Check and Balance of Directors’ Powers
As stated earlier, Directors act as Trustees of the company and therefore make decisions as to the day to day running of the company, there exist certain enactments (including the Nigeria code of corporate governance), that seem to mitigate the power of a Director in order to protect the interest of Shareholders, Stakeholders in the company and the company itself.
- Board of Directors:
A charter outlining the tasks of the Board of Directors (the Board) is essential. Furthermore, diversity (including expertise, skill, experience, age, culture, and gender) should be a major factor in the Board’s makeup. Additionally, prospective corporate directors must disclose their participation on other boards, and current directors must report potential appointments to other boards. According to the provisions of section 271 CAMA, every company other than a small company shall have at least two (2) Directors, and by virtue of this provision, no single person will be granted autonomy as to the decision-making process of a company. This gives room for diversity.
- The position of Chairman, Managing Director and Chief Executive Officer:
The Chairman of the Board and the Chief Executive Officer (CEO) should be separate and held by different people, according to the Nigerian Code of Corporate Governance (NCCG). A Non-Executive Director (NED) should occupy the position of the Chairman of the Board. Furthermore, the Code prohibits a company’s Managing Director (MD), CEO, or Executive Director (ED) from later being nominated as its Chairman, save under exceptional circumstances, in which case a period of three (3) years must have elapsed.
- Existence of Board Committees
To ensure efficiency and effectiveness, Boards must form committees such as remuneration, nomination and governance, audit, and risk management, and delegate part of their functions to these committees. Where possible, the functions of two (2) committees can be combined. In this regard, the NCCG recognizes that the audit and risk management committees’ activities are intertwined, and consequently requires that if these functions are delegated to separate committees, one or more members of each committee have dual membership in both.
- Independent Non-Executive Director (INED)
The NCCG mandates that the Board be made up of Independent Non-Executive Directors (INED), who will serve for a maximum of three (3) terms of three (3) years each, and offers a non-exhaustive list of criteria for determining independence, including:
Not being an employee of the company or group within the previous five (5) years, not being a close family member of any advisers, directors, senior employees, consultants, auditors, creditors, suppliers, customers, or substantial Shareholders, and not serving on the board for more than nine (9) years. Furthermore, a Non-Executive Director (NED) cannot be reclassified as an INED.
- Continuing Education and Board Evaluation
Boards are required to conduct formal induction exercises for new directors in order to sensitize them to the company’s operations and business environment, as well as to conduct continuing education programs regularly in order to update directors’ knowledge, and keep them up to date with the evolution in the relevant industry.
An assessment of the Board’s overall performance, individual directors and the Chairman should be conducted regularly.
This evaluation is expected to shed light on the overall situation of the performance of the Board, in furtherance of the company’s objectives and assist in identifying areas for improvement.
- Whistle Blowing
Boards must establish a whistleblowing framework that encourages Stakeholders to report unethical behaviour and violations of any laws or policies to an internal and/or external authority, allowing for verification of such behaviour/violation, and the imposition of appropriate sanctions to prevent a reoccurrence. The whistleblower’s anonymity is sacred, as the Code requires such a person’s identity to be kept confidential and disclosures resulting from it to be treated confidentially. Furthermore, the Code protects whistleblowers by requiring the Board to ensure that a whistleblower is not subjected to any detriment, solely because he or she has made a disclosure.
These provisions are expected to facilitate Stakeholder cooperation with regulatory authorities, in curbing corporate excesses and violations of applicable laws within companies, as well as foster international corporate governance best practices by officers and management of companies. The awareness of the possibility of exposure, and the attendant repercussions in instances of non-compliance will serve as a deterrent.
- Removal of a Director
When a company believes that a Director is acting ultra vires or fraudulently, the company by an ordinary resolution, removes a Director before the expiration of his period of office, notwithstanding anything in its articles or any agreement between the company and the Director.
This right reserved by the company is a form to check to ensure that Directors act for the best interest of the company, and not use their position as a means to facilitate their personal agenda.
Directors are an integral part of a company’s organizational structure and every director must ensure to perform his duty with utmost diligence. Due to the fact that the directors are trustees of the company, every decision made is a reflection of the company’s position and affects every key Stakeholder of the company. Hence, such directors should be held accountable for their actions.