Delegation of the Board’s authority
The role of the Board is a crucial one and as such legislation and a plethora of cases recognize the Board as the alter ego of the Company. Although shareholders are owners, the complex nature of company membership does not allow it to exercise and carry out the far-reaching duties that are consequential to running a company. Thus, legislation regulating companies make it possible for these inherent powers of the members to be exercisable by the Board. In addition to legislation and case law, the duties and powers of the members and Board are defined by the Articles of Association.
Section 63(1) of the Companies and Allied Matters Act, (CAMA) provides that companies shall act through its members in general meeting and board of directors. Section 63(3) further provides that “except otherwise provided in the company’s Articles, the business of the company shall be managed by the board of directors who may exercise all such powers of the company as are not by this Act or the Articles required to be exercised by the members in general meeting.”
In exercising these powers, the Board stands in a fiduciary relationship with the Company which by law places it in the highest position of responsibility to the Company. It is however apparent that the Board cannot carry out the function of the day-to-day management of the Company. Therefore, these duties of management originally vested in the Board, shall be exercisable by individuals (the CEO and his/her team) and Committees appointed by the Board. Section 64 of CAMA empowers the Board, subject to the Act and the Articles, to delegate its powers to Committees and the Managing Director.
The power to delegate raises a few questions – Can the authority of the Board in its entirety be delegated? Does the delegation of the Board’s authority exonerate it from culpability in the event of wrongdoing by the person/committee?
Although Management can act on behalf of the Company and is accountable to the Board, the Board retains overall and ultimate governance responsibility. Accordingly, it is prudent to clearly define the powers delegated to Management and Board Committees as well as establish adequate control measures to supervise the exercise of these powers. For Management, the Board can define these in the CEO’s Contract of Employment or in a Delegation of Authority Document. For Board Committees, the authority limits of the Committee, duties and responsibilities should be set out in Committee Charters or Terms of Reference.
As fiduciaries, Directors bear responsibility for ultra vires and unlawful acts carried out on their behalf. This position is reiterated by Section 279(7) of CAMA which provides that a Director, where he has power to delegate, shall not exercise such power in such a manner that it amounts to an abdication of his duty. It therefore behooves on the Board to ensure that those to whom it delegates authority are sufficiently qualified to perform and that they act within the limits of the authority.
The limits of delegation of powers will be tested where there is failure or inability to perform. In such a case, failure of the Board to exercise its power of supervision will amount to abdication of delegated power.
Furthermore, the age-old maxim that one cannot give what he does not have will also apply. The Articles of Association being the constitution of the Company, reserves some decisions for the members in general meeting. In respect of such matters, the Board can neither exercise nor delegate power.
In addition to Company Law, the Codes of Corporate governance and best practice require a clear definition of Board’s authority and its power to delegate and supervise delegated power. Principle 11 of the Nigerian Code of Corporate Governance 2018 provides that in order to achieve effectiveness, the Board delegates some of its duties and responsibilities. The Code enjoins the Board to exercise oversight to ensure that Management lives up to its mandate and ensure that shareholder and stakeholder expectations are met.
Section 11.1 of the NCCG provides that the Board should determine the number and composition of Board Committees, the skills and competencies required to perform effectively. In addition, the Board shall approve the Committee Charter which sets out Terms of Reference. A periodic review of the terms of reference by the Board is also an important form of oversight as is the requirement to undertake an annual evaluation of the performance of each Board Committee.
Board Committees are also expected to present reports to the Board. It is important to note that Committee recommendations must be approved by the Board.
Bringing it all together, while the Board can delegate its powers, such delegation must be done within the confines of the Articles and it remains liable for the exercise of such power as though it had exercised the power itself. This strict liability makes it imperative for the Board to ensure that it puts in place appropriate structures and processes to enable it maintain oversight of the enterprise. Finally, the Board can revoke the delegated power at any time if it finds that it is being exercised unsatisfactorily and therein lies the ultimate control.
Bisi Adeyemi is the Managing Director, DCSL Corporate Services Limited. Kindly forward comments and reactions to email@example.com.