CEO should not go on to become chairman of the same company—FRC

Companies are not to allow a Managing Director (MD)/Chief Executive Officer (CEO) or an Executive Director (ED) to go on to become chairmen of the same company unlike before when a CEO could become not just the chairman, but also occupies both positions at the same time.

This was disclosed by the Financial Reporting Council (FRC) of Nigeria, a federal government parastatal under the supervision of the Federal Ministry of Industry, Trade and Investment in Lagos, at a public hearing/sensitization of the Nigeria code of corporate governance.

The new guidelines were unveiled by the team led by the executive secretary of FRC/chief executive officer, Daniel Asapokhai, when the council rounded off its nationwide draft presentation, a consultation that was carried out in all the geo-political zones in Nigeria.

Tomi Adepoju, Partner at KPMG and a member of the Nigeria corporate code committee, while speaking on the new guideline said a CEO not becoming a chairman of the same company is one of the best practiced standards around the world because while a person occupied the position of a CEO, there would have been many policies and decision laid down in the organisation and when the CEO moves to the position of  a chairman and a new one comes in and is reviewing things based on the current circumstances the former CEO may feel he or she is been reviewed and this may start a friction in the company.

“In a case of a domineering chairman, he may expect the new CEO to come to him to be granted permission before taking decision and as such the CEO position may become hijacked by a person who is also playing the role of an executive. As a result, there could also be a situation where other members of the organisation will be undermining the new CEO,” Adepoju said.

This practices where by a CEO becomes a chairman or in some cases plays the role of both positions is most common in the U.S, and it is one of the reasons why it is not considered as an exemplary country to look at when making reference to good corporate governance

Although the new guideline in Nigeria’s code of corporate governance also cited an exception “if in very exceptional circumstances the Board decides that a former MD/CEO or an ED should become Chairman, a cool-off period of three years should be adopted,” as compiled from the code.

The need for a new and better corporate governance code for Africa’s largest economy was born out of the suspension placed on the previous code in October 28, 2016 by the federal government as a result of the nationwide uproar it had caused during the period.

 A fifteen-man technical committee was therefore set up in January 18, 2018, comprising of representatives from regulatory agencies, industry professionals and experienced individuals constituted by the board of the FRC to review and come up with new code such as the drafted.

 The new code aims to standardise the practise of good corporate governance and induce voluntary compliance with the highest ethical standards across the Nigerian market.

 In line with this, it applies to a wide range of companies, specifically to the following interest entities, which are required to adopt the code; all public companies ( whether listed or not), all private companies that are holding companies of public companies and other regulated entities, concessioned and or privatised companies, and regulated private companies

One major difference of the drafted code from the former is that the new code to be approved would start immediately but it would take up to 2020 for companies to report how far they had implemented the principles.

Speaking at the event in Lagos, Asapokhai said “it is our belief that this Code will promote ease of doing business, attract local and foreign investments and enhance the integrity of the Nigerian capital market, by entrenching a culture of disclosure, transparency and accountability. In addition, this Code will raise public awareness of good corporate governance practices.”

Meanwhile, the government agency also disclosed that there is no punitive measure for non-compliance but rather the market would punish companies that failed to operate by the new codes because such companies would not be regarded as standard firms and would hardly pass due diligence tests.

Other key notes principles addressed at the  public hearing in Lagos were the fact that; the Chairman of a Board should not serve as the Chairman or a member of any Board committee and also an MD/CEO should not sit on the committee responsible for remuneration, audit, or nomination and governance.

If the former happens, it may bring conflict as the chairman would have deliberated on a matter at the committee level and by the time the issue is taken to the full board, that decision becomes subject to another review/deliberation and what could happen then would be the defence of his former position on the matter even though there might be other superior argument.

While for the latter, Adepoju, partner at KPMG said the executive committee cannot be members of audit committee because of conflict of interest.

“The auditors either internal or external are doing things that are preceded by the executive directors and so when executive directors are members of the committee the auditors will not be able to raise issues during review,” she added.

Endurance Okafor

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