Corporate Governance Best Practices and Regulatory-Mandated Reporting Vis-A-Vis the Reporting Template for the Nigerian Code of Corporate Governance 2018
Introduction
The Financial Reporting Council of Nigeria in its bid to institutionalize corporate governance best practices in Nigerian companies, increase entities’ levels of transparency, trust and integrity, and create an environment for sustainable business operations came up with Reporting Template for the Nigerian Code of Corporate Governance in 2018. The Template assesses the level of Company’s compliance with the practices and principles set down in the Code.
Legal Background
Corporate Governance is the system by which companies are directed and controlled, giving due consideration to all stakeholders of the company, to facilitate effective and prudent management for the protection of shareholders’ interest. The need for good corporate governance arose because of the increasing concern about the non-compliant standards of financial reporting and accountability by boards of directors and management of corporate organizations, which when not effectively administered inflicts heavy losses on investors.
In line with the above, the Financial Reporting Council (“the Council”) in exercise of the powers conferred on it by Sections 11(c) and 51(c) of the Financial Reporting Council of Nigeria Act 2011, issued the Nigerian Code of Corporate Governance 2018 (NCCG).
The objective of the Code is to enhance the Nigerian business environment by institutionalizing corporate governance best practices in All companies and to promote public awareness of essential corporate values and ethical practices that will enhance the integrity of the business environment; The Code seeks to address issues relating to the composition of Company Boards, relationship with shareholders, sustainability, assurance, audit, among others.
The Viability of the Reporting Template for the Nigerian Code of Corporate Governance, 2018
The reporting template is the Financial Reporting Council’s means of assessing companies’ compliance with corporate governance principles & best practices as laid out in the Code. It employs the NCCG’s ‘Apply and Explain’ approach; requiring companies to state where they have applied the code’s requirements and how they have done so. The rationale for this approach was to prevent a mere ‘box-ticking exercise’, and alternatively make companies deliberately consider their application of the corporate governance principles.
The disclosures organizations are required to provide in the template would give a fairly accurate picture of the level of a company’s compliance with the NCCG. The specific information required by the Financial Reporting Council to be disclosed by the Corporation and reported in the Reporting Template ultimately works to the best interest of the Corporation as it provides the base for informed decision making by shareholders, stakeholders and potential investors in relation to capital allocation, corporate transactions and financial performance monitoring, as well as the risks and rewards of any investment in the Corporation. The reporting template and information therein, where duly completed, informs the Council and the public that the Company is a law abiding business and a going concern for that matter.
Notably, in a situation where Management may fail to provide certain information pertaining to the financial information of the Corporation, it would make it impossible to fully understand the Company’s financial position and it may be assumed that the Company is deliberately misleading the Council and the general public about the Company’s operations.
The Principle of Disclosure and its Statutory Justification
The Central Bank of Nigeria defines full disclosure as the mandatory financial, operational and management information which Financial Institutions are required to disclose in the rendition of their periodic returns to the regulatory authorities and the public.[1]
The Code encourages communication between stakeholders and investors of the Company on the activities of the company as well as full disclosure of all matters that are relevant to them. In order to ensure compliance with the principle of disclosure, the Board of Companies are mandated to guarantee that Company’s annual report includes a corp, orate governance report that provides clear information on the Company’s governance structures, policies and practices as well as environmental and social risks and opportunities. The contents of the corporate governance report is in turn to be divulged in the reporting template to be submitted to the FRC (Section 28.1 of the Code).
Similarly, the Code of Corporate Governance for Banks and Discount Houses (Section 5.1.1) mandates Banks and Financial Institutions to make robust disclosures on Company’s activities beyond the statutory requirements in the Companies sand Allied Matters Act (CAMA) and Banks and Other Financial Institutions Act (BOFIA).
Conclusion and Recommendations
Conclusively, companies are advised to adhere to the provisions of and report effectively on the adoption of principles laid down in the Code, as this will in turn allow indigenous organizations greater room to compete with international corporate organizations in terms of corporate governance best practices and improve public/investor confidence in the Corporation. A company that does not apply the principles of corporate governance exposes itself to grave risks, the principles provided by this Code are in fact necessary for the survival of any company.
In light of the foregoing, we propose the following amendments to the Template:
- Review of Remuneration Policy – We propose the inclusion of a periodic review of the remuneration policy under Principle 16in the Reporting Template. The aim of this is to show that the Corporation is indeed competitive and continually works to ensure the alignment of the interests of senior executives with the interests of shareholders, and with the business strategy formulated by the Board, with regards to how performance-based rewards are used to drive corporate performance, in particular.
- Meeting with Shareholders – We propose the inclusion of the following under Part C – Relationship with Shareholders:“Does the Board ensure that all shareholders have equal access to information about the Company”. The answer to this should be in the affirmative. The importance of this inclusion is to show that equal and fair treatment of all shareholders (whether majority or minority), is a prime concern of the Corporation.
- Oversight of Management– We propose the inclusion of the following under Part A – “Does the Board oversee the performance of management”? The answer to this should be in the affirmative as well, to show that as required by Principle 1 of the NCCG, the Board ensures that its management acts in the best interests of the Company and its stakeholders.
- Board Composition and Independence– We propose the inclusion of the following disclosures: “Do the members of the Board have sufficient diversity of experience? Is the Board independent of management?” The answers to these should be in the affirmative and would show that the Board members have the required experience and competence and that the Board is able to carry out its oversight function objectively.
- Chairman’s functions– Under this designated function we propose this inclusion: “Does the Chairman’s functions include those specified in Principle 3.4 of the Code?” The inclusion of this disclosure would show how effectively the Chairman leads the Board and the Company.
- Company Secretary– We propose the inclusion of the following disclosures: “Does the Company Secretary possess the relevant qualifications and competence necessary to effectively discharge his functions? Was the Company Secretary’s appointment carried out in a rigorous selection process similar to the appointment of new directors? Does the Company Secretary assist the Board with implementation of the FRC’s Code of Corporate Governance and promoted good corporate governance practices within the company?” These disclosures would satisfy the requirement for the Company Secretary to be a senior member of management, sufficiently qualified and the facilitator of corporate governance compliance for the company.
- Meetings– For meetings we propose this: “Are resolutions reached at Board meetings fully implemented?” This should be answered in the affirmative and would show that as required by the Code, the Board meetings are used to fulfil the strategic objectives of the company.
- Execution of the Template– We propose that Section F of the template be amended such that it is signed not only by the Managing Director and Company Secretary but also by the Chairman of the Board and the Chief Internal Auditor of the company. This is because many of the disclosures in the template directly concern them, and would very likely be answered by them.
