Corporate Governance

May 6, 2018

Sources of corporate governance rules and practices 1 Primary sources of law, regulation and practice 

What are the primary sources of law, regulation and practice  relating to corporate governance? Is it mandatory for listed  companies to comply with listing rules or do they apply on a  ‘comply or explain’ basis? 

The main sources of law relating to corporate governance are as follows:

  • the Companies and Allied Matters Act 1990 (CAMA);
  • the Investment and Securities Act 2007 (ISA); 
  • the Financial Reporting Council of Nigeria Act 2011 (FRCA); • the Banks and Other Financial Institutions Act 1991 (BOFIA); • the Central Bank of Nigeria Code of Corporate Governance for  

Banks and Discount Houses in Nigeria (the CBN Code); • the Insurance Act 2003; 

  • the National Insurance Commission Act 1997 (the NAICOM Act); • the NAICOM Code of Corporate Governance for the Insurance  Industry in Nigeria (the NAICOM Code); 
  • the Code of Corporate Governance for Licensed Pension Operators  (the PENCOM Code); 
  • the Rule Book of the Nigerian Stock Exchange; 
  • the Securities and Exchange Commission Code of Corporate  Governance in Nigeria (the SEC Code); 
  • the Securities and Exchange Commission Rules and Regulations  (the SEC Rules); 
  • the SEC Code of Conduct for Shareholders’ Associations (SCCSA);  and 
  • the Nigerian Communications Commission Code of Corporate  Governance for telecommunication companies (the NCC Code). 

The Rule Book of the Nigerian Stock Exchange requires mandatory  compliance with listing rules. 

2 Responsible entities 

What are the primary government agencies or other entities  responsible for making such rules and enforcing them? Are  there any well-known shareholder groups or proxy advisory  firms whose views are often considered? 

The primary government entities responsible for making such rules  are: 

  • the Corporate Affairs Commission (CAC), created under CAMA,  which oversees the registration of companies and compliance by  corporate bodies with the provisions of CAMA; 
  • the Securities and Exchange Commission (SEC), created under the  ISA, which regulates the capital market; 
  • the Central Bank of Nigeria (CBN), which regulates banks and  other financial institutions in Nigeria;  
  • the National Insurance Commission (NAICOM), established  under the NAICOM Act 1997, which ensures compliance by insurance companies with the provisions of the NAICOM Act and the  Insurance Act; 
  • the National Pension Commission established under the Pension  Reform Act, which regulates Pension Fund Administrators and  Pension Fund Custodians;  
  • the Nigerian Communications Commission established under the  Nigerian Communications Act, 2003 (NCA) which regulates the  communications industry in Nigeria and ensures compliance with  the NCA; and 
  • the Financial Reporting Council of Nigeria (FRCN), created under  the FRCA, which is empowered to enforce and approve compliance with accounting, auditing, corporate governance and financial reporting standards in Nigeria. The FRCN is charged with  ensuring good corporate governance practices in the public and  private sector. The Directorate of Corporate Governance, created  under the FRCA, has the responsibility to issue the code of corporate governance and guidelines and to develop a mechanism for  periodic assessment of the code and guidelines. 

There are several shareholder activist groups in Nigeria. These  include: Progressive Shareholders’ Association of Nigeria, Lagos Zone  Shareholders’ Association, Renaissance Shareholders’ Association,  Association for the Advancement of the Rights of Nigerian  Shareholders, the Independent Shareholders’ Association of Nigeria,  Dynamic Shareholders’ Association of Nigeria, Nigerian Shareholders’  Solidarity Association, Proactive Shareholders Association of Nigeria  and the Pacesetter Shareholders’ Association of Nigeria. The various  groups are more active in participating in annual general meetings,  influencing decision-making at such meetings and protecting share holders’ rights. 

It should be noted that the regulatory authorities such as the SEC  and the FRCN adopt a consultative process in making regulations in  order to obtain the views of various stakeholders, including share holder groups. The SCCSA is one of the means through which the SEC  seeks to ensure the highest standard of conduct among association  members and the companies with which they interact as shareholders  and to ensure that association members make positive contributions in  the affairs of public companies. The SCCSA prescribes that shareholders’ associations be registered with the CAC in order for their views to  be considered by the SEC during consultations on corporate governance issues. 

The rights and equitable treatment of shareholders 3 Shareholder powers 

What powers do shareholders have to appoint or remove  directors or require the board to pursue a particular course of  action? What shareholder vote is required to elect or remove  directors?  

Shareholders in a general meeting have the power to appoint or remove  directors by a resolution passed by a simple majority of votes cast in  person or by proxy. Though the board of directors of a company is  empowered to appoint new directors to fill casual vacancies created  by death, resignation, retirement or removal, such appointments are,  however, subject to ratification by the shareholders in a general meeting. Generally, unless the articles of association provide otherwise,  the directors, when acting within the powers conferred upon them by  CAMA or the articles, are not bound to obey the directions or instructions of the shareholders in general meetings provided the directors  act in good faith and with due diligence. This notwithstanding, the shareholders may make recommendations to the board regarding  actions to be taken by the board and may ratify or confirm any action  taken by the board. The SEC Code provides that the board is to ensure  that all shareholders are given equal treatment and minority shareholders are adequately protected from the abusive actions of controlling  shareholders. Also, there should be adequate shareholder representa tion on the board proportionate to the size of shareholding. 

A shareholder can bring a court action to restrain the directors  from entering into an illegal or ultra vires transaction, or perpetuating a  fraud. Members holding 5 per cent of the total voting rights in the com pany could circulate a resolution to be voted upon at a general meeting,  indicating a course of action that should be adopted by the directors of  the company. 

Under CAMA, a company may remove a director before the expiry  of his or her tenure of office, notwithstanding anything in its articles  or in any agreement between the company and the director. However,  CAMA requires that a special notice be given to those entitled to attend  and vote as well as the director sought to be removed in order to move  and pass such resolution. The company shall also give its members  notice of such resolution, a minimum of 21 days before the meeting  where the removal of the director is to be considered. 

4 Shareholder decisions 

What decisions must be reserved to the shareholders?  What matters are required to be subject to a non-binding  shareholder vote? 

The shareholders in a general meeting are empowered to appoint and  remove directors of the company, determine directors’ remuneration,  appoint auditors and approve their remuneration, alter the company’s  share capital, alter the memorandum and articles of association of  the company, approve the conversion of the company from a private  to a public company and vice versa, and from a limited company to  an unlimited company and vice versa, change the company’s name,  declare a dividend on the recommendation of the board. 

CAMA provides that, subject to the provisions of the articles of  association of a company, there are certain powers of the board that  cannot be restricted by the shareholders in a general meeting. These  include powers over the day-to-day running of the company and the  powers of the directors to institute actions on behalf of the company.  Where the board fails to institute or defend an action on behalf of the  company when it ought to do so because the board is itself in the wrong  or there is a deadlock on the board, then the shareholders may apply to  court to bring the action on behalf of the company. 

Where the articles of association of a company expressly vest the  board with certain powers, it is not bound to obey the instructions of  the shareholders, especially when it acts in good faith and with dili gence. In such situations, the shareholders may only amend the articles  of association of the company such that those powers are now made  exercisable by the shareholders in a general meeting and not by the  board of directors. 

5 Disproportionate voting rights 

To what extent are disproportionate voting rights or limits on  the exercise of voting rights allowed?  

CAMA expressly prohibits disproportionate voting rights and the  limitation of voting rights. The basic rule is ‘one share, one vote’ and  no company may by its articles or otherwise authorise the issue of  shares that carry more than one vote in respect of each share or that  do not carry any rights to vote. There are, however, a few exceptions.  Preference shareholders, if the articles of the company so provide,  can have more than one vote per share upon consideration of any  resolution: 

  • where a dividend on the preference share remains unpaid after the  due date of the dividend;  
  • that seeks to vary the rights attached to the preference shares;  • to appoint or remove an auditor; and  
  • for winding up the company.  

Also, any special resolution of a company increasing the number of any  class may validly resolve that any existing class of preference shares  carry the right to such votes, in addition to the one vote per share necessary to preserve the existing ratio that the votes exercisable by the  holders of such preference shares bear to the total votes exercisable at  the meeting. The right of members to vote upon their share may also be  limited by the company’s articles until all calls or other sums payable to  the company by them in respect of the shares have been paid. 

6 Shareholders’ meetings and voting 

Are there any special requirements for shareholders to  participate in general meetings of shareholders or to vote?  Can shareholders act by written consent without a meeting?  Are virtual meetings of shareholders permitted? 

All shareholders are entitled to attend and vote at the company’s gen eral meeting. It should be noted, however, that until the name of a  person having shares in a company has been entered as a member in  the register of members, which companies are statutorily required to  maintain, such person will not be deemed a member of the company  and may therefore not attend meetings of the company or be allowed  to vote at such meetings. 

The articles of a company may also provide that members who  have not made payments on all calls on their shares shall not be entitled  to attend meetings. 

Shareholders of a private company can act by way of written  resolution. CAMA provides that a resolution of the shareholders of a  company would be effective only if it is passed at a general meeting.  However, the shareholders of a private company may act by a written  resolution signed by all the shareholders entitled to attend and vote at  the general meeting of the company where the resolution would have  been passed. 

CAMA does not provide for virtual meetings. By the provisions  of CAMA, all statutory and annual general meetings shall be held in  Nigeria and the notice calling for such meetings should contain the  place for the meetings. An extraordinary general meeting has no such  restrictions and therefore can be a virtual meeting. In practice, a com pany may provide for the holding of virtual meetings in its articles of  association.  

7 Shareholders and the board 

Are shareholders able to require meetings of shareholders to  be convened, resolutions and director nominations to be put  to a shareholder vote against the wishes of the board, or the  board to circulate statements by dissident shareholders? 

The duty to call general meetings of shareholders is one held by the  board of directors. However, a shareholder or shareholders representing at least one-tenth of the shareholding (or voting rights in a company  not having share capital) of the company may requisition a general  meeting at any time. Where the board refuses to convene the requisi tioned meeting within 21 days, the requisitionists are authorised to convene the meeting (within three months of the requisition) after issuing  the required notices and any reasonable expenses incurred in relation  to the meeting shall be repaid by the company.  

The nomination of a person to the board of directors can be put to  a vote at a general meeting, provided that prior notice (not less than  three or more than 21 days prior to the meeting) outlining his or her  intention to propose such person for election has been given, signed by  a shareholder qualified to attend and vote at the meeting and accompa nied by a notice in writing signed by the nominated person of his or her  willingness to act.  

8 Controlling shareholders’ duties 

Do controlling shareholders owe duties to the company or  to non-controlling shareholders? If so, can an enforcement  action be brought against controlling shareholders for breach  of these duties? 

There are no statutory provisions that expressly provide that control ling shareholders owe legal duties to the company or minority share holders. However, the CBN Code, the SEC Code and the NAICOM  Code each provide that it is the responsibility of the board to ensure  that minority shareholders are protected from the overbearing influ ence of controlling shareholders of a company and to ensure the fair  treatment of all shareholders. Further, if a controlling shareholder infringes on the rights of a minority shareholder, or commits a fraud  on either the company or the minority shareholder, which the directors  fail to redress (owing to the wrongdoer being in control of the company  or otherwise), the non-controlling shareholder may apply to court for  injunctive relief. 

A shareholder may also bring an application to the court for relief  on the grounds that the actions of the company are being conducted in  an unfairly prejudicial and oppressive or discriminatory manner. 

Further, a shareholder may bring a derivative action on behalf  of the company where the wrongdoers are in effective control of the  company, the directors refuse to act, the application is brought in good  faith, and it is in the best interest of the company. Evidence that the  majority shareholders have approved any such wrongdoing will not in  itself prevent a shareholder from seeking relief from the courts. 

A shareholder who possesses, either directly or through a nominee,  shares in a public company that entitles the shareholder to exercise 10 percent of the unrestricted voting rights at any general meeting must  notify the company of his or her interest. The duty also arises where the  shareholding falls below 10 percent. 

9 Shareholder responsibility 

Can shareholders ever be held responsible for the acts or  omissions of the company? 

Shareholders are generally not liable for the acts or omissions or debts  of the company as the liability of shareholders is limited to the amounts  paid or yet to be paid on their shares. In the case of an unlimited company, the liability of members for the debts of the company is unlimited. The company is a separate legal personality from its members.  However, the courts may ‘lift the corporate veil’ where a company is  a mere sham or is being used as a tool to perpetrate illegality. A shareholder may also be liable where, to his or her knowledge the company  operates with less than two directors. 

Corporate control 

10 Anti-takeover devices 

Are anti-takeover devices permitted?  

There are generally no rules prohibiting anti-takeover devices. The  directors have a duty to act in the best interests of the company in all  situations. Major shareholders of a company may enter into a lock-in  arrangement. 

The ISA mandates directors of a target company to send circulars  to members of the target company expressing their opinion one way or  the other on a takeover bid. A dissenting director can also circulate his  or her opinion to the shareholders. 

11 Issuance of new shares 

May the board be permitted to issue new shares without  shareholder approval? Do shareholders have pre-emptive  rights to acquire newly issued shares? 

Subject to any limitations in the articles of a company, the power to  issue shares is vested in the company. The power is exercised by the  general meeting unless the articles specify otherwise, and the general  meeting may grant the authority to issue new shares to the board. 

The articles of a company should determine whether shareholders have pre-emptive rights to acquire newly issued shares. Where the  articles do not provide for such rights, none can be said to exist. The  articles of private companies usually provide for pre-emptive rights. 

12 Restrictions on the transfer of fully paid shares 

Are restrictions on the transfer of fully paid shares permitted  and, if so, what restrictions are commonly adopted?  

The transfer of shares of a private company is subject to restrictions  as specified in its articles of association. Restrictions commonly  employed include provisions on pre-emptive rights. The right of pre emption gives the other shareholders the first option to buy any shares  a shareholder wishes to sell or transfer. Another restriction employed  are clauses in a company’s articles giving the board of directors and,  in some cases, the shareholders a discretion to refuse to approve or register transfer of shares to persons or entities of whom they do not  approve. Public companies are expressly precluded from restricting the  transfer of fully paid shares. 

13 Compulsory repurchase rules 

Are compulsory share repurchases allowed? Can they be  made mandatory in certain circumstances? 

There are certain situations in which a company may repurchase its  shares. These are where the company does so in order to settle a debt  or claim against the company, to eliminate fractional shares, where  the company has entered into an agreement to purchase shares from  an officer or employee of the company or in order to satisfy the claims  of a dissenting shareholder, or in compliance with a court order in the  course of an arrangement or compromise. CAMA provides that an  agreement with a company providing for the acquisition by a company  of its shares is specifically enforceable against the company, to the  extent that the company can perform the agreement without breaching the provision of CAMA on repurchase of shares. Any public company seeking to repurchase its own shares is also required to obtain the  approval of the SEC and comply with the SEC Rules. 

Where the shares are to be repurchased by the company, the shares  may only be repurchased out of profits that would have been otherwise  distributed as dividends or out of the proceeds from a fresh issue of  shares made specifically for the purpose of the purchase of such shares. 

Further, redeemable shares shall not be purchased at a price  greater than the lowest price at which they are redeemable. 

14 Dissenters’ rights 

Do shareholders have appraisal rights? 

The ISA provides that where the approval of nine-tenths of the share holders has been obtained, the shares of the dissenting shareholders  (those who have not approved a scheme of merger, takeover or acquisi tion) may be acquired, with notice, at the value agreed by the consent ing shareholders except where the dissenting shareholders apply to  court to have those terms varied. Aggrieved shareholders may petition  the court to make an order compelling the company to buy them out at  a price to be determined by the court. 

The responsibilities of the board (supervisory) 

15 Board structure 

Is the predominant board structure for listed companies best  categorised as one-tier or two-tier? 

The board structure for listed companies can best be described as one  or single-tier, comprising both executive and non-executive directors. The SEC Code provides that the board should be of a size relative  to the size and complexity of the operations of the company. It further  recommends that the board of a public company should be made up of  at least five directors but sets no upper limit for the number of directors  on a board. The SEC Code further recommends that the majority of  the board members should be non-executive directors and at least one should be an independent director. 

16 Board’s legal responsibilities 

What are the board’s primary legal responsibilities?  

The board’s legal responsibilities include directing and managing the  affairs of the company, securing its assets, performing its duties in the  interest of the company and furthering the purposes for which the company was formed. 

17 Board obligees 

Whom does the board represent and to whom does it owe  legal duties?  

The board represents the company and owes its duties primarily to  the company. The board is to perform its duties in the interest of the  company and all its shareholders as a whole, and not in the interest of a  specific shareholder or a section of the shareholders. The board is also  to take into consideration the interests of the employees in general,

in performing its duties. However, the interests of the company must  always come first, regardless of whether the actions of the board may  adversely affect a shareholder. 

18 Enforcement action against directors 

Can an enforcement action against directors be brought by, or  on behalf of, those to whom duties are owed?  

The directors owe their duty to the company. The company can bring  an action against a director to enforce any duty imposed by law or contract. A shareholder may bring an action to prevent or redress a breach  of duty by the directors. 

A shareholder may also, with the leave of court, bring a derivative action on behalf of the company where the wrongdoers are direc tors who are in control and thus will not redress the wrong done to the  company. A shareholder may also apply for relief from the court on  the grounds that the affairs of the company are being conducted in an  unfairly prejudicial and oppressive manner. 

19 Care and prudence 

Do the board’s duties include a care or prudence element?  

The directors of a company owe a duty of care and skill to the company  and are to exercise such degree of care and skill that a reasonably prudent director would exercise in comparable circumstances. A director  is required to exercise the powers and duties of his or her office hon estly, in good faith and in the best interests of the company. 

20 Board member duties 

To what extent do the duties of individual members of the  board differ? 

The same standard of care in relation to the duties of a director is  expected of all members of the board including executive and non executive directors. The relationship is a fiduciary one and directors  are trustees of the company’s assets, and are bound to exercise their  powers in the interest of the company. 

However, there may be additional contractual liabilities and ben efits for executive directors under the principles of ‘master and servant’  where there is a contract to that effect. 

21 Delegation of board responsibilities 

To what extent can the board delegate responsibilities to  management, a board committee or board members, or other  persons?  

The board is empowered, subject to any specific provisions in the arti cles to the contrary, to delegate any or all of its powers to a managing  director or to committees made up of members of the board. The man aging director or committee shall, in the exercise of such responsibili ties so delegated, conform to any directions or regulations of the board.  However, such delegation should not be done in such a way that it  amounts to an abdication of duty. 

The SEC Code provides that it is the responsibility of the board  to facilitate the effective discharge of its duties and responsibilities  through committees. While membership of these committees is exclu sively reserved for board members, senior managers are allowed to be  in attendance during their meetings to provide all necessary informa tion needed by the committee to make informed decisions on behalf of  the board. Even after delegating its powers, the overall responsibility of  directing and managing the affairs of the company still ultimately lies  with the board. 

22 Non-executive and independent directors 

Is there a minimum number of ‘non-executive’ or  ‘independent’ directors required by law, regulation or listing  requirement? If so, what is the definition of ‘non-executive’  and ‘independent’ directors and how do their responsibilities  differ from executive directors?  

The SEC Code recommends that there be at least five members of the  board with a mix of both executive and non-executive directors. The  CBN Code and the SEC Code provide that the number of non-executive  directors on the board should exceed the number of executive directors. The CBN Code provides that for banks, at least two of the non executive directors should be independent directors, and for discount  houses at least one of the non-executive directors should be an independent director. The SEC Code provides for a minimum of one independent director. 

The SEC Code describes an independent director as a non-executive director who: 

  • is not a substantial shareholder of the company, that is, one whose  shareholding, directly or indirectly, does not exceed 0.1 percent of  the company’s paid-up capital; 
  • is not a representative of a shareholder that has the ability to control or significantly influence management; 
  • has not been employed by the company or the group of which it  currently forms part, or has not served in any executive capacity in  the company or the group for the preceding three financial years; 
  • is not a member of the immediate family of an individual who is, or  has been in any of the past three financial years, employed by the  company or the group in an executive capacity; 
  • is not a professional adviser to the company or group, other than in  the capacity of a director; 
  • is not a significant supplier to or customer of the company or group; • has no significant contractual relationship with the company or  group and is free from any business or other relationship that could  materially interfere with his or her capacity to act in an independ ent manner; and  
  • is not a partner or an executive of the company’s audit firm, internal audit firm, legal or other consulting firm that have material  association with the company and has not been a partner or an  executive of any such firm for three financial years preceding his or  her appointment. 

The PENCOM Code describes an independent director as one who  has no relationship with the company, its related companies or officers  that could interfere, or be reasonably perceived to interfere, with the  exercise of his or her independent business judgement. The NAICOM  Code provides that the board of insurance companies should have a  minimum of seven and a maximum of 15 members and that the maximum number of executive directors should not exceed 40 percent of  the members of the board. The PENCOM Code provides that the number of non-executive members (excluding the chairman) of the board  shall equate to the number of executive directors. The NAICOM Code  and PENCOM Code each provide for a minimum of one independent  director. 

Non-executive directors are those whose roles are strictly super visory and who do not participate in the day-to-day running of affairs  of the company but are nevertheless important members of any board  in the sense that they play a key role in the transparency, integrity and  credibility of the board. An independent director on the other hand  serves the function of bringing an objective, unbiased perspective to  the board in carrying out its functions. 

23 Board size and composition 

How is the size of the board determined? Are there minimum  and maximum numbers of seats on the board? Who is  authorised to make appointments to fill vacancies on the  board or newly created directorships? Are there criteria  that individual directors or the board as a whole must fulfil?  Are there any disclosure requirements relating to board  composition?  

Generally, persons of unsound mind, persons under the age of 18, persons previously convicted of fraud or breach of duty in connection with  the promotion, formation or management of a company and insolvent  persons are statutorily disqualified from being directors. There are cri teria that must be met to be a director in a company and any person  who is or proposes to be a director of a company must meet these criteria. A company may by its articles require directors to hold a specified  number of shares. Failure of a director of such a company to obtain the  share qualification within two months of his or her appointment will  result in the person vacating his or her office until he or she obtains the  shareholding qualification. The PENCOM Code provides that a direc tor of a pension fund administrator (PFA) must not be a director, an employee, a principal officer or shareholder in a pension fund custo dian (PFC) with which the PFA conducts business. 

Managing directors and key management operating in certain  industries may be required by the regulations and guidelines governing  those industries to have specific qualifications. The SEC Code permits  public companies to have a governance or remuneration committee  whose function is to establish the criteria for board and board com mittee membership and to periodically evaluate the skills, knowledge  and experience required on the board. The CBN Code prescribes that  members of the board shall be qualified persons of proven integrity and  be knowledgeable in business and financial matters in accordance with  the extant CBN Assessment Criteria for Approved Persons’ Regime for  Financial Institutions. The NAICOM Code emphasises competence  and integrity. 

There is no restriction on the nationality of directors. Non-Nigerian  citizens are permitted to be directors. Aside from the NCC Code, there  are no gender requirements in the composition of boards.  

A person over 70 years of age or more who is or is to be appointed  as a director in a public company is required to disclose his or her age  to the members of the company in a general meeting and failure to do  so amounts to an offence under CAMA. Special notice of the resolution  approving or appointing such a director must be given by the company  to its members, disclosing the age of the director. An appointee to the  board of a public company is also expected to disclose his or her mem bership of boards of other companies to enable the shareholders to give  full consideration to his or her other obligations and commitments in  determining his or her suitability as a board member. 

CAMA requires every company to have a minimum of two directors at all times but does not provide for the maximum number of directors a company may have. CAMA provides, however, that the number  of directors shall be determined in writing by the subscribers of the memorandum of association or a majority of them with the power of  the shareholders at a general meeting to increase or reduce the board.  The laws and regulations governing particular industries may also set  the minimum and maximum number of board seats. The CBN Code  prescribes a minimum and maximum board size of five and 20 directors respectively. The SEC Code prescribes a minimum of five directors while directing that the board of a company be of a sufficient size  relative to the scale and complexity of the operations of the company.  The NAICOM Code prescribes a minimum of seven and a maximum  of 15 board members for insurance companies. The PENCOM Code  prescribes that the board of a company shall not exceed a size that will  allow it to employ simple and effective methods of work to enable each  director to feel a personal responsibility and commitment to the com pany and the board is to take into cognisance the scope and nature of  the operations of the company. 

The NCC Code requires the composition of a board to include a  mix of skills, diversity, experience and gender. The number of directors  should reflect the scale, size, complexity and reach of the business of  the company and the skills and resource requirements of the company  have to be taken into consideration. A majority of the board should be  non-executive directors with at least one independent director holding  not more than 0.1 per cent of the shareholding directly or indirectly in  the company. One-third of the non-executive directors is also required  to retire yearly by rotation subject to reappointment and for larger com panies, non-executive directors should not remain on the board for a  continuous period in excess of 15 years. 

Vacancies on the board may be filled by the shareholders of a company in a general meeting. The board of directors of a company is also  empowered to appoint new directors to fill casual vacancies created by  death, resignation, retirement or removal of a director. Such appointments are, however, subject to ratification by the shareholders at the  next general meeting. 

24 Board leadership 

Is there any law, regulation, listing requirement or practice  that requires the separation of the functions of board  chairman and CEO? If flexibility on board leadership is  allowed, what is generally recognised as best practice and  what is the common practice? 

The SEC Code recommends that the board of a company should not be  dominated by any one person and the positions of chairman and CEO should be separate and be held by different individuals. Also, the chairman of the board should be a non-executive director in order to ensure  the effective operation of the board. While the role of the CEO is to see  to the day-to-day running and management of the company, the chairman’s role is to provide overall leadership, direction and supervision of  the board. The separation of the roles of board chairman and CEO is  considered best practice. 

The CBN Code and the NAICOM Code make it mandatory that no  one person shall hold or combine the office of chairman of the board  and that of CEO or managing director. The CBN Code further provides  that no executive vice chairman shall be recognised in the board structure. The PENCOM Code and the NCC Code also require the position  of the chairman of the board and the CEO to be occupied by two sepa rate individuals.

25 Board committees 

What board committees are mandatory? What board  committees are allowed? Are there mandatory requirements  for committee composition?  

Every public company is required to set up an audit committee consist ing of an equal number of directors and shareholders’ representatives  up to a maximum of six members. Members of an audit committee are  not entitled to remuneration and are subject to re-election annually.  The functions of the audit committee include: 

  • ascertaining whether the accounting and reporting policies of the  company are in accordance with legal requirements and agreed  ethical practices; 
  • reviewing the scope and planning of audit requirements; • reviewing the findings on management matters in conjunction  with the external auditor and departmental responses thereon; • keeping under review the effectiveness of the company’s system of  accounting and control; 
  • making recommendations to the board with regard to the appointment, removal and remuneration of the external auditors of the  company; and 
  • authorising the internal auditor to carry out investigations into any  activities of the company that may be of interest or concern to the  committee. 

The various corporate governance codes require that members of the  audit committee should be able to read and understand basic financial  statements, and be in a position to make valuable contributions to the  committee. The SEC and CBN Codes provide that at least one member  of the committee should be financially literate. The SEC Code further  provides that, when necessary, external professional advice may be  sought by the committee. 

The board of a public company is permitted by the SEC Code to  establish a risk management committee and a governance or remuneration committee in addition to its audit committee. The risk management committee is to serve the function of assisting in the overseeing  of the risk profile and the risk management framework to be deter mined by the board, while the governance or remuneration committee  serves the function of periodically evaluating the skills and experience  required by the individual members of the board and the board as a  whole and making recommendations on the compensation structure  for the executive directors of the company. 

Banks and discount houses in Nigeria are directed by the CBN  Code to establish a committee responsible for the overseeing of risk  management and audit functions and a board governance and nomi nations committee. The CBN Code further provides that the risk man agement and audit functions may be carried out by one committee,  particularly in small institutions. The CBN Code proscribes the chairman of the board from being a member or chairman of any committee  and provides that board committees must be headed by non-executive  directors. The board remuneration committee must have at least two  non-executive directors, while the board audit committee must have at  least three members consisting only of non-executive directors and beheaded by an independent director. 

The PENCOM Code requires PFAs and PFCs to constitute a nominating committee (NC) whose duty is to make recommendations to the  board on all board appointments. The NC shall consist of three directors including the chairman of the board and an independent director.

It is common practice among quoted companies to have various  board committees assist the boards in administering the affairs of  such companies and strengthen corporate governance. These commit tees, which may be known by different names in different companies,  include nomination, general purpose, remuneration or compensation,  risk assessment, strategy, corporate governance, finance, etc. 

26 Board meetings 

Is a minimum or set number of board meetings per year  required by law, regulation or listing requirement?  

There are no statutory minimum requirements on the number of board  meetings per year. However, directors are required to meet no later  than six months after the incorporation of the company. The directors  may otherwise regulate their meetings. 

The PENCOM, CBN, SEC and NCC Codes recommend that board  meetings be held at least quarterly in each financial year. The NAICOM  Code provides that the board shall meet not less than four times in a  year.  

27 Board practices 

Is disclosure of board practices required by law, regulation or  listing requirement?  

CAMA provides that, where a director presents him or herself for re election, a record of his or her attendance at meetings of the board  during the preceding year shall be made available to members at the  general meeting where he or she is to be re-elected. Where a person to  be appointed or re-elected as a director is 70 years old or older, notice  of his or her election or re-election shall disclose the age of the person  to the shareholders. 

The CBN Code requires the board to disclose the total number of  board meetings held in the financial year and attendance by each direc tor in its annual report. The CBN Code also provides that members of  the board be appraised by an independent consultant annually on all  aspects of the board’s structure, composition, responsibilities, pro cesses and relationships and the report of the independent consultant  must be presented to the shareholders in the general meeting and to  the CBN. 

In addition, the SEC Code provides that the board of a public company is to include a corporate governance report in its annual reports,  to be circulated to members and the regulatory authorities. The cor porate governance report may contain information on the composition  and responsibilities of board committees, and records of attendance at  board and shareholders’ meetings by directors during the period covered by the annual report. The SEC Code goes further to provide that  the company’s annual report ought to make sufficient disclosures on its  accounting and risk management issues, indicating the board’s responsibility for the process of risk management as well as its opinion on the  effectiveness of the process. 

Public companies are also to disclose the details of any direc tor’s interests in contracts with the company, its subsidiaries or hold ing companies and should also disclose any service contracts and any  other significant contracts with controlling shareholders. Directors are  required by the SEC Code to disclose any other directorship positions  in other companies so that the members of the company can take into  consideration a director’s other responsibilities in assessing his or her  suitability as a director in the company. 

The directors are required to disclose their shareholdings in the  company. Directors are also required to disclose loans made by the  company to directors, their interest in contracts involving the company  and any conflicts of interest in relation to the company. 

28 Remuneration of directors 

How is remuneration of directors determined? Is there any  law, regulation, listing requirement or practice that affects  the remuneration of directors, the length of directors’  service contracts, loans to directors or other transactions or  compensatory arrangements between the company and any  director? 

CAMA provides that the remuneration of directors should be determined by the company in a general meeting, while the SEC Code provides that the remuneration of executive directors should be set by a  remuneration committee consisting wholly of non-executive directors.  The SEC Code also provides that the remuneration for non-executive  directors should be fixed by the board and approved by the members  in a general meeting and that, where share options are granted as part  of remuneration for directors, the board should ensure that they are  not priced at a discount except with the approval of the SEC. The CBN  Code also requires the remuneration of directors to be fixed by a committee composed of non-executive directors and the remuneration for  non-executive directors should be strictly limited to directors’ fees,  sitting allowances for board and board committee meetings and reimbursable travel and hotel expenses. Executive directors do not receive  sitting allowances and directors’ fees. The CBN Code further provides  that stock options offered as part of executive remuneration shall be tied to performance subject to the approval of shareholders in general  meeting, may only be exercisable after one year of the expiry of the  director’s tenure and may only be priced at a discount on the authorisa tion of relevant regulatory agencies. 

The remuneration of each director should be proportionate to his  or her skill and experience and should be sufficient to attract, motivate  and retain skilled and qualified persons. The remuneration of directors  is to be disclosed in the yearly financial statements of the company. 

The CBN Guidelines for the appointment of independent directors  restricts the term of office of independent directors to a single term of  four years and a maximum of eight years of two consecutive terms. In  relation to other non-executive directors, their tenure is limited to a  maximum of three terms of four years each. With respect to the tenure  of the chief executive officer of a bank, the CBN Code allows for a ten ure of 10 years, which may be broken down into periods not exceeding  five years at a time. 

CAMA discourages directors’ service contracts beyond a five-year  term and provides that, before a service contract for a term beyond five  years is executed, it must be approved by a resolution of the company.  The SEC Code, while subjecting the tenure for directors to the provisions of CAMA, recommends that all directors should be submitted for  re-election at regular intervals of at least once every three years. The  SEC Code also provides that non-executive directors of public companies should serve for reasonable periods on the board but empha sises the necessity to continually reinforce the board by injecting new  energy, fresh ideas and perspective and that the board should ensure  the periodic appointment of new directors to replace existing non executive directors. 

Companies are prohibited from making loans to directors and  are also not allowed to guarantee such loans. There are, however, two  exceptions provided in CAMA: the company can grant a loan to a direc tor where such loan will enhance the performance of his or her duties in  the company; and the company can also grant a loan to a director where  money lending is one of its ordinary businesses and the lending is done  in the ordinary course of business. 

In addition, substantial property transactions between a company  and its directors are prohibited unless approval is granted by the company by way of an ordinary resolution at a general meeting. If a director  is in any way, whether directly or indirectly, interested in a contract or  proposed contract with the company, he or she is required to declare  the nature of his or her interest at a meeting of the board. Banks are also  required to disclose details of insider-related credits in their financial  statements. Such insider-related credits include transactions involving  directors, shareholders, employees and their related interests. 

CAMA makes it unlawful for a company to make payment to a  director as compensation for loss of office or as consideration for or in  connection with his or her retirement from office unless particulars of  the proposed payment and amount have been disclosed to the mem 

bers of the company and approved. Under CAMA, members’ approval  is also required for compensatory payments to be made where, in con nection with the transfer of the whole or part of the undertaking or  property of a company, it is proposed to make any payment to a director  as compensation for loss of office or as consideration for or in connection with his or her retirement from office. 

29 Remuneration of senior management 

How is the remuneration of the most senior management determined? Is there any law, regulation, listing requirement  or practice that affects the remuneration of senior  managers, loans to senior managers or other transactions  or compensatory arrangements between the company and  senior managers? 

The remuneration of the managing director is determined by the  board. In addition to the response stated in the penultimate paragraph  of question 28, banks are required by the CBN to disclose details of  insider-related credits including the aggregate amount of insider 

related loans, advances and leases outstanding with non-performing  components further analysed by security, maturity, performance, pro vision, interest-in-suspense and name of borrowers in their financial  statements. 

30 D&O liability insurance 

Is directors’ and officers’ liability insurance permitted or  common practice? Can the company pay the premiums? 

Directors’ and officers’ liability insurance is permitted. It is not com mon practice for companies to take out such insurance, though some  companies, in keeping with international best practices, take out liabil ity insurance for their directors and officers. 

31 Indemnification of directors and officers 

Are there any constraints on the company indemnifying  directors and officers in respect of liabilities incurred in their  professional capacity? If not, are such indemnities common? 

Companies are permitted to indemnify their directors and officers for  liabilities incurred in their capacities as directors and officers of the  company except in cases of negligence, fraud or breach of trust in rela tion to the company. 

32 Exculpation of directors and officers 

To what extent may companies or shareholders preclude or  limit the liability of directors and officers? 

A company may ratify the act of an officer or director even where such  an act or conduct is irregular. The company may also, by its articles (or  by the director’s contracts of service), limit the liability of a director  except in cases of negligence, fraud or breach of trust of which a director or officer may be guilty in relation to the company. Further, a company may also provide that the liability of a director  be unlimited, regardless of the fact that the company itself is a limited  liability company, provided that the director is given notice before he or  she takes up the appointment that his or her liability shall be unlimited.  The company may also, by special resolution, amend its memorandum  so as to render the liability of its directors or managers unlimited. 

33 Employees 

What role do employees play in corporate governance? 

The CBN and SEC Codes require every public company to establish  whistle-blowing procedures that encourage staff to report unethical  activity or breaches of corporate governance to, in the case of the CBN  Code, the bank and CBN and under the SEC Code, the company. The  ISA also makes provision for employees of publicly quoted companies  to report suspected criminal activities or non-compliance with any  legal obligation within the company. The law provides that any such  whistle-blower shall be protected from detriment as a result of his or  her actions. Where he or she suffers any detriment, the SEC may, on  his or her complaint, order that the employee be reinstated or compensated, or both. The CBN Guidelines for Whistle Blowing in the  Nigerian Banking Industry, 2014 provide similar protection for employees of financial institutions. 

In addition, the managing director and executive directors, as  employees of the company, are responsible for the implementation of  corporate governance policies. 

The PENCOM Whistle Blowing Guidelines for Pensions (WBGP)  provides that the directors, management, employees and any other  

persons that have dealings with a PFA or PFC shall have the respon sibility to report breaches to PENCOM and requires that all PFAs  and PFCs undertake not to victimise employees that comply with the  WBGP. Where victimisation nonetheless occurs, the WBGP provides  that PENCOM shall employ appropriate regulatory tools to offer  redress to the employee concerned. 

34 Board and director evaluations 

Is there any law, regulation, listing requirement or practice  that requires evaluation of the board, its committees or  individual directors? How regularly are such evaluations  conducted and by whom? What do companies disclose in  relation to such evaluations? 

Under the NCC Code, the board is required to establish a system for  periodic evaluation of its own performance, that of its committees,  chairman, chairmen of its committees and individual directors. This  should be done at least annually, and a statement of evaluation is  required in the company’s annual returns to state whether evaluation  had been conducted during the period under the review. The evalua tion is to be an objective and independent process. The CEO appraisal  is to be done by the board or such committee of the board made up of  non-executive directors.  

The SEC Code also requires a board to establish a system to under take an annual and rigorous evaluation of its own performance, its  committees, chairman and individual directors. The chairman is to  oversee the evaluation of the performance of the CEO while the CEO is  to do the same for the executive directors. The result of the evaluation  is to be communicated and discussed by the board as a whole while that  of the independent directors is to be communicated and discussed by  the chairman with them. The board may engage the services of external consultants to facilitate the evaluation. The cumulative result of the  performance evaluation of the board and independent directors is to  be used as a guide for re-election. The SEC Code further recommends  training for any director whose performance is unsatisfactory or where  not feasible, removal from office.

The PENCOM Code has similar provisions to the SEC Code and  NCC Code and requires that the outcome of the evaluation shall be  prepared in two copies, one of which must be submitted to the Pension  Commission along with the company’s annual report on corporate  governance.  

The CBN Code requires an annual formal assessment of the effec tiveness of the board as a whole and the contribution by each individual  director (including the chairman) to the effectiveness of the board. The  Nomination Committee is to recommend the evaluation procedure  and propose objective performance criteria, which should be approved  by the board. The issues to be evaluated should include attendance at  meetings, contributions to discussions at board meetings and board  committee meetings, business referrals or support of the institution,  public standing of the director and the beneficial effect of this on the  business of the institution. The performance indicators should include  the compliance status of the institution, the overall performance of the  institution, regularity of board meetings and the overall contribution of  the board to the performance of the institution. 

Under the PENCOM Code, the evaluation should answer questions such as: 

  • how well the board performed against any performance objectives  that have been set;  
  • what the board’s contribution to the testing and development of  strategy has been;  
  • whether the composition of the board and its committees is appropriate with the right mix of knowledge and skills to maximise per formance in the light of future strategy;  
  • if the board responded to any problems or crises that have emerged  and whether these could have been foreseen;  
  • how well the board communicates with the management team,  company employees and others;  
  • how effectively the board uses mechanisms such as the annual  general meeting;  
  • whether the board as a whole is up to date with the latest develop ments in the regulatory environment and the market;  • whether sufficient board and committee meetings of appropriate  length are held to enable proper consideration of issues; andand flexible enough to deal with all eventualities, etc. Disclosure and transparency 35 Corporate charter and by-laws Are the corporate charter and by-laws of companies publicly  available? If so, where? 

    The memorandum and articles of association and other statutory fil ings of companies are available to the public at the Corporate Affairs  Commission. Copies can be obtained upon application and subject to  the payment of prescribed fees. 

    36 Company information 

    What information must companies publicly disclose? How  often must disclosure be made? 

    The annual reports and accounts consisting of the directors’ report,  auditor’s report and financial statements are to be filed with the  Corporate Affairs Commission after every annual general meeting  of a company. These documents can be accessed by the general public upon payment of the requisite fee. Other information filed with  the Corporate Affairs Commission, which is available to the public,  includes any changes in the composition of the board of directors,  return of allotment of shares, change of registered address, charges  on the company’s assets, appointment of receivers, appointment of  liquidators, etc. Outside the statutory requirements, companies are  encouraged to also include corporate governance reports laying out the  company’s governance structure, policies and practices in their annual  reports.

    Quoted companies are required to make certain disclosures to the  Nigerian Stock Exchange and the SEC from time to time. Such disclo sures include: 

    • information on acquisitions of other companies or businesses; • preliminary results for any year, half-year, quarter and comparative  figures in respect of the profits before and after taxation, even if  this calls for qualification that such figures are provisional or subject to audit; 
    • information on any proposed changes in the capital structure of the  company or redemption of securities; 
    • financial statements; and 
    • interim reports such as first-quarter, half-year and nine-month  accounts. 

    In addition, the annual reports shall disclose, among other things, the  directors’ direct and indirect holdings in the issued shares, substantial  shareholdings representing 5 per cent or more of issued shares and a  five-year financial summary. The CBN and SEC Codes also require the  board to disclose its risk management policy in its annual report. 

    Hot topics 

    37 Say-on-pay 

    Do shareholders have an advisory or other vote regarding  executive remuneration? How frequently may they vote? 

    Shareholders have a direct say in directors’ remuneration. CAMA provides that directors’ remuneration be determined by the shareholders in a general meeting. Such votes take place at the annual general  meeting of a company. However, the board fixes the remuneration of  executive directors. The SEC and CBN Codes stipulate that only the  non-executive directors should be involved in decisions regarding the  remuneration of executive directors. 

    38 Shareholder-nominated directors 

    Do shareholders have the ability to nominate directors and  have them included in shareholder meeting materials that are  prepared and distributed at the company’s expense? 

    Shareholders can nominate a director to be appointed to the board at  the general meeting. The law states that a motion for nomination will  be treated as a motion for his or her appointment.  

    Update and trends 

    The National Assembly is considering the Chartered Institute of  Nigeria (Establishment) Bill, which seeks to, among other things,  promote corporate governance values by directors serving in  both public and private companies. The bill seeks to establish a  Chartered Institute of Directors of Nigeria (the Institute) which  shall serve as a regulatory body for persons serving as directors in  the public and private sectors. The Institute is to have several func tions and powers including building capacity of directors in respect  of corporate governance issues and determining the standard of  knowledge and skill to be attained by persons seeking to be mem bers of the Institute. 

    The FRCN has recently inaugurated a Technical Committee  to review the National Codes of Corporate Governance, released  earlier and suspended by the FRCN. The Technical Committee  has engaged various stakeholders, including other regulatory  bodies, shareholders’ associations and professional bodies, with  a view to aligning the National Codes of Corporate Governance  with the existing codes of corporate governance. The high level of  stakeholder engagement with respect to the ongoing revision of the  National Codes of Corporate Governance is expected to resolve the  issues relating to said Codes and create minimal or no friction in the  application of the revised National Codes of Corporate Governance  by companies currently being regulated by any one of the existing  codes of corporate governance. 

    A member may leave at the registered address of a company a  signed notice in writing of his or her intention to propose a person for  election to the office of a director in place of a retiring director at a gen eral meeting. The notice must be given not less than three days or more  than 21 days before the date appointed for the meeting and must be  accompanied by a notice in writing signed by that person of his or her  willingness to be elected. 

    One or more members representing not less than one-twentieth of  the total voting rights of members entitled to vote at a general meeting or 100 or more members holding shares on which there has been  paid up an average sum per member of at least 500 naira, may requisi tion the company to circulate notice of a resolution they intend to be  moved at a general meeting. The proposed resolution can propose the  appointment of a new director. The company has a duty to give notice  of the resolution to members entitled to receive notice of the next  annual general meeting where the resolution is intended to be moved.  The notice of the resolution shall be given in the same manner and so  far as practicable, at the same time as notice of the meeting and where  not practicable, soon thereafter. The company is, however, not bound  to give notice of any requisition unless a duly signed copy is deposited  at the registered address of the company and a sum deposited or tendered, which is reasonably sufficient to meet the company’s expenses  in giving effect to it. The company may also decide to bear the expenses  of circulating notice of the proposed resolution. 

    39 Shareholder engagement 

    Do companies engage with shareholders? If so, who typically  participates in the company’s engagement efforts and when  does engagement typically occur? 

    The process of engaging with the shareholders is typically led by the  directors and senior management of the company. Generally, companies engage with their shareholders through the holding of general  meetings. It is usual for directors, senior management, external counsel, auditors and other specialists or consultants engaged in relation  to matters to be discussed or decided during a general meeting of the  company to be involved in such engagements. Some quoted companies  also organise pre-AGM forums or dinners for directors, management,  investors, major customers, etc to interact.  

    The SEC Code provides that the general meetings of the company  should be the primary avenue for meeting and interaction between the  shareholders, management and board of a company. It further requires  that general meetings should be conducted in an open manner allowing for free discussions on all issues on the agenda such that sufficient  time is allocated to shareholders to participate fully and contribute  effectively at the meetings. 

The NAICOM Code provides that directors should always com municate information that is understandable and accessible to shareholders in a timely manner and on a regular basis and encourage  shareholders to participate in annual general meetings. Under the CBN  Code, banks are encouraged to communicate with their shareholders  via their website. Information to be provided through this means shall  include major developments in the bank, risk management practices,  executive compensation, local and offshore branch expansion, estab lishment of investment in subsidiaries and associates, board and top  management appointments and sustainability initiatives and practices. 

The NCC Code provides that there should be a dialogue and  engagement between the board and the shareholders to align appre ciation and attain the mutual understanding of corporate objectives of  telecoms companies. 

40 Sustainability disclosure 

Are companies required to provide disclosure with respect to  corporate social responsibility matters? 

While some of the codes encourage corporate social responsibility, they  do not all have specific disclosure requirements. The SEC Code requires  companies to pay attention to the interests of its employees, host com munity, consumers and the general public. It further requires that  companies demonstrate sensitivity to local social and cultural diversity  issues. The SEC Code mandates that the board report annually on the  nature and extent of its social, ethical, safety, health and environmental policies and practices including application of options with the most  benefit or least damage to the environment, opportunities created for

physically challenged persons or disadvantaged individuals, the nature  and extent of the company’s social investment policy and the company’s policies on corruption and related issues. The CBN Code requires  that banks demonstrate a good sense of corporate social responsibility  to their customers, employees, host communities and the general public and encourages banks to make robust disclosures beyond the statu tory requirements of CAMA and BOFIA.  

41 CEO pay ratio disclosure 

Are companies required to disclose the ‘pay ratio’ between  the CEO’s annual total compensation and the annual total  compensation of other workers? 

There is no direct requirement to disclose pay ratio between CEOs  and other employees of companies. However, various codes of corporate governance require that companies disclose their remuneration  policies. 

42 Gender pay gap disclosure 

Are companies required to disclose ‘gender pay gap’  information? If so, how is the gender pay gap measured? 

The various corporate governance codes or regulations have no  requirement for disclosure of information on gender pay gap. The SEC  Code requires that companies report annually on the nature and extent  of employment equity and gender policies and practices, especially as  they relate to executive level opportunities.

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