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The Nigerian Code of Corporate Governance 2018

Nigerian Code of Corporate Governance 2018

An ethical approach to the Nigerian Corporate Governance System?


The utility of good corporate governance practices cannot be overemphasised in any organisation, as sound processes evincing the principles of transparency, fairness and accountability have become imperative for national and global economies. Indeed, the benefits of adopting strong corporate governance ethics in a developing economy remain alluring today.

In ensuring sound corporate governance practices in Nigeria, the Financial Reporting Council of Nigeria (FRCN) released the Nigerian Code of Corporate Governance 2018 (the Code), which seeks to, inter alia, institutionalise the highest standards of corporate governance best practices in Nigerian companies, and promote public awareness of essential corporate values and ethical practices that will enhance the integrity of the Nigerian corporate landscape.

Perhaps the most impactful innovation of the Code is its philosophy which takes the “Apply and Explain” approach of implementation. In precis, this approach requires companies to take responsibility for demonstrating how the specific activities they have undertaken best achieve the intended outcomes of corporate governance specifications in the Code as opposed to the mandatory compliance approach adopted by the Nigerian Code of Corporate Governance 2016. This paper therefore examines the Code’s philosophy and how it attempts to alter the corporate governance regime in Nigeria.

The Nigerian corporate governance system, as we know it, focuses primarily on legal processes and structures to ensure compliance, whilst the ethical basis is seen to be absent. The difficulty with legal structures and its compliance mechanisms is that most corporate practices that have previously enraged the public are entirely legal. This paper seeks to explore the role of the Code in shifting the focus from a structural perspective to an ethical perspective, and the viability of the Code in sustaining the ethical values of transparency, fairness and accountability.

Background and Evolution of Nigerian Corporate Governance

Corporate governance has a long history which predates the emergence of the modern era of corporate governance. Indeed, historical accounts show that corporate governance relates back to the times when tribal communities supervised the activities of their individual members to ensure conformity with the tribal norms.1 However, the corporate challenges around the world brought distinct corporate governance issues to the fore, leading to substantial reviews by countries all over the world on the efficacy of their corporate governance practices as well as the need to have efficient codes of corporate governance.

In Nigeria, the historical accounts of the development of corporate governance can be said to be somewhat distorted and confusing owing to the plethora of codes and guidelines which at various periods attained relevance in our nation’s corporate governance space. Nonetheless, the concept and principles of corporate governance were firmly entrenched in Nigeria’s company legislations as far back as 1968.3

Like other nations, Nigeria made assiduous efforts to enhance her corporate governance structures and practices with the introduction of the foremost Code of Corporate Governance for Banks and Other Financial Institutions, issued by the Bankers Committee in August 2003. It was initiated in response to the financial crisis in Nigeria in the early 1990s and in the realisation that poor corporate governance practices was at the heart of most institutional failures. However, the limited impact of the code was attributed to its restriction to a few corporate entities i.e. those in the banking and financial industry, as well as the issuing authority; being a self-regulatory voluntary association for banks and other financial institutions.

In 2003, the Code of Best Practices on Corporate Governance in Nigeria, (the 2003 SEC Code) issued by the Securities and Exchange Commission greatly impacted the corporate governance scene in Nigeria, as it was the first corporate governance code to be issued by any regulator in Nigeria, and its application was extended to all public companies registered in Nigeria.

The 2003 SEC Code was the outcome of the work of a 17-member committee set up by the SEC in collaboration with the Corporate Affairs Commission, to identify weaknesses in the corporate governance practices in Nigeria as well as fashion out the necessary changes that will improve the corporate governance practices in Nigeria. However, the provisions of the 2003 SEC Code became grossly inadequate to address the new developments in the corporate scene following its commencement. This inadequacy resulted in some regulators of specific sectors issuing industry-specific corporate governance codes which took into consideration the prevailing circumstances of the issuance of the codes and the salient provisions peculiar to their respective sectors.

Some of these sector-specific codes included; the Code of Corporate Governance for Banks in Nigeria Post-Consolidation 20066, issued by the Central Bank of Nigeria; the Code of Corporate Governance for Licensed Pension Operators 2008, issued by the National Pension Commission, and the Code of Good Corporate Governance for the Insurance Industry in Nigeria 2009, issued by the National Insurance Commission.

Notwithstanding the foregoing, on 01 April 2011, the SEC issued the Code of Corporate Governance in Nigeria 2011, (the 2011 SEC Code) to address the weaknesses of the 2003 SEC Code, and to improve the mechanism for its enforceability. Specifically, the National Committee drafting the 2011 SEC Code was mandated to identify weaknesses in and constraints to good corporate governance, examine and recommend ways of effecting greater compliance with good corporate governance practices by public companies in Nigeria, and for aligning the 2011 SEC Code with international best practices. In 2014, the SEC issued the Code of Corporate Governance for Public Companies in Nigeria 2014 which sought to reflect the international best practices not contained in the 2011 SEC Code.

Interestingly, and amidst all these, the Federal Government of Nigeria passed the FRCN Act 2011 into law which establishes a Directorate of Corporate Governance for the FRCN, which is empowered amongst other things to develop principles and practices of corporate governance, and also issue codes of corporate governance and guidelines.7 It was in furtherance of the powers under the FRCN Act that the FRCN issued the three-tiered National Code of Corporate Governance 2016 (the 2016 Code) divided into; (x) the Code of Corporate Governance for the Private Sector; (y) the Code of Corporate Governance for Not-for-Profit entities, and (z) the Code of Corporate Governance for the Public Sector which sought to plug the gaps in the previous codes including the 2011 SEC Code and other sectoral codes in force.

Unfortunately, the series of political controversies which trailed the 2016 Code resulted in its suspension after a short spell of its implementation. Against this backdrop, the Federal Government of Nigeria unveiled the Code to the general public in 2019, which is believed to be a paradigm shift from the codes hitherto applicable to corporate organisations in Nigeria.

Whilst the efficacy of the Code on the principles and practice of corporate governance in Nigeria remains unascertainable, the Code is surely reminiscent of a different approach by the FRCN in the promotion of sound corporate governance principles in a country desirous of beneficial change.

The Nigerian Code of Corporate Governance 2016 and the Menace of box ticking

Generally, the definitions of corporate governance found in common literature tend to share certain characteristics, one of which is the notion of accountability. Narrow definitions however limit corporate accountability to shareholders.8 In its broadest sense, corporate governance has been described as the system by which companies are “directed and controlled.”9 Regardless of the definition adopted, good corporate governance is a key factor which underscores the efficacy and integrity of a company. Thus, a company which possesses the core principles of corporate governance; fairness, accountability, and transparency has the potential of spurring financial growth as well as building investor confidence.

The three-tiered 2016 Code issued by the FRCN was essentially a consolidation and improvement on the different sectoral codes on corporate governance. It is noteworthy that under the 2016 Code, compliance with the provisions of the Code of Corporate Governance for the Private Sector (the Private Sector Code) was expressed to be mandatory.10 Accordingly, all persons, firms, or companies found in breach of any of the provisions of the Private Sector Code were liable to sanctions; personally or otherwise, for such violations.

The legal regime prevalent under the Private Sector Code had the semblance of a command-and-control structure in which public officials establish the law and the market actors either comply or face the penalties for non-compliance. This approach suggests that the primary incentive for compliance by corporate entities is largely driven by the fear of the consequences of non-compliance.12 In a typical rigid system such as was prevalent under the Private Sector Code, the regulator not only establishes the objective to be achieved, but also the means to achieve the objective. The inevitable consequence of such a system is what is referred to as a box ticking exercise.

Unlike ethical values which are universal, legal codes and statutes are largely limited to the climes and the entities to which they relate. For instance, whilst the Board of Directors (Board) or management of a company may be obligated to adhere to the strict provisions of a code or rule due to its applicability to that company or its place of business, such ‘obligation’ may be non-existent in the face of a voluntary or unenforceable code. Thus, the logical result of a slavish obedience to legal codes and enactments, to the detriment of sound ethical values is a situation where individuals are less likely to take personal responsibility for the decisions they make.

A worthy example of such a dire result is the Nigerian financial crisis of 2009 which unfortunately coincided with the global financial crisis of 2008. The failure in the corporate governance of banks and the weak ethical standards amongst top management of banks were regarded as the two main issues which weakened the solvency and liquidity of banks and undermined investor-confidence.14 Investigative reports showed that some banks were engaging in unethical and fraudulent business practices which remained ignored and/or unchecked for reasons including being misled by executive management who were culpable of such practices.

The Boards often did not fulfil their functions and were lulled into a sense of well-being by the apparent year-over-year growth in assets and profits. As aptly put by the then Governor of the Central Bank of Nigeria on the bank failures, “the banks did not fail; they were destroyed and brought to their knees by acts committed by identifiable people.”16

The rigors of balancing the daily challenges of administering an organisation, with the requirement of strict adherence to the corporate governance codes may be daunting, especially for small companies and start-up organisations whose main priority is often the generation of profit. Therefore, the compliance levels evident in a mandatory regime are often as a result of the fear of the consequences of the sanctions that may be imposed for failure to comply with the respective codes, and not necessarily because of the desire to uphold the tenets of corporate governance. This could result in a subtle substitution of “accountability” for “responsibility.”

Advocates of corporate social responsibility believe that firms should be more accountable to the larger society and should resist the urge to be responsible to its shareholders in the narrow sense as corporate managers who are compelled to respond to shareholders’ interests alone may not maximise social welfare.18 Also, markets alone have been seen to be incapable of adequately regulating corporate conduct. Regulation of corporate conduct does not redress all social harm because these harms are difficult to detect, regulation is difficult to design, and sanctions may be ineffective.

More than ever, companies are enjoined to look beyond the codified requirements, as emphasis should be focused on the spirit behind the corporate governance reforms rather than its letters. As canvassed by a former commissioner of the U.S. Securities and Exchange Commission20, on the lessons learned from the Sarbanes-Oxley Act, “By determining what makes up the moral DNA of the Company, and establishing a culture that puts ethics and accountability first, a company and its Board are less likely to fall into the common trap of mere compliance-where simply identifying a new line of legally acceptable behavior and how to maneuver the loopholes that accompany it, passes for a commitment to reform.”

Increased responsibilities for the Board and other management officials; with attendant consequences for non-compliance can no longer suffice in promoting ethical values in an emerging market like Nigeria where the cost of compliance is often high. Market actors including the shareholders and stakeholders alike have been observed to lend credence to practices that prima facie ensure compliance with the legal codes at the lowest cost possible. This situation has made the managers of corporations merely responsible to their shareholders to the extent of such compliance, with the ethical values underpinning such practices absent.

A further drawback to the mandatory approach adopted under the Private Sector Code was its inflexible nature, especially in a society populated by firms and corporates of different sizes and types. The one-size-fits all system is barely effectual as most entities prefer a system that takes into account their individual characteristics before the imposition of corporate governance principles and codes. For example, the requirement under the Private Sector Code for all companies to establish a Nomination and Governance Committee21 might be onerous for a relatively small company with limited director and shareholder base; however, this requirement may not be arduous for a large company.

Notwithstanding the foregoing, a major advantage of the command-and-control structure is that it compels compliance. However, this advantage is not without blemish as companies may choose to absorb the costs of their non-compliance rather than comply with the law. In effect, such non-compliance renders the command-and-control structure ineffective and raises questions about the incentives underlying the structure.

It is not to be presumed here that companies should be free from implementing efficient corporate governance measures; rather, the corporate governance measures and principles implemented by individual companies should be driven by the ethos of every company, as opposed to stringent legal codes. In the event, every regulator must carefully consider the ethos of the society in prescribing rules that ensure that individual companies are transparent, accountable and fair in their dealings. Accordingly, the recommended practices and principles embedded in the corporate governance codes must be geared towards actualizing the true essence of corporate governance;the promotion of sound cultural ethics.

Despite the shortcomings of the unified 2016 Code, it was generally accepted as a step in the right direction given the hitherto absence of a unified code of corporate governance. However, the mandatory compliance approach adopted under the Private Sector Code created significant challenges in its implementation, which resulted in the suspension of the 2016 Code by the FRCN.



The Nigerian Code of Corporate Governance 2018: A Shift from the Mandatory Approach

In response to the flaws identified in the 2016 Code, the Federal Government of Nigeria recently unveiled the Code, issued by the FRCN, through its’ Directorate/Committee on Corporate Governance, and which seeks to standardize the practice of good corporate governance in Nigerian companies, and induce voluntary compliance with the highest ethical standards across the Nigerian market.

Strikingly, the Code is silent on the companies to which it applies- a major flaw which creates uncertainty in its implementation. However, it is believed that the Code is applicable to all companies as there is no distinction between private and public entities.

Interestingly, a review of the Code evinces a divergence from the approach adopted under the 2016 Code. Unlike the 2016 Code, the implementation of the Code is hinged on an “Apply and Explain” principle23, which assumes the application of all the principles provided under the Code and requires all companies to explain how the codified principles are applied. In other words, each company is charged with the responsibility of explaining how the specific activities it has undertaken; best achieves the intended outcomes of corporate governance specifications outlined in the principles under the Code.

In this regard, where a company regulated by the Code, determines that strict adherence to a recommended principle or practice under the Code may not be in its best interest; it may choose to apply some other practice, or adopt a different approach, as long as it still achieves the central tenets of good corporate governance such as, fairness, accountability, and transparency.

The decision to adopt the “Apply and Explain” approach was made after careful consideration of our existing laws and the practices adopted by other countries with the key objective of making the Nigerian market more attractive for investment activity. Specifically, the FRCN considered the impact of other philosophies including the “Comply or Else” and “Comply or Explain” philosophies, and decided that the “Apply and Explain” approach was more suitable to promote corporate governance in the country.

As noted earlier, the grouse against the “Comply or Else” philosophy is that the philosophy is seen as a ‘one-size fits all’ approach making it largely unsuitable for varying Nigerian business models. The cost of compliance may also be burdensome with the danger that the Board and/or management of a company may become distracted by compliance with the Code at the expense of enterprise leading to a box ticking exercise.

As it relates to the “Comply or Explain” philosophy, the FRCN noted that the word ‘Comply’ connotes strict adherence without room for flexibility. It was noted to also lead to a mechanical response to a code and its recommendations.24 The “Comply or Explain” principle has evolved into different approaches internationally25 however, the language of the “Apply and Explain” principle best conveys the intent of the Code. An “Apply and Explain” approach shows an appreciation for the fact that it is not a case of whether to comply or not, but rather, a consideration of how the principles and recommended practices can be applied to the business.

Under this regime, the Board and/or management of a Company could come to the realisation that to follow a recommendation under the Code would not be ideal in the circumstances. Thus, the Board could decide to apply a recommended practice differently or apply another practice and still achieve the objective of the overarching corporate governance principles of fairness, accountability and transparency. Consequently, it is the responsibility of the companies that are governed by the Code to use the flexibility and scalability provided by the Code to manage their cost of governance.

Balancing the Shareholder Value versus Stakeholder Theory

Corporate Governance deals with the decision-making structures of corporations and organisations, and one of its main purposes is to ensure the confluence of otherwise competing interests that are affected by the companies’ activities. The prolonged debate about the true nature of Corporate Governance focuses on the relationship between shareholders’ interests (those of the investors and owners of the issued shares of the corporation) and other stakeholders’ interests (those related to a varied number of constituencies such as employees, customers, suppliers, individuals where the corporation interacts, etc.). This age-long debate is rooted in different theories that support the idea of different legal personalities in a corporation.

In the first instance, the Shareholder Value theory presupposes that corporations must be run in the interests of the shareholders. Accordingly, the primary responsibility of the Board of a company is to act in the best interest of the shareholders by maximizing corporate profit thereby increasing shareholder value. On the other hand, opponents of the Shareholder Value concept, point at various externalities imposed by profit maximizing choices on other stakeholders: on the welfare of management and workers who have invested their human capital as well as off-work related capital (housing, spouse employment, schools, social relationships, etc.) in the employment relationship; on suppliers and customers who also have sunk investments in the relationship and foregone alternative opportunities; and so forth.27 This theory is otherwise known as the Stakeholder theory.

The proponents of the Stakeholder theory believe that there have been, in the functioning of corporations and financial markets, many cases of foul play and instability as a result of the heavy reliance on the Shareholder Value theory. Instead, they believe emphasis should be placed on the interests of stakeholders, such as employees, local communities, political actors, or on the interest of the society as a whole;28 or rather on the interests of the company as a going concern.29 The basis canvassed for the Stakeholder theory is that companies are so large, and their impact on society so pervasive that they should discharge an accountability to many more sectors of society than solely their shareholders.

The foregoing notwithstanding, the simple consideration that some stakeholders are affected by certain corporate decisions does not necessarily imply that their interests should be taken into consideration, as every action or inaction of a company may affect some stakeholder in the broadest meaning of the term.31 Thus, the two extreme propositions as contained in the two theories are not sustainable if implemented independently of the other. As such, the true objectives of corporate governance are seen to be achieved, where the interests of both the shareholders and stakeholders are taken into consideration in the administration of a company.

Under the Code, there appears to be a convergence of both theories, as the FRCN attempted to balance the interests of both shareholders and stakeholders of the companies in a bid to institutionalise the highest standards of corporate governance. Indeed, Principle 1 of the Code pertinently provides that”…As a link between shareholders and the Company, the Board is to exercise oversight and control to ensure that management acts in the best interest of the shareholders and other stakeholders while sustaining the prosperity of the Company”

The recommended principles under the Code are indicative of the momentum the Stakeholder-Shareholder movement has gained globally in recent times. For example in many countries, employees often employ a dual-pronged approach to the protection of their interests.32 These two (2) approaches include; (i) union activities, and (ii) through their role as shareholders, i.e., via their pension funds, employee share schemes and long-term savings plans. Corporate engagement through their roles as shareholders sometimes referred to as the “stewardship of workers’ capital” seeks to promote workers interests by not only using their status as significant shareholders to pressure management to adopt internationally recognised labour standards, but also to embrace more transparent corporate governance practices.

Where the ethos of the Code is imbibed, the resultant corporate culture will in the long term promote socially beneficial changes in Nigeria.

Ethical Compliance Mechanisms

Without compromising the necessity for the operations of organisations to be run in the most economical, efficient and effective manner possible, there is an increasing insistence on the need for organisations to be ethical as well.34 Corporate Governance lies at the very heart of the way businesses are run. Often related to the administration of a company, it concerns the work of the Board as the body, which bears ultimate responsibility for the business.

Prior to the global economic and financial crisis which started in 2008, evidence from various surveys had indicated that corporate governance lapses were significantly responsible for the collapse of over 70 percent of companies in Nigeria in the preceding two decades. Executive management and the Boards of such companies were alleged to have been reckless with investors’ funds, neglected due processes and took biased decisions, conducts which negate principles of good corporate governance. In all of these instances of failure, the question of ethics or the right behaviour are inherent in every Board decision and action.

The general assumption seems to be that where regulation is based on prescriptions and well written codes, there ought to be stable companies with good practices of corporate governance. However, this has not been the case as several large scale business failures have been recorded, even in recent past across several jurisdictions.36 This has now put to question the efficacy of codified models of corporate governance, thus necessitating a revisit of ethical and behavioural issues.

The extent to which business decisions reflect ethical values and principles is a key to long-term success. The case for business ethics has been well proven by the costs and impacts of the repeated high profile cases of corporate greed and misconduct, often by senior individuals crossing ethical boundaries as well as ignoring or circumventing the rules set out in law.37 Therefore, the imperative for ethical practices in corporate governance has arguably never been more important.

The key points of interest in any corporate governance system include issues of transparency and accountability; the legal and regulatory environment; appropriate risk management measures, information flows and the responsibility of senior management and the Board. Whilst most companies have adopted legal compliance mechanisms to address these issues, the key issues of corporate governance from an ethical perspective involve questions concerning relationships and building trusts outside the organisation.

Following the corporate abuses and failures of large corporations such as Enron, WorldCom, Anderson, etc., most companies have realized that trust, integrity, and fairness are crucial to maximizing corporate profit and building investor confidence. Trends emerging, show a new model in which corporate cultures will change in a way that puts greater emphasis on integrity and trust. Such changes would include the diminishing of the single-minded focus on “shareholder value”; the elevation of the interests of employees, customers and their communities, and a resetting of expectations so that investors are more realistic about the returns a company can legitimately and consistently achieve in highly competitive markets.

Efforts should be aimed at curbing behavioural deficiencies rather than enthroning legal processes which have largely failed in addressing reprehensible conduct evident in most organisations. In the event, reputation, culture, and conduct should be instilled at the core of every organisation’s system; with the realisation of profit to play second fiddle to the former in each company’s governance system.

Developing a culture of corporate governance starts at the top, beginning with the Board and the management. The Board should set values and principles of a company’s culture which should be reflected in the business’s strategy, model, and risk appetite, supported by a demonstration of the conduct that reflects the company’s ideal values. In addition, Boards, management and employees must go beyond the law and internalize the virtues of transparency, accountability, and responsibility. These virtues, which are most useful in the business world, will instill strong moral and ethical standards which will in turn strengthen corporate governance.

The challenge of legalizing morality in today’s society should drive corporations into developing sound corporate cultures that guide the conduct of the members of the organization in a particular manner while doing business.

The Code recognizes the role of business and ethical standards in the protection and enhancement of the reputation of the company as well as the promotion of good conduct and investor confidence, and prescribes recommended practices to be undertaken by each company in the conduct of its activities. Notably, the Code recommends that the Board should clearly model a top-down commitment to professional business and ethical standards, by formulating and periodically reviewing the Code of Business Conduct and Ethics which should include amongst others that: Directors and senior management of a company should act honestly, in good faith and in the best interests of the Company in accordance with legal requirements and agreed ethical standards.

In addition, the Board of each company is charged with the responsibility for monitoring adherence to the said code of business conduct and ethics to ensure that breaches are effectively sanctioned.41

Notwithstanding the foregoing, we note that this laudable attempt may yet be inadequate in instilling the requisite values of transparency, accountability, and fairness in an emerging market as ours and may be regarded as a sheer attempt to legalise morality.42 Further, the novel ‘Apply and Explain’ approach adopted under this Code have been perceived by many to reduce the level of compliance by companies in general- a situation which epitomises the failure of legal structures in the promotion of ethics in corporate governance.

In the event, the tendency to over emphasise legal compliance mechanisms in any system may result in the substitution of “accountability” for “responsibility”43 without the achievement of the desired goal of true corporate governance.


Corporate governance has become one of the most commonly used phrases in the current global business vocabulary. From the notorious collapse of Enron in 2001 to the banking failures in Nigeria in 2009, issues of best practices in corporate governance will continue to dominate the discourse in management literature for years to come.

While efforts are continually being made to strengthen corporate governance legislations, a conscious effort must also be devoted towards instilling high ethical standards in each corporate structure. An ethical culture wrapped around the core values of the organisation’s values is beneficial to the realization of true corporate governance at all levels. The Board as well as corporate executives can no longer afford to assume that businesses are not bound by ethics, but rather, by obeisance to the law. As observed with the global institutional failures and the banking crisis in Nigeria, the era of lip service to technical regulations is long gone as most of the practices that enraged the public were in accordance with legal structures.

Therefore, normative primacy must be accorded to sound corporate values that reflect the very ethos of corporate governance-transparency, accountability and fairness. Companies should apply voluntary compliance mechanisms that help develop and build its corporate image and/or reputation, gain loyalty and trust from all stakeholders including its consumers, and heighten commitment to its employees. These will contribute to sustained stability and growth by promoting integrity, trust, and leadership.

In sum, the approach adopted by the FRCN under the Code is laudable in light of the drawbacks to the rigid approach identified under the 2016 Code. However, in order to actualize true corporate governance under this refined system, Nigerian corporates must embrace the ethical values of transparency, accountability and fairness which underpin the essence of the Code, rather than take the Code as liberty to apply weak corporate governance practices in the interest of maximizing profit. It is firmly believed that where sound ethical values are instilled in any company’s corporate structure, the potential for sustained growth is unassailable.

Finally, despite its potential pitfalls, the likely impact of the Code on the development of Nigerian corporate governance remains one to be optimistic about.





Partner, Enterprise and Corporate Governance Practice, Olaniwun Ajayi LP, Nigeria


Associate, Enterprise and Corporate Governance Practice, Olaniwun Ajayi LP


Company Secraetary/Director, Legal Services Emerging Markets Telecommunications Services Ltd (trading as 9mobile)

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