A Review of Corporate Governance Codes in 2014

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The complexity in the governance of corporations has continued to assume greater dimension as a result of the interplay between the directors, management, shareholders and the stakeholders. In Nigeria, corporate governance became a front burner in public discourse after the collapse witnessed in the Nigerian banking sector in the early 2000s. Consequently, industry regulators evolved corporate governance codes to prevent another round of corporate failure. Corporate governance is a matter of greater importance for public limited liability companies because they raise capital from the stock market and both individual and institutional investors hold vast portfolios of shares and other investments in public companies.

Notably, all the corporate governance codes in Nigeria prescribe the separation of the chairman of the board of directors from the chief executive officer to avoid concentration of power in a single person among other reasons. A quick review of some key corporate governance codes in Nigeria is pertinent to understand corporate governance framework in Nigeria.

Corporate Governance Code for Nigerian Public Companies

The Nigerian Securities and Exchange Commission’s Corporate Governance Code (SEC Code[1]) applies to the following entitites:

  • Public companies with securities listed on the Stock Exchange;
  • All companies seeking to raise funds from the capital market through securities issuance or listing;
  • All other public companies[2].

The SEC Code spells out the composition and structure of the board of directors and the board committees, the relationship with shareholders as well as other stakeholders. The Code also places the responsibility of risk management and audit of concerned companies on the board. Companies regulated by the SEC Code are required to seek approvals from SEC regarding board appointments and public companies are also mandated to report on the extent of their compliance with the SEC Code in their annual reports.

The Code of Business Ethics and Principles on Corporate Governance for the Insurance Industry

The Code of Business Ethics and Principles on Corporate Governance for the Insurance Industry (the NAICOM Code) recommends various structures and control systems geared at ensuring efficiency and eliminating fraud and self-serving practices by the board and management of insurance companies. The NAICOM Code sets out the composition, duties and responsibilities of the board as well as standards expected of board members. According to the NAICOM Code, the number of directors on the board of an insurance company must not be less than seven and not greater than fifteen[3]. Directors in an insurance company are required to disclose any interest in firms providing service for the insurance company[4].

The business of corporate governance in insurance companies is carried out through committees of the board of directors prescribed by the NAICOM Code. In compliance with the NAICOM Code, an annual board performance appraisal must be carried out by an external consultant to be appointed by shareholders[5]. The assessment report prepared by the external consultant is forwarded to NAICOM who would determine the extent of compliance and issue recommendations or directions on any acts of non-compliance. It is noteworthy that the NAICOM code is prescriptive as it only provides standards to be met without any consequence for failure to meet set standards.

The Central Bank of Nigeria Code

The Central Bank of Nigeria (CBN) regulates and oversees corporate governance in the Nigerian banking sector with the coming into force of the Code of Corporate Governance for Banks and Discount Houses (CBN Code). The recent review of the CBN Code in 2014 underscores the need for corporate governance in the sector to incorporate global best practices so as to arrest any likelihood of a corporate failure. The introduction of the guidelines for whistle-blowing for banks and discount houses as a separate document effective from October 1, 2014 is also a novel development that demonstrates the incorporation of global best practices in the sector. Several amendments were introduced into the reviewed CBN Code. Noteworthy among these are the following:

  • Submission by financial institutions of quarterly report of compliance with the CBN Code within a specified deadline.
  • Prescription of a minimum of five board members for discount houses whereas the previous code was silent on this. The CBN Code further stipulates that no two members of the same extended family shall occupy the positions of chairman and MD/CEO or executive director of a bank and chairman or MD/CEO of a bank’s subsidiary at the same time.[6] This position was not considered in the previous code.
  • CBN’s approval must be granted before certain acts are done e.g increase in shareholding above 5%, approval of board committees’ charter, notification of review of whistleblowing policy after three years, appointment or removal of chief compliance officer or head of internal audit of financial institutions among others.

Penalties for non-compliance with the CBN Code involve imposition of fines on defaulting individuals and organizations and disapproval of specific acts of non-compliance.

Code of Corporate Governance for Licensed Pension Operators

The Code of Corporate Governance for Licenced Pension Operators (PENCOM Code) is the corporate governance regulatory framework for the administration of Pension Fund Administrators and Custodians administered by the National Pension Commission.

Although the PENCOM Code does not have an elaborate outlay when compared with the other codes, it specifically deals with issues that may arise from the board and seeks to ensure transparency in the pension administration sector. The PENCOM Code deals directly with issues ranging from board composition to appointment and responsibilities of directors. It is prescriptive in nature; it enjoins insurance companies to ensure adherence to the provisions of the Code.

The National Code of Corporate Governance

The discrepancies in the standard prescribed by the aforementioned corporate governance codes led corporate governance experts to recommend a harmonized corporate governance code applicable in the different sectors. The harmonized code called the National Code of Corporate Governance (National Code) expected to become operational in the first quarter of 2015 is yet to be released.

Apart from being a comprehensive document that would be applicable across different sectors, the National Code is expected to prescribe higher corporate governance standards and a strong penalty regime. While the motive behind the National Code is laudable, it is reasoned that different sectors may require different modalities in their corporate governance frameworks hence on the long run, applicability of the National Code to novel circumstances in the various sectors may be called into question.

It is therefore submitted that considering the reasons behind the harmonization of the different corporate governance codes, it is expected that compliance with the provisions of the National Code, when it becomes operational, would ensure more business sustainability and corporate success in Nigeria.

[1]The Code became operational in 2003 and was reviewed in 2011

[2]Section 1.1 of the SEC Code

[3] Section 5.04 (I) of the NAICOM Code

[4]Section 5.09 of the NAICOM Code

[5]Section 5.07 (iv) of the NAICOM Code

[6]Section 2.3.3 of the CBN Code


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