Responsibility, Accountability, Transparency and Fairness are the guiding principles of corporate governance. Through the lenses of these four is the management of a corporate entity assessed. While it is indisputable that a proper legal framework of corporate governance anchored on these four principles will result in enhanced corporate performance and increased investors' confidence in a corporate body, on the other hand, a poor corporate governance would lead to economic instability, poor management and a loss of profitability on the part of a company.
Against this backdrop, the Code of Corporate Governance 2018 was made, pursuant to the powers conferred on the Honourable Minister of Industry, Trade and Investment, to provide an architectural legal framework for Corporate Governance in Nigeria. This article seeks to examine the major highlights of the code which include, but are not limited, to the following:
Scope
The code applies to a wider spectrum of companies in Nigeria compared to previous codes of corporate governance. These include all public companies (whether listed or not), all private companies that are holding companies of public companies, all concessioned or privatized companies and all regulated private companies being companies that file returns to other regulatory authorities save the Federal Inland Revenue Service and the Corporate Affairs Commission. This innovation is a welcome development as it will encourage more transparency in a wide spectrum of business enterprises.
Code Philosophy
The Code expressly states that Companies shall adopt the "Apply and Explain" approach when reporting compliance with the Code. What is postulated by this approach is that a company shall apply all the principles under the code and will explain, while filing its returns, the level of compliance with the code. Furthermore, companies are required to demonstrate how the specific activities they have undertaken best achieve the outcomes intended by the corporate governance principles specified in the Code.
Just like the self-assessment tax regime, the 'Apply and explain' approach in corporate governance allows for flexibility in compliance. Through this, corporate bodies could come up with several innovative ideas to corporate management distinct from what may have been imposed by the code.
Corporate Governance Evaluation.
The code recommends that the Board should establish a system to undertake a formal and rigorous annual evaluation of its own performance, that of its committees, the Chairman and individual Directors. Furthermore, this process should be externally facilitated by an independent external consultant at least once in three years. The evaluation system should include the criteria and key performance indicators and targets for the Board, its committees, the Chairman and each individual Board member and such evaluation should consider the mix of skills, experience, objectivity, competence of members of the Board, its diversity (including gender), knowledge of the Company and its strategic direction, attendance at meetings, how the Board works together and other factors relevant to its effectiveness. This provisions of the code are apt as it enables the board to evaluate its strengths and shortcomings while taking measures towards effectively meeting its goals.
Meeting of the Board
The Code recommends that the Board of Directors should meet at least once in every quarter, every Director should endeavour to attend all Board meetings and the attendance record of Directors should be among the criteria for the re-election of a Director. These provisions will encourage active participation of the members of the board in the affairs of the company as their continue presence will be anchored on their attendance.
Risk Management.
Risk management has been defined as the process of identifying, accessing and controlling threats to an organization's capital and earnings. In view of this, the code recommends that a sound framework for managing risk and ensuring an effective internal control system is essential for achieving the strategic objectives of the Company. This could be achieved by ensuring that the risk management framework is integrated into the day to-day operations of the business and the provision of guidelines and standards for management of key risks.
Concluding this brief overview of the Code of Corporate Governance 2018, it is our view that the Code, has made useful recommendations on Corporate Governance in Nigeria. Though it is subject to its own shortcomings like every man-made law, adequate compliance will, no doubt, reduce management failure in the Nigerian corporate world.