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Cross-Cutting Issues In Corporate Governance

And The Board?

Much has been said earlier about the board of directors and its place in the corporate governance framework. According to the SEC’s CGC for public companies, the board has vital roles to play in instituting and sustaining a good governance regime:
1. The board is accountable and responsible for the performance and affairs of the company;
2. The principal objective of the board is to ensure that the company is properly managed;
3. The responsibility of ensuring good corporate governance lies with the board;
4. The board must define the framework for the delegation of its authority or duties to management.

In the McKinsey & Co.’s “Opinion Survey” earlier referred to, most of the investors who participated in the survey defined ‘a well-governed company’ as one “having a majority of outside directors on the board with no management ties; holding formal evaluations of directors; and being responsive to investor requests for information on governance issues…”

Apparently, the practice of separating the board from management is good corporate governance practice. It enhances independent and unbiased assessment of management’s performance as well as ensures appropriate board evaluation.

However, opinions differ as to the degree of director independence that is desirable and which enhances best practices. Most CGCs today require that considerable percentage of the members of the board be independent non-executive directors (“INED”). The SEC’s CGC defines an INED as “a Director who is not a substantial shareholder of the Company (holds less than 0.1%); is not a representative of a shareholder who has the ability to control Management; had not previously been employed by the Company; is not an immediate family of an individual who is or has been in any of the past three financial years employed by the company; is not a professional adviser to the company other than in a capacity of a director and is not in a significant contractual/business relationship with the Company”.

To ensure independence, the FRCN introduced in its draft national code mentioned earlier, the position of “Senior Independent Non-executive Director” – SIND. The SIND is provided for in the UK Code of Corporate Governance but it is unlikely that this will be effectively accepted in Nigeria, since it appears to conflict with certain provisions of the CAMA.

At any rate, a balanced and well-composed board of directors ensures the right mix of corporate governance elements: human capital; technical expertise; checks and balances; proper accounting practice; regulatory compliance; effective board committees and evaluation process; shareholder protection (especially minorities); whistle-blowing mechanism; and ESG policies. However in our considered opinion, independence is a ‘state of the mind’ and a function of the personal integrity of individual directors. Independence is not an exclusive result of the structure or composition of the board or the prescriptions of codes.