Nigeria shoots down new Codes of Corporate Governance
The Federal Government through the Minister for Trade, Investment and Industry, has shot down by suspending the Code of Corporate Governance issued by Financial Reporting Council of Nigeria last month.
The Federal Government took this action because some queries raised on the Codes are yet to be answered by the FRCN.
The Financial Reporting Council of Nigeria (FRCN) had on Monday 17 October 2016 issued the Unified National Codes of Corporate Governance for private sector, not-for-profit organisations and the public sector.
FRCN Justifies New Codes
According to the FRCN, the Codes of Corporate Governance were introduced in accordance with Section 50 of the FRC Act, 2011, which requires the Directorate of Corporate Governance of the FRCN to develop principles and practices of Corporate Governance applicable in Nigeria.
The Code of Corporate Governance Codes are aimed at enhancing management credibility, preserving long-term investments, improving access to new capital and lowering cost of capital.
The Codes will also help to drive increased transparency and accountability in financial reporting through enhanced disclosures in financial statements thereby supporting investment decisions and shareholders’ value.
The queries were based on legal observations about the seemingly conflicting provisions of the Codes with FRCN Act.
The combined reading of Section 2(1) and 10(d) of the FRCN Act suggests that the Board will be responsible for the overall control of the Council and the Directorates.
No FRCN Board
The Executive Secretary of the FRCN has been asked to explain how the Code passes the test of compliance with the Act given that the FRCN Board is yet to be constituted.
A subsidiary legislation cannot supersede a principal enactment. The Minister has requested that the Executive Secretary explains the clear conflict(s) between the Code and various legislations inclusive of the FRCN Act as well as any other legislation in view of the belief that a subsidiary legislation cannot supersede a principal enactment.
The Code also appeared to regulate some regulators by requiring that sectoral regulators address non-compliance with the Code or be sanctioned.
Most regulators are governed by their establishment Acts and the Code sought to make such regulators answerable to the FRCN.
For example, it implied that the Central Bank of Nigeria will have to take on the burden of implementing the Corporate Code in the financial sector and the Code will also take precedence over the CBN’s Code.
The Corporate Governance Codes have been in the making for some years now. The need for the corporate Governance Codes arose out of the necessity to instill modern principles of corporate governance and international best practices into the country’s corporate world.
Meanwhile a court had earlier restrained FRCN from implementing the Codes in a case involving Eko Hotel Ltd.
The judgment specifically states that it is not within the scope of the FRCN to regulate private companies. The FRCN has appealed to the Appeal Court for review of the case.