Overview
IntroductionCorporate governance is essential in promoting accountability, transparency and overall long-term growth in the Nigerian business environment. The highest decision-making body of any company is its board of directors, being the core of any successful governance structure. Diversity within the board and independent monitoring are essential components of a company’s ethical stance and governance health. Recent legislative and regulatory changes in Nigeria have aimed to increase the efficacy of boards. However, there are still big differences between compliance with the regulatory changes and the real governance results.
In addition to highlighting current institutional practices and issues, this write-up provides a concise examination of the legal framework governing board composition and suggests important revisions to enhance governance outcomes. Legal FrameworkThe principal legislation governing board composition and oversight in Nigeria is the Companies and Allied Matters Act of 2020 (CAMA). The CAMA mandates every company to have a board of directors with clearly defined fiduciary duties, including acting in good faith and promoting the company’s success. It also recognises the roles of non-executive and independent Directors in ensuring effective oversight. The Nigerian Code of Corporate Governance of 2018 (NCCG), issued by the Financial Reporting Council of Nigeria (FRCN), is another instrument that complements the CAMA.
The NCCG outlines best practices and principles for board composition, independence, diversity and evaluation. The NCCG recommends a balance of executive and non-executive directors, with a substantial percentage of the directors being independent. It also emphasises the provision for gender and skill diversity. In addition to the NGGC, there are also sector-specific codes, such as the Securities and Exchange Commission Corporate Governance Guidelines of 2020, which apply to public companies, and the Central Bank of Nigeria Code of Corporate Governance, applicable to Banks. These Codes reinforce best practices within their sectors, sometimes with stricter compliance obligations.
Practice and ChallengesDespite having such a robust legal framework for corporate governance, enforcement remains a challenge, and many companies continue to fall short of governance benchmarks. Gender Diversity DeficitGender diversity, although increasingly discussed, remains limited in terms of practicality. A 2023 survey of listed Nigerian companies revealed that women hold less than 25% of board positions, with many companies having no female directors at all. While progress has been made in sectors like banking and telecommunications, such as the appointment of Dame (Dr.) Adaora Umeoji OON as the Group Managing Director/ CEO of Zenith Bank.
The appointment of Mrs Jane Egerton-Idehen as the Managing Director/ CEO of Nigerian Communications Satellite Limited (NIGCOMSAT), tokenism is still prevalent, and there is no mandatory quota to facilitate structural change. Lack of Experiential DiversityExperiential diversity is also lacking, as many boards are dominated by individuals with backgrounds in either law, finance, or politics. Younger professionals and experts in technology or environmental specialists are rarely considered. This limited composition restricts the board’s ability to anticipate and navigate emerging challenges, such as digital transformation and ESG (Environmental, Social, and Governance) risks. Compromise of Board IndependenceThe most pressing is the compromise of board independence.
Many “independent” directors do not carry the independent spirit in the manner the NCCG promotes. Several independent directors are former employees, nominees from major shareholders or have long-term affiliations with the Managing Director/ Chief Executive Officer (MD/ CEO). This goes to undermine the oversight function of the independent director, thereby raising questions about their accountability and integrity. Ineffective Board Evaluation PracticesFurthermore, the practice of periodic evaluation of the board is either ignored or conducted superficially. An example is the prolonged dispute between Oando Plc and the Securities and Exchange Commission. Questions were raised on the board’s conduct, alleged ineffective oversight, corporate governance breaches with relation to directors’ remuneration and audit committee shortcomings.
This exposed institutional weaknesses in board independence and the lapse in the implementation of proper corporate governance. Reform RecommendationsTo build effective boards that can truly drive corporate success, several reforms are urgently needed. Some key recommendations are: Enforcement of Independence Standards The SEC and FRCN, among other regulatory bodies, must rigorously establish and enforce director independence standards, including conflict checks. Mandatory diversity and evaluation disclosure Public companies should be obligated to publish summaries of board evaluations and reveal comprehensive board composition metrics, such as gender, age, and abilities. Encourage voluntary diversity targetsInvestors and regulators can encourage companies to embrace voluntary goals for professional and gender diversity.
Investment in Director Capacity Building Arrangements should be made for Board members to undergo continuous training, particularly in areas such as governance, ESG, risk and digital strategy. ConclusionBoard diversity and independence are not to be seen as optional or suggestive ideals but crucial pillars for effective corporate governance. While recognisable steps have been taken in terms of legal reforms, policies, and codes, much work is still to be done in ensuring the practical and effective implementation of these reforms. To truly build boards that steer companies towards long-term success, Nigeria must embrace a governance culture that is not rooted in tokenism but in compliance with accountability, diversity of thought and independent oversight.
