Securities and Exchange Commission (SEC), the country’s apex capital market regulator, has launched a major amendment to Nigeria’s Code of Corporate Governance for public companies. The code will empower the Commission to sanction companies that fail to comply with its directives.
The new amendment is expected to remove the persuasive provision that entitles companies to be put on notice, so they could seek redress. This will reinforce the mandatory nature of the code and the authorities of SEC to sanction companies without recourse to notice or redress.
A draft of the amendment to the code of corporate governance obtained at the weekend, currently undergoing rule-making process and exposure to stakeholders, will completely remove clause 1.3(d).
The clause states that whenever SEC determines that a company, or entity required to comply with, or observe the principles or provisions of this code is in breach, the SEC shall notify the company or entity concerned, specifying the areas of non-compliance or non-observance and the specific action, or actions needed to remedy the non- compliance, or non-observance.
According to the Commission, the provision is redundant in view of the mandatory nature of the Code. Companies are mandated to comply with its provision failing which they will be sanctioned without first requiring them to remedy the non compliance, or non observance.
The code empowers SEC to sanction individuals and companies that violate the code. Besides the stipulated fines, the code gives SEC unfettered power to apply “any other sanction” it “may deem fit in the circumstance”.
The Code of Corporate Governance for Public Companies, sets the minimum acceptable standards for quoted companies. Launched in 2003, the code was reviewed and re-launched in 2011, with several changes to reflect the current globally acceptable practices.
Some salient points in the code, include board composition, remuneration, independent director, shareholding disclosure, insider knowledge, meeting and whistle blowing.
Under the code, publicly quoted companies are required to include in their annual reports and accounts, a compliance report on codes of corporate governance. On board composition, the code requires that members of the board of directors should not be less than five, and that the board should comprise a mix of executive and non-executive directors, headed by a non-executive chairman.
According to the code, the majority of directors should be non-executive directors, at least one of whom should be independent director. The positions of chairman of the board and chief executive officer shall be separate and held by different individuals. To safeguard the independence of the board, not more than two members of the same family should sit on the board of a public company at the same time.
Also, the code requires that the remuneration of the Chief Executive Officer, as well as other executive directors should comprise a component that is long-term performance, and may include stock options and bonuses, which should however, be disclosed in the company’s annual reports.
Also, executive directors are not allowed to be involved in the determination of their remuneration. Executive directors should not receive sitting allowances or director’s fees paid to non-executive directors, it stated.
It said every public company is expected to have a minimum of one Independent Director on its board. An independent director is a non-executive director whose shareholding does not exceed 0.1 per cent of the company’s paid up capital and is not a representative of a shareholder that has the ability to control, or significantly influence management. In fact, an independent director must not have any contractual, or familiar relationship with the company.
Also, every quoted company is expected to disclose in its annual report, details of shares of the company held by all directors, including an “if-converted” basis. This disclosure should include indirect holdings. All directors are required to disclose their shareholding whether on a proprietary or fiduciary basis in the public company in which they are proposed to be appointed as directors, prior to their appointment.
The code provides that directors of public companies, their immediate families-spouse, son, daughter, mother or father; and other insiders as defined under Section 315 of ISA and Rule 110 (3) of the SEC Rules and Regulations, in possession of price sensitive information or other confidential information, shall not deal with the securities of the company where such would amount to insider trading as defined under the Investment and Securities Act 2007.
With regards to meeting, general meetings are expected to be conducted in an open manner allowing for free discussions on all issues on the agenda. Sufficient time should be allocated to shareholders to participate fully and contribute effectively at the meetings. The chairmen of all board committees and of the statutory audit committee should be present at general meetings of the company to respond to shareholders queries and questions. Notices of general meetings shall be 21 days from the date on which the notice was sent out. Companies shall also allow at least seven days for service of notice if sent out by post from the day the letter containing the same is posted. The notices should include copies of documents, including annual reports and audited financial statements and other information as will enable members prepare adequately for the meeting. The board is expected to ensure that all shareholders are treated fairly and are given equal access to information about the company;
The code also makes provision for whistle-blowing with every company required to have a whistle-blowing policy which should be known to shareholders, employees, contractors, job applicants, other stakeholders and the general public. It is the responsibility of the board to implement such a policy and to establish a whistle-blowing mechanism for reporting any illegal or substantial unethical behavior.
