CORPORATE GOVERNANCE

Global interest in corporate governance has increased in recent times due to
large scale corporate failures, resulting to huge loses to all stakeholders. The
case of Enron, Worldcom, Pamalat and recent failures affecting financial
industries is still fresh in the public mind. These issues have generated the
need for regulations, stipulating standard rules regarded as best practices in
corporate governance.

Definition of Corporate Governance

Corporate governance is defined as the system by which the affairs of companies
are directed and controlled by those charged with the responsibility. It is an
internal system encompassing policies, processes and people, which serves
the needs of shareholders and other stakeholders. This is achieved by directing
and controlling management activities with good business shrewdness,
objectivity, accountability and integrity. Good corporate governance is reliant
on a sound internal control system, existing legislation, and a healthy board
culture which safeguards policies and processes.

Corporate Governance in Nigeria

Realising the need to align with international best practices, in 2002 the
Securities and Exchange Commission (SEC) in collaboration with the Corporate
Affairs Commission (CAC) set up a committee with a mandate to identify
weaknesses in the current corporate governance practices in Nigeria and come
up with necessary recommendations that will improve corporate governance
in Nigeria. The Committee was given the following terms of reference:
Identify weaknesses in the current corporate governance practices in Nigeria
with respect to public companies;
(a) Examine practices in other jurisdictions with a view to the adoption of
international best practices in corporate governance in Nigeria;
(b) Make recommendations on necessary changes in current practices; and
(c) Examine any other issues relating to corporate governance in Nigeria.
The Committee’s report known as Code of Best Practices on Corporate Governance
in Nigeria, was approved by the Boards of the Securities and Exchange
Commission (SEC) being the regulatory authority of the capital market and the
Corporate Affairs Commission (CAC) being the regulatory authority of companies
in Nigeria.

CODES OF BEST PRACTICES ON CORPORATE GOVERNANCE

The code of best practices on Corporate Governance is treated under the
following:
(a) Board of Directors;
(b) Shareholders; and
(c) Audit Committee.

BOARD OF DIRECTORS

This is further divided into the following sub-sections:

Responsibilities of the Board of Directors

The board of directors should be in control of the affairs of the company in
lawful and efficient manner such that the company continuously improves on
its value creation.
The board should, with due regard to the other stake-holder’s interest, ensure
that the value created is shared among the shareholders and employees.
The functions of the board should include but not limited to the following:
(i) Strategic planning;
(ii) Selection, performance appraisal and compensation of senior executive;
(iii) Succession planning;
(iv) Communication with shareholders;
(v) Ensuring the integrity of financial controls and reports; and
(vi) Ensuring that ethical standards are maintained and that the company
complies with the laws of Nigeria.
The chairman’s primary responsibility is to ensure effective operation of the
board and he should as far as possible, maintain a distance from the day to
day running of the company which should be the primary responsibility of the
chief executive office and management team.

Composition of The Board of Directors

The board should be composed in such a way as to ensure diversity of experience
without compromising compatibility, integrity, availability and independence.
Membership of the board should possess the following attributes:
(i) Upright personal characteristics;
(ii) Relevant core competencies;
(iii) Knowledge on board matters;
(iv) Entrepreneurial bias; and
(v) Sense of accountability integrity, commitment to the task of corporate
and institutional building.
The position of the chairman and chief executive officer should ideally be
separated and held by different persons.
There should be a strong non-executive independent director as vice-chairman
of the board, where the position of the chairman and chief executive officer are
combined in one individual.

Board of Directors

The board should meet regularly at least once in a quarter with sufficient notices
and a formal schedule of matters specifically reserved for its decision, in order
to maintain effective control over the company and monitor the executive and
management.
An agreed procedure should exist for directors to take independent professional
advice; the cost of which should be borne by the company in furtherance of
their duty, if necessary.
The advice and services of the company secretary who should be appointed by
the board and is responsible for ensuring that board procedures are followed
and that applicable rules and regulations are complied with, should be
accessible to all directors. His removal should be decided by the board.
The advice and services of other professionals in areas where such advice will
improve the quality of contribution of the directors to the overall decision
making process should also be accessible to all directors

Non-Executive Directors

Non-executive directors should bring independent judgment to bear on issues
such as integrity, performance, resources including key appointments and
standard of conducts.
Shareholders approval is required where directors service contract is to exceed
three years.
Other than their fees and allowances, non-executive directors should not be
dependent on the company for their income. They should be independent and
not be involved in business relationship with the company that could fetter or
encumber their independent judgment.
They should neither participate in the company’s share option scheme nor be
pensionable by the company.
Appointment as non-executive director should be for a specified period and
re-appointment should be dependent on performance.
It should be a matter for the entire board to decide the appointment of nonexecutive
directors, which should be done through a defined formal selection
process.
Skills mix of executive and non-directors should reflect the range of the
competency needs of the company.
Proper company a board orientation should be undertaken by newly appointed
directors, and where necessary formal training aimed at making them effective
in the discharge of their duties should be given at the company’s cost.

Executive Directors

There should be full and clear disclosure of directors’ total emoluments and
those of the chairman and highest paid director including pension contributions,
stock options, where the earnings are in excess of N500,000.
In the determination of their remuneration, executive directors should not play
an active role.

Compensation of Board Members

The remuneration of executive directors should not be fixed in shareholders
meeting but by the board.
The remuneration should be recommended by remuneration committees, wholly
or mainly composed of non-executive independent directors and chaired by a
non-executive director.
The following should be disclosed in relation to directors’ remuneration:
(a) Directors emoluments and that of the chairman and highest paid
director;
(b) Relevant information about stock options and any pension contribution;
and
(c) Future service contract.

Reporting and Control

It is the duty of the board to present a balance, reasonable and transparent
assessment of the company’s position.
In financial and non-financial reporting, there is an overriding need to promote
transparency.
It is the primary responsibility of the board to ensure good internal controls.
The board should ensure that an objective and professional relationship is
maintained with the external auditors.
External auditors should not be involved in business relationships with the
company.
An audit committee of at least three non-executive directors with written terms
of reference which deal clearly with its authority and duties should be
established by the board.
A report on the effectiveness of the company’s system of internal control should
be presented by the directors in the annual report.
In compliance with the Companies and Allied Matters Act, the directors should
report that, the business is a going concern with supporting assumptions or
qualifications as necessary, with written terms of reference.

SHAREHOLDERS

Shareholders’ Rights and Privileges

(a) The company through the directors, should ensure that shareholders’
statutory and general rights are protected at all times;
(b) It should be the responsibility of shareholders to elect directors and
approve the terms and conditions of their directorships;
(c) The venue of the annual general meeting should be carefully chosen
such that the majority of shareholders can attend and vote at the meeting
and not be disenfranchised in terms of distance and cost;
(d) Before the annual general meeting, notices should be sent at least 21
working days with such details as annual reports, audited financial
statements and other information that will enable them vote properly
on any issue;
(e) A separate resolution should be proposed by the board at the general
meeting on each substantial issue in such a way that they can be voted
for in an organised manner;
(f) The board should ensure that decisions reached at the general meetings
are implemented;
(g) There should be at least one director on the board to represent minority
shareholders;
(h) Unless they are in a competing business or have conflicts of interest,
that warrant their exclusion, shareholders holding more than 20% of
the total issued share capital of the company should have a
representative on the board;
(i) The board should ensure equal treatment of all shareholders such that
none is given preferential treatment or superior access to information
or other materials; and
(j) The annual general meeting should be used by the board to communicate
with the shareholders and encourage their participation.

Institutional Investors

(a) Shareholders’ activism whether by institutional or by organised
shareholders’ group should not be discouraged by the board;
(b) Institutional and non-institutional shareholders with larger holdings
should act and influence the standard of corporate governance positively
and thereby ensure optimisation of stakeholders’ value; and
(c) Information made available to institutional shareholders should also
be made available to other shareholders at the same time in such a
manner as to ensure that neither group enjoys preferential treatment.

Audit Committees

(a) Audit committees should be established by companies with the key
objective of raising standard of corporate governance.
(b) The committee should not be under the influence of any dominant
personality on the main board, neither should they get in the way and
obstruct executive management.
(c) They should not act as a barrier between external auditors and the
executive directors or encourage the main board to abdicate its
responsibilities in reviewing and approving the financial statements.
(d) Audit committees should be made up of strong and independent persons.

Composition of the Audit Committee

(a) Audit committee should be established in accordance with CAMA Section
359 (3), with not more than one executive director;
(b) A majority of the non-executives serving on the committee should be
independent of the company in terms of management or business or
other relationship, which could materially interfere with the exercise of
their independent judgement as committee members;
(c) A non-executive director nominated by members of the audit committee
should be the chairman of the committee;
(d) Membership of the audit committee should be for a fixed tenure, however
any member of the committee should be eligible for re-election after
his tenure; and
(e) The secretary of the audit committee should be the company secretary,
auditor or such other person nominated by the committee.

Qualification and Experience of Members of Audit Committee

(a) Members of the audit committee should be capable of reading and
understanding basic financial statements and make valuable
contributions to the committee’s deliberation;
(b) Audit committee should review not only external auditor’s reports but
also, most importantly, the report of the internal auditor; and
(c) Members of the committee should possess the following qualities:
(i) Integrity;
(ii) Dedication;
(iii) A thorough understanding of the business, its products and
services;
(iv) A reasonable knowledge of the risks facing the company and the
essential controls the company has in place;
(v) Inquisitiveness and dependable judgement; and
(vi) Ability to offer new or different perspective and constructive
suggestions.

Terms of Reference for Audit Committee

In line with Section 359 (6) (a-e) of the Companies and Allied Matters Act, Cap.
C 20, LFN 2004, the committee should be given terms of reference.
The performance of the committee and its members should be evaluated
periodically and the form of such evaluation should be decided by the company.
The committee should maintain a constructive dialogue between the external
auditors and the board and enhance the credibility of the financial disclosures
and the interest of the shareholders.

Meetings

(a) The number of members of the audit committee will determine the
quorum for the meetings and it should be specified in the terms of
reference of the committee.
(b) The committee should meet at least three (3) times in a year.
(c) The committee should hold a meeting with the external auditors at least
once a year, without the presence of any executive member.

Enforcement and Compliance

It has generally been argued that in this issue, voluntary compliance should
be encouraged and where it becomes necessary and applicable, appropriate
sanctions should be applied. This is the position adopted by Securities and
Exchange Commission (SEC), and Corporate Affairs Commission (CAC) in the
enforcement of compliance with corporate governance code of best practices in
Nigeria.
SEC and CAC will give due consideration to the compliance or otherwise of the
provisions of the code in the treatment of issues brought before them.

---

Share : Facebook Twitter Google+ Digg

Jika Anda menyukai Artikel di blog ini, Silahkan klik disini untuk berlangganan gratis via email, Anda akan mendapat kiriman artikel setiap ada artikel yang terbit di Our Akuntansi