The Nigerian Code Of Corporate Governance 2018 By Adedeji Adebiyi

On 15^th January, 2019, the Federal government of
Nigeria unveiled the Nigerian Code of Corporate Governance in
compliance with sections 11c and 51c of the Financial Reporting
Council of Nigeria Act.

After due consultation with different stakeholders,  the
Financial Reporting Council of Nigeria, the empowered regulatory
body released the code with the hope to promote accountability,
business sustainability, encourage international best practices and
to further boost the Nigerian business environment’s 
integrity and investors’ confidence.

Scope of the Code

Unlike the suspended 2016 version, there were identifiable
differences in the structure. For example, the 2018 code
extinguished the coverage to nonprofit sector thereby limiting
itself to public companies and private companies in Nigeria.

The Code of Corporate Governance also adopted the ‘Apply and
Explain’ principle, which assumes application of all principles,
and requires entities to explain how the governance principles are
applied. The code also lays emphasis on the possible outcome of its
application. The issues below are the highlights of the new
code.

1. Relationship with Sectoral Guidelines

The new code acknowledges the existence of   codes of
corporate governance being operated by sectoral regulators such as
the Central Bank of Nigeria, Nigeria Communications Commission,

National Insurance Commission, National Pension Commission and
Securities and Exchange Commission. The code is silent on its
relationship with these corporate governance codes already released
by the above regulators.

1. Structure and Composition of the Code

The code is divided into seven parts which include board of
directors and officers of the board , assurance , relationship with
shareholders, business conduct with Ethics, Sustainability,
transparency and explanatory notes.

The code also consists of twenty eight principles with
recommended practices to achieve the implementation of the
code.

A point of obvious reference under the section deals with
directors holding concurrent directorships. According to the code,
concurrent service on too many Boards may interfere with an
individual’s ability to discharge his responsibilities. The code
however went ahead to provide procedures on how to deal with such
situations which includes the provision that prospective directors
should disclose memberships on other boards, and current directors
should notify the board of prospective appointments on other
boards.

Under the principle of officers of the board a provision
stipulates that the Chairman of the Board should not serve as the
Chairman or a member of any Board committee. This provision in the
opinion of the writer is designed to further glorify the position
of the Chairman as an independent Non-Executive Director.

It is also interesting to note that the MD/CEO or an Executive
Director (ED) is prohibited from ascending to the position of the
chairman of the same Company. However there is an exception which
says that where Board decides that a former MD/CEO or an ED should
become Chairman, a cool-off period of three years should be
adopted.

1. The Position of the Company secretary

According to Principle 8 of the code, the Company Secretary
plays an important role in supporting the effectiveness of the
Board by assisting the Board and management to develop good
corporate governance practices and culture within the Company. The
Code goes further to express how sacrosanct the position of the
company secretary is by stipulating that the Company Secretary
should be a senior management staff and the process of recruiting
the secretary should be as rigorous as that of a Director of the
company.

1. Internal Audit Function

Internal audit function is key to guaranteeing assurance to the
integrity,   governance, risk management and internal
control systems. As issued in some of the existing codes of
corporate governance, the national code also lays emphasis on the
Head, Audit’s unfettered access to the chairman of the Audit
Committee and the Chairman of the Board as well.

1. Independent Non-Executive Directors

The code itemized the qualities of Independent Non-Executive
Director. The underlining factors of  the qualities as
highlighted in the code are  “conflict of interest” and
whether or not there is a pecuniary relationship with the
organization  .

1. Relationship with Shareholders

The code talks about the importance of general meetings of the
company as an opportunity to engage shareholders being the owners
of the company. It also talks about the equitable treatment of
shareholders most especially the interest of minority
shareholders.

1. Board Committee responsible for Risk
   Management

In addition to its usual function of monitoring and making
recommendations on risk management, the code further expanded the
responsibility of the committee into Information Technology.
According to the code, the risk management Committee shall review
and recommend for approval of the Board (IT) data governance
framework to ensure that IT data risks are adequately mitigated and
relevant assets are managed effectively. This provision is
important as the global trend of business cannot thrive without the
influence of Information technology. Hence, the code has been able
to lay a good foundation for Information technology
  administration in corporate governance. This addition
is commendable.

1. Whistleblowing

Following the launch of federal government of Nigeria’s policy
on whistleblowing, it dawned on the Nigerian Corporate community
that whistleblowing should be encouraged in order to check
unethical business practices. The code recommends that the Board
should establish a whistle-blowing framework to encourage
stakeholders to bring unethical conduct and violations of laws and
regulations; The Board should ensure the existence of a
whistle-blowing mechanism that is reliable, accessible and
guarantees the anonymity of the whistle-blower. The principle also
places an assurance that the whistleblower should not be subjected
to any detriment on the grounds that he/she has made a disclosure.
This will assist in ensuring that there is no victimization of
courageous whistleblowers in the system.

1. Sustainability

Sustainability implies that a process such as a company’s
operations should be managed in a way that it can be maintained at
a certain level indefinitely. The most common definition of
sustainable development is “development which meets the needs of
the present without compromising the ability of future generations
to meet their own needs” a definition that was created in 1987 by
the World Commission on Environment and Development (the Brundtland
Commission).

The drafters of the code in trying to ensure adaptation to
international best practices made room for sustainability in the
code. Principle 26 of the code states that” paying adequate
attention to sustainability issues including environment, social,
occupational and community health and safety will project the
Company as a responsible corporate citizen contributing to economic
development.”

1. Transparency and Disclosures

The Code encourages companies to present full and comprehensive
disclosure of all matters material to investors and stakeholders.
It also stipulates that the company’s board should ensure that the
reports and other communication issued to stakeholders are in clear
and easily understood language and are posted on the Company’s web
portal.

Take Home

The emergence of the National code of corporate governance is
way overdue.  However, it is believed that the commencement of
 the operation of the code will help in achieving its
objectives and will also gear the Nigerian economic sector towards
creating a uniform set of rules guiding corporate governance as it
is admirably practiced in the United Kingdom, South Africa etc. It
is recommended that the Financial Reporting Council of Nigeria
should make some issues very clear to all stakeholders. First of
such issues is the commencement of the code. The code is silent on
its expected commencement date. However, at its draft stage, it
stated that companies should report the application of the code on
their annual reports for period ending on or before January 1,
2020. Presently, a number of business operators may be at sea on
this matter. Therefore, it becomes imperative for the Financial
Reporting Council of Nigeria to give further clarifications on
this. Second of the thought is the silence of the code on how it
plans to operate alongside the already existing codes by SEC,
CBN,  PenCom, NAICOM and the  NCC This should perhaps be
done via an expected guideline for the operation of the code
subsequently.

Adedeji Adebiyi is a lawyer and a chartered company secretary
based in Abuja.

E-mail: adedejiadebiyi2000@gmail.com^[1]