According to both a 2001 paper by Oyejide and Soyibo and a 2007 speech by N.E. Usman, Nigeria's Minister of Finance, Nigeria has sufficient corporate governance legislation and institutions, but is lacking with respect to implementation. However, the Minister indicates that the government is putting forth an effort to improve compliance with and enforcement of the law. The two most relevant laws with regard to corporate governance are the Companies and Allied Matters Act 1990, which defines the duties of the managers of limited liability companies, and the Investment and Securities Act 1999, which charges the Securities and Exchange Commission (SEC) with regulating and developing the capital market and preserving orderly conduct, transparency, and market confidence. The 2003 Code of Corporate Governance, issued by an SEC-appointed committee, is a voluntary code which includes best practices with regard to the roles and duties of the Board of Directors and Management, the role and duties of the Audit Committee and the rights of shareholders. However, there is not enough publicly available information that directly addresses Nigeria's compliance with this standard.

General Overview

Oyejide & Soyibo's 2001 review of Nigeria's corporate governance legislation and practice indicates that the proper legislation and institutions are in place. However, there is almost a complete lack of enforcement and compliance. Consequently, the report suggests that Nigeria focus on improving its regulatory agencies and emphasizing enforcement. A 2007 speech by N. E. Usman, Nigeria's Minister of Finance, indicates that the enforcement problem remains, but adds that Nigeria is taking steps to improve enforcement and compliance. One such step is the "enlightenment program" on corporate governance that commenced in 2000. One part of this program is the National Workshop on Corporate Governance and Financial Reporting, which is designed to educate and sensitize key players in the capital market and investors to the importance of corporate governance.

According to a 2005 paper on corporate governance by Musa Al-Faki, general director of the Securities and Exchange Commission (SEC), the 2003 Code of Corporate Governance is a voluntary code that consolidated the corporate governance regulation that was incorporated into other laws. The Companies and Allied Matters Act of 1990 defines the duties of the managers of limited liability companies (LLCs). The Investment and Securities Act 1999 charges the SEC with regulating and developing the capital market and preserving orderly conduct, transparency, and market confidence. The Banks and other Financial Institutions Act of 1991 charges the Central Bank (CBN) with registering and regulating banks and other financial institutions. However, the failure of numerous companies was contributed to the lack of coordination and uniformity in the laws. Consequently, the SEC established a Committee on Corporate Governance to evaluate the existing laws and make recommendations. The result was the 2003 Code of Corporate Governance.

This code is voluntary, and includes best practices with regard to the roles and duties of boards of directors and management, the role and duties of audit committees, and the rights of shareholders. It applies to quoted and public companies. The SEC provides a number of parameters for compliance with the Code. For instance, boards must be made up of predominantly independent directors, in order to avoid conflict of interest; boards must create specialized committees whose recommendations are later be discussed by the full board; and an independently chaired audit committee with a written charter must be appointed in compliance with S 359 (4&5) of the Companies and Allied Matters Act of 1990. There must be an internal audit unit whose head reports directly to the CEO. Standards and regulations regarding director qualifications, responsibilities, remuneration, orientation, and credentials; management succession; and the annual evaluation of board performance must be adopted and publicly disclosed. A code of ethics for directors, officers, and employees must be adopted, and the code must cover conflicts of interest, confidentiality, fair dealing, protection and use of company assets, and reporting of non-compliance. Finally, there must be disclosure of the level of compliance or an explanation of non-compliance with the Code.

Al-Faki also reports that, in September 2004, a stakeholders workshop comprised of the principal regulatory bodies in Nigeria was held to discuss the World Bank's 2004 Report on the Observance of Standards and Codes (ROSC) for Accounting and Auditing in Nigeria. According to Al-Faki, the workshop resulted in a country action plan to address the country's weaknesses in financial reporting. He adds that the SEC recently established the Office of the Chief Accountant to monitor the actions and performance of listed companies and be responsible for corporate governance compliance oversight. The Office of the Chief Accountant is working on increasing its operational capacity. Finally, al-Faki notes that the Institute of Directors (IoD) is creating an institute that will serve as an umbrella organization for stakeholders' action, public awareness, and oversight of implementation. Another addition to the corporate governance framework, which L.S. Eni-Umokoro and Oga (2007) discuss in their "Overview of Financial Statement Analysis and International Financial Reporting Standards," is the Nigerian Accounting Standards Board Act 2003, which charges the Nigerian Accounting Standards Board (NASB) with enforcing LLC compliance with accounting standards and establishes criteria for financial statements and prescribes duties for external auditors.

In their 2004 report, Nmehielle and Nwauche indicate that there are two tiers of securities markets. The First Tier Securities Market requires that companies have at least 300 shareholders, while the Second Tier Securities Market requires that companies have at least 150 shareholders. Together they list 197 companies on the exchange. According to the report, "it can be stated with some measure of confidence that shareholding in Nigeria is largely diffused. Moreover, the process of privatization through public offers, which is largely through the NSE, has led to diffused shareholding especially as there are prohibitions against acquisition of more than 0.1% of offered shares especially if the issue is oversubscribed" (p. 8). However, Nmehielle and Nwauche go on to note that cases of majority shareholding are quite frequent. Furthermore, surveys indicate that the Companies and Allied Matters Act of 1990 is little more than a codification of common law and depends on the judiciary for interpretation of the law. The Act almost entirely depends on stakeholders exercising their rights. Consequently, there is little evidence of action against auditors or directors for failing to protect minority shareholders rights. The Corporate Affairs Commission remains pivotal in the protection of shareholders against corporate abuse and enforcing statutory standards.

The Investor Protection Index is a subcomponent of the World Bank's 2007 Doing Business Indicators. The Index consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indices range from 0 to 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Nigeria scores 5 in the Disclosure Index, against a regional average of 4.7 and an average of 6.3 among members of the Organization for Economic Cooperation and Development (OECD). It scores 7 in the Director Liability Index, against a regional average of 3.1 and an OECD average of 5.0; and 5 in the Shareholder Suits Index against regional average of 5 and an OECD average of 6.6.

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

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According to a 2004 report by Nmehielle and Nwauche, Nigeria's legal framework is based in Common Law and includes similar commercial codes. The Companies and Allied Matters Act of 1990 serves as the principal commercial code, and with respect to corporate governance, contains disclosure, reporting and audit committee review requirements. The Companies and Allied Matters Act of 1990 and the Investment and Securities Act of 1999 provide basic listing requirements, and the Nigerian Stock Exchange (NSE) Listing Rules provide more detailed regulation. According to Musa al-Faki's 2005 paper on "Corporate Governance: Essentials for Leadership and Performance Excellence," the Code of Corporate Governance 2003 is a voluntary code which includes best practices with regard to the roles and duties of the Board of Directors and Management, the role and duties of the Audit Committee and the rights of shareholders. It applies to quoted and public companies. The SEC provides a number of parameters for compliance with the code and requires that a company release an explanation for non-compliance. Another addition to the corporate governance framework, which L.S. Eni-Umokoro and Oga discuss in their 2007 "Overview of Financial Statement Analysis and International Financial Reporting Standards," is the Nigerian Accounting Standards Board Act of 2003, which charges the Nigerian Accounting Standards Board (NASB) with enforcing LLC compliance with accounting standards, establishes a criteria for financial statements, and prescribes duties for external auditors. However, the publicly available information does not directly address Nigeria's compliance with this principle.

The primary regulators for listed companies are the SEC and the Corporate Affairs Commission, which is responsible for registering all incorporated companies. In addition, the SEC established the Office of the Chief Accountant to monitor the actions and performance of listed companies and be responsible for corporate governance compliance oversight. The Office of the Chief Accountant is working on increasing its capacity to carry out its responsibilities. The Institute of Directors (IoD) is creating an institute that will serve as an umbrella organization for stakeholders' action, public awareness, and oversight of implementation.

Principle II: The Rights of Shareholders and Key Ownership Function

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Nigerian law includes provisions for the rotation of directors, which increases shareholders opportunity to dispose of unsatisfactory directors. However, Oyejide and Soyibo, in their 2001 paper "Corporate Governance in Nigeria," question the ability of shareholders to effectively assess the performance of directors when making the decision to re-elect them. The Companies and Allied Matters Act of 1990 establishes the one-share/one-vote system, providing shareholders with voting power in proportion to the number of shares owned, except in the case of preferential shares. The Act allows for preferential shares but prohibits non-voting shares. In addition, changes in ownership interests and values must be included in the registered office and available to all shareholders for a fee. The Act requires public disclosure of directors' identity, size of shareholding, and remuneration. In addition, a list of all member of a company must be available at the registered office. However, the publicly available information does not directly address Nigeria's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

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The Code of Corporate Governance 2003 is a voluntary code which includes best practices with regard to the roles and duties of the Board of Directors and Management, the role and duties of the Audit Committee and the rights of shareholders. According to a 2004 report by Nmehielle and Nwauche the Code's provisions for the inclusion of shareholders in general meetings require that the location should be easily accessible and affordable, notice of meeting should be given 21 days in advance, and shareholders should be encouraged to participate. Also, at least one director should represent minority shareholder on the Board. Musa Al-Faki's 2005 paper on "Corporate Governance: Essentials for Leadership and Performance Excellence," reports that the Code applies to quoted and public companies. The SEC provides the following parameters for compliance with the code: the board must be made up of predominantly independent directors to avoid conflict of interest; the board should create specialized committees and their recommendations must later be discussed by the full board; an independently chaired audit committee with a written charter and be appointed in compliance with S 359 (4&5) of the Companies and Allied Matters Act 1990; there should be an internal audit function whose head reports directly to the CEO; the adoption and disclosure of director qualification standards, director responsibilities, director remuneration, director orientation and credentials, management succession, and annual evaluation of board performance; the adoption of a code of ethics for directors, officers and employees that covers conflicts of interest, confidentiality, fair dealing, protection and use of company assets, and reporting of non-compliance; and disclosure of the level of compliance or an explanation of non-compliance with the Code. In addition, in their 2001 paper "Corporate Governance in Nigeria," Oyejide and Soyibo, report that the Companies and Allied Matter Act of 1990 includes provisions protecting minority shareholders, such as allowing a shareholder with more than one share to split votes and the use of proxies. However, there is insufficient publicly available information that comprehensively addresses this principle.

Principle IV: The Role of Stakeholders in Corporate Governance

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In Musa Al-Faki's 2005 paper on "Corporate Governance: Essentials for Leadership and Performance Excellence," he indicates that in September 2004, a stakeholders workshop comprised of the principal regulatory bodies in Nigeria was held to discuss the World Bank's 2004 ROSC for Accounting and Auditing in Nigeria. The workshop resulted in a country action plan to address the country's weaknesses in financial reporting. Also, the IoD is creating an institute that will serve as an umbrella organization for stakeholders' action, public awareness, and oversight of implementation. However, the publicly available information does not directly address Nigeria's compliance with this principle.

Principle V: Disclosure and Transparency

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The SEC and NSE are responsible for monitoring the financial disclosure and reporting of listed companies. The SEC functions under the Investment and Securities Act of 1999 and the Securities and Exchange Commission Rules and Regulations (1999). The NSE supports the SEC, supervises securities market operation and regulates the second-tier capital market. However, the World Bank 2004 ROSC for Accounting and Auditing judges that the SEC does not successfully fulfill its supervisory or enforcement roles. However, the publicly available information does not directly address Nigeria's compliance with this principle.

According to Oyejide and Soyibo, writing in 2001, the Company and Allied Matters Act of 1990 provides guidelines for the reporting and disclosure of company financial statements. The financial statements may be approved or rejected by shareholders at least 21 days before the annual general meeting (AGM). The Act also requires that companies put out an annual Directors' Report including the activities and development of the company, as well as recommended dividends and reserves, if applicable. The Company and Allied Matters Decree calls for additional financial statement disclosure requirements. In addition, the Decree requires the appointment of auditors at the AGM to audit the company's financial statements, contains instructions for the appointment of auditors and the subsequent auditor responsibilities. For public limited companies, a committee of directors and shareholder representatives must review the auditors' report and make recommendations at the next AGM. The World Bank's 2004 report notes that, in some cases, the Act's requirements are not aligned with International Auditing Standards and International Financial Reporting Standards. Instead, financial statements must comply with the Statement of Accounting Standards issued by the NASB.

Reporting in 2005, al-Faki notes that the 2003 Code of Corporate Governance is a voluntary code which includes best practices with regard to the roles and duties of the Board of Directors and Management, the role and duties of the Audit Committee and the rights of shareholders. It applies to quoted and public companies. The SEC provides the following parameters for compliance with the Code: the board must be made up of predominantly independent directors to avoid conflict of interest; the board should create specialized committees and their recommendations must later be discussed by the full board; an independently chaired audit committee with a written charter and be appointed in compliance with S 359 (4&5) of the Companies and Allied Matters Act of 1990; an Internal Audit function whose head reports directly to the CEO; the adoption and disclosure of director qualification standards, director responsibilities, director remuneration, director orientation and credentials, management succession, and annual evaluation of board performance; the adoption of a code of ethics for directors, officers and employees that covers conflicts of interest, confidentiality, fair dealing, protection and use of company assets, and reporting of non-compliance; and disclosure of the level of compliance or an explanation of non-compliance with the Code.

In addition, al-Faki notes that, in September 2004, a stakeholders' workshop comprised of the principal regulatory bodies in Nigeria was held to discuss the World Bank's 2003-2004 ROSC for Accounting and Auditing in Nigeria. The workshop resulted in a country action plan to address the country's weaknesses in financial reporting. Also, the SEC established the Office of the Chief Accountant to monitor the actions and performance of listed companies and be responsible for corporate governance compliance oversight. The Office of the Chief Accountant is working on increasing its capacity to carry out its responsibilities. The IoD is creating an institute that will serve as an umbrella organization for stakeholders' action, public awareness, and oversight of implementation. Another addition to the corporate governance framework, which L.S. Eni-Umokoro and Oga discuss in their 2007 "Overview of Financial Statement Analysis and International Financial Reporting Standards," is the Nigerian Accounting Standards Board Act of 2003, which charges the NASB with enforcing LLC compliance with accounting standards and establishes a criteria for financial statements and prescribes duties for external auditors.

Principle VI: The Responsibilities of the Board

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A 2004 report by Nmehielle and Nwauche indicates that the 2003 Code of Corporate Governance provides the role and duties of the board. It contains regulations to ensure that non-executive directors are independent and perform their functions independently, and provides mechanisms to prevent power from becoming too centralized in the board. The Code also includes provisions pertaining to the frequency of meetings, disclosure requirements, and the board's relationship with external auditors. In his 2005 paper on "Corporate Governance: Essentials for Leadership and Performance Excellence," Musa Al-Faki reports that The SEC provides the following parameters for compliance with the Code: the board must be made up of predominantly independent directors to avoid conflict of interest; the board should create specialized committees and their recommendations must later be discussed by the full board; an independently chaired audit committee with a written charter and be appointed in compliance with S 359 (4&5) of the Companies and Allied Matters Act of 1990; an Internal Audit function whose head reports directly to the CEO; the adoption and disclosure of director qualification standards, director responsibilities, director remuneration, director orientation and credentials, management succession, and annual evaluation of board performance; the adoption of a code of ethics for directors, officers and employees that covers conflicts of interest, confidentiality, fair dealing, protection and use of company assets, and reporting of non-compliance; and disclosure of the level of compliance or an explanation of non-compliance with the Code. However, the publicly available information does not directly address Nigeria's compliance with this principle.

Nmehielle and Nwauche add, in their 2004 report, that Section 244 of the Company and Allied Matters Act of 1990 requires that every company have a board of directors, and charges the board with directing and managing the business of a company. Directors are assigned fiduciary duties of good faith and common law duties of care and skill. The Act establishes other statutory duties of the board with respect to notification of certain events such as debenture creation, name changes, head office, share issues, and others. However, the fiduciary responsibilities of directors are of a low standard and, consequently, almost no cases have been brought against directors for violating the regulations governing them.