Independent Directors: How many should be on a board?

In the past couple of weeks, we have been discussing the inadequacies in the provisions of the corporate governance codes presently in force in Nigeria as far as independent directorship is concerned [see here and here].


Another issue that seems to manifest the inadequacies in the provisions of the corporate governance codes in Nigeria in relation to independent directors relates to the number of independent directors usually prescribed for boards of concerned companies. For example, the Code of Corporate Governance in Nigeria 2011 (2011 SEC Code) issued by the Securities and Exchange Commission provides for at least one independent director to be on the board of every public company in Nigeria. A similar stipulation is contained in the Code of Corporate Governance for the Insurance Industry in Nigeria 2009 (2009 NAICOM Code) issued by the National Insurance Commission and the Code of Corporate Governance for Licensed Pension Operators 2008 (2008 PENCOM Code) issued by the National Pension Commission. However, the Code of Corporate Governance for Banks in Nigeria Post-Consolidation 2006 (2006 CBN Code) issued by the Central Bank of Nigeria stipulates a higher minimum number of independent directors on the boards of directors of Nigerian banks. It provides that at least two of the non-executive directors of a bank should be independent directors.

The provisions of these corporate governance codes are of little value unless a crucial question is asked and answered. That is to say, how many independent directors should be on the board of directors of a company? There are two matters to consider in any attempt to answer this question. The first is to consider international best practices of the number of independent directors on the boards of companies in other jurisdictions. The second issue is to ascertain what roles independent directors are required to play which necessitates making provisions in corporate governance codes mandating their presence on boards. This is particularly so since in most jurisdictions, the company law statutes are silent on independent directors. We shall consider the first issue shortly and benchmark the identified international best practices on the number of independent directors on boards against the provisions in the four corporate governance codes in force in Nigeria. The second issue (that is, the roles of independent directors) shall be the subject-matter of the next article on independent directors next week.

A review of the corporate governance codes of several jurisdictions reveals that there is no consistency in practice as far as the number of independent directors on boards is concerned. However, there are some common numbers and these are worth noting. Most countries adopt either of three common practices. That is to say, to have the majority of members of the board of directors to be independent directors (as in Australia, Brazil, Finland, UK and USA) or to have them constitute a majority of the non-executive directors who themselves constitute the majority of members of the board of directors (as in South Africa) or to have independent directors constitute up to one third of the board of directors (as in Greece and Ghana).

Evidently, the provisions of the four corporate governance codes in force in Nigeria are not consistent with international best practice on the number of independent directors that should constitute a typical board of directors. In the case of the 2011 SEC Code, it is noted that it prescribes a minimum of one independent director while also prescribing a minimum of five directors as the total board size of a public company. Assuming every public company has a board size of five members, it means that independent directors would constitute 20 per cent of the board membership of the company concerned. This is lower than one-third. Unfortunately, however, it is not common to find a public company with not more than five-member board. In fact, in listed companies it would be odd to find a company with less than 10 directors. It is also unusual to find a listed company with more than one identified independent director, except for some banks. The situation in banks is different because the 2006 CBN Code prescribes a minimum of two independent directors. Even at that, there are still some banks that have less than two independent directors and this has been so for more than two years! Thus, in terms of numerical strength independent directors in Nigeria are not adequately provided for in any of the corporate governance codes in force in Nigeria. Their prescribe number on boards is inadequate to enable them making any meaningful impact on the boards in which they are members. Obviously, for independent directors to have any meaning impact their number on boards should be substantially enhanced from the present one or two prescribed in corporate governance codes in Nigeria.

The inadequacies in the number of independent directors prescribed by the corporate governance codes in force in Nigeria would become evident when we consider the roles of independent director. This shall be the area of focus next week.

Independent Directors: 111 Frequently Asked Questions Aptly Answered

Nonetheless, should you have any comments on the number of independent directors that should be on the boards of Nigerian public companies, 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.


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6 comments on “Independent Directors: How many should be on a board?
  1. mamahannatu says:

    i think that the SEC Code provison for one independent director is reflective of the somewhat small nigerian business climate for such people becuase of the strict criteria that such director has to satisfy. in other words, i don’t think it would be easy for public companies in nigeria to find “several” such persons to sit in their board. maybe with time, we can get to that level as is obtainable in other climes.

  2. Mayowa Awosika says:

    It is impossible to recommend a specific number of independent directors for boards. However, it is suggested that the number of independent directors should be proportionate to the number of other non-independent directors on the board. As was mentioned above, we do not know the role independent directors are expected to play in Nigeria, but we know that globally they literally serve as a check on non-independent directors. As such, in order for their voice not be swallowed by those of non-independent directors, one would suggest that they should have majority seat on the board. However, there is in an inherent danger in having majority board members as independent directors. The danger lies in the fact that the oversight/supervisory role of directors would ultimately suffer where independent directors make up majority of the board. With independent directors as majority, it means the remainder of the seats on the board would be shared amongst non-independent non-executive directors and executive directors. Drawing from the knowledge that all non-executive directors are not involved in the day-to-day running of companies and knowing that the totality of hours in a year spent by non-executive directors doing their jobs as directors is very minute, the responsibility of overseeing the day-to-day affairs of the company falls on the executive directors who are now in the minority. The implication of this is that the board might end up as the rubber stamp of the management because executive directors would be overwhelmed by the workload and non-executive directors would lack the valuable time that is needed to critically appraise programmes and plans of the management. In totality, the number of independent directors should be proportionate to the number non-independent directors.

    Although the number of independent directors on the board is important, the quality of independent directors on the board is more important. To have a board full of independent with little quality is as good as having no independent director. For the impact of independent directors to be felt on any board, the quality must be second to none.

  3. linda says:

    The board needs to have membership that represents and protects the interests of the company’s stakeholders, and is able to not only provide advice but challenge management directors and their actions. Major stakeholders need representation on the board. However, I would prefer guidelines to the effect that:
    1. The board should have a majority of directors who are independent of management.
    2. Except where a single entity owns all the shares, at least one third of the directors should be independent of both management and the 10% shareholders.
    Also, it is necessary for cross directorships to be taken into accountin determining independence.

  4. shuga says:

    Directors are persons appointed by a company to direct and manage the affairs and business of a company; as provided for in the Act {section 567 of CAMA}. In line with their duties, managing the affairs of a company, directors are expected to perform their duties with utmost good faith free of any form of favouritism and nepotism, in as much as they aviod being bais.

    Directors occupy a very important position in the running of the affairs of the company in which they are sometimes referred to as a trustee of the company, running it on behalf of the owners. In line with the above article on independent directors, I think and I feel that the number of independent director of a company should however depend on the size of the company with little or large managerial affairs. The nature of an independent director is seen in his decisions, making it without fear or favour no matter the position he finds him self; that is to say, he makes an undiluted decision. What if the decision is diluted or garnished with some substance, how can the truth be perceived? It is very important to have more than 2 independent directors in a company and such other numbers as regards the size, so as to checkmate decisions made by them, to know if it showcase their true nature.

    However, it is my firm and humble view that the number of independent directors of a company is dependent on the size of the company, in as much as it stands to checkmate the activities of the company making undiluted decisions without fear or favour. I feel the number of an independent director should be more than five {5} but not less than {10} even if it does not reflect the statistics, what matters is the quality of decisions they make to reflect their true nature and the principle of checks and balances with in them.

  5. olastrup says:

    Independent directors are a species of non-executive directors but sufficiently detached from the management of the company, the company itself or its substantial shareholders as to be, or be deemed to be, free from thier influnce in their involment in board delibrations and decisions. Rightly or wrongly, independent directors are more or less regarded as God-sent cure-all remedy aganist corporate governance failures. So in dealing with numbers of independent director that should be on board, at least half of menbers qualified to be in a quorum should be independent directors.

    • Comfort says:

      In my view, a key attribute of an effective board is that it’s comprised of majority outsiders, i.e someone who has never worked for the company whether as a major supplier, customer, service providers etc. Independent directors making up to 60-70% of the board members the better because it makes the board more independent, and allows it to provide a higher level of corporate governance to shareholders.

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  1. […] a smaller proportion of board membership. This issue has also been discussed in an earlier post [see here]. However, I dare say that it would be a bold move for Nigeria to move to the level of independent […]

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