Companies would henceforth be liable for sanctions for any violation of the Code of Corporate Governance for Public Companies, according to new rules and amendments being previewed by the Securities and Exchange Commission (SEC).
A draft of the new rules and amendments obtained by The Nation indicated that companies will be liable to a fine of N500, 000 at the first instance of notification and subsequently additional fine of N5, 000 for every day that the violation persists.
A new provision to the code stipulates that “compliance with the provisions of this code shall be mandatory” setting a radical departure from the moral suasion and consensual enforcement of the current code.
The code, according to SEC, will now be described as a framework that is expected to facilitate sound corporate practices and behavior and it should be seen as a dynamic document defining minimum standards of corporate governance expected particularly of public companies with listed securities.
Besides, the stipulated fines, the new provision also give SEC unfettered power to apply “any other sanction” it “may deem fit in the circumstance”.
The application of sanctions and penalties would scale up the code to same level of statutory rules being made by SEC under the mandate of the Investment and Securities Act (ISA) 2007. Already, publicly quoted companies are required to include in their annual report and accounts a compliance report on codes of corporate governance. The Code of Corporate Governance for Public Companies sets the minimum acceptable standards for quoted companies. Launched in 2003, the code of corporate governance was reviewed and re-launched in 2011, with several changes to reflect the current globally acceptable practices.
Some salient points in the code included board composition, remuneration, independent director, shareholding disclosure, insider knowledge, meeting and whistle blowing.
Under board composition, the code stipulates that members of the board of directors should not be less than five and the board should comprise a mix of executive and non-executive directors, headed by a non-executive chairman. 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.
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 related and may include stock options and bonuses which should however, be disclosed in the company’s annual reports. Executive directors are not allowed to be involved in the determination of their remuneration. Executive directors should not receive the sitting allowances or director’s fees paid to non-executive directors.
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 familial relationship with the company.
Besides, every quoted company is expected to disclose in its annual report, details of shares of the company held by all directors, including on 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.
On insider knowledge, the code requires 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.
The code also stipulates that 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;
Also, every company is 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.
