The FRCN and codes of corporate governance in Nigeria

An overview of the Codes of Corporate Governance for Private & Public Companies, the Public Sector and Not-for-Profit Organisations.

This briefing has been published by Edward Ekiyor Co., Nigeria, who have agreed to it being made available on Simmons & Simmons elexica.

The Financial Reporting Council of Nigeria (FRCN) by virtue of its enabling Act permitting it to act as the coordinating body in respect of all matters pertaining to corporate governance in Nigeria, issued three Codes of Corporate Governance for Private & Public Companies, the Public Sector and Not-for-Profit Organisations (the FRCN Codes).

The FRCN Codes, apart from that of Public Sector, took effect from 17 of October 2016. The Minister of Industry, Trade and Investment however issued a “query” suspending the FRCN Codes. This was because there were several perceived conflicts between the provision of the Codes and existing laws. One of such laws is Companies and Allied Matters Act (CAMA).

Section 5(4) of the FRCN’s Code of Corporate Governance for Private and Public Companies (the FRCN Companies Code) provides that companies should have not less than eight directors while Section 246 of CAMA permits registered companies to have at least two directors. The Securities and Exchange Commission’s Code for Public Companies also provides for at least five directors. By extension, the FRCN Companies Code has increased the minimum number of directors companies must have far above those required by CAMA and SEC’s Code.

With respect to voting rights, Section 263(2) of CAMA provides that if there is any question arising at any meeting it shall be decided by a majority of votes and in any case of an equality of votes, the chairman shall have a second or casting vote. While Section 5(4) of the FRCN’s Code of Corporate Governance for Private Companies provides that 75% vote of the full board is required to override the dissenting view of majority of Independent Non-Executive Directors.

Although the law is settled that where there is a conflict between a subsidiary legislation and a law made by State or Federal legislature, the latter prevails, the FRCN Companies Code provides that it supersedes all other Codes of corporate governance in Nigeria where there is any conflict.

A further issue for FRCN was that the procedure for the issuance of the FRCN Codes contradicted its establishment Act. The FRCN Codes ought not to be issued without the existence of a Board for the FRCN. At the time of the issuance, there was no Board for FRCN. This was one of the reasons for its suspension.

More controversy was generated by the provisions of the Code for Not for Profits (the NFPO Code). Key amongst which was the provision preventing the founder of such NFPOs from acting as the head of the organization’s Board of Trustees, Governing Board and Management Committee simultaneously or where such founder is above seventy years of age as at the time of enforcement of the NFPO Code, such founder has to relinquish two of such positions.

The effect of suspension of the FRCN Codes is that enforcement is put in abeyance and existing Codes of governance continue to apply in full.

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