There is a somewhat natural tendency to consistently apply democratic principles in the affairs of public limited companies. One such example of a democratic application could be the adoption of important and far-reaching resolutions by simple majority on a zero: sum game basis; a significant gain to majority shareholders and a major disadvantage to minority shareholders. Philosophically, there is no rational objection to that orthodoxy. Equitably, there is an apprehension, which could invoke valid concerns appertaining to minority shareholders’ oppression. This lies at the heart of the allusion to boardroom dynamics, which, in the real world, often engages the subtle, and not so subtle, interplay of control, ownership and power motivations by directors.

Section 24 of the Nigerian Companies and Allied Matters Act 2020 (CAMA), defines a public company as any company other than a private company, with its memorandum of association explicitly stating that it is, in fact, a public company. Likewise, section 27 (2) (b) supra, specifies N2, 000, 000.00 (Two million naira) as the minimum issued share capital therein.

However, a company’s board of directors (“the board”) can, at times, test the frontiers of the philosophy of so-called democratic decision making to the limits, to the detriment of its minority shareholders and, in the process act ultra vires, consequently attracting legal sanctions. That’s the beating heart of this analysis.

For ease, a board simply means the directors charged with running a company and are under a legal obligation to act in accordance with the objects of the entity, and safeguard the interests of all the shareholders irrespective of the quantum of shares they own. Section 269 (1) of the CAMA 2022 defines a director as a person “duly appointed by the company to direct and manage the business of the company”; and section 269 (2) CAMA establishes a rebuttable presumption in favour of any person dealing with the company that all the persons described by the company as directors, whether executive or otherwise, are duly appointed.

Directors’ stand in a fiduciary relationship with the company and must observe uberrimae fidae “utmost good faith”, in all transactions they exercise with and on behalf of the company. A director owes a fiduciary relationship to the company where the said director is acting as an agent of a particular shareholder; or though not an agent of any shareholder, such a shareholder or other person is dealing with the company’s securities.

In the South African case of CyberScene Limited and Others vs IKiosk Internet and Information (Pty) Limited 2000 (3) SA 806 (C), the court affirmed that a director subsists in a fiduciary relationship to the company of which he/she is a director irrespective of the type of directorship. In other words, executive, independent and/or non-executive directors, stand in a fiduciary relationship in the companies they oversee.

Likewise, directors must act in the best interest of the company at all times including preserving company assets, advancing its business objectives, acting faithfully, diligently and skilfully; and, in so doing, have regard to the impact of the company’s operations on the environment where its business is executed. Directors’ functions include safeguarding the interests of the company’s employees and shareholders, per section 305 (5) CAMA.

Plus, directors are under a legal duty to exercise their powers purposively, consistent with their specified objectives and shall not do so for a collateral aim. Further, they cannot lawfully fetter their discretion to vote in a particular way at statutory meetings.

Whilst there may be occasions where directors are permitted to delegate their powers, this must be done conscientiously and not in any way amounting to an abdication of duties. Equally, the subsistence of provisions to the contrary in the company’s articles, resolutions or any contract, does not absolve a director from his/her statutory obligations neither does it exculpate liability in cases of breach of duty.

Thus, the board must always safeguard the optimal interests of majority shareholders and minority shareholders whilst striving, consistently, to maximise return on investments and value. Authority for these propositions is affirmed in section 305 (1), (2) (a), (b), (3), (4), (5), (6), (7), (8) and (9) CAMA.

But then, who is a majority or significant shareholder? Is this someone or persons with absolute ownership of a company’s shares held directly or through proxies? Or is the explication articulated in an arithmetical exercise of a 50% stake or more in the company? Deductively, the answer to those posers would be affirmative because it would depend on the configuration of the particular company, its share structure and ownership therein. However, that interpretation is open debate. And, it is for those reasons that a statutory definition is contained in section 120 (2) CAMA viz: “a person is a substantial shareholder in a public company if he holds himself or by his nominee, shares in a company which entitle him to exercise at least 5% of the unrestricted voting rights at any general meeting of the company”.

Logically therefore, the converse must be true. That is, any one person who directly, or via nominees, holds shares which affords him/her less than 5% of the unrestricted voting rights at a company’s general meeting is a minority shareholder.

Because the law is no respecter of persons, neither does the law discriminate against persons on the basis of the quantum of shares they hold in public companies, equal protection is granted to all shareholders and the directors are under an obligation to protect all categories of shareholders. This proposition exemplifies the application of the rule of law, equality before the law, in corporate law.

A seminal case to examine in that regard is the English case of Foss vs Harbottle (1843) 2 Hare 461, 67 ER 189. The case established a general principle that in alleged cases of wrong doing by a company, the proper claimant, imbued with the real locus, is the company itself. The strict application of this principle bred injustice and, over time, Commonwealth jurisprudence developed and codified exceptions to this general proposition in circumstances where its strict application resulted in: a fraud on the minority (shareholders); ultra vires and unlawful acts; an invasion of individual rights; an action entailing special voting rights.

On the protection of minority rights, exemplifying an exception to the rule in Foss vs Harbottle, relying on the case of Yalaju-Amaye vs. A.R.E.C Ltd & Ors (1990) 4 NWLR (Part 145) 465, the Supreme Court of Nigeria in Citec International Estates Ltd vs Francis & Ors [2021] 5 NWLR 190-191, affirmed thus:

“Apart from actions enforcing personal rights of an oppressed plaintiff shareholder, the courts have always allowed actions, in spite of the rule, where the act in question is ultra vires the company, or such that it cannot be sanctioned by a simple majority but by special resolution or is based on fraud…

“Although it is recognized that the word “fraud” is a term so wide an import that it is idle to attempt to define it, it at least appears clear that any act which may amount to an infraction of fair dealing, or an abuse of confidence, or unconscionable conduct or abuse of power as between a trustee and his shareholders in the management of a company is fraud, which may take the case out of the rule in Foss vs Harbottle.”

The import of the above review of authorities is that the general principle established in Foss vs Harbottle will seek to impede meddlesome interlopers in the proper running of company affairs on the one hand, whilst the exceptions will seek to prevent injustice. Objectively, that is a fair balance as regards the protection of minority shareholders.

Advancing, there is a foundational nexus between the proper execution of directors’ duties, safeguarding the rights of minority shareholders and sound organisational performance: corporate governance. The Organisation for Economic Cooperation and Development (OECD), an international organisation, which seeks to catalyse economic development and global trade, characterises corporate governance as entailing a set of relationships between a company’s management, its board, its shareholders and other stakeholders; and provides a structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

Corporate governance in public companies rests on the robust and sustained execution of these interoperable principles: 1) Organisational Strategy; 2) Accountability; 3) Transparency; 4) Fairness; 5) Responsibility; 6) Independent Assurance; 7) Security; 8) Stakeholder Engagement; 9) Leadership; and 10) Adaptability.

Based on the foregoing, my conclusions are straightforward. Directors must act fairly and responsibly at all times in the best interests of all types of shareholders and concurrently, embed best practice in corporate governance including the aforementioned 10 pillars. Equally, minority shareholders can protect themselves from majority shareholders’ overreach by executing shareholders’ agreements, with provisions pertaining to rights of first refusal, diminutions and gains, drag along, quantum of shares vs apportionment of voting rights provisions. Whilst the latter will not, mechanistically, protect minority shareholders nevertheless, it will go a long way in protecting their interests. Patently, the equitable maxim of equity aiding the vigilant rings true here.

Ojumu is Principal Partner at Balliol Myers LP, a firm of legal practitioners in Lagos, Nigeria.