AN INVESTIGATION INTO LEGAL CHALLENGES ASSOCIATED WITH CORPORATE LEADERSHIP STRUCTURE AND PERFORMANCE OF COMPANIES IN NIGERIA

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AN INVESTIGATION INTO LEGAL CHALLENGES ASSOCIATED WITH CORPORATE LEADERSHIP STRUCTURE AND PERFORMANCE OF COMPANIES IN NIGERIA

 

GENERAL INTRODUCTION
1.0.0 INTRODUCTION
Companies have been identified as business vehicles all over the world and they substantially control the economy of nations.1
Incorporation of companies is regulated by the laws of individual nations. In Nigeria, incorporation and management of
companies is regulated by the Companies and Allied Matters Act (CAMA). As a legal entity the company has a distinct identity and personality different from its owners or members and the investors are not personally liable for the liabilities of the
company.2
Initially business owners managed the affairs of their business concerns, but in the process of growth and development corporations became complex and it is obvious that professionals need to be hired to manage the affairs of companies. This does not
however, presuppose that companies cannot or should not be run by owners having the expertise in doing so. A process hence, evolved whereby shareholders engaged managers to handle the operations of the company and in such a situation, ownership
is said to be separated from control. This created a dichotomy between ownership and control whereby owners may not necessarily be the managers of a company.

In Nigeria, CAMA provides that except as may be otherwise provided by the company articles, the business of the company shall be managed by the board of directors. 3 This provision vests the management powers over the business of a
company in the board of directors. With this, it is apparent that CAMA gave

1Holdcroft, Jr. J. P. and Macey, J. R. ‘Flexibility in Determining the Role of Board of Directors in the Age of
Information’. 19 Cardozo L. Rev. 291 (1997) P. 10
2 Salmon vs Salmon Co Ltd (1897) A. C. p. 22
3
Section 63 (3) CAMA 6
enormous powers to the board to provide leadership, which means, to direct, guide and control the business of the company as the most important organ of the company. Leadership has been described as the ability to facilitate individual and collective
efforts to achieve shared objectives.4 It is therefore, clear that the sustainability of the company depends on the ability of the board of directors to provide the requisite leadership to make the company achieve its objectives, otherwise the company may
suffer loss and failure. The causes of failure of corporate organizations were attributable to lack of good corporate governance on the part of the board. This usually manifests in unethical conducts on the part of directors, ineptitude, fraudulent behaviours, poor
organisational culture, leadership style and so on.

In Nigeria, the board of directors which is the sole organ of the company responsible for the management of the company has a lot of powers and freedom provided for it by CAMA to operate. This situation as well as the weakness in regulatory and enforcement system has been explored by many boards to the detriment of shareholders and the company at large. Though there are measures put in place by
company law to checkmate the excesses of the board like derivative actions by members, fiduciary duties of directors and so on, but the process of achieving these measure are so cumbersome that it makes them almost non-existence.
The Company Act does not give any indication as to the type of person who may be appointed and the quality or qualification they must possess. Though section 257 of CAMA listed certain categories of persons that are disqualified from being appointed

4
Shaibu Ibrahim ‘Leadership and Military Ethics’ Published in Leadership and Complex Military Operations By Nigerian Defense Academy Publishing, Kaduna (2016) p.59 5 Toyin Ishola Lasisi ‘The Relationship Between Corporate Governance and Organisational Performance in Nigeria Companies. A Walden University Dissertation and Doctoral Studies Collection (2017) p. 2
7 as directors in Nigeria but the challenge is in how to enforce such disqualification in a country where the processes and procedures for declaring a person insane or bankrupt are cumbersome and currently not been properly explored.
The effectiveness of the board is dependent on its size, composition and structure. The board must not be too big as to become unwieldy or too small that will exclude the necessary knowledge, skills and experience to make effective decisions. The right mix of the executive and NEDs is to bring a proper and genuine growth and quality decision backed by experience in an ideal world. It must be stated that the quality of the directors will reflect most certainly on the effectiveness of the company. However, CAMA 2004 is silent on the selection of the directors and the mix required for effective performance.

Though the SEC Code of Corporate Governance made some provisions necessary for
effective management of companies in Nigeria, it is clear from the provisions of the code that it is not intended as a rigid set of rules but a guide to facilitate soundcorporate practices and behaviour. Also, the responsibility to ensure compliance still
rests on the board of directors.6 There is also no modality for enforcement, no facility for monitoring compliance and no specialised agency or department to monitor and enforce the Corporate Governance Code.7

The challenge therefore, is how to ensure that the interest of all stakeholders is adequately protected by the board, in other words how to make the board effective. This calls for appropriate structuring of the board leadership in a way for the board to be self-regulating and be able to effectively carry out its functions of formulating
Sections 1.3 (a) and (b) SEC code of Corporate Governance 2003
7 Kunle Aina ‘Board of Directors and Corporate Governance in Nigeria’ International Journal of Business and
Finnance Management Research IJBFMR 1 (2013) 21-24. Pp.25 to 32. Accessed from
www.bluepenjournals.org/ijbfmr on 23/10/17
8
policies to advance the course of the company, supervise management to ensure
accountability and probity.
The above brings about the need to closely look at the leadership structure of corporate bodies in line with the provisions of company law to propose the necessary reform in the law to reposition the board to be self-regulating and be able to carry out its functions of formulating policies and appropriately supervise management to advance the course of the company.

This thesis therefore, examines the legal frameworks on leadership structure of corporate entities in Nigeria which is currently structured in a way that it handles the dual functions of supervising the day-to-day running of the company and also monitors its own performance with a view to identifying the challenges in the practical operation of the provisions of CAMA and other regulatory provisions on the leadership structure. It will attempt to provide recommendations on how the board could be better structured to provide the necessary checks and balances in ensuring probity, accountability, fairness and finally, performance of corporate bodies in Nigeria.
The research work will also looks at the company secretary being a key officer of the company and a conscience keeper within the board whose major role is to guide the board and at times, report misdeeds. It will assess how effective these roles are being
performed under the provisions of CAMA and the code of corporate governance in Nigeria and to explore how best the secretary could discharge the duties to strengthen the effectiveness of companies in Nigeria.

AN INVESTIGATION INTO LEGAL CHALLENGES ASSOCIATED WITH CORPORATE LEADERSHIP STRUCTURE AND PERFORMANCE OF COMPANIES IN NIGERIA

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