Business Regulations, Law & Practice | |
Business Regulations, Law & Practice | |
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Friday,
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.
Code Philosophy
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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