Draft Code of Corporate Governance for the Private Sector 2018
On 17 October 2016, the Financial Reporting Council (FRC) introduced a mandatory National Code of Corporate Governance ("2016 Code"), which comprised of three separate Codes for the public sector, private sector and nonprofits.
However, as a result of sustained and intense protests about inadequate stakeholder consultations and its mandatory application, the 2016 Code was suspended by the Federal Government on 28 October 2016 and a Technical Committee was constituted in January 2018 to formulate a new Corporate Governance Code.
The first output of the Technical Committee was released in June 2018 and it is titled the draft Corporate Governance Code for the Private Sector 2018 ("2018 Code").
This post examines what the 2018 Code will portend for nonprofits.
By way of background, we refer to DIN's comments on the 2016 Code:
The Governance Code must be compliant with existing legal and regulatory requirements for not-for-profits in Nigeria.
The Governance Code should be principles-based and applied on a “comply or explain” basis. This means that not-for-profits will either comply with its provisions or explain why they are not able to do so given their particular circumstances.
A rules-based or normative approach to corporate governance is not the only answer to the weakness, poor quality or lack of independence of governance structures of some Nigerian not-for-profits. We believe that self or collective regulation can be equally helpful.
The 2018 iteration heralds a significant departure from the 2016 Code in several respects.
First, the 2018 Code has completely jettisoned a rules-based or normative approach by its adoption of a principles-based approach, that is, apply (comply) or explain.
Secondly, the 2018 Code avoids the major problem with the 2016 Code, namely, overreach through the assumption by the FRC of regulatory and enforcement powers that are not supported by the provisions of its enabling law and are in fact expressly vested in statutory bodies such as the Corporate Affairs Commission (CAC) and the Federal Inland Revenue Service (FIRS).
Thirdly, the 2018 Code has completely rejected a mandatory one-size-fits-all framework for all corporate bodies. Rather it states that it only covers the private sector, which is defined as public companies (whether listed or not); private companies that are holding companies of public companies and other regulated entities; concessioned and privatized companies; and private companies that file regulatory returns to government bodies other than the FIRS and the CAC.
Most Nigerian nonprofits, whether corporatized or not, will not be required to implement the 2018 Code.
Nevertheless, with a view to fostering "well-managed, professionalized and effective" Nigerian nonprofits, we urge their boards, management, members and staff, to consider voluntarily applying or adapting as much as possible those best practices in the 2018 Code, which may be relevant to their circumstances.