The Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004 (CAMA) has elaborate provisions regarding the administration of companies in Nigeria. A key player in the management of companies is a director. Interestingly, the CAMA has copious provisions on company directors. Nevertheless, it is not clear from the provisions of the CAMA the qualifications a person must possess to be appointed a director. Could this have been deliberate or it is a case of some oversight on the part of the makers of the statute? Are there lessons to be learnt from other jurisdictions on the matter? These questions are some of the issues we shall discuss in this article.
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Section 567 of CAMA defines a director as including any person occupying the position of a director by whatever name called. While this nebulous definition might have its advantages, and is consistent with other provisions of the statute, the definition does not address the fundamental question: who can be a director of a company under the CAMA?
The issue of the qualification for directors of company appears to have been glossed over by the CAMA. This conclusion is predicated on the fact that no attempt was made at prescribing a qualification for directors of companies under the CAMA. The CAMA merely lists those persons who may not be appointed as directors. Accordingly, section 257 of the CAMA provides that the following persons are disqualified from being appointed as directors of companies; namely:
- a director who fails to obtain his shareholding qualification within two months from the date of his appointment as director, where the Articles of Association of the company provides for shareholding qualification for directors
- an infant (that is to say, a person below the age of 18 years)
- a lunatic or a person of unsound mind
- a person disqualified under sections 253 (insolvent persons), 254 *fraudulent persons) and 258 (vacation of office of a director) of the CAMA
- a corporation other than its qualified representative appointed by its board for a definite period of time.
While section 257 is definite on those who are disqualified from being appointed as directors of companies, it is silent on the quality of those who should be appointed as directors. It may ridiculously be contended that from the provision of section 257, the positive qualities of directors may be gleaned. For example, a director must be an adult; he must be a sane person; a director must be a person who is financially buoyant; he must not have been convicted of an offence involving fraud; and must not have vacated the office.
In view of increasing awareness regarding directors’ liability and the prominent position corporate governance issues are occupy in modern times, there have been suggestions that there should be some minimum qualifications that directors must possess to be qualified to be appointed directors. It seems ridiculous and ironic that in a company where there exists some personnel specification (including academic qualifications) even for the lowest job in the organisation, there is no qualification prescribed for those who are the directing mind and hands of the company!
In some jurisdictions, some bodies (notably, the Institute of Directors) have taken up the task by providing for chartered directors certification. This is the case in the United Kingdom and Australia. The Institute of Directors Nigeria under the present leadership has also muted such idea in Nigeria; but it does not seem to have taken off yet. In Pakistan, a more radical approach has been adopted. In section 35(xi) of the Code of Corporate Governance of Pakistan 2012 which is part of the Listing Regulations of the Stock Exchanges of the country it is provided that it shall be mandatory for all the directors of the listed companies to have certification under any directors’ training programme offered by institutions – local or foreign – that meet the criteria specified by the Securities and Exchange Commission of Pakistan; provided that from June 30, 2012 to June 30, 2016 every year, a minimum of one director on the board shall acquire the said certification under this programme each year and thereafter all directors shall obtain it.
It is important that those who run companies, particularly public and/or quoted companies, are adequately trained for the position of a director. Poor management of companies could occasion disastrous consequences for shareholders of the company. The adverse impact of such maladministration could affect other stakeholders of the company, such as creditors, customers, suppliers and even the government and the economy. It is about time that the directorship of companies, particularly public and/or quoted companies, is occupied by those who are really and truly qualified for such positions, who understand the enormous responsibilities which such directorship entails, and are willing and able to dutifully and diligently discharge such responsibilities.
The big question is: should such requirements be stipulated in the CAMA? That would not be advised, suggested or recommended for numerous good reasons. First, as is very well known amending the CAMA through the legislative process is truly a herculean task. Anything provided for in the CAMA is nearly almost cast in bronze as an amendment of such provision is nearly almost imaginary! Secondly, such practice does not seem to be best practice. The general practice is to have the statutory framework for company formation and administration to be silent on such matter. Thirdly, providing for such issues in corporate governance codes is advised in view of the relative ease with which corporate governance codes can be updated when the need arises. Besides, this approach has been practised elsewhere, as was mentioned earlier.
It is granted that it may be difficult to comprehensively itemise the qualifications of directors that would be generally applicable to all companies. This is particularly so in view of the changing requirements for company management and the need to balance numerous interests in the composition of the boards of companies. This situation has become even more pronounced on account of the striking difference in the nature, history, size and culture of companies. These have made board diversity a must-do for companies. In the course of satisfying the various interests, strict compliance with academic qualification for all directors may be unfeasible. Nevertheless, as a result of increasing awareness of investors, the increasing alertness of the regulators, and the increasing ease and affordability of modern communication gadgets greatly enhanced by advancement in technology, it is no longer business as usual in terms of the running of companies. That directors are to be knowledgeable cannot be underplayed. If no other lesson is learnt from the Centro case, that must be the only lesson learnt.
Next week, we shall appraise another provision of the CAMA regarding directors of companies. Meanwhile, should you have any comments on the issues raised in this article, kindly share them using the comments area of this post below. If you are already a registered user, you will be required to log in to comment on this post; otherwise, you will have to register before posting your comment. Registration is simple and FREE.