It is no longer news that the new Companies and Allied Matters Act (CAMA), 2020 has finally been passed into law. There have been a lot of debates and commentaries highlighting the new provisions created in this new Act. Some people have described it as “epoch making” or “ground breaking”. While some in certain quarters who are not satisfied with some of its provision have even called for the suspension of its implementation.
However, regardless of which divide you are on, it can be rightly said that new CAMA,2020 has been long overdue. This article will look at some of the provisions of the Act from a corporate governance perspective and how they speak to good corporate governance practices in businesses.
Corporate governance simply is a system of rules, practices, and processes by which a firm or company is directed and controlled. According to Dr. Chris Pierce, it is an organisational framework of processes and attitudes that focuses on long term continuity and success to add value to the organisation and build its reputation. Investopedia indicates that corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, senior management executives, customers, suppliers, financiers, the government, and the community. Corporate governance also covers virtually every field of management, from action plans and internal control mechanisms to measurement of performance as well as corporate disclosure.
The board of directors is quite fundamental in corporate governance as they are key stakeholders that influence corporate governance. It is widely believed that good corporate governance practices help companies develop trust with investors and the community they operate in thereby promoting financial viability for a company by creating enduring investment opportunities. On the other hand, bad corporate governance practices have the ability of casting doubts on a company’s integrity, or its capacity to meet its obligations to shareholders which can in turn impact negatively on its financial health.
Some of the provisions of CAMA, 2020 will now be highlighted below in the light of good corporate governance practices.
1. Separation of the office of the Chairman and Chief Executive Officer of a public company.
One of the major hallmarks of best corporate governance practice has been identified as the separation of the roles of the Board Chairman and that of the CEO. This ensures that each of their duties and responsibilities are clearly outlined, clear lines of accountability are defined and the necessary checks and balances are put in place. Section 265(6) CAMA 2020 provides that the chairman of a public company shall not act as the chief executive officer of such company.
It is worthy to mention that the Nigerian Code of corporate governance, 2018 (NCCG) already recommends that one person should not occupy both positions of chairman and CEO. Therefore, it is indeed commendable that CAMA 2020, has given this recommended practice the force of law.
2. Appointment of Independent directors on Boards
Independence is another strong pillar of good corporate governance practices hence the need for the appointment of Independent directors on boards of companies. Independent directors are to serve as a check on the management of companies through the provision of unprejudiced and independent views to Boards. They also represent the interests of minority shareholders. They are also expected to employ neutral, specialized skills to help attain a balance of knowledge, skills, judgment on the board as objectivity of views and quality of debate are very pivotal in ensuring good corporate governance practices.
Section 275 of CAMA, 2020 now enshrines this good practice as it provides that Public companies shall have at least three independent directors, thereby making it mandatory for public companies to have not just one independent director but three independent directors on their boards. The CAMA 2020 defines an Independent director as a director of the company who, or whose relatives either separately or together with him or each other, during the two years preceding the time in question: (a) was not an employee of the company; (b) did not – (i) make to or receive from the company payments of more than N20 million or (ii) own more than a 30 percent share or other ownership interest, directly or indirectly, in an entity that made to or received from the company payments of more than N20 million or act as a partner, director or officer of a partnership or company that made to or received from the company payments of more than N20 million; (c) did not own directly or indirectly more than 30 percent of the shares of any type or class of the company; (d) was not engaged directly or indirectly as an auditor of the company.
3. Multiple Directorships on Boards
Strong and effective boards with members committing the required time and resources towards their responsibilities enhance good corporate governance practices. The NCCG, 2018 suggests that concurrent services on too many Boards by an individual may interfere with his or her ability to discharge responsibilities. There is indeed a high possibility for a board member to underperform if he or she is saddled with too many directorship responsibilities considering the enormous time commitment required to function effectively in that office. A study conducted on the impact of multiple directorships on performance for Companies listed on the Johannesburg Stock Exchange (JSE) indicates that over-boarded company directors attend significantly less board meetings.
CAMA, 2020 has spoken to this all important issue by providing a limit to multiple directorships. It prohibits a person from being a director in more than five public companies at a time under Section 307(1) CAMA 2020. It further provides that any person who is currently a director in more than five (5) public companies shall, within two years from the date of the Act, resign as a director of all but five (5) of the companies. Section 278, CAMA also provides for a person to be appointed as a director of a public company to disclose multiple directorships held by him or her.
4. Transparency/disclosure
Transparency is a key concept for good corporate governance practices. There should be timely and accurate disclosure on all material matters regarding the company, including any change in ownership of the company amongst others. Principles 27 & 28 of the NCCG, 2018 emphasize the need for transparency.
Section 119 of CAMA, 2020 guarantees transparency as it provides that every person with significant control over a company shall, within seven days of becoming such a person, indicate to the company in writing the particulars of such control. This is applicable to both public and private companies. The interpretation section of CAMA, 2020 states that a person with significant control is any person: (a) directly or indirectly holding at least 5 percent of the shares or interest in a company or limited liability partnership; (b) directly or indirectly holding at least 5 percent of the voting rights in a company or limited liability partnership; (c) directly or indirectly holding the right to appoint or remove a majority of the directors or partners in a company or limited liability partnership; (d) otherwise having the right to exercise or actually exercising significant influence or control over a company or limited liability partnership; or (e) having the right to exercise, or actually exercising significant influence or control over the activities of a trust or firm whether or not it is a legal entity but would itself satisfy any of the first four conditions if it were an individual. Furthermore, the company is also mandated to notify the CAC within one month after receiving or coming into possession of the information on persons with significant controls.
Section 120 of CAMA, 2020 defined a substantial shareholder of a public company as a person that holds by himself or through his nominee’s 5 percent of the unrestricted voting rights at general meetings.
Section 374(6), CAMA 2020 also mandates every public company to keep its audited accounts displayed on its website. This is in line with an existing requirement of the Nigerian Stock Exchange and the Securities & Exchange Commission.
5. Appointment of Company Secretaries
The role of a Company Secretary in enhancing good corporate governance practices cannot be overemphasized. The NCCG rightly states that a Company Secretary plays an important role in supporting the effectiveness of the Board by assisting the Board and management to develop good corporate governance practices and culture within the Company.
Under the Repealed Act, every company was mandatorily required to have a secretary. However, by virtue of Section 330 of CAMA 2020, the appointment of a company secretary is no longer compulsory but optional for small companies. It would seem that this amendment is to reduce cost for small companies.
Section 394 of CAMA, 2020 stipulates what qualifies a small company. A small company is a private company with a turnover of not more than 120million naira (as opposed to 2 million naira before) or such amount as may be fixed by the Commission from time to time and a net asset value of not more than 60 million naira (as opposed to 1million naira before). However, I am of the view that a company with a turnover of up to 120 million naira and a net asset value of up to 60 million naira can afford the services of a Company secretary and would benefit immensely from the same.
Some have argued that adherence to corporate governance principles should not be legislated or be by compulsion. However, it would seem that the incorporation of provisions that speak to corporate governance principles and sanction non-compliance with them in the CAMA 2020 was borne out of good intentions and no doubt a step in the right direction.
