legal framework of corporate governance, directors and secretary

Corporate Governance refers to the mechanism of internal and external controls of the actions and inactions of the organs of a company in a manner that ensures compliance with public policy, acts in the interest of stakeholders and ultimately avoids corporate failure and abuse.

The legal frameworks and codes governing Corporate Governance in Nigeria include:

• a. The Companies and Allied Matters Act 2020.
• b. Nigerian Code of Corporate Governance 2018.
• c. The Code of Corporate Governance for Licensed Pension Fund Operators 2008.
• d. The Code of Corporate Governance for Banks and Discount Houses 2014.
• e. The Code of Corporate Governance for the Insurance Industry 2009.
• f. The Code of Corporate Governance for Public Companies 2011.
• g. The Code of Corporate Governance for the Telecommunications Industry 2016.
• h. The Code of Corporate Governance for Capital Market Operators and their Employees 2010.
• i. The Financial Reporting Council of Nigeria Act 2011.
• j. The Code of Corporate Governance for Other Financial Institutions in Nigeria 2018.

The various theories of Corporate Governance include:

• a. Agency theory: This theory postulates that the officers of the company are agents of the company who are to carry out its wishes. Accordingly, shareholders are principals and directors are the agents who are opportunists. There will thus be conflict of interest of which the principal will need to take measures to guard against such conflict which are detrimental to his interest.
• b. Stewardship theory: According to this theory, managers will do well with the right incentives given to them.
• c. Shareholder/stockholder theory: According to this theory, corporate managers have a duty to maximize shareholder returns, that is, increase profits.
• d. Stakeholder theory: The stake holder theory posits that a company has more than the interest of its owners and employees at stake. The horizons of persons and classes which the welfare of the corporate unit affects is broadened by this theory. Corporate managers are therefore to take into consideration the interest of each stakeholder in the governance process.

The principles on which Codes of Corporate Governance are as follows:

• a. Comply or Explain principle which means adherence not mandatory.
• b. Apply or Explain principle which means adherence is not mandatory.
• c. Apply and Explain principle which means adherence is mandatory.
• d. Comply or Else principle which means adherence is mandatory

Some general principles of corporate governance under various codes include:

• a. Chairman of the board of directors shall not be a member/chairman of any board committee.
• b. Board meeting should be at least once a quarter.
• c. Board committees are to be headed by a non-executive director.
• d. Board should have a minimum of 5 directors and a maximum of 20 directors.
• e. A director must have attended at least 2/3 of all board/committee meetings to qualify for re-election.
• f. Board must be made up of executive and non-executive directors and the non-executive directors must be more than the executive directors.
• g. Board of banks must have at least 2 non-executive directors.
• h. All directors should be subject to re-election at least once in 3 years.
• i. The tenure for non-executive directors of banks shall be for a maximum of 3 terms of 4 years each to ensure
• j. A Chief Executive Officer’s tenure is subject to maximum period of 10 years which may be broken down into periods not exceeding 5 years at a time.
• k. Governments’ direct or indirect equity holding in a bank shall be limited to 10%.
• l. Equity holding of 5% and above by any investor shall be subject to the Central Bank’s prior approval.

According to Section 269 of the Companies and Allied Matters Act, a Directors is a person duly appointed by the company to direct and manage the business of the company. Olufosoye v. Fakorede (1993) 1 NWLR (Pt. 272) 747.

The various kinds of directors are:

• a. Shadow director: According to Section 270 of the Companies and Allied Matters Act, a shadow director is a person who is not duly appointed as a director but on whose instructions and directions the directors of a company are accustomed to act.
• b. Executive director: An executive director is an officer holding service contracts of the company appointed to the board. Executive directors are responsible for the day-to-day running of the company and their powers are usually circumscribed by the articles of association. They are both the alter ego of the company and its employee. Executive directors are entitled to remuneration as they have contracts of service with the company.
• c. Non-Executive director: A non-executive director is a director that does not participate in the daily management of the company. He is not an employee of the company but is one of its alter ego. A non-executive director attends board of directors meetings and is not entitled to be remunerated apart from re-imbursement of his out of pocket expenses in attending company matters. However, non-executive directors can be remunerated where the articles of association provides for it.
• d. Alternate director: An alternate director is appointed by a director to sit on the board in his place under powers contained in the articles.
• e. Managing director: A managing director is appointed and removable by the board of directors. He ceases to hold office if for any reason he ceases to hold office as a director. Yalaju- Amaye v. A.R.E.C Ltd. (1990) 4 NWLR (Pt. 145) 425.

According to Section 271 of the Companies and Allied Matters Actthe minimum number is two directors for every company which not a small company. The articles of association of a company fix a maximum number. The directors may increase the number of directors as long as it is not above the maximum numbers but the general meeting has the power to increase or decrease the number of directors. Section 274(3) CAMA, 2020.

The directors of a company are appointed as follows:

• a. First directors: First directors are appointed by the subscribers of the memorandum and articles of association or a majority of them.
• b. Subsequent directors: Subsequent directors are appointed as follows:
• 1. The members at the annual general meeting have the power to re-elect or reject directors. Section 273 CAMA, 2020.
• 2. Where there is a causal vacancy arising from death, retirement, resignation or removal, the board of directors can fill such causal vacancy subject to ratification by members at the next general meeting. Section 274 CAMA, 2020.
• 3. Where the memorandum or articles empower any person to appoint or remove any director or other officer of the company, such power may be enforceable by the person notwithstanding that he is not a member of the company. Section 46 (3) CAMA, 2020.
• 4. Where all directors and shareholders die, any of their personal representatives may apply to court for an order to convene a meeting of all personal representatives of the shareholders, and if they fail to convene a meeting, creditors may do so. Section 273(2) CAMA, 2020.

The procedure for the appointment of Mrs. Blessing Ekanemi and Mr. Joseph Uche as directors of Billit Imperial Ltd. is as follows:

a. Mrs. Blessing Ekanemi and Mr. Joseph Uche must be recommended either by the majority of the Board of Directors or by a member of the company. b. A notice in writing by the member, stating his intention to nominate Mrs. Blessing Ekanemi and Mr. Joseph Uche signed by such member, who must be duly qualified to attend the meeting and to vote. This notice is to be delivered within 3-21 days before the date slated for the meeting to the Registered Office or Head Office of Billit Imperial. The notice must also be accompanied by the notices in writing signed by Mrs. Blessing Ekanemi and Mr. Joseph Uche stating their willingness to be appointed as directors. c. The Secretary of Billit Imperial sends out 21 days’ notice of Annual General Meeting. d. At the Annual General Meeting, an ordinary resolution to appoint Mrs. Blessing Ekanemi and Mr. Joseph Uche as directors is passed. e. The Secretary of Billit Imperial completes Form CAC 7 and files it together with the ordinary resolution, duly signed, within 14 days from the date the resolution was passed. f. The register of directors of Billit Imperial and particulars of the directors are updated.

The following persons are those disqualified from being directors:

• a. An infant, that is, a person under the age of 18 years.
• b. A lunatic or person of unsound mind.
• c. A person suspended or removed under Section 279, 280 and 284 of the Companies and Allied Matters Act which are insolvent persons, fraudulent persons and persons who have vacated the office. d. A corporation other than its representative appointed to the board of directors for any given period. Section 283 CAMA, 2020.

The vacation of the office of a director occurs if a director:

• a. Ceases to be director by virtue of Section 277 which is on the share qualification of directors.
• b. Becomes bankrupt or makes any arrangement or composition with his creditors generally.
• c. Becomes prohibited from becoming a director by reason of any order made under Section 280 which is on the restraint of fraudulent persons.
• d. Becomes of unsound mind.
• e. Resigns his office by notice in writing to the company.

According to Section 285 (1) CAMA, 2020, unless otherwise provided by the articles, at the annual general meeting, all directors are to retire from office, and at the annual general meeting in every subsequent year, one third of the directors for the time being, or if their number is not three or a multiple of three, then the number nearest to one third shall retire from office. The directors who are to retire are those who have been longest in office since their last election. Section 285 (2) CAMA, 2020.

The duties of a director include the following:

• a. A director must observe utmost good faith towards the company. Trenco Nig. Ltd. v. African Real Estate and Development & Anor.
• b. A director owes fiduciary duty to the company. Section 305(1) CAMA, 2020.
• c. A director must disclose every profit to the company. Section 303 and 306, CAMA, 2020.
• d. A person who is a director of multiple companies must not derogate from his fiduciary duties to each of the companies and must not use the information obtained from one company to the advantage of another. Section 307 CAMA, 2020.
• e. A director must not allow his personal interests to conflict with his duty as a director. Section 306 CAMA, 2020.
• f. A director must always act in the best interest of the company. Section 305 (3) and 308 CAMA, 2020.

According to Section 286 CAMA, 2020, the acts of a director, secretary or manager shall be valid not withstanding any defect that may be subsequently discovered in his appointment or qualification. Iwuchukwu v. Nwizu.

The powers of a director include the following:

a. Management of the business of the company. Section 87(3) CAMA, 2020. b. Decision that the company should sue or not sue. However, the decision of the directors not to sue can be overridden by the members in general meeting Section 87(5) (b) CAMA 2020. However, the decision of directors to sue cannot be overridden. c. Appointment of one director as a managing director. Section 87(3) CAMA, 2020. d. Appointment and removal of company secretary. Section 333 CAMA, 2020. e. Recommend dividends. Section 426 CAMA, 2020.

The procedure for the removal of a director is as follows:

• a. Check to find out if a direct and simpler power of removal other than that provided by the Companies and Allied Matters Act in Section 288 is provided by the articles or contract and apply same if available.
• b. The person wishing to remove the director issues notice of the resolution to the company at least 28 days before the date of the meeting.
• c. Upon receipt of the notice, the secretary to the company will:
• 1. Send a copy of the notice to the director concerned.
• 2. Issue notice of the meeting at least 21days before the date of the meeting. The notice will be accompanied by any representations made by the director and sate the fact of the representations having been made.
• d. At the meeting, audience will be given to the director and his representation read to the members if they were received too late or were not sent to the members owing to the company’s default.
• e. An ordinary resolution is passed removing the director.
• f. CAC Form 7A which is notice of vacation of office/removal of director is filed within 14 days to reflect the removal.
• g. The fact of removal is entered in the register of directors, register of directors’ residential addresses and where necessary, the register of directors’ shareholding is amended.

A person can be a director in more than one public company. However, a person cannot be a director in more than five public companies. Any person who is a director in more than five public companies must at the next annual general meeting of the companies after the expiration of two years from the commencement of the Companies and Allied Matters Act, 2020 resign from all but five of the companies. Section 307 (2) (3) CAMA, 2020.

A company secretary services the board of directors of a company and may be responsible for the day to day running of the company. He is a high ranking member and may be part of the management. Wimpey (Nig.) Ltd v. Alhaji Balogun (1986) 3 NWLR (Pt. 28) 324.

Yes, a person can be a director and company secretary at the same time but acts requires to be done by a director and the company secretary must be done by two separate persons. Section 332 CAMA, 2020.

In the case of a public company, according to Section 332 of the Companies and Allied Matters Act, the secretary shall be:

a. A member of the Institute of the Chartered Secretaries and Administrators; or b. A legal practitioner; or c. A member of any professional body of accounts established from time to time by an Act of the National Assembly; or d. Any person who has held office of the secretary of a public company for at least three years of the five years immediately preceding his appointment in a public company; or e. A body corporate or firm consisting of members, each of whom is qualified as a chartered secretary, legal practitioner or chartered accountant.

Any person who appears to the directors of such private company to have requisite knowledge and experience to discharge the functions of a secretary of a company may be appointed as secretary.

The procedures the Board of Directors of Billit Assurance must follow are set out as follows:

• a. Notice must be given to the company secretary of the intendment to remove him. The notice must contain the following:
• 1. The intendment to remove him.
• 2. The grounds of removal.
• 3. The period within which he is to make his defense, which must not be less than seven working days.
• 4. An option to resign his office within a period of seven working days.
• b. Where, following the notice, the company secretary does not, within the time prescribed, make a defense or resign his office, the board may remove him from office and make a report to the next general meeting.
• c. Where the secretary, without resigning his office makes a defense and the board does not consider it sufficient, if the ground on which it is intended to remove him:
• 1. Is that of fraud or serious misconduct, the board may remove him from office and shall report to the next general meeting; and
• 2. Is other than of fraud or serious misconduct, the board shall not remove him without the approval of the general meeting, but may suspend him and shall report to the next general meeting.
• d. Where a company secretary so suspended is removed with approval of the general meeting, the removal may take effect from such time as the general meeting may determine.
• e. Within 14 days after removal, the Corporate Affairs Commission is to be informed of the termination of the secretary’s appointment in prescribed FORM CAC 2.1 and enter details in the Register of Directors and Secretaries.

The duties of the company secretary according to Section 335(1) of the Companies and Allied Matters Act include the following:

• a. Attending the meeting of the company, the board of directors and its committees, rendering all necessary secretarial services in respect of the meeting and advising on compliance by the meetings with the applicable rules and regulations.
• b. Maintaining the registers and other statutory records;
• c. Rendering proper returns and giving notifications required to be given to Corporate Affairs Commission in necessary cases.
• d. Carrying out such administrative and other secretarial duties as directed by the directors of the company.

The returns required to be made by a company secretary include:

• a. Notice of change of particulars of directors or secretaries. Sections 321(1) & 339 CAMA, 2020.
• b. Court orders. Section 51 (7) (b), Section 65(3) & Section 115(4) CAMA, 2020.
• c. Registration of resolutions. Section 262 CAMA, 2020.
• d. Statutory reports. Section 235(6) CAMA, 2020.
• e. Registration of charges. Section 222 CAMA, 2020.
• f. Return on the alteration of share capital. Section 126, Section 127, Section 131 and Section 134 CAMA, 2020.
• g. Return of allotment. Section 154 CAMA, 2020.
• h. Return on the Auditors. Section 401 CAMA, 2020.
• i. Returns during Receivership and Winding up. Section 555 CAMA, 2020.
• j. Statement by Banks, Insurance Companies etc. Section 733 CAMA, 2020.