Stakeholders have joined the growing ranks of critics of the new corporate governance code introduced by the Financial Reporting Council of Nigeria (FRCN), regarding it as capable of scaring investors as well as being in conflict with the subsisting Companies and Allied Matters Act (CAMA), as amended.
Independent Shareholders Association of Nigeria (ISAN) and lawyers at Olaniwun Ajayi LP, Lagos based Law practice firm have on Wednesday, November 2, 2016 that the code is capable of suffocating entrepreneurial aspirations and initiatives of investors seeking to establish business in the country.
However, Business Day gathered from a source at the presidency that government, through the ministry of trade and investment, which is also not comfortable with the code, would soon come out with its position on the new code.
Sunny Nwosu, national coordinator of ISAN at a briefing yesterday said ISAN’s categorical position on the code mostly stemmed from perceived negative implications of over regulation of the nation’s corporate world, particularly the financial industry and the noticeable contradictions and conflict with the subsisting Companies and Allied Matters Act (CAMA), as amended.”
Nwosu further said that apart from serving as disincentives to investors, the provision by the new code that companies shall have not more than five directors is seen by ISAN as “unnecessarily expansionary and costly for Micro Small and Medium Scale Enterprises (MSMEs), noted as engine of the nation’s economy.”
The shareholders also query the urgency in the implementation of the code which did not give also did not reflect their submissions during the exposure drafts and public hearing sessions.
“As part of the noticeable conflicts, ISAN insists that a serious lacuna and breach of the law has been triggered with the provision of article 5.4 of the new code of corporate governance on the size of the board.
Article 5.4 of the code provides a minimum of 8 board members for companies while the companies and allied matters Act 9CAMA) in section 245(1) provides for minimum of 2 directors.
To ISAN, the confusion among stakeholders in the nation’s corporate arena now is how to resolve the conflict between an Act of parliament and a delegated legislation.
ISAN believes that the implementation of the code Codes requirement that Non-executive Director should be two-third of the board with Independent Directors being half of the number of Non-Executive Directors will lead to unintended consequences, of which one is forced breached of employment contract with the executive.”
The law firm, in its current news letter observed that the Code by its
Provisions, “seeks to supersede other corporate governance codes which regulate other sectors, provides a “one-size-fits all” code, is mandatory in its application.
Further, some of the provisions of the Code, whilst being unusual, are clearly inconsistent and
seek to amend the provisions of the Companies and Allied Matters Act (CAMA) and other statutory
legislations.”
They further said that the action of FRC, which is beyond its bounds, “reveals an internal disharmony and inconsistencies within the FRCN Act, and more importantly, the FRCN overreached its powers in section 51(c) and 77 of the FRCN Act by issuing a Code which seeks to cover the entire spectrum of corporate governance in Nigeria without limiting itself to regulating the accounting and financial reporting standards of companies.
It is unequivocal that as a subsidiary legislation, the Code cannot by its provisions overreach,
override, amend or repeal other existing statutes which have been made by legislative enactment,
neither can it amend other subsidiary legislation issued pursuant to already existing Acts of the
National Assembly. Such a subsidiary legislation stands the risk of being declared ultra vires the
FRCN and being declared null and void, to the extent of its inconsistencies with existing statutes of
the National Assembly.”
Making reference to the voting powers of directors, where the code provides that where a majority of
independent directors do not agree with a decision of the board of directors, such a decision would
only stand if it was supported by at least 75 percent of the entire board, the firm observed that “The effect of this provision is that it elevates the independent directors above the majority of the board of directors and seems to create an illusion of a two-tier board system in which the executive directors report to the independent (non-executive) directors.
It also contravenes the provisions of CAMA which provides that decisions of the board of directors
are arrived at by a majority of votes, and to this end, every director on the board of directors is
entitled to one vote.”
The lawyers also picked holes with the provision that appointments of shall be a matter for the board as a whole, adding, “This is in direct conflict with the provisions of CAMA which provides that members at an annual general meeting (AGM) have the powers to appoint directors. The only power directors have to appoint other directors is to fill a casual vacancy caused by retirement, death, resignation or removal.”
A source familiar with the development told Business Day last night that “The issue is being discussed at Aso rock as government which is committed to improving ease of doing business and making the environment business friendly, would not fold its arms with policies at variance with its vision being introduced. We will soon come out with a pronouncement on the issue.”