INTRODUCTION
I feel highly honoured to be invited to handle this session
of your annual conference on the sub-theme
“Composition, Size, and Diversity: Multiple Roles of
Corporate Boards. I commend your choice of
“Governance, Regulation and Compliance: Beyond
Rhetorics” as the theme of this Conference. The theme is
contemporary and very relevant to current corporate
governance reforms that our nation needs. I would like
to commend the increasing visibility and greater
relevance to corporate governance issues that ICSAN has
achieved in recent times, in so doing, I congratulate your
President, Mr Hakeem Ogunniran, a thorough-bred and
multi-faceted professional and business leader, my
colleague at UACN. Mr President, I think it would not be
out of place to also state that ICSAN under your
leadership has re-discovered the pivotal and prominent
role it should be playing in fostering good corporate
governance practice in Nigeria. For the above and for this
Conference, I congratulate The Council and Members
of The Institute of Chartered Secretaries and
Administrators of Nigeria.
The case has never been stronger for Boards to review
corporate governance and by implication composition, size,
diversity and multiple roles of the corporate Board. The
question is, could corporate Boards possessing sufficient
knowledge, diversity of experience and independent minded
have mitigated somewhat the scandals that has fixated our
global and local corporate landscape of recent? From Enron,
Worldcom, Adelphia, Parmalat, Global Crossing, Ahold and
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sadly closer home Cadbury, Wema Bank etc. In the wake of
all these, we have had SOX in US and Higgs in UK, new
corporate governance regulations setting out rules that
public company Boards should live by. Boards are now
supposed to be more sceptical, more independent and
generally less under the influence of the CEO – whom as we
now see, they are more prepared to dispose of when
circumstances warrant. Boards are supposed to be tougher
on remuneration issues, audit related matters, and on
protecting the shareholders’ interest in general.
The
business environment today is characterised by the
following; increasing business complexity, diversity of risks,
global competition and market place, legal and regulatory
compliance issues, changing internal workplace and market
dynamism. These factors make the role of Boards and the
whole context of corporate governance acquire added and
urgent significance.
Permit me to do a quick take on corporate Governance
so that we can all be on the same wavelength
conceptually.
Unfortunately, attempts at reinforcing corporate
governance in Nigeria had always been reactive and not
proactive. The first of such efforts in the wake of the
failed banks was the enactment of the Failed Bank
(Recovery of Debts) and Financial Malpractices in Banks
Acts Cap F2, Laws of the Federation of Nigeria, 2004.
The Nigerian Code of Corporate Governance was put in
place in 2003 after the alleged misstatement of accounts
in Lever Brothers Plc. Certain provisions of the US
Sarbanes-Oxley Act, 2002 on corporate responsibility and
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others were imported into the recently enacted
Investments and Securities Act, 2007 after the alleged
misstatement of accounts in Cadbury Nigeria Plc. It is
clear as is in most emerging markets that institutions
that help to guard against corporate malfeasance –
securities regulators, stock exchange, the judiciary,
institutional investors, equity analyst, accountants, and a
probing media are still relatively weak or lack critical
mass. Boards therefore must be built to offer a robust
line of defence.
Corporate Governance
Corporate Governance is the way in which the affairs of
companies are conducted by those charged with the
responsibility, relative to what is considered best
practice. It is about how an organisation is managed, its
corporate and other structures, its culture, its policies
and the ways in which it deals with its various
stakeholders.
It is concerned with structures and
processes for decision-making and with the control and
behaviour that support effective accountability for
performance outcomes/results” - Pat Barret.
“An internal system encompassing policies, processes
and people, which serves the needs of shareholders and
other stakeholders, by directing and controlling
management activities with good business savvy,
objectivity and integrity. Sound corporate governance is
reliant on external market place commitment and
legislation, plus a healthy Board culture which safeguards
policies and processes” – Gabrielle O’Donovan.
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While there is no single model of good Corporate
Governance, the Organisation for Economic Cooperation
and Development (OECD) has identified some common
elements.
 The responsibilities of the Boards should include the
protection of rights of shareholders (including minority
and foreign shareholders) and of stakeholders;
 The timely and accurate disclosure of a company’s
financial condition, performance, ownership, and
governance;
 The effective monitoring of management.
 Boards must be accountable to the company and to
the shareholders.
As has been aptly noted by Neville Bain “the success of
the Board will largely be a function of the quality and
diversity of experience and skills of the non-executive
directors” (Neville Bain: “The Effective Director”). This
accurate statement on the composition of the corporate
and the chemistry of the people that make up corporate
Boards underscores the saliency of my topic in the light
of recent and unfolding developments in the field of
corporate governance globally. It is also noteworthy that
the Securities and Exchange Commission has also
recently set up a Committee to review the 2003 Code of
Best Practice on Corporate Governance in Nigeria
(hereinafter called “the Nigerian Code”). This is welcome
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even if late, in view of the need to strengthen the
corporate governance structures of public companies and
the regulatory framework.
The fundamental functions of Boards include reviewing
the company’s strategy and corporate performance;
selecting, compensating, and monitoring the highest
levels of management; managing actual and potential
conflicts of interest; ensuring the integrity of the
company’s accounting and financial reporting activities;
monitoring the Board’s own effectiveness; and
overseeing
financial
disclosure
and
corporate
communications.
So my friends, Boards have clearly 3 roles
1.
Manager – monitoring role
2.
Relational Role
3.
Strategy Role Must therefore be populated and
structured to ensure fit for purpose. In addressing
these multiple roles, developments have taken place
in Board structure, composition and practices such
as:i.
Increase in percentage of outside Directors (NED)
on corporate Boards and Board Committees.
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ii.
Board Committee have been formed to specialise
in area where managerial oversight is very
important
(Investment,
Risks,
Audit,
Remuneration, Governance etc).
iii.
Limiting the number of directorships that Board
members may simultaneously fill.
iv. Presence of shareholder reps on Boards in
addition to Board memberships of persons who
assist corporations in relating to non-shareholder
stakeholders.
v.
Diversity in membership (culture, gender, race,
geography) to bring diverse perspectives to
improve quality decision making in addition to
providing the signal to society of the values of the
company.
vi. Business review from strategic management
perspective as a focus area for Boards beyond just
subsuming same under the relational and
managerial oversight role.
(Business Review
Committee which seeks to use peer group decision
making on strategic management issues) and if
necessary taking of independent professional
advice at the company’s expense.
Significant issues for consideration are the quantity,
quality and skill/experience mix of directors who
make up corporate Boards and the structure of the
Boards themselves. While discussing the Nigerian
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position, I will also highlight the position in some other
jurisdictions and international best practice.
I intend to address the topic under the following subheadings:
1)
THE ROLE OF THE BOARD
Section 244 of Companies and Allied Matters Act cap
c20 Laws of the Federation, 2004 (“CAMA”) provides
that directors of a company registered under the
Act are persons duly appointed by the company to
direct and manage the business of the company.
The specifics of the roles of the corporate Board are
not stated anywhere in the Act. Section 650 of CAMA
defines a director to include 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.
The Canada Business Corporations Act, 1985 as
amended in 1994 provides in its section 102(1) that
subject to any unanimous shareholder agreement,
the directors shall manage or supervise the
management of, the business and affairs of a
corporation.
Paragraph 4(a) of the Nigerian Code however states
that “the Board should have a formal schedule of
matters specifically reserved for it to ensure that the
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direction and control of the company is firmly in its
hands”. This in line with international best practice.
The Nigerian Code goes further to state the
responsibilities of the Board of directors as follows:
b)
the Board of Directors should be responsible for
the affairs of the company in a lawful and
efficient manner in such a way as to ensure that
the company is constantly improving its value
creation as much as possible.
c)
the Board should ensure that the value being
created is shared among the shareholders and
employees with due regard to the interest of the
other stakeholders of the company. The Board’s
function should include but not limited to the
following:
i)
ii)
strategic planning
selection, performance appraisal and compensation
of senior executives
iii) succession planning
iv) communication with shareholders
v) ensuring the integrity of financial controls and
reports
vi) ensuring that ethical standards are maintained and
that the company complies with the laws of Nigeria.
The Board should ensure that the membership of the
Board is refreshed to reflect a company’s changing needs
and to preserve objectivity and independence. A major
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responsibility of the Board is to ensure that the right
person is appointed as the Chief Executive Officer to lead
the company. The Board should also plan for his
succession by another competent person with the right
skill mix.
Under the Financial Reporting Council, The Combined
Code on Corporate Governance 2006 (hereinafter called
“The UK Code”), A.1 states that every Company should
be headed by an effective Board, which is collectively
responsible for the success of the Company.
Under the supporting principle to the paragraph, it is
stated that the Board’s role is to provide entrepreneurial
leadership of the Company within a framework of
prudent and effective controls which enable risk to be
assessed and managed. The Board should set the
Company’s strategic aims, ensure that the necessary
financial and human resources are in place for the
company to meet its objectives and review management
performance. The Board should set the company’s values
and standards and ensure that its obligations to its
shareholders and others are understood and met.
In Higgs Suggestions for Good Practice, apart from the
expectations from all directors of the Board, it was stated
that the role of the non-executive director has the
following key elements:
 Strategy.
Non-executive
directors
should
constructively challenge and help develop proposals
on strategy.
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 Performance. Non-executive directors should
scrutinise the performance of management in
meeting agreed goals and objectives and monitor
the reporting of performance.
 Risk. Non-executive directors should satisfy
themselves on the integrity of financial information
and that financial controls and systems of risk
management are robust and defensible.
 People. Non-executive directors are responsible for
determining appropriate levels of remuneration of
executive directors, and have a prime role in
appointing, and where necessary removing,
executive directors and in succession planning.
Quoting from “Standards For The Board”, an IOD
Publication, Bain summarised the key tasks of the Board
as follows:
 establish and maintain vision, mission and values;
 decide the strategy and the structure;
 delegate authority to management and monitor and
evaluate the implementation of policies, strategies
and business plans;
 account to shareholders and be responsible to
stakeholders.
In order to continue to add value to the company, the
corporate Board should annually review its
performance and those of its committees. Although,
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the Nigerian Code is silent on this, in line with
international best practice it is provided for in other
local codes. Paragraph 4.5.1 of the Code of Corporate
Governance for Licensed Pension Operators (“Pencom
Code”) provides that “the Board shall on an annual
basis undertake a formal and rigorous evaluation of its
own performance and that of its committees and
individual directors”. The same is provided for in
paragraph 5.4.5 of the Code of Corporate Governance
for Banks in Nigeria Post consolidation (“CBN Code”).
2)
SEPARATION OF CHAIRMAN & CEO
POSITIONS
To have an effective Board, best practice states that
the positions of the Chairman and the CEO should be
separated and held by different persons (paragraph
2b of the Nigerian Code). While the Chairman leads
and runs the Board; the CEO leads and runs the
management of the Company. Paragraph 2(d) of the
Nigerian Code states that the Chairman’s primary
responsibility is to ensure effective operation of the
Board and should, as far as possible, maintain a
distance from the day to day operations of the
company, which should be the primary responsibility
of the CEO and the management team.
Paragraph A.2 of the UK Code states that there
should a clear division of responsibilities at the head
of the company between the running of the Board
and the executive responsibility for the running of
the company’s business. No one individual should
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have unfettered powers of decision. Most companies
in Nigeria today have implemented the separation of
the positions of Chairman and Managing Director.
3)
BOARD COMMITTEES
Section 263(5) of CAMA recognises that the Board
can delegate any of its powers to a Managing
Director or to committees consisting of such
member(s) of their body. The Nigerian Code
provides for only the remuneration and audit
committees (paragraphs 1, 7, and 8). The CBN Code
provides for a minimum of risk management, audit
and credit committees of the Board (paragraph
5.312). The Pencom Code provides for audit,
investment strategy, risk management and
nominating committees of the Board (paragraph
4.4.4). Best practice Codes however provide for the
Governance/remuneration, nomination and audit
committees of the Board. In line with international
best practice, the terms of reference and
accountabilities of the Board Committees should be
clearly documented. Board Committees should be
composed of people with the relevant skills and
experience who can add value to its deliberations
and work.
4)
THE COMPOSITION OF CORPORATE BOARDS
Corporate Boards are typically made up of executive
directors who hold management positions and nonexecutive directors (sometime called outside
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directors). The non-executive directors can be
independent directors or representatives of majority
or minority shareholders. Let us review the
provisions of the law and Codes on the composition
of corporate Boards and the proportion of executive
directors to non-executive directors.
Paragraph 1 of the Nigerian Code on the
composition of the Corporate Board states as
follows:
“As much as possible, the Board should be
composed in such a way as to ensure diversity of
experience without compromising compatibility,
integrity, availability and independence.
a) The Board comprise of a mix of Executive and NonExecutive Directors headed by a Chairman of the
Board, so however as not to exceed 15 persons or
be less than 5 persons in total.
b) The members of the Board should be individuals
with upright personal characteristics and relevant
core competencies, preferably with a record of
tangible achievement, knowledge on Board matters,
a sense of accountability, integrity, commitment to
the task of corporate governance and institution
building, while also having an entrepreneurial bias”.
The CBN Code (paragraph 4.11) states that all directors
should be knowledgeable in business and financial
matters and also possess the requisite experience.
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Under paragraph A.3 of the UK Code, the Board should
include a balance of executive and non-executive
directors (and in particular independent non-executive
directors) such that no individual or small group of
individuals can dominate the Board’s decision-taking.
Bain says that in deciding on Board composition, the
factors to consider should include the ratio of nonexecutive to executive directors; the future needs of the
business looking at the energy, experience, knowledge,
skills and personal attributes of current and prospective
directors; and the cohesion of the Board and the
chemistry between the directors when making the
appointment.
The UK Code in paragraph A.4 states how appointment
to the Board should be made. It provides that there
should be a formal, rigorous and transparent procedure
for the appointment of new directors to the Board. The
Supporting Principles are to the effect that appointments
to the Board should be made on merit and against
objective criteria. Care should be taken to ensure that
appointees have enough time available to devote to the
job. This is particularly important in the case of
Chairmanships. Clause A.4.1 then states that there
should be a nomination committee which should lead the
process
for
Board
appointments
and
make
recommendations to the Board.
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The Nigerian Code provides in paragraph 9(j) that “as far
as possible, there should be at least one director on the
Board representing minority shareholders”.
Section 5.3.6 of the CBN Code states that “at least two
(2) non-executive Board members should be independent
directors (who do not represent any particular
shareholder interest and hold no special business interest
with the bank) appointed by the bank on merit”.
In the Guidelines For the appointment of Independent
Directors circular dated October 26, 2007 issued by the
CBN it was stated in paragraph (a) that “an independent
bank director, would be a member of the Board of
Directors who has no direct material relationship with the
bank or any of its officers, major shareholders,
subsidiaries and affiliates; a relationship which may
impair the director’s ability to make independent
judgments or compromise the director’s objectivity in line
with Corporate Governance best practices”.
The Pencom Code provides in paragraph 4.1.2 that each
Board shall have at least one independent director.
Paragraph A.3.1 of the UK Code also provides for
independent director. It states that the Board should
identify in the annual report each non-executive director
it considers to be independent. The Board should
determine whether the director is independent in
character and judgment and whether there are
relationships or circumstances which are likely to affect,
or could appear to affect, the director’s judgment. It
states further in paragraph 3.2 that except for smaller
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companies, at least half the Board, excluding the
Chairman, should comprise non-executive directors
determined by the Board to be independent. A smaller
company should have at least two independent nonexecutive directors. Under paragraph A.3.3 The Board
should appoint one of the independent non-executive
directors to be the senior independent director. The
senior independent director should be available to
shareholders if they have concerns which contact
through the normal channels of chairman, chief executive
or finance director has failed to resolve or for which such
contact is inappropriate.
5)
SIZE OF CORPORATE BOARDS
In practice, the composition and size of corporate
Boards vary from company to company. Corporate
Boards are made up of Directors with differing skills
depending on the regulatory and legal regime in the
sector where the company is playing and whether it
is a private company or a quoted public company
which is regulated by the listing rules of the Nigerian
Stock Exchange and the regulations of SEC made
pursuant to the Investment and Securities Act, 2007.
Some companies deliberately provide for national
spread and regional balance. The Boards of
Government owned Bodies are by the 1999
Constitution of Nigeria and the Federal Character
Commission (Establishment, etc) Act Cap F7 Laws of
the Federation of Nigeria, 2004 required to reflect
federal character in composition and staff structure.
The Boards of companies with a single shareholder
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are usually composed of Directors who serve on the
Board at his pleasure. By nature that will be a weak
Board. Large institutional investors and private
equity providers will normally request for one or
more seats on the Board so as to protect their
investment and achieve their investment objective of
value creation and exit strategy.
Let us review the provisions of the law and Codes on the
size of corporate Boards.
Section 246 of the Companies & Allied Matters Act, 1990
merely provides that every registered company shall
have at least two directors leaving the discretion on the
maximum number of directors to be defined in the
Articles of Association of any Company, if it so chooses.
Section 154 of the UK Companies Act, 2006 provides that
a private company must have at least one director; while
a public company must have at least two directors.
Under section 201A of the Australian Corporations Act,
2001, a proprietary company (ie one with no more than
50 non-employee shareholders and registered as such)
must have at least one director but a public company
must have at least three directors (not counting alternate
directors).
Under the Canadian Business Corporation Act, it is
provided in section 102(2) that a corporation shall have
one or more directors but a distributing corporation, shall
have not fewer than three directors, at least two of
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whom are not officers or employees of the corporation or
its affiliates.
The CBN Code states the proportion of non-executive
directors to executive directors in paragraph 5.3.5 thus
“the number of non-executive directors should be more
than that of executive directors subject to a maximum
Board size of 20 directors”. (see also paragraph 4.10).
Under the Pencom Code, paragraph 4.1.1 provides that
the number of non-executive members (excluding the
Chairman) of the Board shall at all times, in the minimum
equate the number of executive members, if applicable.
This shall ensure that the Board has a balanced view of
issues at all times.
Paragraph 4.1.6 of the Pencom Code states that the
Board shall not exceed the size that will allow it to
employ simple and effective methods of work to enable
each director to feel a personal responsibility and
commitment. The Board shall take into cognizance, the
scope and nature of the operations of the Company.
Paragraph 4.1.7 then states that the Board shall
comprise of directors, who as a group, provide core
competences that are beneficial to the operations of the
company.
The Articles of Association of companies will usually
provide for the size of the Board. For instance, article 82
of the UACN Articles of Association provides that the
number of directors of the Company shall not be more
than 12.
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The Supporting Principle to paragraph A.3 of the U.K
code states that the Board should not be so large as to
be unwieldy. The Board should be of sufficient size that
the balance of skills and experience is appropriate for the
requirements of the business and that changes to the
Board’s composition can be managed without undue
disruption.
The following statistics show the size of some Nigerian
Corporate Boards and distribution between executive and
non-executive directors:
i)
UAC of Nigeria Plc - 2 Executive Directors; 6 nonexecutive directors including the Chairman (2007
Annual Report)
ii)
Oando Plc-2 Executive Directors; 9 non-executive
directors (2007 Annual Report)
iii) Union Bank Plc-8 Executive Directors; 9 NonExecutive Directors (2007 Annual Report)
iv) Nigerian Breweries-8 Executive; 5 Non-Executive
(2007 Annual Report)
iv) Nigerian Bottling Co Plc-9 Directors (2007
Annual Report)
vii) Ecobank Nigeria Plc- 4 Executive Directors; 8 NonExecutive Directors (2007 Annual Report)
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viii) Unilever Nigeria Plc-5 Executive Directors; 6 NonExecutive Directors (2007Annual Report)
ix) Guinness Nigeria Plc- 6 Executive Directors; 8 NonExecutive Directors (2007Annual Report)
x)
First Bank Plc-7 Executive Directors; 8 Non-Executive
Directors (2007Annual Report)
xi) United Bank For Africa Plc-8 Executive Directors;9
Non-Executive Directors (2007Annual Report)
6)
DIVERSITY OF CORPORATE BOARDS
As we have seen, under the paragraph 1(b) of the
Nigerian Code, appointees to the corporate Boards
should be individuals with upright personal
characteristics and relevant core competences,
preferably with a record of tangible achievement,
knowledge on Board matters, a sense of
accountability, integrity, commitment to the task of
corporate governance and institution building, while
also having an entrepreneurial bias.
People get appointed to corporate Boards either because
of certain innate qualities they possess or the need of the
company at a particular time. Directors get appointed
because of their specialist knowledge or technical
expertise; because they have a good grasp of the
external or global business environment with its market
opportunities; because they can forge contacts and
connections for business opportunities; because of their
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professional knowledge; because they can ably handle
local/community issues/agitation; because they represent
institutional investors on the Board; because they are
eminent persons whose celebrity image can rub-off on
the company; and because they can play a figure-head
role in representing the company externally.
Paragraph 5 of the Nigerian Code states that nonexecutive directors should be of such calibre as to make
constructive contributions and for their views to carry
significant weight in the Board’s deliberations. Nonexecutive directors should bring independent judgment
to bear on issues of strategy, performance, resources,
including key appointments, and standards of conduct.
The skill mix of non-executive directors should reflect the
range of the competency needs of the company.
7)
DIRECTOR’S INDUCTION
The Nigerian Code provides in paragraph 5(vii) that
“newly appointed directors should undergo proper
company and Board orientation and where
necessary be given formal training at the company’s
cost, aimed at making them effective in the
discharge of their duties”. The CBN Code provides
for the regular training and education of Board
members on issues pertaining to their oversight
functions (5.3.3). The Pencom Code in paragraph
4.2.7 also provides for formal induction programme
that is tailored to the needs of the company and
individual non-executive directors (paragraph 4.2.7).
The UK Code provides in paragraph A.5.1 that the
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Chairman should ensure that new directors receive
full, formal and tailored induction on joining the
Board. The induction will assist the newly appointed
directors to understand the company and Board
structure so as to be able to add value to its
business and governance.
8)
BOARD TENURE
The CAMA does not specify a tenure of office for
directors. It merely provide for the retirement of all
directors at the first AGM of the company and
thereafter one-third of the Board to retire annually
depending on how long they have been in
office(section 259). The Nigerian Code provides in
paragraph 5(v) that non-executive directors should
be appointed for a specified period. Reappointments should be dependent on performance.
A Company may by its Articles of Association or a
Board policy define the tenure of office of its
directors.
The CBN Code provides in paragraph 5.3.10 for a
tenure of not more than 3 terms of 4 years each ie
12 years for non-executive directors. On the other
hand, an independent director shall be in office for 4
years for a single term and a maximum of 8 years of
two consecutive terms if elected upon the expiration
of the first term (paragraph g of Guidelines for the
appointment of independent directors).
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The UK Code provides in paragraph A.7 that “all
directors should be submitted for re-election at
regular intervals subject to continued satisfactory
performance. The Board should ensure planned and
progressive refreshing of the Board.
Paragraph A.7.2 states that non-executive directors
should be appointed for specified terms subject to
re-election and removal. It goes further to state that
any term beyond six years (e.g. two three-year
terms) for a non-executive director should be
subject to particularly rigorous review, and should
take into account the need for progressive refreshing
of the Board. Non-executive Directors may serve
longer than nine years (e.g. three three-year terms)
subject to annual re-election. Board tenure ensures
that the corporate Board is refreshed.
CONCLUSION
Some of our corporate Boards are still traditional,
deferential, reactive, passive and focussed on
compliance. In some cases too unwieldy and large and
populated by directors who are clearly non performing
assets, who have passed their sell by or best before
dates, lacking skills and experience which their
responsibilities require. Some of our Boards lack the
diverse perspective needed to challenge the thinking of
management and undermine the quality and variety of
boardroom debate. Some directors sit on many Boards
that you wonder whether they have enough free time to
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devote to Board business of a particular company and
therefore merit the appointment. Executives frequently
think that a good Board meeting is a session at which
their proposals are accepted without challenge and
become intensely focussed on managing relationships
rather than result. Some Chairpersons still, are quite
authoritarian and view dissent as treason thereby actively
discouraging open passionate debate, candid robust
dialogue, lively discussions and frank exchange of views.
Decisions are made and deals done before Board
meetings begin.
Our culture values politeness much more than candour.
Open disagreement is frowned upon and seniority (age)
and hierarchy dictate relations thereby making it
politically incorrect to openly challenge a senior one,
regardless of the merits of the argument.
Increasingly we see a regulatory mindset which in
handling corporate governance fraud, seeks a quick
closure by dismissal of the CEO rather than a resolution
which may require processes reform. Public companies
are under pressure, in an environment such as ours
where ingredients of ethical and moral failure in the
larger society abound thereby exposing directors to
temptation, hubris and human frailties. It is therefore
not surprising to see a high fondness for corporate
hospitality in our Boards thus threatening the
independence of the outside Directors and a cult of
personality developing around some CEOs who dispense
such hospitality. Invariably as it may appear in our
financial services sector, the companies may be working
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for the CEO rather than the CEO working for the
Company. CEO appointments are often seen as a reward
for past loyalties or expectations of future favours by
some directors.
Increasing change in the competitive landscape will
require we make adjustment from the scenario I have
just painted, we must in going forward, seek to build
what can be called value-added Board. This means (1)
Board members have skills that are of significant value to
the management team in the operation of the company.
They are active talented participants (2) Board members
permit efficiency in the company’s operation and
governance, realising that their role is to govern and not
manage or micromanage the company in some cases as
they lack the intimate, knowledge of the company’s inner
working and markets.
Therefore, we will have to populate the Board more
boldly, become less politically correct and more
strategically correct, have on Board people with
substantial firsthand experience with, product, market, or
industry of the company so that debates are knowledge
and fact based and thus short and focussed. Thereby
freeing the CEO to spend more time managing
operations than “bringing the Board members around”
Board recruitment processes and evaluation process be
entrenched so that we can have engaged Boards where
a strong culture exist that allows ideas to flow freely,
constructive dissent is encouraged, trust and respect
among members are high.
Diversity in the ranks
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(perspective, age, gender and background) with people
with deep strategic and industry insight, operational
improvement expertise and functional skills.
Improved focus, so that there is clear division of
responsibility between Board and management and
within Board among the various committees. Roles be
clearly documented to avoid confusion.
In order to attain greater effectiveness of corporate
Boards, the Nigerian Code and corporate governance
framework should be up-scaled to align with international
best practices. The truth is that people, especially the
foreign investors, will only be interested in investing in a
well run company. Assuming as a nation we are serious
about Vision 2020. The starting point is to have well
resourced, effective, value-adding and periodically
refreshed corporate Boards in place in our companies. As
a player in the global village with tremendous crossborder
investment
opportunities,
the
corporate
governance structures within companies must be aligned
with international best practice. The corporate
governance codes and regulatory framework also must
be interlinked with the global business environment and
continuously modernised in line with local circumstances.
What is needed is a proactive and timely response to
corporate governance issues though periodic review of
the local and global business environment and a
corresponding review of corporate governance practices
and regulatory framework. The regulatory bodies
themselves (CAC, SEC, CBN, NAICOM, PENCOM, NASB,
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etc) must be proactive in reading the business
environment and responding appropriately in a holistic
manner in the overall interest of the economy. The
corporate governance structures and regulatory
framework must be robust, contemporary and effective.
The regulators must move from a revenue generation
consciousness/mindset to doing their jobs like their
counterparts around the world in the overall interest of
the economy. A robust public education structure must
be put in place for the investing public to be enlightened
on an on-going basis on their rights and remedies within
corporate governance framework.
Additionally, instead of the current sector-specific
approach, there is the need to harmonise the provisions
of the various Codes (Nigerian Code, CBN Code, Pencom
Code) and align them with international best practice in
order to come up with a more modern and robust
Nigerian Code that will apply to all quoted public
companies in Nigeria. The Nigerian Code should be upscaled to provide for a nomination Committee of the
Board
Regulators should regulate the capital market operators
and not “descend to the arena” by over celebrating “their
successes as our success”. It is important that like the
corporate Boards, that the right people should man the
various regulatory agencies at both management and
Board/Council levels.
As we note, compliance with the CBN Code is expressed
to be mandatory (clause 1.7); same for Pencom as the
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directors of PFAs/PFCs are under obligation to ensure
compliance. However, compliance with the Nigerian Code
is not mandatory. Companies are only required by SEC to
state their level of compliance or otherwise in their
Annual Report & Accounts. Compliance should be
mandatory in line with international best practice.
Finally, in view of the increasing risks and liabilities of
company directors, there is the need for a statutory
amendment in line with section 233 of the UK 2006
Companies Act to empower companies to purchase and
maintain insurance policy for their directors against their
potential liabilities for corporate acts. This is also
provided in paragraph A.1.5 of the UK Code.
Thank you for your attention.
LARRY E ETTAH
Group Managing Director/CEO
Uac of Nigeria PLC
6th November 2008
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