The Nigerian corporate governance scene is somewhat complicated and scattered. This is especially so in relation to corporate governance regulation. Naturally, this is having a huge impact on the enforcement of corporate governance in Nigeria.
For starters, there are four corporate governance codes presently in force in Nigeria. These are the Code of Corporate Governance for Banks in Nigeria Post-Consolidation 2006 [2006 CBN Code], which was issued by the Central Bank of Nigeria and applicable to all banks operating in Nigeria; the Code of Corporate Governance for Licensed Pensions Operators 2008 [2008 PENCOM Code], which was issued by the National Pension Commission and applicable to all pension fund administrators and pension fund custodians operating in Nigeria; the Code of Corporate Governance for Insurance Industry in Nigeria 2009 [2009 NAICOM Code] , which was issued by the National Insurance Commission and applicable to all insurance and re-insurance companies operating in Nigeria; and the Code of Corporate Governance in Nigeria 2011 [2011 SEC Code], which was issued by the Securities and Exchange Commission and applicable to all public companies registered in Nigeria.
The first three corporate governance codes are industry-specific and therefore applicable to all companies operating in the affected industries respectively. Consequently, the 2006 CBN Code is applicable to all banks operating in Nigeria; the 2008 PENCOM Code is applicable to all pension fund administrators and pension fund custodians operating in Nigeria; and the 2009 NAICOM Code is applicable to all insurance and re-insurance companies operating in Nigeria. The 2011 SEC Code is applicable to all public companies in Nigeria irrespective of the sector in which such public companies operate.
A major shortcoming of the multiplicity of corporate governance codes regime currently the case in Nigeria relates to the resolution of conflicts in the provisions of any of the industry-specific corporate governance codes with the provisions of the 2011 SEC Code. This situation is compounded by two facts majorly. One, all the industry-specific corporate governance codes are compulsorily applicable to the companies operating in their respective sectors. Two, the 2011 SEC Code is ambivalent on it superiority over the industry-specific corporate governance codes. In one breadth you get the impression that it is compulsorily applicable to all public companies; and in another, it seems to succumb to the supremacy of the industry-specific corporate governance codes. To that extent, it provides that where there is a conflict between its provisions and those of any of the industry-specific corporate governance codes on any issue, the code with the strictest provision on the issues prevails. As innocuous as this provision may seem, on a deeper reflection it is evidently a nebulous and unhelpful provision. It is not always easy to determine a stricter provision in cases of conflicting provisions.
Actually, it is contended that the consequence of that provision in the 2011 SEC Code is to expressly, but perhaps unintentionally, vest superiority on the industry-specific codes. An illustration will make this contention clear. In terms of compliance with the codes, the 2011 SEC Code is laissez-faire and surprisingly permissive while the industry-specific codes expressly stipulate that compliance with their provisions is mandatory. Thus, as between the industry-specific codes and the 2011 SEC Code, the industry-specific codes provisions on compliance are stricter. Consequently, in accordance with the provision of the 2011 SEC Code, the provisions of the industry-specific codes should have precedence over the provisions of the 2011 SEC Code. Thus, companies that are subject to the industry-specific codes are to be bound by the provisions of their respective industry corporate governance codes irrespective of the provisions of the 2011 SEC Code on the same issue. Why is this so? Because compliance with the provisions of the industry-specific codes is compulsory! A compulsory compliance provision is stricter than a laissez-faire compliance provision. Could this have been the intention of the SEC when they put that laissez-faire compliance provision in the 2011 SEC Code? I do not think so.
The situation highlighted above is just a tip of the iceberg when considering the confusing and complicated state of corporate governance in Nigeria at the moment. Truly, such a state cannot be good for companies which are expected to comply with these codes.
Interestingly, towards the end of the first half of 2011 the President signed into law the Financial Reporting Council of Nigeria Act of that year. This groundbreaking legislation established the Financial Reporting Council of Nigeria and vested it with enormous powers in respect of the regulation of companies operating in Nigeria. A remarkable provision of the Financial Reporting Council of Nigeria Act 2011 is that for the first time in Nigeria, there is an express statutory provision vesting responsibility in respect of corporate governance on a regulatory body. Rather curiously, all the other bodies which have been exercising authority over companies on corporate governance matters got their powers on corporate governance by inference. There authorities on corporate governance are implied. They are not expressly and clearly stated in the different statutes setting up such regulators. Including the SEC!
The situation is different in the case of the Financial Reporting Council of Nigeria. In fact, the Act empowers it to establish a Directorate of Corporate Governance with the following objectives: to develop principles and practices of corporate governance; promote the highest standards of corporate governance; promote public awareness about corporate governance principles and practices; act as the national coordinating body responsible for all matters pertaining to corporate governance; promote sound financial reporting and accountability based on true and fair financial statements duly audited by competent independent Auditors; encourage sound systems of internal control to safeguard stakeholders’ investment and assets of public interest entities; and ensure that audit committees of public interest entities keep under review the scope of the audit and its cost effectiveness, the independence and objectivity of the auditors.
The Directorate of Corporate Governance of the Financial Reporting Council of Nigeria is further empowered to organize and promote workshops, seminars and training in corporate governance issues; issue the code of corporate governance and guidelines, and develop a mechanism for periodic assessment of the code and guidelines; provide assistance and guidance in respect of the adoption or institution of the code in order to fulfil its objectives; and establish links with regional and international institutions engaged in promoting corporate governance.
It can be gleaned from the reports in the news media of late that the Financial Reporting Council of Nigeria is about to discharge its corporate governance responsibilities. The Chief Executive Officer of the Financial Reporting Council of Nigeria is reported to have said that the Financial Reporting Council of Nigeria “would in 2013 issue a national code of corporate governance which all organisations are expected to comply with” and that “the new code will unify existing versions that are promoted by primary regulators — the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC).” (See here.) At a different event in December 2012, it was reported in the media that the Minister of Trade and Investments stated that a Steering Committee on the National Code of Corporate Governance would be inaugurated soon. This is consistent with another statement credited to the Chief Executive of the Financial Reporting Council of Nigeria. (See here.) One cannot be exact on how this will play out, but clearly it does seem that the stage is set for a paradigm shift in the regulation and enforcement of corporate governance in Nigeria. What is not so clear is its depth.
Do you agree that the stage seems set for a paradigm shift in corporate governance regulation and enforcement in Nigeria? Do you think that the corporate governance scene in Nigeria requires to be modified to make it consistent with contemporary international best practices on corporate governance? Share your thoughts and opinions on this very crucial issue in the comments section of this post.