Introduction

The Financial Reporting Council of Nigeria issued the ‘Nigerian Code of Corporate Governance’ (NCCG) in 2018, replacing all existing sectorial Codes of Corporate Governance in Nigeria. The Securities and Exchange Commission subsequently developed the ‘SEC Corporate Governance Guidelines’ (SCGG). By the nature of their operations and the additional need to protect the investing public, public companies are required to comply with the provisions of the NCCG and the SCGG. It is believed that these guidelines would add to the standards of transparency, accountability and good corporate governance of companies, without unduly inhibiting enterprise and innovation. Key provision of the guidelines will be highlighted below. 

The SEC Guidlines

Directorship

Board Structure and Composition: The Board is to be constituted by a minimum of 5 members, 1 of which should be an independent director, as opposed to the CAMA’s requirement of a minimum of 3. There is also a restriction on multiple directorships capped at 5 public companies simultaneously.  

Family and Interlocking Directorship: To safeguard the independence of the Board, not more than two members of the same family shall sit on the Board of a public company at the same time. For this same purpose, cross membership on the boards of two or more companies is permissible but discouraged. However, where it will lead to a conflict-of-interest situation as in cross-membership(s) on boards of competing companies, then it shall be disallowed. 

Nomination and Governance

The CEO/MD, Executive Directors and the Head of the internal audit unit must be in attendance at the meetings of the Risk Management Committee. 

Board Evaluation

The Chairman shall oversee the annual evaluation of the performance of the Chief Executive Officer. The CEO/MD shall similarly perform an annual evaluation for the Executive Directors based on agreed criteria or performance indicators. 

Renumeration

The Remuneration policy should define a process, if necessary with the assistance of external advisers, for determining Executive and Non-Executive Directors’ compensation. The Board shall approve the remuneration of each Executive Director including the CEO individually taking into consideration direct relevance of skill and experience to the company at that time. 

Where share options are adopted as part of executive remuneration or compensation, the Board shall ensure that they are not priced at a discount except with the authorization of the SEC. In good faith, any such deferred compensation shall not be exercisable until one year after the expiration of the minimum tenor of directorship; and granted as part of remuneration to Directors, the limits should be set in any given financial year and be subject to the approval of the Shareholders in general meeting. 

In addition, companies shall disclose in their annual report, details of shares of the company held by all Directors, including on an “if-converted” basis. This disclosure shall include indirect holdings. In addition, the Board shall undertake a periodic “peer review’ of its compensation and remuneration levels to ensure that the company remains competitive. 

Internal Audit Function

The annual risk-based internal audit plan shall address the broad range of risks facing the company, identify audit priority areas and areas of greatest threat to the company; and indicate the resources and skills available or required to achieve the plan. 

Business Conduct and Ethics

Directors, Management and other employees have an obligation to comply with the principles of the Code of Business Conduct and Ethics at all times, including to: 

Uphold confidentiality, not take advantage of Company property for personal gain or to compete with the company, not engage in conduct likely to bring discredit upon the company and make reasonable enquiries to ensure that the Company is operating efficiently, effectively and legally, towards achieving its goals. 

Sustainability

Companies shall recognise corruption as a major threat to business and to national development and therefore poses a sustainability issue for businesses in Nigeria. Companies, Boards and individual directors must commit themselves to transparent dealings and to the establishment of a culture of integrity and zero tolerance to corruption and corrupt practices. 

Penalties for Non-Compliance

Any Company/Entity that violates the provisions of the SEC Corporate Governance Guidelines shall be liable to a fine of N500,000.00 in the first instance and a further sum of N5, 000.00 for every day the violation persists and or any other sanction as the Commission may deem fit in the circumstance. 

Should you require advice on this subject matter, kindly contact us at info@punuka.com