Pursuant to Sections 11(c) and 51(c) of the Financial Reporting Council of Nigeria Act 2011, the Financial Reporting Council of Nigeria (FRC) is vested with the powers to ensure good corporate governance practices in the public and private sectors of the Nigerian economy by issuing the code of corporate governance and guidelines, and developing a mechanism for periodic assessment of the code and guidelines. The Financial Reporting Council in the exercise of these powers recently issued the Nigerian Code of Corporate Governance (The Code). The Code was unveiled by the Vice President of the Federal Republic of Nigeria and the Honourable Minister of Industry, Trade and Investment on the 15th of January 2019.

Background to the Code

The FRC in 2016 released draft codes of corporate governance pertaining to private companies, public companies and not-for- profit organizations. The codes were criticized as being in contradiction with existing corporate legislations largely the Companies and Allied Matters Act 2004 and the codes of corporate governance applicable to different sectors of the economy. Following the controversies that trailed the codes especially as it relates to religious institutions, they were suspended by the Ministry of Industry, Trade and Investment.

Objectives of the Code

The Nigerian Code of Corporate Governance 2018 is aimed at institutionalizing corporate governance practices thereby raising the standard of corporate governance in Nigerian companies. It is expected that adherence with the principles of the code will rebuild trust and confidence in the Nigerian economy thereby encouraging investments and trade in the country, and creating an enabling environment for sustainable business operations. The code is applicable to private and public companies.

Implementation Approach

The code adopts a principle-based approach, not the rules-based approach in identifying minimum corporate governance practices companies are expected to embrace. The code, for flexibility reasons gives room to companies to adopt the “Apply and Explain” approach in reporting on compliance. The “Apply and Explain” approach unlike the “Comply and justify non-compliance approach” 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.” In essence, the principles enunciated in the code can be applied to different companies or industries; the size, growth phase and company needs notwithstanding.

The FRC is saddled with the responsibility of implementing the code through the sectoral regulators and registered exchanges that are empowered to impose appropriate sanctions.

Key Highlights of the Code

The Code contains 28 principles divided into 7 parts; the seventh part being the definition section. The Code also recommends practices for effective implementation.

PART A- Board of Directors and Officers of the Board (Principle 1-16)

Key recommended practices

  • The Board should be of a sufficient size to effectively undertake and fulfill its business.
  • In order to effectively perform its oversight function and monitor management’s performance, the Board should meet at least once every quarter.
  • Non-Executive Director(s) (NEDs) should have unfettered access to the Executive Director(s) (EDs), Company Secretary and the Internal Auditor, while access to other senior management should be through the MD/CEO.
  • The Company Secretary should have both functional and administrative responsibilities. The functional responsibility is to the Board through the Chairman, while administratively, he reports to the MD/CEO.
  • At least once in a year, the Board’s audit committee should hold a discussion with the head of the internal audit function and the external auditors without the presence of management, to facilitate an exchange of views and concerns that may not be appropriate for open discussion.
  • The Board should ensure that an annual corporate governance evaluation, including the extent of application of this Code, is carried out. The evaluation should be facilitated by an independent external consultant at least once in three years.

PART B-  Assurance (Principle 17-21)

Key recommended practices

  • The Board should ensure that the internal audit function is sufficiently skilled and resourced to address the complexity and volume of risk faced by the organisation.
  • The internal audit function should be headed by a member of senior management who is a professional with relevant qualifications, competence, objectivity and experience; and is registered with a recognised professional body.
  • The Board should ensure the existence of a whistle-blowing mechanism that is reliable, accessible and guarantees the anonymity of the whistle-blower, and that all disclosures resulting from whistle-blowing are treated in a confidential manner. The identity of the whistle-blower should be kept confidential.
  • In order to preserve independence, there should be a rotation of the audit engagement partner every five years.
  • External audit firms may be retained for no longer than ten years continuously. External audit firms disengaged after ten years continuous service may not be considered for reappointment until seven years after their disengagement.
  • Where an external auditor’s aggregate or cumulative tenure has already exceeded ten years at the date of commencement of this Code, such auditor should cease to hold office as an auditor of the Company at the Annual General Meeting to be held immediately after this Code comes into effect.

PART C- Relationship with Share Holders (Principle 21-23)

Key recommended practices

  • The Board should ensure that all shareholders are treated fairly and equitably. No shareholder, however large his shareholding or whether institutional or otherwise, should be given preferential treatment or superior access to information or other materials.
  • The Board should develop a policy that ensures appropriate engagement with shareholders. The policy should be hosted on the website of the Company.
  • The venue of a General Meeting should be accessible to shareholders, to ensure that shareholders are not disenfranchised on account of the choice of venue.
  • The Board should ensure that decisions reached at General Meetings are properly and fully implemented as governance directives.

 PART D- Business Conduct with Ethics (Principle 24-25)

Key recommended practices

  • The Board should clearly model a top-down commitment to professional business and ethical standards by formulating and periodically reviewing the Code of Business Conduct and Ethics.
  • The Board should be responsible for monitoring adherence to the Code of Business Conduct and Ethics to ensure that breaches are effectively sanctioned.
  • The Board should ensure that insiders are precluded from engaging in unlawful or improper transfers of assets and profits out of companies for their personal benefits or for the benefit of those who control the companies.
  • If a Director is not certain whether he is in a conflict of interest situation, the Director concerned should discuss the matter with the Chairman of the Board, the Company Secretary or the chairman of the committee responsible for nomination and governance for advice and guidance.

PART E – Sustainability (Principle 26)

Key recommended practices

  • The Board should establish policies and practices regarding its social, ethical, safety, working conditions, health and environmental responsibilities as well as policies addressing corruption.
  • The policies should include the nature and extent of employment equity and diversity (gender and other issues); training initiatives, employee development and the associated financial investment; opportunities created for physically challenged persons or disadvantaged individuals.

PART F- Transparency (Principle 27&28)

Key recommended practices

  • The Board should establish an investors’ portal on the Company’s website, where the communication policy as well as the Company’s annual reports for a minimum of five immediately preceding years and other relevant information about the Company should be published and made accessible to the public in downloadable format.
  • The Board should ensure that the Company’s annual report includes a corporate governance report that provides clear information on the Company’s governance structures, policies and practices as well as environmental and social risks and opportunities.
  • The annual report should contain a statement by the Board on the Company’s level of application of this Code arising from the results of its corporate governance evaluation.
  • Where the Board has engaged independent experts in evaluating and reporting on the extent of application of this Code, they should name the consultant and include a summary of the report (provided by the consultant) in the Company’s annual report.

Criticisms of the Code

The code does not provide for sanctions for infractions. It gives the impression that the principles enunciated in it are merely persuasive and not binding.

The code is also silent on the place of the sectoral codes viz a viz the new code. Where provisions of the code and that of the sectoral codes conflict, there is no clarity on which will supersede. The 2016 code, on the other hand, clearly stated that it supersedes any corporate governance code in force before the date of its commencement and its provisions will prevail in case of conflict with any sectoral guideline.

It is also noteworthy that the Code does not state an effective date. Based on speculations, however, the code might take effect from January 1, 2020.


The importance of good corporate governance in an organization cannot be overemphasized. Good corporate governance does not only drive corporate accountability, it encourages foreign investments and boosts business prosperity. According to Arthur Levitt, the former Chairman of the United States Securities And Exchange Commission, “If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere. All enterprises in that country, regardless of how steadfast a particular company’s practices may be, will suffer the consequences.”

The FRC should be commended for issuing a code that recommends good corporate governance practices that can be adopted by all Nigerian companies. However, introduction of codes and guidelines is not alien to Nigeria, what poses difficulty is the proper implementation monitoring of new directives. To prevent a similar case as the Enron’s scale scandal, the FRC through the help of sector regulators should not rest on its oars in ensuring that the code in its entirety is fully adopted by companies, non-compliance of which should attract weighty sanctions.


Damilola Osinuga:

Omolola Ahmed: