The Nigerian code of corporate governance 2018: Principle 5, executive directors

Executive Directors support the Managing Director/Chief Executive Officer in the operations and management of the Company’. – Principle 5 of the Nigerian Code of Corporate Governance 2018

Executive Directors (EDs) are employees holding senior managerial positions in the Company. They have a dual relationship with the Company as Directors (accountable to shareholders) and as employees – members of the management team, answerable to the Board.

Typically, they have responsibility for specific aspects of the business – Operations, Risk, Credit, HR & Admin, IT, etc. and report to the Board in respect of these specific business areas.

They are usually technically competent in the area of oversight and responsible for the day-to-day running of the Company.

As employees of the Company, they are expected to devote their whole time and attention to the business of the Company.

Many Executive Directors are appointed to the Board via promotion and lateral hiring. As with the Managing Director and Non-Executive Directors (other than the Independent Non-Executive Directors), the Code does not specify term limits.

This is a departure from the provisions of some industry-specific Codes which set fixed term limits for Directors. The NCCG 2018 expects that each Board will decide on tenure, taking into cognizance the peculiarities of respective companies.

Given their day-to-day responsibilities, Executive Directors have access to much more information about the Company than their Non-Executive counterparts.

As such, they have a responsibility to ensure that they correct the information asymmetry as much as possible and provide accurate and timely information to the Board to facilitate robust decision making.

The Code requires EDs to have a broad understanding of the Company’s business in addition to possessing such other qualifications as may be needed for their specific assignments or responsibilities.

It is imperative that the responsibilities and authority of EDs are clearly set out in a contract of employment. A Delegation of Authority Document by which the Board delegates some of its authority to Management is useful.

Collectively, EDs comprise the Management team led by the Managing Director/Chief Executive Officer. The team is charged with the responsibility of implementing strategic initiatives and the prudent management of the Company’s resources.

They should carefully balance their role ‘Managers’ with their fiduciary responsibilities as Directors. Some Executive Directors struggle to strike a balance between their management of the company, their fiduciary duties and the independent state of mind required of a Director.

As a fiduciary, a Director is expected to consider the best interest of the Company and not what is “right for the Management of the Company”.

Sometimes the pursuit of performance targets which usually translate to personal gain by way of bonuses can bring the ED’s interest in conflict with that of the enterprise.

As with Non-Executive Directors, Executive Directors are expected to contribute to the robustness of deliberations on the Board to engender optimal decision making.

The full complement of the Board’s diversity reckons with the skills set and experience Executive Directors bring on board.

It will thus be a disservice to the Board and the enterprise if the only view the Board gets to hear from the Management side is the CEO’s.

To ensure that the Board functions as a cohesive team, the Management team must be mindful of not creating a “we” versus “them” dispensation.

Whilst the Management team should present a unified position to the Board, to the extent that the ultimate duty of loyalty is owed to the Company, all Directors irrespective of which side of the divide they belong, are expected to act in the best interest of the enterprise.

It is instructive that the Companies and Allied Matters Act does not distinguish between executive and non-executive Directors in spelling out the duties and responsibilities of Directors. “It may be “unhelpful and even misleading to classify company directors as “executive” and “non-executive” for purposes of ascertaining their duties to the company or when any specific or affirmative action is required of them” – Re Elgindata Ltd.

The Management team should avoid springing up surprises on the Board by providing up-to-date and relevant information.

This gives the Board a fair opportunity to offer insight and value to the Management team. To take maximum advantage of the Board’s diversity of skills and experience, Management should galvanize the Board to thoughtful action rather than presenting “cast-in-iron” proposals. Executive Directors should be receptive to feedback from the Board and not defensive.

Read also: Nigerian code of corporate governance 2018

As image and brand bearers, Executive Directors should maintain impeccable reputation and the right attitude when dealing with regulators, shareholders, the media and other stakeholders.

Executive Directors can be appointed as Non-Executive Directors on other Boards to the extent that such appointment is not detrimental to his/her responsibilities as an ED and is in accordance with a Board-approved policy.

The Code requires EDs to declare any conflict of interest on appointment and annually thereafter. If they become aware of any potential conflict of interest at any other point, they should disclose this to the Board at the first possible opportunity.

Actions following disclosure shall be subject to the Company’s Conflict of Interest Policy. EDs are also restricted from being members of Board Committees responsible for remuneration, audit, or nomination and governance.

To perform optimally, Executive Directors need to be properly prepared to step up to the Board. Relevant leadership and director development training programmes are imperative. An independent mindset – as aspirational as it sounds – is required of all Directors. The confidence to speak up and candidly, ability to contribute to healthy debate and conversational intelligence are desirable traits in an Executive Director.