The uproar over the ‘obey by force’ approach of the Financial Reporting Council (FRC) has since died down and a new board has come on stream which seeks to influence Nigerian companies and organisations into the much-cherished global corporate good governance super highway and a new growth path.
The former FRC began by forcing companies to remove long-serving chief executive officers (CEOs) and cause mayhem when it attempted to force general overseers of churches off the throne. The presidency intervened and suspended the order and later made away with the FRC board. A new board was set up with mandate to come up with guidelines that would be at harmony with Nigerian realities and cultures.
Now, after several months of work, the technical committee has submitted its new report with 28 principles that lead to 231 recommendations in seven chapters. The new draft code which was unveiled on June 13, 2018 in Lagos, is now being sampled in all the geo-political zones before top corporations and other experts.
According to the new Executive Secretary/Chief Executive Officer (ES/CEO), Daniel Asopohkai, who led the FRC team to Port Harcourt last week, the new code has adopted the ‘Apply & Explain’ approach instead of the ‘Comply & Explain’ approach that caused uproar.
Asopokhai said the new objective is to be friends with corporate bodies and influence them to grow into respected global giants with integrity and prospect instead of rise today fall tomorrow syndrome.
Speaking at the public presentation of the new draft code at the Novotel Hotel in Port Harcourt, he said the target is boards of companies, saying they were critical in running a company. “International investors look at many issues before stepping in especially corporate governance which is a major function of any board.”
He said due to globalisation, the whole world has agreed on standards of corporate good governance so that there would be no much difference from country to country for ease of business across the world. “Nigeria never cared for this, instead, there were many regulatory bodies dishing out different sets of rules. This is why the Financial Reporting Council (FRC) of Nigeria was established. Before, each sector had its own code. Now, it’s unified and harmonised, except for certain sectors that must by law be regulated by specific bodies such as banks and the Central Bank of Nigeria,” he said.
He said issue of audit has been removed from the code so that another body would deal with it to avoid conflict of regulation. “The issue of tenure has been made a mere recommendation so that companies that want to look good and attract international respect and partnership would on their own fix tenures for their CEOs.’
He read out 10 major differences and highlights of the new code with issue of tenure a major point of note. Now, he said, companies are advised and encouraged to set tenures for their CEOs and seek good image by doing so, instead of fretting over government clampdown.
The highlights include: “The draft code has resolved the issue of clarity on definition of public interest equity. This makes it easy for corporations to know what their responsibilities were. It has eliminated conflict of the code with existing legislations and sector codes. It also has reduced high costs of governance by reducing the minimum number of board to eight instead of 15, and reducing the number of independent non-executive directors as well as the ratio of executive to non-executive directors.”
Others include: “The concept of lead independent directors has also been made clear and resolved; The issue of tenure and re-election of directors has been resolved; 15 years for executive directors that have become managing directors; There is long cool off for engaging the former staff of regulatory agencies on board; Resolved issues of mandatory joint external audit which lacked proper definition of non-Nigerian partners; Resolved the issue of prohibition of outsourcing of internal audit services; and resolved the issue of short transition arrangement. Now, the time to report application has been made far, up toJanuary 1, 2020. Companies can however start earlier but reporting of how far is far.”
The ES/CEO said the decision to adopt the ‘Apply & Explain’ approach was made after careful consideration of several factors including the Nigerian legal system, culture and history, government structure and policies, state of the Nigerian economy, the global economic and political climate, and the levels of capital inflow or investment coming into the country.
According to the FRC CEO, the Nigerian Code of Corporate Governance 2018 shall apply to all public companies; whether listed or not, all private companies that are holding companies of public companies and other regulated entities, concessioned and privatised companies, and regulated private companies.
The Nigerian Code of Corporate Governance 2018, he added, was developed based on a comprehensive review of the suspended 2016 Code of Corporate Governance by a fifteen-man technical committee, and extensive consultative and collaborative engagement with a wide range of stakeholders and other regulators.
Chairman of technical committee: M.K. Ahmad made it clear that the FRC would send staff to groups that want to take the enlightenment further such as the Port Harcourt Chamber of Commerce who said they would want to begin sensitisation of their members. He said there would be more public enlightenment sessions after this and at different stages of the code formulation.
Answering questions from the audience, Ahmad said the real objective was not to force companies but to create real success stories and enduring corporate culture so companies could outlast their founders and expand abroad. “It is to influence and encourage companies to behave properly and protect the interest of shareholders and minority stakeholders. Cooperatives are encouraged to imbibe the codes to perform better. The FRC is looking at the idea of helping cooperatives to have codes too because they are very critical to the economic growth and mobilisation of capital.”
The president of the Port Harcourt Chamber of Commerce, Industry, Mines and Agriculture (PHCCIMA), the medical doctor now CEO of a big corporation, Emi Membre-Otaji, said the problem that FRC has come to solve was a critical one. He said he had been harping on the aspect of corporate good governance along with diversification so that member-companies of PHCCIMA could excel and live longer.
He promised to make the FRC code a regular refrain at their meetings.
The SEPLAT CEO, Austen Avuru, who was represented by the head of legal unit, Obianuju Othniel, supported the drive for corporate good governance, saying it was the new way to go. She thrilled the audience with success stories of the experience of SEPLAT in embracing global corporate good governance standards to stand out in Nigeria and beyond.
She said: “Corporate governance is critical to the long-term interest and survival of any organization especially corporations. It however takes discipline. For instance, it will no longer be easy to give business to an associate of the leader of a company. It is difficult to find Nigerian companies that have survived above 20 years. So, why do companies die in Nigeria? It is lack of corporate governance”.
The lawyer went on: “So, SEPLAT asked what it takes to also survive like those foreign companies. It was found that corporate governance was it. One of the things SEPLAT did was to aspire to be an international company and therefore pursue international practices to achieve international standards. In 2010, we listed in the Nigerian Stock Exchange (NSE) in order to embrace national standards of a corporation; in 2014, we listed in the London Stock Exchange. This launched us onto the international arena and we also embraced international practices or corporate good governance standards.”
As the audience showed keen interest, Uju said: “It is difficult to achieve international corporate governance standards. The benefits are however huge. If you go for loans abroad, they will say, oh, Nigeria: corruption, bribery, nepotism, related party patriotism, etc. The solution to all that suspicion is adoption of Corporate Good Governance. It is not about saying what you do but how you do it. SEPLAT has fought hard to meet corporate good governance and the gain is that it does not go through some hassles that those without standards must undergo. This is because of our sound corporate governance status. This ensures sustainability, access to international investors who are afraid of Nigerian companies. We therefore fully support the national code. It is the only way for companies and organisations to survive.”
The Public Hearing was attended by Nigeria Chamber of Commerce Industry Mines and Culture, Austin Avuru, Chief Executive Officer, Seplat Petroleum Development Company Plc, the media, and a host of other dignitaries. The event witnessed comments and reactions from stakeholders, public entities to whom the code will apply, the media, and public, all of which will be taken into consideration in finalising the Code.
The first leg of the Public Hearing was held in Owerri, Imo State, for the South East, the next was in Port Harcourt and next to be Jos, Gombe, etc. The FRC team will be visiting the Federal Capital Territory on Friday, July 13, 2018; later in Kano Kano, with final lap Lagos.
The Financial Reporting Council, FRC, of Nigeria is a federal government agency established by the Financial Reporting Council of Nigeria Act No. 6, 2011, under the supervision of the Federal Ministry of Industry, Trade and Investment. The FRC is responsible for, among other things, developing and publishing accounting and financial reporting standards to be observed in the preparation of financial statements of public entities in Nigeria and monitor compliance with reporting requirements specified in the adopted Code of Corporate Governance for related matters.
