PRINCIPLE 1 – THE ROLE OF THE BOARD
“The Code has been long awaited and it is my hope that it will play a unique role in enthroning higher standards of corporate governance and ethical practices in our business environment, helping to rebuild public trust and investor confidence in the Nigerian economy. The implementation of the Nigerian Code of Corporate Governance 2018 is worthwhile and will promote corporate success and economic growth, lower cost of capital and help minimize wastage, corruption and mismanagement” HE Vice President Prof Yemi Osinbajo, SAN, GCON at the unveiling of the Nigerian Code of Corporate Governance 2018.
Recently, the Financial Reporting Council formally unveiled the Nigerian Code of Corporate Governance 2018. The Code is intended to institutionalize corporate governance best practices and promote public awareness of essential corporate values and ethical practices. The Code is a principles-based (28 Principles) Code and the implementation philosophy is “apply and explain”. The principles are scalable and adaptable as the size and complexity of a company would permit. The Code will apply alongside sectoral codes and where there is a conflict, the stricter provisions will apply. Companies are required to start reporting compliance from January 1, 2020.
The Code applies to public companies/entities and “all regulated private companies being companies that file returns to any regulatory authority other than the Federal Inland Revenue Service (FIRS) and the Corporate Affairs Commission (CAC)”.
Principle 1 – “A successful Company is headed by an effective Board which is responsible for providing entrepreneurial and strategic leadership as well as promoting ethical culture and responsible corporate citizenship. As a link between stakeholders 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”.
Companies, notwithstanding the legal personality bestowed on them, still require human hands to function effectively. In coordinating these hands, the company requires directors who jointly act as a Board with skills, commitment and integrity. A director is described as someone duly appointed by the Company to direct and manage the affairs of the Company.
The emphasis on the entrepreneurial and strategic leadership role of the Board underscores the expectations of an effective Board. Increasingly, Boards are expanding their roles beyond conventional governance to include strategy development, talent management, and shareholder relations. Leading Boards recognize that they bear responsibility for allocating resources, and to do so competently, directors must be increasingly aware of the strategic options available to the company and take a lead role in actualizing these. The Board is expected to provide direction and guidance based on the skills, experience and influence of individual directors.
Placing the responsibility of promoting Ethical Culture on the Board clearly underscores the primacy of culture in achieving the objectives of delivering stakeholder value and long-term business sustainability. The Board is expected to set the appropriate tone, define the values to be adopted company-wide and ensure that there is a process in place for enthroning and assessing corporate culture. Responsibility for compliance and responsible corporate citizenship is unassailably that of the Board.
The Code considers the Board as the company’s central and highest governing body. This reinforces the fact that the decisions of the Board are paramount. The position of the Board of a subsidiary company in relation to the holding company sometimes tests the supremacy of the Board. The existence of a shadow director (or a significant shareholder who exercises considerable influence on the Board) also impugns the supremacy of the Board.
To clearly delineate it responsibilities, the Code prescribes the codification of a Board Charter and highlights sixteen recommended practices as responsibilities of the Board which should be enshrined in the Charter. These include acting in the best interest of the Company at all times; providing Strategy & Direction, oversight of Risk Management and internal control; ensuring adequate Succession Planning and oversight of IT governance.
Clearly, the Board is expected to do more than just monitor the activities of Management in performing its oversight. The business of being a Director is a serious one and Directors are enjoined to recognize this. “Why does board leadership matter? Because the fate of enterprises, employees and shareholders so often hangs in the balance. A Board’s leadership can create value, and its absence can destroy value”. Boards that Lead – Charan, Carey & Useem
Bisi Adeyemi
Bisi Adeyemi is the Managing Director, DCSL Corporate Services Limited. Kindly forward comments and reactions to [email protected]
