CORPORATE GOVERNANCE I-II Flashcards
What is corporate governance?
The system of rule, practices and processes by which corporate organisations are directed and controlled
What are the benchmarks for best practice in corporate governance?
- Disclosure and transparency
- Equitable treatment of shareholders
- Accountability of the board to the shareholders
- Division of responsibilities
Mention the theories of corporate governance
- Agency/Stockholder’s Theory
2. Stakeholder’s theory
Mention 4 Codes of Corporate Governance
- Code of Corporate Governance for Pension Operators 2008
- Code of Corporate Governance for Public Companies in Nigeria 2011
- Code of Corporate Governance forBanks and Discount Houses 2014
- Code of Corporate Governance for the Telecommunications Industry 2016
Mention the key articles for application of the Code of Corporate Governance for Public companies
- Article 1.3(f) public companies shall indicate their level of compliance with the code in their Annual Report to SEC
- Article 1.3(g) where there is conflict between the code and another provision of any other code the STRICTER shall apply
Mention the key articles relating to the Board of Directors in Code of Corporate Governance for Public companies
- Article 4.2 Membership of the Board should not be less than 5
- Article 4.3 Majority of board members should be non-executive directors. At least one should be an independent director
- Article 5.1(b) the position of Chariman and and CEO should be separate and held individually
- Article 5.1(c) Chairman should be a non-executive
- Article 7.1 No more than two members of the same family should sit on the board at the same time
Mention the key articles relating to the Venue of Meetings in the Code of Corporate Governance for Public companies
Article 23 The venue of a general meeting should be accessible to shareholders. Board should ensure that shareholders are not disenfranchised on account of the choice of venue
Mention the key articles relating to the Rotation of external auditors in the Code of Corporate Governance for Public companies
Article 33
External audit firms should be retained for no longer than 10 continuous years. Such firms must be disengaged for 7 continuous years after which they can be reappointed for up to another 10 years
Mention the key articles relating to Board Management in the Code of Corporate Governance for Banks and Discount Houses
- Article 2.2.1 The size of the Board shall be limited to a minimum of 5 and a maximum of 20
- Article 2.3.3 No two members of the same extended family shall occupy the positions of Chairman and CEO/MD or Executive Director of the bank and Chairman/MD/CEO of its subsidiary at the same time
Article 2.4.3 Non-executive directors shall serve for a maximum of 3 terms of 4 years each
The MD max term = 10 years and he is not eligible for reappointment
Article 3.2.1 Equity holding of 5% and above by any investor shall be subject to CBN prior approval. When acquired through the capital market, the bank shall apply for a no objection letter from the CBN immediate after acquisition
Who are directors?
Persons appointed by the company to direct and manage the company’s affairs
What are the different types of directors?
- Shadow Director
- Executive Director
- Non-executive director
Who is a shadow director?
A person on whose instruction and direction the Board of Directors regularly acts
A single act will not suffice, an identifiable pattern is necessary
Who is an executive director?
The Chief Executive Officer or Hanging Director of the company responsible for the daily running of the company
He is an employee of the company and a member of the Board
Is the Managing Director entitled to remuneration?
Yes, he possesses a service contract which dictates the terms and conditions of his employment
What are the different types of non-executive directors?
- Chairman of the board
- Life Director
- Representative/Nominee Director
- Alternate Director
How is the Chairman of the Board appointed?
He is appointed by the Board of Directors from amongst the Board Members
Who is a life director?
A director that is not subject to the retirement by rotation rule under Section 259 CAMA
May be required to resign if factors in S258 CAMA apply to him
What is the retirement by rotation rule?
Section 259 CAMA
Requires all Directors of a company to retire at the first AGM an done third to require at each subsequent AGM
Who is a representative/nominee director?
Director X is appointed by Company ‘A’ which is a director in Company ‘B’ to be its nominee/representative on the Board of directors of Company ‘B’
How is a nominee/representative director appointed?
By a resolution of the board of directors for a fixed term
Section 257(d) CAMA
Who is an alternate director?
A director appointed to fill the position of a substantive director in the event of absence
How is an alternate director appointed?
He is appointed by the substantive director subject to approval by resolution the members at the GM
When does an alternate director cease to hold office?
When the substantive director ceases to hold office
Who are the first directors of a company?
These are the Directors who are appointed at the time of incorporation of the company
How are first directors appointed?
- In writing by the subscribers to the Memorandum
- By naming such persons in the Articles
Section 247 CAMA
How are directors subsequently appointed after appointment of the First Directors?
Directors may be appointed subsequently by ordinary resolution of members at the general meeting
Section 248(1)
OR
The Articles may also name a person and reserve the power to appoint subsequent directors to a person
Section 41(3) CAMA
OR
If all the directors/shareholders die, any of the personal representatives of the shareholders may apply to the FHC to convene a meeting of all the personal reps of the shareholders in which new directors will be appointed at the meeting
If all reps fail to act, the creditors may also apply to FHC to convene such meeting Section 248(2) CAMA
How are directors appointed to fill a casual vacancy?
The Board of Directors may appoint a new director to fill such vacancy subject to the approval by members at the next AGM
Section 249 CAMA
What is a casual vacancy?
A vacancy that arises as a result of death, removal, resignation or retirement of a director
What is the appropriate procedure when multiple directors of a public company are being appointed?
The appointment of each director must be by separate resolution. Single resolution shall be void unless it has been agreed to unanimously by the General Meeting
Section 261(1) CAMA
What provision pertains to disqualification of Directors?
Section 257 CAMA
Who is disqualified from being a director in a company?
- An infant (Under 18)
- A lunatic
- An insolvent person
- A fraudulent person
- A corporation other than its representative appointed to the Board fora given term
- A person who falls within the provisions of Section 258 CAMA
Section 257 CAMA
What is the minimum age a person needs to be to be appointed a director?
Above the age of 18
Section 257 CAMA
What is special notice?
Notice of 28 days given to the company before the meeting in which a resolution is to be moved.
The company shall give its members 21 days notice before the meeting
Which company decisions require special notice?
- Appointment as auditor of a person other than the retiring auditor (S357)
- Removal of an auditor before expiration of his term (s362)
- Appointment and re-appointment of a director over the age of 70 (S256)
- Removal of a director (s262)
- Appointment of a new director to replace a removed director in the same meeting (S262)
What is the maximum age prescribed by law to be appointed as a director?
There is no maximum age, however, certain restrictions apply in respect of the appointment of persons of 70 years or more as Directors in public companies. Special notice must be given disclosing the person’s age
Section 256 CAMA
What is the minimum number of directors of a company?
Section 246 CAMA says the minimum number of Directors is 2
The Code of Corporate Governance provides differently for a public company and a Bank
What is the consequence of having less than 2 directors in a company?
If after ONE MONTH of falling below the minimum the company fails to appoint another Director, the company shall cease to carry on business
if the breach extends to 60 days, the lone director will be held personally liable for any mismanagement that occurred during that period
Can non-executive directors be remunerated?
General Rule: Non-executive directors are not entitled to be remunerated however they are to be paid for all out of pocket expenses incurred while performing their official duties
The company may from time to time, in a general meeting determine what remuneration is to be paid to them
Where the articles provide that they should be remunerated this can only be changed by special resolution
Section 267
What is the rule for retirement and rotation of directors?
THE ARTICLES WILL PROVIDE RULES REGARDING RETIREMENT AND ROTATION
Where the Articles fail to provide rules, the following rules will apply as provided by Section 259 CAMA
- All Directors shall retire at the first AGM
- In subsequent AGMs, 1/3rd of directors shall retire
(if the number of directors is not 3 or a multiple of 3 then the number nearest to 1/3rd shall retire - The directors to retire in every AGM shall those who have been longest in office
- If the directors to be retired were appointed on the same date, they may agree among themselves who shall be retired at the AGM, otherwise it shall be determined by lot
Which non-executive director is exempt from the retirement/rotation rule?
A life director
When will a retiring director be deemed to not have been re-elected?
If he puts himself up for re-election and none of the following occur:
- It is resolved that the vacated office will not be filled
- A resolution for the re-election of such director shall have been put to the meeting and lost
Who is eligible for election to the office of Director at a general meeting?
- A director retiring at the meeting
- A person recommended by the directors
- a person nominated by a member who is qualified by notice in writing deposited at the registered office of the company no less than 3 days and not more then 21 days before the meeting (such person must also give notice in writing to the company of his willingness to be elected
When does a director cease to be a Director?
- If he is in default of Section 251
- If he becomes bankrupt
- If he is fraudulent person
- If he becomes of unsound mind
- If he resigns his office by notice in writing to the company
Section 258 CAMA
How can a director be in default of Section 251 CAMA?
If he does not meet and maintain the shareholding qualification prescribed by the company directors.
E.g. each director must hold at least 50,000 shares in the company
What is the procedure for removal of executive directors?
If there is an express provision in the director’s service contract regarding the procedure for removal, this should be adopted
What is the procedure for removal of non-executive directors?
If the Article provide a proceed this should be followed
HOWEVER Longe v First Bank says that removal of a director must be in accordance with the provisions of Section 262 CAMA otherwise it shall be void
What is the procedure for removal of directors as prescribed in Section 262 CAMA?
- Special Notice must be given of the intended resolution to remove the director
- Upon receipt, the company shall send a copy to the Director concerned and he shall be entitled to be heard on the resolution at the meeting
- Notice of meeting shall be given to members at least 21 days before the date of the meeting and any written presentation by the director shall accompany the Notice
- If the written representation wad not sent after Notice of the meeting has been given, the Director concerned may require that it is read out at the meeting. he may also be heard making an oral defence
(Oral and written defence may be prevented on application to the court by company/member if the court is satisfied that the affected director is abusing such right to secure needless publicity for defamatory matter Section 262(3)(b) CAMA) - A vote is taken and if a simple majority votes in favour the affected directors stands removed
- Form CAC 7A is filed with CAC within 14 days of passing the resolution
- Alterations are made to the Register of Directors and Secretary
What are the duties of a director?
- Duty to act bona fide in the company’s best interest
- Duty not to fetter his discretion to vote in a particular way
- Duty to exercise his powers for a proper purpose
- Duty not to delegate his powers in a manner to amount to abdication of duty
- Duty not to conflict personal interest and duty
- Duty not to make secret profits and exploit corporate information
What must all company secretaries have?
The company secretary must have the requisite knowledge and experience to discharge the functions of a secretary
What are the requirements for a secretary to a public company?
- A member of the institute of chartered secretaries of Nigeria or a Legal practitioner or a Chartered Accountant OR
- Must have held the office of secretary of public cpm nay for at least 3 years of the 5 years preceding his appointment
OR - A body corporate or a firm of any of the above
section 295 CAMA
What are duties of a company secretary?
- Duty to attend meetings of the company
- Duty to render all necessary secretarial services in respect of the meetings
- Duty to advice the board on compliance with applicable rules and regulations
- Duty to maintain the registers and records of the company
- Duty to render proper returns and give notification to CAC
- Duty to carry out any administrative or secretarial duties as directed by the board of directors or by the company
Section 298 CAMA
How is a company secretary appointed?
By the board of directors usually at the its board meeting after incorporation
Secretary can also be a director but cannot sign a document as both
Section 294
How is a private company secretary removed?
Pass a board resolution or a written resolution not remove the secretary
How is a public company secretary removed?
- The board of directors shall give the secretary a notice stating the following
a. That it intends to remove him
b. The grounds on which it intends to remove him
c. That he has not less than 7 working days to make his defence
d. That he may resign from office within a period of 7 working days - If the Secretary does not make a defence or resign from office within the given eerie, the board may proceed to remove him and report at the next general meeting
- If the secretary makes a defence and the board does not consider it to be sufficient, the board may remove him and repot at the next general meeting (if the ground for removal is fraud or serious misconduct)
- If the secretary makes a defence and the board does not consider it to be sufficient, the board may suspend him from office and report at the next general meeting, but shall not remove him without the approval of the general meeting
Section 296
