The Securities and Exchange Commission (SEC), in September 2008, inaugurated a committee for the review of the 2003 Code of Corporate Governance for Public Companies in Nigeria to address its weaknesses and to improve the mechanism for its enforceability. In strengthening the regulation of corporate governance in Nigeria, I highlight the following weaknesses/proposed amends to the revised Code:
This new code of corporate governance states that unlike the previous code, it is intended to be fully enforceable by SEC; this is very ambiguous and does not clearly state if the code is mandatory/rule based or still persuasive/principles based. In relation, how does the SEC plan to enforce its provisions? What are the penalties for errant companies?
The minimum number of one non-executive director is too ‘minimal’. Non-executive directors should constitute at least half of the board, to limit the powers/influences of executive management.
The Code’s definition of an independent director has significant limitations, particularly in the Nigerian context. First, 0.1% shareholding representation may still constitute a material influence, particularly in very large companies. Second, there is need for some clarity in the term ‘immediate family’. Also the terms ‘significant supplier/customer’ and ‘significant contractual relationship’ requires quantitative definitions
In relation to multiple directorships, it is unclear if an independent director in a company can serve as an independent director in another company, if both companies are linked with each other.
I also recommend that the section- Governance/remuneration committee be split into:
Nominations committee: to see to section 11.2 (a, b, c, d, g)
Compensations committee: to see to section 11.2 (e, f) + 14.1
Evaluation committee: to see to section 11.2 (h, i, j)
Given the inconclusive evidence on the impact of gender composition in corporate boards on firm performance and good corporate governance, the recommendation of section 13.2 that boards should pay attention to gender composition when appointing board members requires some justification.
In relation to the chairman’s membership of committees, section 5.1 (IV) and (ix) seems to conflict with section 9.4.
In relation to section 14.6, incentives for non-executive directors significantly jeopardize their much desired objectivity. Why should non-executive directors be compensated beyond their salaries?
Section 28.3c: It is perhaps too much responsibility bestowed on the corporation if it has to see to the health of its workers outside of the work place/outside work-related activities
Section 34.4: Why report about the strengths and not the weaknesses?
Section 34.4 (k) corporations should not be saddled with the responsibility of having HIV-AIDS and CSR programmes. Corporations are private entities with, not formed for altruistic purposes! Shareholders should decide what they want their money to be spent on.
Dr. Emmanuel Adegbite, Lecturer in Corporate Governance
Newcastle Business School, Northumbria University, UK.