‘Minority shareholders need protection in governance code’

The Institute of Chartered Accountants of Nigeria (ICAN), has called on authorities to provide clarifications as well as review some specific sections of the 2018 Corporate Governance Code, which could hinder its implementation in line with international best practices.

Corporate Governance Code is a national advertorial to the whole world that indicates how companies are to be managed and governed in a country or an economic entity
Specifically, the organisation charged the Financial Reporting Council of Nigeria, (FRCN), to explicitly indicate the processes with which minority shareholders may be adequately protected from abusive actions by controlling shareholders, which is key in any Corporate Governance Code in a concentrated ownership environment.
ICAN observed that the 2018 Code targeted companies of varying sizes and complexities, without any specific focus on listed companies, where ownership ought to have been separated from control.

The implementation of the 2018 Code is supposedly based on the Apply and Explain approach, but ICAN posited that the main approach explained and implemented in the Code is not in consonance with this approach.

Speaking with journalists in Lagos, ICAN President Mr. Razak Jaiyeola, said: “As implied in the 2018 Code, a principle-based code does not mean a voluntary code, but rather voluntary application of the provisions of the code. We are of the opinion that the expression, ‘voluntary’, on Page xiii of the 2018 Code should be removed from the Code.

The Institute recommends an addition to Paragraph 4.1 of the 2018 Code to read: “The Board should ensure that Directors, especially Independent Non-Executive Directors (INEDs), and Non-Executive Directors (NEDs), have access to independent professional advice as Directors. INEDs occupy a pre-eminent position in Corporate Governance oversight; hence they chair oversight committees and form a majority. Their purpose is to sustain board independence, give protection to widely dispersed minorities and non-equity stakeholders, and protect the independence and objectivity of the audit process.”

He said the Institute is concerned by the provision that each Board Committee is to be composed of at least three members, with a majority of INEDs, where possible.
He said there is need to clarify that at least for listed companies, under no circumstance should companies have a majority of NEDs on Audit, Remuneration and
Nomination Committees, which are oversight committees, adding that it’s also important for the oversight committees to be properly defined in the 2018 Code.

“Contrary to the provision of Paragraph 7.9 in the 2018 Code, which requires the Board to determine the tenure of the MD/CEO, the Institute recommends that the tenure of the MD/CEO of Nigerian companies listed on either the Nigerian Stock Exchange or on a recognised stock exchange abroad should be specified in the 2018 Code,” he said.

On audit partners and managers, the Institute recommends that the cooling off period is three years; while for other audit staff it is at the discretion of the audit firm.“There should be specific reference to the use of integrated report by the Board, which incorporate sustainability in financial reporting. The board should apply the principles of integrated thinking in managing the company. Integrated thinking is achieved by making use of integrated report.

“We are poised at supporting government’s efforts in building investors’ confidence to attract Foreign Direct Investment (FDI) into the country. We should know as a country that we do not have a divine right to FDI; hence we must create the environment to attract such investments. A robust Corporate Governance is critical to generating employment in the country and to the achievement of the Ease-of-Doing Business initiatives of the government,” he stated.