Checks And Balances Of Directors Under The Provisions Of CAMA 2020

By Oyetola Muyiwa Atoyebi, SAN.

INTRODUCTION

The Board of Directors is very sacrosanct in the management and operation of any company thus, a company as a distinct legal entity, acts through its “members in general meeting” or its “Board of Directors”.

A Director of a company is a person duly appointed by the company to direct and manage the business of the company[1]. Based on the duties and functions of a Director, he/she is in charge of the day-to-day management of the company. Though a Director can be a Shareholder of a company, it is not a compulsory provision of CAMA, except the provisions of the articles of association of the company state otherwise.

The Board of Directors make important decisions with regard to the company’s management. With the power possessed by the directors, these questions may arise: What happens if a Director acts fraudulently? Are there ways a Director can be disciplined? What can members of a company do to protect their interests when they have lost confidence in the Directors?

Due to the importance of Directors in every company, it is necessary to examine the provisions of the law that can prohibit a Director from acting fraudulently or ultra vires. This article will briefly discuss the duties of a Director and corporate governance in relation to a Director.

Duties of Directors

Directors are trustees of the company’s money, properties and powers and as such shall account for all the money over which they exercise control, refund any money improperly paid away, and shall exercise powers honestly in the interest of the company and all the Shareholders, and not in their own or sectional interests.[2]

The duties of directors are provided for under section 305 of CAMA, they include the following:

1. A director of a company stands in a fiduciary relationship towards the company and shall observe utmost good faith towards the company in any transaction with it or on its behalf.
2. A director shall act at all times in what he believes to be the best interests of the company as a whole to preserve its asset, further its business and promote the purposes for which it was formed.

• A director shall not fetter his discretion to vote in a particular way.

1. Where a director is allowed to delegate his powers, such a director shall not delegate the power in such a way and manner as may amount to an abdication of duty.
2. Every director of a company shall exercise the powers and discharge the duties of his office honestly, in good faith and in the best interests of the company, and shall exercise that degree of care, diligence and skill which a reasonably prudent director would exercise in comparable circumstances.

Check and Balance of Directors’ Powers

As stated earlier, Directors act as Trustees of the company and therefore make decisions as to the day to day running of the company, there exist certain enactments (including the Nigeria code of corporate governance), that seem to mitigate the power of a Director in order to protect the interest of Shareholders, Stakeholders in the company and the company itself.

1. Board of Directors:

A charter outlining the tasks of the Board of Directors (the Board) is essential. Furthermore, diversity (including expertise, skill, experience, age, culture, and gender) should be a major factor in the Board’s makeup. Additionally, prospective corporate directors must disclose their participation on other boards, and current directors must report potential appointments to other boards. According to the provisions of section 271 CAMA, every company other than a small company shall have at least two (2) Directors, and by virtue of this provision, no single person will be granted autonomy as to the decision-making process of a company. This gives room for diversity.

2. The position of Chairman, Managing Director and Chief Executive Officer:

The Chairman of the Board and the Chief Executive Officer (CEO) should be separate and held by different people, according to the Nigerian Code of Corporate Governance (NCCG). A Non-Executive Director (NED) should occupy the position of the Chairman of the Board. Furthermore, the Code prohibits a company’s Managing Director (MD), CEO, or Executive Director (ED) from later being nominated as its Chairman, save under exceptional circumstances, in which case a period of three (3) years must have elapsed.

3. Existence of Board Committees

To ensure efficiency and effectiveness, Boards must form committees such as remuneration, nomination and governance, audit, and risk management, and delegate part of their functions to these committees. Where possible, the functions of two (2) committees can be combined. In this regard, the NCCG recognizes that the audit and risk management committees’ activities are intertwined, and consequently requires that if these functions are delegated to separate committees, one or more members of each committee have dual membership in both.

4. Independent Non-Executive Director (INED)

The NCCG mandates that the Board be made up of Independent Non-Executive Directors (INED), who will serve for a maximum of three (3) terms of three (3) years each, and offers a non-exhaustive list of criteria for determining independence, including:

Not being an employee of the company or group within the previous five (5) years, not being a close family member of any advisers, directors, senior employees, consultants, auditors, creditors, suppliers, customers, or substantial Shareholders, and not serving on the board for more than nine (9) years. Furthermore, a Non-Executive Director (NED) cannot be reclassified as an INED.

5. Continuing Education and Board Evaluation

Boards are required to conduct formal induction exercises for new directors in order to sensitize them to the company’s operations and business environment, as well as to conduct continuing education programs regularly in order to update directors’ knowledge, and keep them up to date with the evolution in the relevant industry.

An assessment of the Board’s overall performance, individual directors and the Chairman should be conducted regularly.

This evaluation is expected to shed light on the overall situation of the performance of the Board, in furtherance of the company’s objectives and assist in identifying areas for improvement.

6. Whistle Blowing

Boards must establish a whistleblowing framework that encourages Stakeholders to report unethical behaviour and violations of any laws or policies to an internal and/or external authority, allowing for verification of such behaviour/violation, and the imposition of appropriate sanctions to prevent a reoccurrence. The whistleblower’s anonymity is sacred, as the Code requires such a person’s identity to be kept confidential and disclosures resulting from it to be treated confidentially. Furthermore, the Code protects whistleblowers by requiring the Board to ensure that a whistleblower is not subjected to any detriment, solely because he or she has made a disclosure.

These provisions are expected to facilitate Stakeholder cooperation with regulatory authorities, in curbing corporate excesses and violations of applicable laws within companies, as well as foster international corporate governance best practices by officers and management of companies. The awareness of the possibility of exposure, and the attendant repercussions in instances of non-compliance will serve as a deterrent.

7. Removal of a Director

When a company believes that a Director is acting ultra vires or fraudulently, the company by an ordinary resolution, removes a Director before the expiration of his period of office, notwithstanding anything in its articles or any agreement between the company and the Director.[3]

This right reserved by the company is a form to check to ensure that Directors act for the best interest of the company, and not use their position as a means to facilitate their personal agenda.

Conclusion

Directors are an integral part of a company’s organizational structure and every director must ensure to perform his duty with utmost diligence. Due to the fact that the directors are trustees of the company, every decision made is a reflection of the company’s position and affects every key Stakeholder of the company. Hence, such directors should be held accountable for their actions.

AUTHOR: Oyetola Muyiwa Atoyebi, SAN.

Mr. Oyetola Muyiwa Atoyebi, SAN is the Managing Partner of O. M. Atoyebi, S.A.N & Partners (OMAPLEX Law Firm) where he also doubles as the Team Lead of the Firm’s Emerging Areas of Law Practice.

Mr. Atoyebi has expertise in and a vast knowledge of Corporate and Commercial Law and this has seen him advise and represent his vast clientele in a myriad of high level transactions.  He holds the honour of being the youngest lawyer in Nigeria’s history to be conferred with the rank of a Senior Advocate of Nigeria.

He can be reached at atoyebi@omaplex.com.ng

COUNTRIBUTOR: Romeo Osogworume

Romeo is a member of the Corporate and Commercial Team OMAPLEX Law Firm. He also holds commendable legal expertise in Corporate Governance.

He can be reached at romeo.osogworume@omaplex.com.ng

[1] Section 269, CAMA

[2] Section 309, CAMA

[3] Section 288, CAMA