The independence of the board of directors of a company is fundamental to good corporate governance and in a bid to ensure independence of company board, credence has been given to the need for independent non-executive directors, especially in public companies. Before the advent of the Companies and Allied Matters Act, 2020, it has been a matter of complying with the codes and ethics of good corporate governance for public companies to appoint independent directors as part of the non-executive directors of a company. This was encapsulated in the Nigerian Code of Corporate Governance (NCCG) 2018, the Securities and Exchange Commission (SEC) Code of Corporate Governance and other sectoral Codes.
With the enactment of the Companies and Allied Matters Act, 2020 (CAMA), a public company registered in Nigeria is mandated, under Section 275(1) of the CAMA, to have at least three (3) independent directors. Section 275(3) of CAMA went further to define an independent director to mean a director of a company who, or whose relatives either separately or together with him or each other, during the two years preceding the time of appointment as director:
- Was not an employee of the company ;
- Did not make to or receive from the company payments of more than N20,000,000, or Appointment of first directors;
- Did not 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 the amount stated in 2 above 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.
In a nutshell, an independent director is a non-executive director who has no pecuniary or beneficial interest in the company but is appointed to provide expert and independent views solely for the best interest of the company and to ensure good corporate governance practice.
The necessity for an independent director on the board of directors of a company arises from the need for a director who has no personal interest to protect and can take unbias decisions for the sole benefit of the company. The major purpose for appointing independent directors as part of the board of directors is to ensure that there are persons on the board of director who have no personal interest or bias and can act solely in the best interest of the company.
In conclusion, the power to appoint independent directors is vested in the shareholders. Section 275(2) of the CAMA makes it obligatory for any person who nominates candidates for the board who would comprise a majority of the members of the board of directors to nominate at least three persons who would be independent directors.
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