In March, Nigeria’s Financial Reporting Council published the draft 2016 National Code of Corporate Governance, which harmonises and unifies the corporate governance codes published by a number of regulators in Nigeria. The new Code has three sections: one for the public sector, one for the private sector, and a third for not-for-profit organisations.

We analyse below that part of the Code that applies to companies in the private sector; it is mandatory and divided into the following chapters:

1. Board of Directors

Responsibilities of the board

• The board shall be in charge of leading the company, of ensuring that senior management acts in the interest of its shareholders and stakeholders, and of enhancing and sustaining the value of the company over time. To this end, it will carry out its functions with leadership, integrity and good judgment.
• It shall serve as a link between shareholders and the company.
• It shall ensure the establishment of a succession plan for both its members and senior management.
• It shall be responsible for the board members receiving clear, appropriate and timely information in order to prepare their meetings.
• It shall meet with non-executive board members privately, without the presence of company executives.

Structure and composition

• The board shall be of a sufficient size relative to the scale and complexity of the company’s operations and be composed of directors with diverse profiles, experience and gender.
• It shall include a combination of executive and non-executive directors. In particular, executive directors may not represent more than a third of all members; non-executives should make at least two thirds of the total, with at least half of these being independent directors.
• The board should have at least eight members.
• The board shall appoint one of the independent non-executive directors as the lead director, who will serve as an intermediary between the other directors and the Chair of the board, when necessary; and between the board and the company shareholders.

Members of the board

Chair

• Must be a non-executive director.
• The positions of Chair of the board and CEO may not be held by the same person, and their responsibilities must be clearly defined.
• The company CEO may only become Chair of the board after 10 years have elapsed since being CEO.

Executive Directors

• Will be involved in the day-to-day operations and management of the company.
• Their remuneration must be linked to their performance and to company results. It will be disclosed in the annual report.
• They may not be members of the appointments and governance, remunerations or audit committees.   

Non-Executive directors

• Chosen on the basis of the experience and specialist knowledge they can bring to the company.
• Responsible for the CEO's performance evaluation.
• Led by the lead director, they will also be responsible for the performance evaluation of the Chair.
• Shall have unfettered access to executive directors, the company secretary and the internal auditor.

Independent Non-Executive Directors

• They will be chosen to bring objectivity into the company.
• Their condition as independents will be reviewed annually and this will be published in the annual report, in the corporate governance report and in the company webpage.

Appointment of directors

• The board shall approve a formal, rigorous and transparent procedure for appointing directors, and should specify the criteria used in their choice.
• The appointments committee shall guide the process of appointing directors, in support of the board.  

Meetings

• The board should meet at least once a quarter.
• Every director must attend at least 2 or 3 of the meetings held.

Committees

• The board may appoint committees to support its roles, the composition of which should be reviewed every 3 years.
• The committees that must be set up are; an appointments and governance committee, a remunerations committee, an audit committee and a risk committee.
• The Chair of the board may not preside any of the committees and no director may serve on more than two committees from the following: appointments and governance, remunerations and audit.
• All committees will be chaired by an independent director.
• The appointments and governance, remunerations and audit committees will each have at least 3 non-executive members, with a majority of independent directors.
• The risk committee will be composed of a majority of executive directors, and at least one of them shall be independent. A member of senior management will be responsible for the risk function, and will report directly to the risk committee.
• These committees may convene as often as their statutes stipulate, except for the audit and risk committees, which must meet at least once a quarter.
• Only the Chair and the members of the committee in question may attend their meetings.

Induction and training plan

• The board must establish an induction programme for the directors who join the company.
• Similarly, there must also be a training plan to bring director's’ knowledge and skillsets up to date.
• The training courses will be published in the annual report.

Term of office and re-election of board directors

• Board directors must stand for re-election at least once every 3 years.
• Non-executive directors may not hold the position for longer than 12 years.
• Executive directors may not hold the position for longer than 15 years.
• In order to conserve their independence, independent non-executive directors may not serve in the company for longer than 9 years.

Annual performance evaluation

• The activity of the board, its committees and its individual directors will be assessed every year.
• At least every three years, the assessment should engage the services of an external consultancy.
• The lead director, in addition, will be responsible for leading the meetings between non-executive directors in order to assess the annual performance of the Chair.
• The result of the performance evaluation must be disclosed in the annual report.

2. Risk management and audit

Risk management

• The board will be responsible for approving the risk management and risk appetite policies.
• It must ensure that the risk policy is integrated at all levels of the company, and will prepare regular reports to assess effectiveness.
• The risk management policy will be published in the annual report.

Internal audit function

• All companies must set up the internal audit function, clearly defining its functions and responsibilities in an internal audit charter approved by the board.  
• The Head of the Internal Audit unit will be a member of senior management, who will report directly to the audit committee.
• The Head of the Internal Audit Unit shall report at least once a quarter to the audit committee on the adequacy and effectiveness of management, governance, risk and control environment, as well as on the deficiencies observed.
• The internal audit function will develop an annual plan to audit risk management, which will be approved by the audit committee.
• There is to be an external assessment of the effectiveness of the internal audit function at least once every three years by an independent external adviser.

Whistle-blowing

• There should be a whistle-blowing policy, which the board will ensure is in place throughout the company.

External auditors

• The audit committee will be responsible for recommending to the board the appointment, reappointment and removal of external auditors.
• This firm will provide its services to the company for a maximum of 7 years, and may be reappointed once another 7 years have passed after their disengagement.
• The audit partners assigned by the external audit firm to provide their services to the company must rotate every 3 years.

3. Relationship with shareholders

• The board must ensure continuous dialogue with shareholders in the company, to protect their interests, guarantee their rights are treated fairly and, in particular, to protect minority shareholders.   
• The Annual General Meeting will be a key channel to communicate with investors and encourage their participation.
• It should be convened with at least 21 days' notice.

4. Relations with other stakeholders

• Companies shall disclose all transactions between related parties.
• The board will have a policy on managing conflicts of interest.
• Companies should bear in mind the interests of all stakeholders: employees, creditors, customers, suppliers, regulators, among others.

5.Transparency

• In line with governance best practice, companies should publish in an annual report all financial and non-financial information required in the Code: issuance of share capital, financial statements, corporate governance (composition of the board, number of meetings held, the names of the company secretary and senior management members, diversity policies, board functions, results of the annual evaluation, among others), risk management and internal control, CSR policies, transactions with related parties, etc.
• Similarly, every year an external evaluation should be carried out as to how corporate governance practices are followed in the company.
• The report of this evaluation will be presented at the Annual General Meeting and a copy sent to the regulator; it will also be available on the company’s investors’ portal (shareholders, stakeholders and general public).

6. Code of Business Conduct and Ethics

• Companies must define a Code of Business Conduct and Ethics, which is applicable to all members of the same.

Nigeria’s Financial Reporting Council gives a 30-day window for stakeholders to make comments to the draft code and the new Code is scheduled to pass into law on 1st July 2016.

 

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