On October 17, 2016, the Financial Reporting Council of Nigeria released its National Code of Corporate Governance comprising three parts: The Code of Corporate Governance for the Private Sector; The Code of Governance for Not-for-Profit Entities; and The Code of Governance for the Public Sector. With the exception of the latter, which is aimed at public bodies and will not become applicable until an executive directive formalising its adoption is issued by the Government, the remaining sections of the Code apply to companies with financial year-ends from October 17, 2016 on.

The Code of Corporate Governance for the Private Sector (“the Code”), which will be applicable to listed and unlisted companies alike, is comprehensive when compared to its predecessor, while it also requires mandatory compliance from those companies to which it applies; this approach represents a departure from the traditional “comply or explain” models operated across other Sub-Saharan African markets such as Kenya and Ghana, arguably raising the bar for issuer compliance in Nigeria. The self-stated aim of the Code and its approach is “to usher in a unified corporate governance code with governance safeguards that are more country-specific, contextual and environmentally congruent, while at the same time conforming to international best practices”.

In addition to increased disclosure requirements, notable changes provided for in the Code include:

  • An increase in the minimum number of directors who should serve on a board from five to eight – though specific economic factors such as turnover and company size can warrant a downward revision in individual cases;
  • Amended board composition guidelines such that executives make up only one-third (previously up to 49%) of the board with non-executive directors (“NEDs”) making up the remaining two-thirds (previously a simple majority);
  • In addition, of the NEDs serving on the board one half should be considered independent of the company – a significant increase from the previous requirement of just one independent NED serving on the board. The Code also provides for the appointment of a lead independent director where deemed appropriate;
  • The establishment of a board audit committee in addition to the existing Companies and Allied Matters Act requirement of a statutory audit committee comprising both shareholder and director members; and
  • The MD/CEO shall not go on to be the chairman of the same company, save for exceptional circumstances following the elapsing of a seven year “cool off period” and only where majority and minority shareholders have been consulted and the regulator informed of any such appointment.

The aforementioned updates to the Nigerian regulatory landscape could potentially prompt significant changes to the structure of many NSE-listed company boards, particularly those entities that remain family and state controlled in light of the heightened independence threshold. Regardless, the combination of significant changes, an approach of mandated compliance, and the lack of a transition period should make for an interesting 2017 AGM season in Africa’s most populous nation. One thing remains certain anyway, the focus and scrutiny on corporate governance practices around the world shows no sign of abating.