Independent directors have gained much traction in the corporate governance scene of developed countries. This category of directors, who are not specifically provided for in company statutes, has emerged as the bedrock of sound corporate governance entrenchment in companies. This is evident from the fact that contemporary corporate governance codes contain enormous provisions on independent directors. The main issues usually provided for in such corporate governance codes include the following:
(a) Definition of the term “independent director”: This is a very important provision for so many reasons. In the first place, since the expression is usually lacking in company law statutes, it becomes inevitable that the corporate governance code should provide for this. Secondly, there appears not to be a uniformity in the criteria for the determination of the independent status of a director.
(b) Role and responsibilities of independent directors: For independent directors to be specifically provided for in contemporary corporate governance codes, there must be special roles reserved for them which other directors are either incapable of carrying out or unsuitable for. These special roles and responsibilities are usually stipulated in the corporate governance codes which provide for independent directors.
(c) Numerical strength on boards of directors: The number of independent directors required to be on the board is also usually indicated, either in absolute terms or as a percentage of the board size of the company concerned. The importance of such a provision lies in the fact that some critical mass is necessary if independent directors are to be effective in the discharge of their reserved responsibilities.
(d) Identification in annual reports of companies: It is important that those directors adjudged to be independent are really and truly independent. Consequently, it is usually provided in corporate governance codes that independent directors are clearly indicated in the annual reports of companies. This will enable anybody who has any information on why a director who is listed in the annual report as being independent may be considered otherwise. This engenders transparency and enhances the utility of the practice.
(e) Separate meetings for independent directors: As already indicated, independent directors have special roles reserved for them. Some of these roles are in most cases in conflict with the interests of other directors. Thus, it is the practice to formally provide for independent directors to hold meetings in which only independent directors are present. This would enable them to freely and fully discuss issues before them without any “intimidation or interference” from other directors. These meetings, often referred to as “executive sessions” in some cases involves all non-executive directors.
(f) Access to external professional advice: In the discharge of there responsibilities, independent directors may feel the need to procure independent external advice on some matters under consideration by them. It is best practice to authorise independent directors, and indeed all directors, to seek external professional advice on matters being considered by them at the expense of the company. Surely, such external professional advice will enhance the quality of their performance. Thus, such permissions are usually provided for in contemporary corporate governance codes.
In Nigeria, independent directors are also recognised. This is evident from the provisions of all the four corporate governance codes presently in force in the country. This is so in spite of the fact that the Companies and Allied Matters Act, Cap. C20, Laws of the Federation of Nigeria 2004, which is the principal company law legislation in the country is silent on independent directors. This gives the impression that independent directorship is a reality in Nigeria. Do mere provisions in corporate governance code tantamount to independent directorship being a reality in Nigeria? I do not think so. The nature of those provisions must be scrutinised to determine their adequacies in delivering the expected result before such a conclusion can be reached.
In truth, the provisions of all the corporate governance codes in Nigeria do not match up on a dispassionate evaluation. They are all laden with numerous inadequacies which are clear hindrances to the provisions achieving the purpose for which independent directors are required to be on the boards of public companies. These inadequacies in the provisions of the different corporate governance codes in force in Nigeria are of varying degrees, depending on the corporate governance code under consideration. These inadequacies are obvious on a scrupulous evaluation of the provisions of these corporate governance codes vis-à-vis the six items enumerated above which are provided for in the corporate governance codes of other jurisdictions. These issues shall be treated in greater details in subsequent posts.
Nonetheless, these inadequacies are pointers to the fact that at present independent directorship is still a myth in Nigeria. Little wonder therefore that their impact is neither felt nor appreciated. Besides, there are other cultural considerations which are having huge negative impact on the practice of independent directorship in Nigeria. It is, therefore, undoubtedly manifest that independent directors are not yet real in Nigeria. The provisions on independent directors underscore the need to have them on the boards of contemporary, forward-looking companies. However, there is a real need for a huge shift in mindset to enable the practice to be well-entrenched in Nigeria. This will enable Nigerian companies to begin to reap the bountiful harvests that are necessarily incidental to having independent directors on the boards of such companies.
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