Now that the corporate governance code has been suspended  

 

It is probably fair to say that most Nigerians had never heard of the Financial Reporting Council (the “FRC”) prior to the ‘premature’ retirement of Pastor Enoch Adeboye last week, as the General Overseer of the Redeemed Christian Church of God (RCCG). The cleric had stepped down in deference to the FRC’s Corporate Governance Code applicable to so-called not-for-profit organizations, including his Church, which limited his tenure to 20 years. In the event, the attempted implementation of the Code in his particular case caused such public outcry that President Buhari not only suspended it, but replaced the leadership of the FRC, with a charge to the new helmsmen to consult relevant stakeholders before coming up with, presumably, a fresh Code. So, how did we come to this sorry pass in the doubtless laudable objective of fostering a culture of good corporate governance in Nigeria? First things first.

What is Corporate Governance?

According to the Organization for Economic Co-operation and Development, the OECD (2004:11) corporate governance means “a set of relationships between a company’s management, its board, its share holders and other stake holders: it provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined”. Lord Cadbury (1992:2:5) depicts it as: “The system by which companies are directed and controlled.” It is clear that both definitions place a “ company” or “corporate body” at the heart of the concept; it is thus its central focus.

Who May Regulate Corporate Bodies in Nigeria?

Under the 1999 Constitution, the “Incorporation, regulation and winding up of bodies corporate, other than co-operative societies, local government councils and bodies corporate established directly by any law enacted by a House of Assembly of a State”, is reserved exclusively for the National Assembly by Section 4(3) & Item 31 of the Exclusive Legislative List of the Constitution. Sections 1 & 7(1) of the Companies & Allied Matters Act, Cap. C.20 LFN 2004 establish the Corporate Affairs Commission and empower it, inter alia, to “regulate, supervise the formation, incorporation, registration. Management and winding up of companies under and pursuant to the Act”

Apparently oblivious of the foregoing provisions which deal specifically with companies, the National Assembly enacted the Financial Reporting Council of Nigeria Act, 2011, which, inter alia, empowers the FRC (See Sec. 11 thereof) to “ensure good corporate governance practice in the public and private Sectors of the Nigerian Economy”. I believe this provision and similar ones in the FRC Act such as those of Sections 8(1)(a),(g),(i),(k),(l) & (p), 51(a) & 77, are responsible for the Council over-reaching itself in enacting the three ill-fated Codes of Corporate Governance; for the private sector, the public sector and the so-called not-for-profit organizations, respectively. Simply put, in my opinion, the National Assembly lacked the power to enact the stated provisions of the FRC Act.

Going forward – a new Code of Corporate Governance

There are obviously lessons to be learned from the failed attempt by the FRC to establish Codes of Corporate Governance. Such lessons in my view, include the fact that the Act purports to bring within its purview virtually all corporate bodies in the public and private sectors of Nigeria, including so-called “public interest entities” which it defines (in Section 77) as “governments, government organizations, quoted and unquoted companies.” The only exceptions are private companies who routinely file returns with only the Corporate Affairs Commission and the Federal Inland Revenue Service. To the extent that this provision fails to discriminate between Federal, State and Local governments, it violates the principle of federalism under Section 2(2) of the 1999 Constitution. The National Assembly can only legislate for States to the extent specifically authorised by the Constitution: DOHERTY vs BALEWA (1961)2 NSCC 248 @252

In other words the scope of the Act as set out in its long title, to wit, “developing and publishing accounting and financial reporting standards to be observed in the preparation of financial statements of public entitles in Nigeria,” is delimited and defined by the provision of Item 1 of the Exclusive Legislative List of the Constitution, which restrict the National Assembly to legislating on only “accounts of the Government of the Federation, and of offices, courts, and authorities thereof including audits of those accounts”. Contrary to this provision, the now-abandoned Public Sector Governance Code which applied across the board, to “all Ministries, Departments and Agencies of Government; all State-owned Entities; all parastatals; and all Government Commercial agencies”, which it categorizes as “public sector entities”: by virtue of Item 53 of the Exclusive Legislative List of the Constitution, the National Assembly may only regulate the “Public Service of the Federation” .

The Position of Political Parties

Another anomaly in the suspended Public Sector Code of Governance is the inclusion of political parties within its scope (Paragraph 7.2(f)). This is wrong as the Constitution has already covered that field in Sections 222-229 thereof where it confers that function exclusively on the Independent National Electoral Commission. To that extent, the said provisions of the Code are invalid, null and void: ISHOLA vs. AJIBOYE (1994) 6 NWLR pt.352 pg.356, per Kutigi, JSC; ATT-GEN. OF ABIA vs ATT-GEN OF THE FED (2002) 6 NWLR pt.763 pg. 264 @369 & 391, per Kutigi, JSC & Uwais, CJN, respectively.

Not-For-Profit Organisations

The case of Pastor Adeboye of the RCCG, more than anything else, highlights the shortcomings of the FRC in enacting a Corporate Governance Code applicable across the board to all areas of our national life. While it is conceded that any organization – whether religious, social, charitable, sports or whatever – becomes a corporate body once it is registered under the Companies & Allied Matters Act, what has proved problematic so far, are the incidents and implications of that status vis-a-vis the powers of the FRC. I believe the confusion could have been averted – and can be avoided, going forward – by going back to the core mandate of the traditional regulator of such bodies, i.e, the Corporate Affairs Commission. See Sections 1 and 7 of the Companies & Allied Matters Act . This would accord with the principle of statutory interpretation expressed in the maxim generalia specialibus non derogant , i.e, special things derogate from general things.

In other words, the FRC should be stripped of its so-called corporate governance functions, and it should concentrate exclusively on “ensuring accuracy and reliability of accounting and financial reports and corporate disclosures in line with international best practices with a view to protecting investors and other stakeholder’s interest”, as provided in Sections 8(1)(o),(9) & 11(a)&(d) of the FRC Act. The Corporate Affairs Commission is uniquely positioned to regulate corporate bodies given its specific remit as expressed in Sections 28, 34, 120, 335, 337, 339 – 342, 350, 352–354, 359, 371–373, 393(3), 490(4), 546, 551, 553, 601, 607 & 609 of the Companies & Allied Matters Act (C.A.M.A).

In the peculiar case of private companies or corporate bodies registered as Incorporated Trustees under Part C of CAMA – at least those registered or incorporated prior to the commencement of the FRC Act on 3^rd June 2011 – the FRC Act cannot operate retrospectively to interfere with the vested rights of their subscribers, promoters or trustees, as expressed in their Articles of Association or Constitutions. These documents are prepared by such bodies and are required to be submitted to the Corporate Affairs Commission prior to their registration/incorporation by the Commission: Sections 27, 33-35(2)(a), 590, 591 and 593 of CAMA.

The Articles of Association and Constitution of a corporate body define the relationship between its members inter se and between them and the corporate body. This usually includes provisions dealing with leadership, such as that of the RCCG and similar bodies, which the FRC felt was open-ended and sought

to limit to 20 years With particular regard to religious organizations registered as Incorporated Trustees, Section 593(C) of C.A.MA. requires their Constitutions to make provisions, inter alia, in respect of the appointment, powers, duties, tenure of office and replacement of the trustees, the number of members of the governing bodies, if any, the procedure for their appointment and removal, and their powers.

To that extent, I believe it is wrong for the State to subject such bodies to a new regime of internal governance – such as the 20-year tenure limit – which will supplant their vested rights under pre-existing provisions of their said Constitutions. In ADESANOYE vs. ADEWOLE (2000) 9 NWLR pt.671 pg. 127 @ 147 & 167, the Supreme Court held, per Uwaifo & Ogundare, JJSC, that:“an interpretation giving retrospective effect to a statute should not be readily accepted where that would affect vested rights or impose liability of disqualification for past events”.

The court held further that: “Statutes which encroach on the rights of the subject, whether in relation to persons or property are regarded as Penal Acts and are subject to a strict construction. Such statutes are therefore to be interpreted so as to respect such rights and any ambiguity in such statutes is usually resolved in favour of the freedom of the individual. A statute does not retrospectively abrogate vested rights or take away proprietary rights without making provision for compensation”.

To the extent that the FRC Act does not have retrospective effect, any Code of Governance enacted by the FRC (or anyone else) can only apply to corporate bodies which were incorporated after the date of commencement of the Act. See AFOLABI vs GOVERNOR OF OYO STATE (1985)2 NWLR pt. 9 pg. 734 @

768. Accordingly, it will be a mistake, in my opinion, for the new management of the FRC to impose whatever Code of Corporate Governance which it might develop, on such bodies  unless, of course, they voluntarily agree to adhere to it, in which case, volenti non fit injuria.      

Conclusion

Given that large parts of the suspended Codes are salutary and faultless, the new management of the FRC will need to be adroit and circumspect as it undertakes their review in order to avoid throwing out the baby with the bath-water. By no means, though, should this be at the expense of the anomalies therein highlighted above, vis-à-vis the Constitution.

 

ABUBAKAR SANI