The Financial Reporting
Council of Nigeria (FRCN) recently issued the National Code of Corporate
Governance, 2016 (“NCCG”). The three-in-one Code provides for sector-wide Code
of corporate governance for Private and Public Sectors as well as Not-for-profit
Organizations. According to information on the FRCN website, the Code of
Corporate Governance for the Private Sector is mandatory, the Code for the
Not-for-profit entities is comply or justify non-compliance while that of the
public sector will not be applicable immediately until an executive directive
is secured from the Federal Government of Nigeria.

The issuance of the NCCG
particularly the National Code of Corporate Governance, 2016 for private sector
in Nigeria (“the Code”) which was meant to take effect from 17 October 2016,
has raised a lot of concerns amongst Industrial players, stakeholders and
professionals in view of its far-reaching effect on management structures of
private entities coupled with the jurisprudential issue relating to its validity.
The Code has therefore been criticized for its stifling provisions which run
foul of existing corporate legislations and sector-based Codes of Corporate
It came therefore, as a
big relief when it was reported that the Federal Government has suspended the
implementation of the polemical Code. As reported in 07 November 2016 issue of
Business Day Newspaper and other major Newspapers, the Minister of Industry,
Trade and Investment, Okechukwu E. Enelamah, (a supervisory Minister for the
FRCN) did not only suspend the Code but has gone further to issue a 3-page
query to the FRCN to provide amongst others, the regulatory approach that
undergirds the Code; explain the clear conflict between provisions of the Code
and the FRCN establishing Legislation – Financial Reporting Council of Nigeria
Act, 2011 and provide evidence of the adoption of the Code by the Board of the
Council and the minutes of the meeting at which the Board adopted the Code. The
crux of this piece is therefore to highlight some of the concerns raised in
respect of the Code vis-à-vis the ease-of-doing business policy of the Federal
Government and the lessons to be derived from the suspension.
and Powers of FRCN
The FRCN is established
under the FRCN Act, 2011 and saddled with the powers and functions to develop
and enforce accounting and financial reporting standards to be observed in the
preparation of financial statement of public interest entities; review, promote
and enforce compliance with the accounting and financial reporting standards
amongst other powers and functions listed in Sections 7 and 8 of the FRCN Act.
The FRCN’s objectives as stated in section 11 of the FRCN Act include
protecting investors and stakeholders’ interest by enhancing the credibility of
financial reporting and ensuring good corporate governance practices in the
public and private sectors of Nigerian economy. From the foregoing, one will
appreciate the core mandate of the FRCN, which is to regulate and enforce
accounting, auditing, and financial reporting standards in Nigeria and coupled
with the objectives of the FRCN under section 11 of the Act which includes
ensuring good corporate governance practices in the public and private sectors
of the Nigerian economy.
As a corollary to its
afore-referenced functions and powers, the FRCN also places much premium on the
issue of Corporate Governance, and this explains the rationale behind the
establishment of the Directorate/Committee on Corporate Governance in section
49 of the FRCN Act with mandate to issue the code of corporate governance and
guidelines. Perhaps, it is in pursuance of this objective and functions that
the FRCN issued the Code to regulate the private sectors.
Section 2.1 (a) – (c) of
the Code provides that it applies to all public companies (whether listed or
not), all private companies that are holding companies or subsidiaries of
public companies, and regulated private companies as defined in section 40.1.14
of the Code. “Regulated private companies” was defined under the Code as those
private companies that file returns to any regulatory authority other than the
Federal Inland Revenue Service and the Corporate Affairs Commission, except
such companies with not more than eight (8) employees. Instructively, section
40.1.15 of the code defines “regulator” or “regulatory authority” to mean the
Financial Reporting Council of Nigeria and other sectoral regulators as may be
As noted above, the Code
is all-encompassing as it cuts across all private sectors and seeks to unify,
harmonize and supersedes all the existing sectoral corporate governance codes
in Nigeria such as those regulating the Licensed Pension Operators, Banking,
Discount Houses and Insurance sectors.[1]
Some salient provisions of
the Code and the attendant defects and criticisms
Board Structure and
The Code recognizes in
section 5.1 thereof that the Board shall be of sufficient size relating to the
scale and complexity of the company’s operations but goes further in section
5.4 to provide that the membership of the Board shall not be less than 8
members. The minimum Board Membership for regulated private companies that are
not holding companies or subsidiaries of public companies is however pegged at
5 members. Not done, the Code[2] provides that not more than two members of the
same or extended family shall sit on the Board of the same company at the same
time and goes further to define an extended family member to mean those persons
who may be reasonably expected to influence, or be influenced by, that person
in his dealing with a company. Even for a student of Company law, it is not
difficult to see the conflict between this Code and the section of the
Companies and Allied Matters Act, Cap C20 LFN 2004 (CAMA) which provides that
every company shall have at least two Directors[3]. Therefore, the 5 or 8
minimum Board membership imposed by the FRCN is clearly ultra vires. What it
means, going by the provision of the Code, is that any affected company with
less than 5 or 8-Board membership as the case may be will be flouting the Code
and will need to appoint additional Director(s) to fill up the shortfall.
of the Board
The Code reserves the
position of the Board Chairman to non-executive Director thereby excluding the
right of an executive Director to chairmanship of a company Board. While this
provision may accord with the general practice in the private sector which is
often encouraged as it is necessary to balance and checkmate the powers and
excesses of the executive directors who are the actual managers of the company
but again how valid is this provision which makes such a practice mandatory
given the express provision of CAMA on the election of Company Chairman[4].
Interestingly, as stated by the Supreme Court in the case of Longe v. First Bank
of Nigeria (2010) LPELR-1793(SC); (2010) 6 NWLR (Pt. 1189) 1, the statutory
definition of directors under section 244 (1) of the CAMA does not recognize
the nomenclature between executive and non-executive directors. Thus, one would
have preferred having this provision reserving the post of company chairmanship
to non-executive director in a substantive legislation and not in the Code.
Again, the Code runs foul
of the CAMA provision on remuneration of the Directors by providing that the
MD/CEO’s remuneration shall be determined by remuneration committee contrary to
the powers vested on the Members of the company under the CAMA[5] to so
Board Meeting
The Code mandates the
holding of Board meeting at least once in every quarter and goes further to
require every director to attend at least two-thirds of all Board meetings.
This glaring conflicting provision also stares in the face of the CAMA
provisions on holding of Board Meeting.[6]
On the voting powers of
directors at the Board Meeting, the Code provides that where a majority of
Independent directors do not agree with a decision of the board of directors,
such a decision would only stand if it was supported by at least 75 percent of
the entire board. As noted by one of the commentators, what this provision does
is to elevate the positions of the Independent directors above the majority of
the board of directors giving the impression of a fictional two-tier board
system in which the executive directors are subject to the independent
(non-executive) directors. It is not difficult to see the conflict between this
provision and the provisions of CAMA which provide that the decisions of the
Board of Directors are arrived at by a majority of votes of the Directors and
every Director is entitled to a vote.[7]
Appointment of Directors
and Auditor
While the first directors
of the Company are usually determined by the subscribers to the Memorandum and
Articles of the Company[8], the appointment of subsequent directors or
confirmation of those appointed to fill casual vacancy is however reserved for
the members at the General meeting. The Code in vesting the power of
appointment on the Board subject to ratification by relevant industry regulator
merely provides that certain particulars and information of persons to be
appointed as directors shall be submitted to the shareholders without more
thereby technically taking away the powers of the members in respect of appointment
of directors or ratification of such appointment.
Another infraction of the
CAMA is the Code provision[9] on mode of appointment of auditor which is by a
show of hand in an Annual General Meeting. Section 224 (1) of CAMA expressly
provides that resolution at the General Meeting shall be by show of hands
except where a poll is demanded by the chairman where he is a shareholder or by
at least three members present in person or by proxy, etc.
The above referenced
provisions are not exhaustive of the provisions of the Code that have got
stakeholders and professionals talking not only in terms of their conflict with
existing Corporate legislations but also as they affect other existing sectoral
Codes of Corporate Governance. Reading through the provisions of the Code, one
will not help but wonder whether the makers deliberately set out to amend the
existing laws regulating private corporate entities.
Importance of Code of
Corporate Governance
The importance of Code of
Corporate Governance is recognized all over the world as no organization can
operate effectively without laid down processes, customs, policies, standards
affecting the way a corporation is directed, administered or controlled. The
principles that undergird Corporate Governance culture include integrity and
ethical behavior, disclosure and transparency, equitable treatment of
shareholders and efficient discharge of Board responsibilities and functions
which are necessary for building investors’ confidence. The monumental
corporate disasters witnessed in the collapse of Enron, Worldcom, and Lehman
Brothers are enough pointers to the fact that no matter how big a corporation
is, it can come crumbling like a house of cards if there is lacking in place a
strong corporate governance culture. Expectedly, these big corporations failed
because of poor management, insider abuse, fraud, laxity amongst other
corporate governance infractions. Ironically, prior to their collapse, these
big corporations were putting on the toga of healthy and viable entities and
industrial leaders in their respective sectors. In the case of Enron, it was
reported that the company kept huge debts off its balance sheets leading to the
loss of $74 billion by the shareholders and thousands job lost. And this was a
company which was reportedly named as “America’s Most Innovative Company 6
years in a row prior to the scandal. Same with the Lehman Brothers Scandal of
2008 where management hid over $50 billion in loans disguised as sales, the
company was forced into the largest bankruptcy in U.S. history still because of
the malfeasance of the executives and auditors of the company. Again, in 2007,
just months before it went bankrupt, Lehman Brothers was ranked the number one
Most Admired Securities Firm by Fortune Magazine.
In Nigeria, the situation
is not any better as poor corporate governance practices still rear their ugly
heads in the banking and financial sector even after the Central Bank of
Nigeria (CBN) consolidation exercise. This poor corporate governance culture as
evidenced in poor risk management, insider abuses by management, technical
incompetence, Boardroom wars, false returns and concealment of information from
the regulators and examiners, inadequate financial and audit control and other
corporate infractions, is the bane of corporate failures and contributes to
lack of investors’ confidence in Nigeria business environment. Recently the
Executive Vice Chairman/CEO, Nigerian Communications Commission (NCC), Prof.
Umar Garba Danbata, re-echoed this point when he blamed the failure of
companies on weak or complete absence of corporate governance structures.
Nigeria’s corporate space is not new to Corporate Governance prescriptions, the
challenge has always been implementation and adherence to same. To start with,
CAMA has made extensive provisions on duties of Directors of a company which if
strictly adhered to will go a long way to institutionalize the culture of
corporate governance amongst company Board members in Nigeria. Similarly,
several sector regulators have put in place sectoral Codes of Corporate
Governance as can be seen in CBN Code of Corporate Governance for financial
institutions, and Securities and Exchange Commission (SEC) Code of Best
Practices for Public Companies in Nigeria. It is not necessarily the
multiplication of Codes that will do the magic but ensuring that the managers
of our companies imbibe the values of honesty, integrity, selfless service, and
adherence to the existing Codes of Corporate Governance. Relatedly, the
sectoral regulators equally need to beam their searchlight on corporate
managers and company auditors to ensure that they comply with necessary
regulations put in place to boost strong corporate governance culture.
Lessons learnt
Despite the importance of
corporate governance mechanism as highlighted above, the outcry that followed
the introduction of the Code is enough pointer to the fact that adequate
consultations and research were not done prior to its issuance. The writer has
identified the following as some of the lessons to be learnt from the reported
1.          Need for more synergy amongst policy
makers and the Stakeholders: Proper consultation is required prior to crafting
of rules and regulations that regulate business conducts, more so in a highly
complex and sophisticated sector as the Code tends to regulate. Research has
shown any law or regulation that is observed in breach is largely attributed to
the failure of the makers to carry out proper consultation or work in synergy
with the relevant stakeholders prior to the making of such law or regulation.
In this case, the outcry that greeted the issuance of the Code is a clear
evidence of lack of consultation and collaboration between policy makers and
stakeholders of the affected sectors. It behoves the rule makers to do proper
consultations and fly a kite before coming up with such rules.
2.          Over Regulation kills Business: As
noted earlier, it is not the multiplicity of regulations that we need but
adherence to and implementation of the existing ones. As noted by one of the
commentators, the FRCN overreached its powers in Sections 51(c) and 77 of the
FRCN Act by issuing a Code which seeks to cover the entire spectrum of
corporate governance in Nigeria without limiting itself to regulating accounting
and financial reporting standards of companies. One would have expected the
FRCN to focus on its core mandate of regulating the accounting and financial
reporting standards of companies rather than biting more than it can chew.
3.  Conflict with the Ease of Doing Business
Policy of the Federal Government: There is need for harmony in government
policies to avoid conflicting situation as this as it has been rightly argued
that the Code is in conflict with the much-touted Federal Government policy on
Ease of doing business. The Doing Business Report is a survey conducted by the
World Bank, which measures the burden imposed by regulation across 190
different countries in the world and looks at 10 sub-indicators which represent
regulatory processes that a typical business will face over its life cycle such
as starting business, enforcing contracts, getting credit, protecting minority
investors, paying taxes, registering properties, getting construction permits,
getting electricity, trading across borders and resolving insolvency. Nigeria
has performed poorly in this regard and is currently not sitting well on the
Index of Ease of Doing Business such that any policy that makes the operating
environment more stringent will not augur well with Government policy in this
regard. In other words, Nigeria has refused to rise a few rungs on the ratings
and has been fluctuating in the ranking over the years. The country is
currently ranked 169 out of 190 countries in the World Bank Ease of Doing Business
Index for 2017 same position it was in 2016 Ranking. This however, is a
one-point upward movement from Nigeria ranking of 170 in 2016 Report but a
further decline from Nigeria’s ranking of 147 in 2014. It follows that
stringent regulations imposed on business environment as this Code seeks to do,
will not achieve the desired result in the area of Ease of Doing Business but
will further contribute to a difficult operating environment for businesses.
4.  Need for conflict-check and more consultation
with independent legal experts in formulating policy guidelines and
regulations: The inherent conflict highlighted in the Code above is a clear
evidence of lack of necessary due diligence and expert advice and scrutiny on
the part of FRCN. The tendency amongst policy and rule makers in Nigeria is to
rely on internal legal team who most of the times do not have the necessary
legal skills and experiences. It is therefore advisable that policy and rule
makers should engage professionals and external solicitor(s) who will conduct a
proper legal due diligence and cross check their policies and regulations with
existing laws to avoid clear conflict as this. It is a common place in Nigeria
to see regulations, rules and Practice Directions that run contrary to the substantive
laws or even superior rules. This writer had earlier raised these concerns over
what appears to be a trend in Nigeria’s rule making processes where the rule
and regulation makers purport to act in ignorance of the existing laws with the
attendant consequence of making rules or regulations that run contrary to the
substantive or parent legislation or even another superior regulations. For
instance, the Chief Judge of one of the Federal Courts issued a Practice
Directions sometime in 2013 which provisions are clearly in conflict with the
superior Rules of Court and that Practice Directions is currently being
challenged in Court. This trend is equally seen even in most government
parastatals and agencies where regulations are made which are clearly contrary
to the provisions of the parent legislations establishing the Agencies or even
entirely different statutes. The Code is undoubtedly a subsidiary legislation
and is akin to a Practice Direction or Rules of Court often made by Heads of
Courts in Nigeria which under normal circumstances should not contain
provisions that are in conflict with Statutes made by Legislatures. And the law
is fairly settled that where there is a conflict between a subsidiary
legislation and a law made by State or Federal legislature, the latter
prevails. Thus, our policy and regulation makers should be guided by the
admonition of Niki Tobi JSC (as he then was) in the case of Buhari v. INEC
(2009) All FWLR Pt 459 p.419 when His Lordship was confronted with a conflict
situation similar to what is being discussed here and the learned jurist had
this to say on the position of subsidiary legislation and practice directions
in the hierarchy of our jurisprudence:
”Practice Directions have
the force of law in the same way as rules of court. Rules of court include
Practice Directions. Practice Directions will however, not have the force of
law if they are in conflict with the Constitution or the statute which enables
them. See Abubakar v. Yar’ Adua 2008 All FWLR pt404 1409. In the hierarchy of
our jurisprudence, Practice Directions come last in terms of authority in the
area of conflict. If there is a conflict between the Constitution and Practice
Directions, the former will prevail. This is too obvious to be mentioned. If
there is a conflict between an enabling statute and Practice Directions, the
former will also prevail. This is also an obvious one. Perhaps the less obvious
one is where there is a conflict between enabling rules of court and Practice
Directions. In my view, even here, the enabling rules of court will prevail.
This is because in certain cases, rules of court empower the head of court to
make Practice Directions. And so in the event of any conflict, the authority of
the mother who gave birth to the child (putting it on the lighter side) should
be recognized first as the first and foremost authority”.
Similarly, the Supreme
Court in the more recent case of NNPC v. FAMFA Oil (2012) LPELR-7812 (SC) (per
Rhodes-Vivour JSC) has also pronounced on effect of conflict between subsidiary
legislation and the principal Act when the apex Court held that the former must
conform with and not derogate from the latter.
In conclusion, it is hoped
that the Federal Government will do the necessary panel-beating and tinkering
on the Code to align it with the existing laws as the Code cannot amend the
provisions of statute made by the National Assembly notwithstanding the good
intention of the makers. It is even difficult when it is realized that CAMA is
a specific legislation and the Code which has wider application cannot derogate
on specific provision of the CAMA or other sectoral legislation. The principle
has always been that where there is a conflict between a general
provision/legislation and a specific provision/legislation, the latter will
prevail.[10] Perhaps the aftermath of this imbroglio will steer relevant
agencies and institutions of government through the right part in their future
rule making process. If a thing is worth doing, it’s worth doing well.
[1] Section 38.3 of the
Code equally recognizes the power of sectoral regulator to issue sectoral
supplementary guidelines on sector specific matters relating to corporate
governance without prejudice to overriding provisions of this Code.
[2] Section 5.12 of the
[3] Section 246 (1) of
[4] Section 263(4) and (5)
[5] 267(1) of CAMA.
Section 267(3) also provides that where the Article of the Company has provided
for the remuneration, it shall only be alterable by special resolution of
[6] Section 263(1) of CAMA
provides that Directors may meet for the dispatch of business, adjourn and
regulate their meetings as their deem fit provided that the first meeting of
the directors shall be held not later than 6 months after the incorporation of
the company. Section 263(8) of CAMA also provides for written resolution of
directors which shall be as valid as if it has been passed at a physical
[7] Section 263(2) and (9)
[8] Section 247 of CAMA
[9] Sections 19.2.2 and
19.2.3 of the Code
[10] ADEDAYO & ORS. v.
PDP & ORS  (2013) LPELR-20342(SC)

Prince Ikechukwu Nwafuru
Prince is an associate at
Paul Usoro & Co. Since joining the firm, he has worked in various complex
matters with particular focus on Energy and Environment, Maritime, Banking,
Solid Minerals, Election Petitions, white-collar crime and Communications, in
most of which he has worked directly with the Firm’s Senior Partner, Mr. Paul
Usoro SAN.

Ed’s Note – This article was originally published here