Nigerian code of corporate governance 2018

Principle 3 – the board chairman

The Chairman of the Board is Primus Inter Pares (the first among equals or first among peers) on the Board of Directors and typically elected by the Board of Directors who also determine the period for which he/she is to hold office.

The Nigerian Code of Corporate Governance, 2018, launched in January 2019 as a Code of Best Practice is a principles-based Code, comprising 28 Principles, intended to institutionalize Corporate Governance in Nigeria. Principle 3 provides that: “The Chairman is responsible for providing overall leadership of the Company and the Board and eliciting the constructive participation of all Directors to facilitate the effective direction of the Board.”

The Chairman is required to facilitate the constructive participation of all Directors and effective direction of the Board. He/she is to ensure that the Board works as a cohesive team towards achieving the Company’s strategic objectives and enthrone a culture of collaboration in the Board.

The hallmark of an effective Chairman is the ability to create an ambience that engenders contribution to Board deliberations by all Directors – even when they disagree with the popular perspective. An ineffective Chairman is that who typically dominates discussions and seeks to push his/her point of view through all the time.

Whilst the ideal situation is to arrive at decisions via consensus, the Board Chair should not attempt to muffle dissenting voices as the Board should benefit from the diversity of its composition. The Chairman should be a good listener and encourage Directors to express underlying concerns.

In this regard, the Code recommends that the Chairman should interact with the Non-Executive Directors periodically. It is good practice for the Non-Executive Directors to meet at least once annually without the Executive Directors. This will provide a platform to discuss whatever concerns they may have objectively. Due care should however be taken to ensure that this does not create an “Us” versus “Them” scenario.

The Chairman should not be involved in the day-to-day operations of the Company. The concept of the separation of the role of the Chairman from that of the CEO implies that the Chairman should be independent of Management and free from any business interest or other relationships which could interfere with his/her ability to make an independent judgment.

The emerging trend is for the Chairman to be an Independent Non-Executive Director. It is in this regard that the Code provides that the CEO or an Executive Director shall not go on to be Chairman. It however goes on to provide that “if in very exceptional circumstances the Board decides that a former MD/CEO or an ED should become Chairman, a cool-off period of three years should be adopted”.

Read also: The Nigerian code of corporate governance, 2018

The CBN Code of Corporate Governance for Banks and other Financial Institutions requires a cool-off period of 5 years. The thinking is that a cool-off period of 3(or 5) years is sufficient for the perceived influence of the MD/CEO on the Board to have waned.

However, where the CEO never really “left”, the cool-off period will not achieve any useful purpose. More importantly, the caliber of and mode of appointing the other Directors, will to a large extent determine the kind of influence a CEO returning as Chairman will have on the Board.

The Chairman plays a pivotal role in guiding and being available for regular communication and consultation with the MD/CEO. To be effective in this regard, the Board Chair is expected to have extensive business leadership experience, including crisis leadership, be collaborative and retrained in style, resilient, possess complete candor and have an expectation of the same in others. He/she is expected to, serve as a trusted counsellor of the CEO.

To ensure efficient use of the Board’s time, the Chairman should oversee an annual Board Agenda under which Board meetings have a specific focus. The Chair should ensure that Directors receive timely and adequate information ahead of Board meetings to engender robust deliberations.

Ensuring that the Board and its Committees are composed of individuals with relevant skills, competencies and desired experience underscores the need for the Chairman to be aware of the skills and experience each director brings to the Board.

The Chairman should oversee induction programmes for new Directors, identify skill gaps and work with the Company Secretary to recommend appropriate continuing education programmes for Directors. The Chairman should also take the lead role in Board and Director performance evaluation.

In relation to shareholders and other stakeholders, the Chairman is to ensure effective communication with the Company’s shareholders and other stakeholders. In this regard, a major role of the Chairman is presiding at Annual General Meetings. Presiding over the AGM of a public company in Nigeria is not a tea party!

The Chairman will lean very heavily on the competence, professionalism and organizational efficiency of the Company Secretary. A detailed step-by-step Order of Proceedings (rehearsed in advance if possible) and a firm yet amiable disposition are key success factors in presiding over a successful AGM.

It is always refreshing to watch an experienced Chairman preside over and take charge of proceedings at an AGM, as it is painfully embarrassing to watch rabble-rousing shareholders make mincemeat of a not so experienced Chairman.

Whilst the Chairman is the leader of the Board, he/she needs the support of his/her peers and should avoid a dictatorial or overbearing leadership style, while being assertive. “A Chairman holds the most power and authority on the Board of Directors and provides leadership to the company’s officers and executives.

He[she] ensures that the firm’s duties to shareholders are being fulfilled by acting as a link between the Board and upper management – that is the bottom line. Together, management and the Board of Directors have the ultimate goal of maximizing shareholder value. The shareholders are the boss and where their investment is failing, the Chairman is failing.” – Troy Segal, March 2018 Edition of the Investopedia- Dotdash Corporate Publication.