Code of Corporate Governance in Nigeria

1 OCTOBER, 2003 code of CorporateGovernance inNigeriaCONTENTSPREFACEiFORWARD2 THE code OF BEST PRACTICES4 Part A - The Board of Directors4 Part B-The Shareholders10 Part C - Audit Committee12 Part D -Interpretation15 Part E - Schedules16 Schedule1-Specimen Terms of Referencefor an Audit Committee16 Schedule 2- Membership of the Committee18 Schedule 3 - List of Persons and Organisationswho made Written Contributionsto the Final Draft of The Code20 PREFACELong before the highly publicized Corporate scandals and failuresworldwide, the global community has shown increasing concern onthe issues of Corporate Governance . The reason for this trend is not farto seek. There is growing consensus that Corporate Governance ,which has been defined as the way and manner in which the affairs ofcompanies are conducted by those charged with the responsibility,has a positive link to national growth and wonder therefore that several studies and initiatives have beenundertaken by countries and International Institutions on the subject Corporate Governance .

2 As a result of the foregoing, several Codesof Corporate Practices and Conduct have been fashioned out and arein use in various the need to align with the International Best Practices, theSecurities and Exchange Commission (SEC) in collaboration with theCorporate Affairs Commission inaugurated a seventeen (17) memberCommittee on June 15, 2000 in Nigeria . The Committee headed byAtedo Peterside (OON) was mandated to identify weaknesses in thecurrent Corporate Governance practice in Nigeria and fashion outnecessary changes that will improve our Corporate governancepractices. Membership of the Committee was carefully selected to cutacross all sectors of the economy including members of professionalorganizations, organized private sector and regulatory Committee submitted a draft code , which was published inseveral newspapers and was further reviewed at three (3) locationsacross the Country, namely: Lagos, Abuja and Port Harcourt.

3 Thisextensive exposure was designed to elicit stakeholders input beforethe code was finalized. Subsequently, the final report was approvedby the Boards of the Securities and Exchange Commission being theregulatory authority of the Capital Market and the Corporate AffairsCommission being the regulatory authority of Companies in Nigeriaas the code of Best Practices for Corporate two (2) regulatory institutions are convinced that the adoption ofthis code will no doubt enhance Corporate discipline, transparencyand the main target of the code is the Board of Directors asleaders of Corporate organizations, the responsibilities of otherstakeholders including shareholders and professional bodies wereequally given due attention. We believe that one of the ways toimprove the standard of Corporate Governance is to ensure that allstakeholders have a clear understanding of their roles.

4 This is aptlyprovided for by this from other jurisdictions has shown that answers toenforcement or compliance with a code of this nature are not easilyfound. While voluntary compliance is generally encouraged,appropriate sanctions are applied when it becomes necessary andapplicable. We therefore like to encourage all companies to complywith the Securities and Exchange Commission and Corporate AffairsCommission will give due consideration to the compliance orotherwise of the provisions of this code in the treatment of issuesbrought before them. It is our hope that all other Regulators and Self-Regulatory Organizations should do the same by ensuring that theirRules and Regulations incorporate relevant aspects of the , we urge all Companies, Directors, Shareholders, Auditors,Audit Committees and other Board Committees to be alive to theirresponsibilities and discharge their duties diligently and honestly andin accordance with this code .

5 The press equally has a role in ensuringthat this code serves the purpose for which it is designed bypromoting and projecting the recommended practices and to bring topublic notice the Companies that fail to GENERALREGISTRAR GENERALMALLAM SULEYMAN A. NDANUSAAHMED AL MUSTAPHAS ecurities & Exchange CommissionCorporate Affairs CommissioniiFORWARDThe importance of effective Corporate Governance to Corporate andeconomic performance cannot be over-emphasised in today's globalmarket place. Companies perceived as adopting international bestcorporate Governance practices are more likely to attract internationalinvestors than those whose practices are perceived to be belowinternational realisation prompted the Securities and Exchange Commission( SEC or the Commission ), the apex regulatory body in the Nigeriancapital market, to inaugurate the Committee on Corporate Governanceof Public Companies in Nigeria ( the Committee ) on 15 June Committee was carefully constituted to include major participantsin the Nigerian capital market, representatives of public companiesand other stakeholders.

6 The Committee had the following terms ofreference:To identify weaknesses in the current Corporate governancepractices in Nigeria with respect to public companies.* To examine practices in other jurisdictions with a view to the adoptionof international best practices in Corporate Governance in Nigeria .* To make recommendations on necessary changes to currentpractices.* To examine any other issue relating to Corporate Governance Committee set about its task by establishing the corporategovernance practices already prevalent in Nigeria . This we did bypreparing a detailed questionnaire on company operations, and thesewere circulated to various publicly quoted companies throughout thelength and breadth of the country. Thereafter we proceeded to make acomparative analysis of Corporate Governance practices around otherjurisdictions and markets with particular emphasis on emergingmarkets and countries like the U.

7 K. which had similar statutes. Withthe results of our findings we set about crafting a Nigerian code of BestPractices for Public Companies and Private companies with multiplestakeholders.*2A draft copy of our report was presented to the Director-General of theSEC on 12 July 2001 for consideration. This report was subsequentlypublished in a number of national newspapers for review by membersof the business community and other stakeholders, and was alsodiscussed at various workshops in Lagos, Abuja and Port Harcourtwherein a number of comments and contributions were made andsuggestions proffered by many eminent personalities andorganisations. These comments and suggestions were summarisedby the SEC in a document and sent to the Committee for Committee had its final meeting in February 2003 for the dualpurpose of reviewing the comments and contributions of the variousstakeholders and deciding which comments to incorporate into its finalreport.

8 After extensive deliberations by the Committee members, agood number of the comments and contributions were consideredappropriate and therefore accepted and subsequently incorporatedinto the Committee's final report, which is contained would like to express our gratitude to everyone who hascontributed to our work by making contributions both written andverbal, and to the press who provided a virile platform for debates onCorporate Governance issues. All these contributions were valuable inaiding the Committee's acceptance and adoption of our report and findings should mark asignificant advance in the process of establishing CorporateGovernance standards in Nigeria . Our recommendations will howeverneed to be reviewed as circumstances change and as the broaderdebate on Corporate Governance issues develop over N.

9 A. Peterside O O NChairman01 April 20033 THE code OF BEST PRACTICESA code to make provisions for the best practices to be followedby public quoted companies and for all other companies withmultiple stakeholders registered in Nigeria in the exercise atpower over the direction of the enterprise, the supervision ofexecutive actions, the transparency and accountability ingovernance of these companies within the regulatory frameworkand market; and for other purposes connected of Best Practices on CorporateGovernance in - THE BOARD OF DIRECTORS1. RESPONSIBILITIES OF THE BOARD OF DIRECTORSThis code may be cited as the(b) The Board of Directors should be responsible for the affairsof the company in a lawful and efficient manner in such a wayas to ensure that the company is constantly improving itsvalue creation as much as possible.

10 (c) The Board should ensure that the value being created isshared among the shareholders and employees with dueregard to the interest of the other stakeholders of thecompany. The Board's functions should include but not belimited to the following: -i. Strategic planningii. Selection, performance appraisal and compensation ofsenior executivesiii. Succession planningiv. Communication with shareholdersv. Ensuring the integrity of financial controls and reportsvi. Ensuring that ethical standards are maintained and thatthe company complies with the laws of much as possible, the Board should be composed in such away as to ensure diversity of experience without compromisingcompatibility, integrity, availability, and independence.(a) The Board should comprise of a mix of Executive and Non-Executive Directors headed by a Chairman of the Board, sohowever as not to exceed 15 persons or be less than 5persons in total.