The Financial Reporting Council (FRC) in an attempt to harmonize the corporate governance codes in Nigeria, on October 17 2016, issued three codes of corporate governance (for the private sector, public sector and not for profit organizations). These codes particularly that relating to the private sector has since remained controversial. Below are highlights of some areas of concern:
1. The Companies and Allied Matters Act (CAMA)
NUMBER OF DIRECTORS – By section 246(1) of CAMA, every company shall have at least two Directors while Section 5.4 of the code provides that board membership shall not be less than eight (8)
DIRECTOR’S TENURE – By section 255 of CAMA, a person can be appointed a Life Director whereas Section 14.6 of the code limits the maximum term of Non-Executive Directors to three terms of 4 years (12 years)
DIRECTOR’S APPOINTMENT – Section 248 of CAMA reserves the right to appoint directors for members (shareholders) at an Annual General Meeting while Section 9.4 of the code provides that the Nomination Committee shall recommend names of prospective candidates for consideration subject to ratification by the applicable industry regulator
DIRECTOR’S RENUMERATION – Section 267(1) of CAMA generally prescribes that the remuneration of directors shall from time to time be determined by the company in general meeting and the remuneration of the Managing Director, shall be as determined by the Board; whereas, the Code in Section 6.3.8 specifies that remuneration of the MD/CEO shall be determined by the Remuneration Committee.
2. Auditors related provisions
A. For statutory audit, the Code introduces mandatory engagement of Joint External Auditors by Listed and Significant Public Interest Entities. Section 19.2.1 of the Code defines “Listed and Significant Public Interest Entities” as entities whose market capitalization is not less than N1billion and/or whose annual turnover is not less than N10billion. This provision conflicts with the Financial Reporting Council of Nigeria (FRCN)Act which in its Section 77, defines Public Interest Entities to mean “governments, government organizations, quoted and unquoted companies and all other organizations which are required by law to file returns with regulatory authorities and this excludes private companies that routinely file returns only with the Corporate Affairs Commission and the Federal Inland Revenue Service”.
B. The Code also provides for a maximum period of ten (10) years for retention of an external audit firm (with the option of re-appointment after seven (7) years. Where aggregate or cumulative tenure has already exceeded ten (10) years at the commencement date of the Code, such auditor shall cease to hold office as an auditor of the company at the end of the financial year in 2016. This provision is in conflict with the CAMA provisions of the circumstances under which persons may be disqualified from being appointed as external auditors (and the mode of removal of external auditors).
3. Voting and Meetings
A. The Code provides that where the existing or first statutory auditor is an International Firm; the second auditor shall be a National Firm and must be appointed by a show of hands in an Annual General Meeting, rather than a poll.Whereas in the CAMA, the board chairman can demand a poll at a general meeting when a resolution is put to vote.
In addition to the above areas of inconsistency with existing legislations, the National Code has also been criticized for creating a hostile operating environment for investors and stakeholders. Investors have alleged that the FRC did not incorporate inputs made to its position paper and the three public hearings held before the Code was enacted.
The “cool off period” prescribed before a former executive director assumes the position of chairman of
the same company he served; engagement of two auditing firms; and appointment of substantive executive directors into boards of other companies; have been said to be in breach of internationally accepted corporate governance best practices.
The National code has been perceived to disrupt existing governance codes and assuming the role of a super regulator: The Code appeared to regulate some regulators by requiring that sectoral regulators adhere to the Code or be sanctioned. Most regulators are governed by their establishment Acts and the Code sought to make such regulators answerable to the FRC. For instance, the code implied that the Central Bank of Nigeria will have to take on the burden of implementing the Code in the financial sector and the Code will also take precedence over the CBN’s Code.
In the case of Eko Hotel v FRC, the court held that it is not within the scope of the FRC to regulate private companies. This decision, though pending at the Court of Appeal, goes to confirm the alleged over regulation of companies in Nigeria which is a disincentive to investment and would invariably stunt economic growth.
On January 9, 2017, the Federal Government, through a statement issued by the Federal Ministry of Industry, Trade, Investment, suspended the implementation of the Financial Reporting Council of Nigeria (FRCN)‘s Corporate Governance Code. The suspension has been made for a detailed review and extensive consultation with stakeholders.
Some stakeholders have posited that the FRC should focus solely on matters relating to financial reporting while other bodies such as the Securities and Exchange Commission (SEC) should handle Corporate Governance Codes.
Will this suspension give room for the FRC and all key stakeholders to address issues which have so far arisen?
Responsible for setting and promoting compliance with standard for accounting, financial reporting and auditing in Nigeria; regulates the practices of professionals involved in financial reporting and promotes good practices in financial reporting and corporate governance in Nigeria
Existing sector specific codes are the Securities and Exchange Commission (SEC) code for public companies, Central Bank of Nigeria (CBN) corporate governance code for Banks, Nigerian Pension Commission (PENCOM) corporate governance code for Pension operators, Code of Business, Ethics and Principles on Corporate governance for insurance companies (NAICOM code) and the Nigerian Communications Commission (NCC) corporate governance code for the Telecommunications industry
NEITI INCORPORATES FOI CLAUSE INTO THE EXTRACTIVE INDUSTRY
The Nigeria Extractive Industries Transparency Initiative (NEITI) has updated its website with a Freedom of Information (FoI) section, to enable Nigerians request for up to date information on its transparency activities in Nigeria’s extractive industries. The new website will provide an opportunity for the Nigerian public to make FOI requests on NEITI and get responses to their requests on time irrespective of their location; and provide urgent access and feedback to the public on NEITI’s operations in compliance with the provisions of the FoI Act.
FG ORDERS 48-HOUR VISA ISSUANCE
The Federal Government through the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, has directed all its foreign missions abroad to commence a 48- hour visa issuance programme to those willing to do business in Nigeria. Bottlenecks associated with visa issuance in all its foreign missions would be discontinued in order to make it easy for potential investors to come into Nigeria and do businesses.
FORCADOS PIPELINE SET TO OPERATE SOON
The Trans-Forcados pipeline, which was shut for most of last year, is likely to be reopened at the end of the second quarter of this year 2017. The pipeline owned by the Nigerian Petroleum Development Company (NPDC) and operated by Shell Petroleum Development Company (SPDC), has been attacked severally by the Niger Delta Avengers (NDA). It was first attacked in February 2016 (on a subsea pipeline). The spill that occurred from the subsea crude oil export pipeline forced Shell to declare a force majeure on Forcados’ liftings due to the disruption to production. Attempts to repair the 48-inch pipeline were frustrated by further attacks by the militants.