The Status and Role of an Alternate Director Under the Nigerian Corporate Governance

Introduction

The abuse of the role and status of an Alternate Director and its stultifying effects on the Corporate Governance practices in Nigeria forms the bedrock of this work. An alternate director in Nigeria is no more than a director created pursuant to the Memorandum and Articles of Association (the MeMart) of a Limited Liability Company. The provisions of the Companies and Allied Matters Act (the CAMA), cap C20, LFN, 2004 on an alternate director is copiously missing. The Companies Regulation 2012, made pursuant to S. 16, 585 and 609 of the CAMA, LFN 2004 also makes no reference to alternate directorship. An alternate director by law and regulations are not permitted to execute statutory forms of the Corporate Affairs Commission (CAC) since they are not recognized by the CAC. For instance, FORM CAC 7A (Notice of Change of Directors or in the name, residential address or postal address of director) makes no provision for the position of an alternate director. We doubt therefore if an alternate director can execute a form CAC 7A or any other statutory or official documents without being queried by the statutory body. This is indeed a limitation to the performance of his role(s) as an alternate. The paper therefore seeks to evaluate the scope of his roles and status as a director within the practice of its usage in our corporate governance. In discussing this further, we will attempt to reflect a multi-jurisdiction view of its art and practice.

Discourse

All companies in Nigeria are required under the law to have at least two directors.¹³ By virtue of the CAMA, a director includes any person occupying the position of director by whatever name called, and includes any person in accordance with whose directions or instructions the directors of the company are accustomed to act.¹⁴ A director may be a shadow director, ¹⁵ alternate director ¹⁶, executive,¹⁷ and non-executive. ¹⁸ Singapore’s Companies Act ¹⁹ defines a ‘director’ to include alternate director. This is not so in Nigeria. Nevertheless, the right to appoint an alternate director in Singapore is subject to the articles of association of the company.

The rationale behind the evolution of alternate directorship in Nigeria is quite important. There is little or no copious literature on this. However some writers have indicated that prior to the coming into force of the CAMA in 1968 (and subsequent amendments), multi-national companies which had local subsidiaries whose directors were non-residents as a matter of business expediency and convenience established a mechanism through which they were represented in the meetings of the companies in order to ensure that the activities of the Companies were not shut down on the altar of their unavailability to attend meetings. They achieved this by giving notice to the company of an appointment of another director or other persons to act in their stead at the meeting(s).²⁰

The practice of alternate directorship is also consistent with other corporate jurisdictions outside Nigeria ²¹. However, the power of a director to appoint an alternate director must be provided for in the MeMart, otherwise, any appointment in the absence of such provision in the MeMart may not be recognized.²²

In Nigeria, the creation of the position of an alternate director is indeed meant to serve some urgent administrative needs. Customarily, an executive director is not allowed to appoint an alternate. This is because, as an executive director he is expected to be actively involved in the day-to-day activities of the company ²³. Alternative Director is not proxy but a substantive position. ²⁴ The Alternate ceases to hold office whenever the substantive Director ceases to hold office. The role of an alternate director in practice is typically limited to receiving notices, attending meetings and voting as a director at any meeting where the director appointing him is not personally present.

In the United Kingdom ²⁵, subject to the provision of the MeMart of the company, alternates are deemed for all purposes to be directors and they have fiduciary duties to the company. One notable limitation placed on his powers and duties is that he is only permitted to sign a written resolution of a meeting provided that his appointor did not sign. ²⁶

The provision of Article 82 of the Standard Table A, Fourth Schedule to the Singapore Companies Act on the rights, duties and powers of an alternate director is significantly consistent with the prevalent practice of it in Nigeria. However, regardless of its merits, its potential for abuse is indeed critical.

Evidence abounds in Nigeria where Limited Liability Companies would clearly evade legal obligations using alternates. For instance, the Financial Reporting Council of Nigeria Act, 2011 provides that the Financial Statements of a company must be signed by officers of the company who have been licensed and paid their registration fees. However, to evade such legal obligations, companies now, utilize the option of scouting for or unethically recruiting such professionals that have registered with the Financial Reporting Council of Nigeria by appointing them alternate directors to their own company’s directors who may not have registered ²⁷.

For the purpose of this work, the MeMart of more than ten limited liability companies in Nigeria were examined and they all restricted the role of an alternate director to receiving notices, attending meetings and voting at such meeting(s) where the director appointing them is not physically present. We doubt if an alternate, for instance, would be granted the powers to execute official documents for and on behalf of the company considering the fact that he is not usually listed as a director on CAC form 7A being the statutory returns usually made to the CAC on the names and addresses of all Directors of a Company.²⁸

Furthermore, in Nigeria, by virtue of the Companies Regulations, 2012, made pursuant to sections 16, 585, and 609 of the CAMA an alternate director is not recognized as a director of a limited liability company even though it could be inferred from the CAMA in section 567 that an alternate director is for the purposes of the CAMA a director. Nevertheless, an alternate director might still not be able to execute statutory forms and documents that are required to be filed with statutory bodies in Nigeria, because, in practice, if he does, such documents will not be accepted for filing and will undoubtedly be queried.

It appears that there is an implied non-recognition of this practice by the CAMA and the Companies Regulation 2012. Be that as it may, we advocate the outright prohibition of the practice of alternate directorship by the next review of the CAMA and the Companies Regulations 2012, as it was recommended in the Report on the Reform of the Nigerian Company Law issued by the Nigerian Law Reform Commission in 1991 which culminated in the promulgation of the Companies and Allied Matters Decree 1990 (now known as the CAMA, (Cap. 20, LFN 2004). In the justification of the prohibition, it is our contention that both executive and non-executive directors may not be able to justify the appointment of an alternate director for any reason. An executive director by virtue of the Code of Corporate Governance for Public Companies, 2011 being an officer that is involved in the day-to-day management of the company cannot abdicate such responsibilities. Abdicating his responsibilities will indeed erode the foundation of his corporate governance obligation of accountability and transparency.²⁹ On the other hand, a non-executive director is an independent director who is usually appointed based on expertise, experience, and integrity. Given that understanding therefore, he cannot transfer such responsibilities to an alternate, who in most cases may not possess the requisite qualification, expertise, integrity and experience on the basis of which the substantive director was himself subjected to before his appointment as a non-executive director. ³⁰

Flowing from the foregoing therefore, it is our view that the practice of alternate directorship be expressly prohibited by the CAMA or the Companies Regulations, 2012 to abate the stultifying effects it may portend for the corporate governance system in Nigeria.

12. This Article is co-authored by Innocent Abidoye and Aniebiet-Abasi Ubon.
13. S. 245 of CAMA, LFN 2004
14. S. 567 of CAMA
15. S. 245 of CAMA
16. No provision for alternate director is provided for under the CAMA and the Companies Regulation, 2012 made pursuant to S. 16, 585 and 609 of CAMA. However in the UK, the Model Articles for public Companies by virtue of paragraphs 15, 25, 26 and 27 provides for appointment, removal, rights and responsibilities as well as termination of an alternate directorship.
17. Executive directors are directors involved in the day-to-day running of the Company. An executive director’s position is usually created in practice for administrative convenience. His appointment is usually by service contract wherein his schedules of roles and obligations are stipulated. For further reading, see B. Hannigan, ‘Company Law’ (Oxford University Press, Second Edition, United States, 2009) p. 116; The case of Harold Holdsworth & Co (Wakefield) Ltd v. Caddies (1955) 1 ALL EK 725N. See N. C. S. Ogbuanya,’ Essentials of Corporate Law Practice in Nigeria’ (Novena Publishers Ltd, Lagos, Nigeria, 2010) p. 32.
18. Non-executive directors are directors that are not usually involved in the day-to-day management of the company but by virtue of their participation in board meetings, they tend to play managerial and strategic roles to the company. For further reference, see Sweeney-Bawd ‘The Role of the Non-Executive Directors in Modern Corporate Governance’ (2006) 27 Co Law 67; B. Hannigan ‘Company Law’ supra note 5 and N.C.S. Ogbuanya supra Note 5.
19. section 4(1)
20. N. Ofo, “Companies and Allied Matters Act: The fate of alternate directors” posted online 29th of January 2013 at http://thecorporateprof.com/companies-and-allied-matters-act-the-fate assessed on 9th of March 2015.
21. In the United Kingdom, there is provision for appointment, removal, rights and responsibilities of an alternate directorship under paragraphs 25 – 27 thereof; Model Articles for public companies in UK. Similar provision is recognized under S. 4(1) of the Singapore Companies Act. No similar provision is made for alternate directorship under our law in Nigeria.
22. J. O Orojo, ‘Company Law and Practice in Nigeria’ (Lexis Nexis, Butterworths, 2008) p. 248.
23. We doubt if the CEO/MD who is an executive director may appoint an alternate. In practice, our experiences with the multinational companies indeed reassure us that such is highly unlikely.
24. See, N.C.S. Ogbuanya (supra note 5) p. 327.
25. Schedule 3 (Regulation 4) – Model Articles for public companies made pursuant to the Companies Act 2006
26. See Paragraph 26(3) (b) of the UK Schedule 3 (Regulation 4) Model Articles for public companies made pursuant to the Companies Act 2006.
27. See generally, sections 58, 59 and 62 of the Financial Reporting Council of Nigeria, Act 2011
28. Alternate Directors are usually appointed through mechanism whereby the principal director nominates another person as his or her alternate. The notice is presented to the board for approval. The approval is usually by way of board resolution which is not filed with the CAC, being the only repository authority lawfully mandated to have all corporate information on all limited liability companies in Nigeria.
29. The primary objective of corporate governance is to ensure accountability. This implies that all those charged with the duty and responsibility of directing, managing or controlling the affairs of companies are fully held accountable for their actions or inactions at all times. Meetings of Board are usually one of the avenues where each director, especially the executive directors render accounts and give a rundown of their activities and are held accountable for their actions and inactions. Where an alternate is appointed to fulfill this purpose, the whole essence of corporate governance which is built on accountability would have been eroded.
See, paragraph 5.4 of the Code of Corporate Governance for Public Companies, 2011. In most cases, during such board meetings where an alternate stands in for the substantive director of the company one finds that he is constantly on the phone, because he is completely oblivious as to what role he has to play, this, to us, is a contravention of the core principles of good corporate governance standards as provided for in the code which are required of a non-executive director and a clear negation of his primary duty to the company, since his alternate might lack the expertise, integrity, experience and independence which are the prerequisites for his appointment as a non-executive director.