January 18, 2019 12:02 PM/FRCN
Authority of the Code
Sections 11c and 51c of the Financial Reporting Council of Nigeria Act confer upon the Council, the powers to ensure good corporate governance practices in the public and private sectors of the Nigerian economy and to issue the code of corporate governance and guidelines. The Nigerian Code of Corporate Governance 2018 was approved by the Council pursuant to this authority and commended to the Minister for issuance in accordance with Section 73 of the Act.
Aims and Objectives
Corporate Governance is a key driver of corporate accountability and business prosperity. In response to challenges in their respective sectors, a number of industry regulators developed corporate governance codes for companies operating in their sectors. The sectoral codes are:
1. Code of Corporate Governance for the Telecommunication Industry 2016, issued by the Nigerian Communications Commission (replaced 2014 NCC Code);
2. Code of Corporate Governance for Banks and Discount Houses in Nigeria 2014 issued by the Central Bank of Nigeria (replaced 2006 CBN Code);
3. Code of Corporate Governance for Public Companies in Nigeria 2011 issued by the Securities and Exchange Commission (replaced 2003 SEC Code);
4. Code of Good Corporate Governance for Insurance Industry in Nigeria 2009 issued by the National Insurance Commission; and
5. Code of Corporate Governance for Licensed Pension Fund Operators 2008 issued by the National Pension Commission.
The Nigerian Code of Corporate Governance 2018 seeks to institutionalise corporate governance best practices in Nigerian companies. The Code is also to promote public awareness of essential corporate values and ethical practices that will enhance the integrity of the business environment. By institutionalising high corporate governance standards, the Code will rebuild public trust and confidence in the Nigerian economy, thus facilitating increased trade and investment.
Companies with effective boards and competent management that act with integrity and that are engaged with shareholders and other stakeholders are better placed to achieve their business goals and contribute positively to society. In such well managed organisations, the interests of the Board and management are aligned with those of the shareholders and other stakeholders.
By adhering to the principles articulated in this Code, companies will demonstrate a commitment to good governance practices and increase their levels of transparency, trust and integrity, and create an environment for sustainable business operations.
The Code is aimed at companies of varying sizes and complexities across industries. Consequently, flexibility – the ability to apply the Code in a wide range of circumstances, and scalability – the ability to apply to companies of differing sizes, are of utmost importance for successful implementation. Accordingly, the Code adopts a principle-based approach in specifying minimum standards of practice that companies should adopt.
Where so required, companies should adopt the “Apply and Explain” approach in reporting on compliance with this Code. The ‘Apply and Explain’ approach which assumes application of all principles and requires entities to explain how the principles are applied. This requires companies to demonstrate how the specific activities they have undertaken best achieve the outcomes intended by the corporate governance principles specified in the Code. This will help to prevent a ‘box ticking’ exercise as companies deliberately consider how they have (or have not) achieved the intended outcomes. Although the Code recommends practices to enable companies apply the principles, it recognises that these practices can be tailored to meet industry or company needs. The Code is thus scalable to suit the type, size and growth phase of each company while still achieving the outcomes envisaged by the principles.
Monitoring the Implementation of the Code
The implementation of this Code will be monitored by the FRC through the sectoral regulators and registered exchanges who are empowered to impose appropriate sanctions based on the specific deviation noted and the company in question. Additionally, the FRC may conduct reviews on the implementation of the Code where deviations from the Code recur. Other monitoring mechanisms adopted by the FRC will be based on its review of the level of implementation of the Code.
In consonance with the relevant regulatory agencies of the Federal Government of Nigeria, the Council will subsequently issue corporate governance guidelines to assist implementation as may be required to respond to prudential considerations in different sectors of the economy.
Structure of the Code
The Code consists of seven (7) parts and twenty-eight (28) principles together with practices recommended by the Code for the implementation of each principle. The highlights of the twenty-eight (28) principles are shown below:
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