate governance codes: Although the Nigerian Code of Corporate Governance 2018 (NCCG) acts as a harmonising code, it does not address all issues in various sectors; hence, industry regulators also introduce their own sectoral codes where necessary either to emphasise or to explain the NCCG's provisions. If there are conflicting codes, stakeholders will be caught between ignoring the NCCG and adopting industry corporate governance codes to avoid penalties. In these circumstances, the multiplicity of codes becomes an issue. What happens if subsequent industry codes do not acknowledge or diverge from the NCCG's provision? This may result in legal or regulatory tussles which may not be helpful for the development of corporate governance in Nigeria.
- Effective implementation strategy: Since the NCCG was issued, there have been no major reports on its implementation by regulatory bodies. Principle 28.1 of the NCCG states that a company's annual report should include a corporate governance report that provides clear information on its governance structures, policies and practices. Also, Guideline 12.0 of the Corporate Governance Guidelines for Insurance and Reinsurance Companies 2021 provides sanctions for non-compliance with its provisions and those of the NCCG. Similar provisions are included in Code 8.1.3 of the Code of Corporate Governance for Banks and Discount Houses 2014, which sanctions non-compliance with the code. This had culminated in various inept and ineffective boards of directors. Also, the influence of prominent politicians that sit on various boards contributes significantly to the effective implementation of corporate governance codes.
- Ownership structure of Nigerian companies: Based on the various ownership structures that are adopted by Nigerian companies (individual, foreign, family, political, institutional and controlling ownership), it may be concluded that these structures are complex. Principle 23.1.5 of the NCCG recommends that the board ensure that all shareholders understand the ownership structure of the company and provide necessary support in ascertaining the ultimate beneficial owners of the major shareholdings or any shareholders owning, controlling or influencing 5% or more of the company's shares. The ownership structure can significantly improve or affect the company's performance, particularly in case of higher ownership concentration and higher directors' equity holdings.
- Independence of the audit committee: The independence of the auditors will help to boost corporate governance. In a report on the effect of corporate governance mechanisms on the reported earning quality of listed insurance companies in Nigeria, Peterson K Ozili discovered that the size of the audit committee is negatively and significantly associated with earnings management, while audit committee independence has a positive relationship with discretionary accruals (Corporate Governance in Nigeria: A Review, SSRN 2021).
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.