The inability to harmonize the code of corporate governance in the financial sector by the regulators has generated heated controversies in terms of compliance as the Central Bank of Nigeria (CBN) code clashes with that of the Securities and Exchange Commission (SEC).
Investigation by Vanguard revealed that while section 4.2 of the 2009 SEC code for instance states that “Membership of the Board should not be less than five (5) and should not exceed fifteen (15) persons”, this is at variance with the 2006 CBN Code of Corporate Governance for Banks in Nigeria post_consolidation which states in section 5.3.5 that “The number of non_executive directors should be more than that of executive directors subject to a maximum board size of 20 directors”. This implies that should the 22 banks quoted on the Nigerian Stock Exchange adhere strictly to the CBN code, they might as well be violating the SEC’s requirement in this regard.
Operators in the capital market have stated that this grey area in the code of corporate governance may not apply to privately_held or unquoted banks, the fact that 22 banks out of 24 banks are publicly_quoted would suggest that an appropriately harmonized and market_friendly code is necessary as this will help to eliminate ambiguity in interpretation by users as well as strengthen compliance among operators.
Furthermore, operators have continued to stress the need for regulators in the financial sector to enforce strictly the code of corporate governance when it is fully harmonised. They noted that a code is a set of standards for companies to follow in accordance with the best practices and hence should be enforced by the regulators. According to an operator, “even though the 2009 SEC code based on its objectives sought to improve the mechanism for its enforceability the published draft code ought to have clearly articulate how the mechanism for enforcement will be enhanced.”
The operators are kicking against the code since it seeks voluntary compliance by all companies, regardless of whether they are regulated by the government or not, the code still advocated that appropriate sanctions be applied to companies when material breaches to its tenets have been discovered. The basis, speed, and medium for which these sanctions would be applied in everyday business still appear to be subject to interpretation and a grey matter of conjecture for those not familiar with the totality of investment laws in Nigeria.
Another area of the code of corporate governance that need to be reviewed by SEC, according to operators, is the issue of Chairman and Chief Executive Office (CEO) of companies.The SEC code stated that Chairman and CEO of companies should be occupied by two different people and the Chairman’s primary responsibility is to ensure effective operation of the Board sothat it works towards achieving the company’s strategic objectives.
The Chairman should not be involved in the day-to-day operations of the company as this should be the primary responsibility of the Chief Executive Officer and the management team.According to SEC, for all public companies with listed securities, the positions of the Chairman of the Board and Chief Executive Officer shall be separate and held by different individuals. This is to avoid over concentration of powers in one individual which may rob the Board of the required checks and balances in the discharge of its duties.
Operators have argued that there is no way that the Chairman who is a non executive director can effectively provide overall leadership and direction for the board and the company.The operators have argued that the Chairman who is not involved in the day to day running of the organisation may know little or nothing about the entity’s operations, hence would be incapacitated in ensuring that the company meets its strategic objectives.
Therefore, operators have called on the Commission to amend that section of the code to include that companies should have Executive Chairmen.However, the Commission have been commended so far in its effort to improve the weak corporate governance which led to corporate failure in the country . It should be noted that in order to improve corporate governance, the SEC in September 2008, inaugurated a National Committee for the Review of the 2003 Code of Corporate Governance for Public Companies in Nigeria to address its weaknesses and to improve the mechanism for its enforceability.
In particular, the Committee was given the mandate to identify weaknesses in, and constraints to, good corporate governance, and to examine and recommend ways of effecting greater compliance and to advise on other issues that are relevant to promoting good corporate governance practices by public companies in Nigeria, and for aligning it with international best practices. The Committee which was chaired by Mr. A. B. Mahmoud, submitted its report, together with a draft revised code of corporate governance. After consultations with other regulatory bodies, SEC at its 43rd Board meeting, reviewed the draft Code submitted by the A.B. Mahmoud Committee and have introduced some amendments.
Some of the amendments introduced by the Board include limiting its coverage only to public companies, as well as removing any unnecessary restrictions on the freedom of companies to innovate in their management practices. The Board of SEC therefore believes that this new code of corporate governance, which, unlike the previous code, was intended to be fully enforceable by SEC, will ensure the highest standards of transparency, accountability and good corporate governance, without unduly inhibiting enterprise and innovation.
Finally, capital market operators have stressed that if the various code of corporate governance is fully harmonized, the issue of conflict would become a thing of the past and the companies will not find any loopholes to contravene or evade compliance.hey, however called on the federal government through the Presidential Steering Committee on the Global Economic Crisis and the Financial Sector Regulatory Coordination Committee (FSRCC) to speed up the harmonisation process.
It would be recalled that the federal government in 2009, through the FSRCC, ordered the harmonisation of the different codes of corporate governance in the financial sector to a common code. Recognizing the need for a unified front to effectively monitor the practice of corporate governance in Nigeria, the FSRCC had already preceded the above mentioned efforts by setting up an inter_agency committee to review and harmonise the existing corporate governance codes in Nigeria’s financial sector.