Corporate Governance is the system by which companies are directed and controlled, giving due consideration to all stakeholders of the company, to facilitate effective and prudent management for the protection of shareholders' interest. Codes such as the SEC Code (2003) for public companies, the CBN Code (2014), issued for banks and discount houses, PENCOM Code (2008) issued for licensed pension fund operators, the NAICOM Code (2009) issued for the insurance industry and the Code for the Telecommunications industry (2016), are sector specific corporate governance codes, applicable to only the affected regulated sectors.     The Financial reporting Council (FRC) in 2016 released a draft of the National Code of Corporate Governance with the aim of providing a set of corporate governance standards applicable to the private sector, consisting of Public companies and the categories of private companies listed in the 2016 code. The draft 2016 code was criticized as being in contrast with existing corporate legislations and sector-based codes of corporate governance. It was consequently suspended by the Minister of Industry, Trade and Investment.   

In a bid to standardize the practice of good corporate governance in Nigeria, the FRC has now released the Nigerian Code of Corporate Governance 2018 ("the Code" or "NCCG") which sets out the principles of corporate governance which companies are expected to adopt. The NCCG is yet to come into force. Its aim is to resolve the challenges of applying the multiple sectoral Codes which are distinct in their application as they are industry specific.

Structure of the NCCG

The Code is divided into seven parts and contains twenty-eight (28) Corporate Governance principles, with attendant practices recommended for the implementation of each principle. The objective of the Code is to promote the adoption of corporate governance best practices by Nigerian companies, improve public/investor confidence which will ultimately boost trade and investment in the Nigerian economy. The NCCG in its introductory paragraph states that the FRC has been authorized to ensure corporate governance in both the private and public sectors. It therefore appears that the Code regulates all private and public companies without distinguishing the categories of private companies, unlike the 2016 draft Code which was applicable to public companies and those private companies, which are either related parties to public companies or regulated by authorities other than the CAC (Corporate Affairs Commission), and the Federal Inland Revenue Services (FIRS).

In addition, the NCCG makes no reference to the not-for-profit sector, unlike the 2016 draft Code, which generated controversy particularly regarding the regulation of religious institutions.

Key principles of the Code

  1. The Board

The Code advocates for best practices and international standards by providing that the MD/CEO is not expected to be a member of the committees responsible for key issues such as remuneration, audit, or nomination and governance.

In respect of the importance of the Non-Executive Directors on the Board, the Code states that the Non-Executive Directors should represent a strong independent voice on the Board, in character, judgment and accordingly be free from relationships or circumstances with the company, its management, or substantial shareholders which may   or   appear   to   impair   their ability to make unbiased judgment.

The Code also provides that the Board of Directors should monitor performance at management level by facilitating external independent evaluation of the Board every three years. It goes further to say that the Board should ensure that such independent professional evaluation be obtained as set out in the company's governance policies.

Internal control system

The Code provides that every company should establish an Internal Audit Function (IAF) and the purpose of the IAF should be clearly defined in an internal audit charter approved by the Board. Where a company fails to establish an IAF, it is expected to disclose the reason for its failure in its annual reports with clarification on how effective risk management and internal control were achieved without the IAF.

In addition, it also recommends that external auditors of companies are to be retained for no more than 10 years, and external auditors who have exceeded ten years are expected to cease to hold office at the next Annual General Meeting after the Code comes into effect. It also places an obligation on auditors to report any violations of the law by the company to the audit committee or the Board.

The Code also advocates for an effective whistle blowing framework for reporting any illegal or unethical behavior to minimize the company's exposures.


The Code gives room for flexibility in its compliance by allowing companies to adopt the 'apply and explain' approach as opposed to the 'comply and explain' approach which encourages application of all principles of the NCCG and requires entities to explain how the principles are applied.  According to the Code, this requires companies to demonstrate how the specific activities they have undertaken best achieve the outcomes intended by the corporate governance principles specified in the Code. Therefore, the principles of the Code can be applied flexibly to suit peculiar circumstances, in so far as the intention of the Code is met.


The new NCCG is commendable to the extent that it has taken steps to set out corporate governance principles and best practices in a single document. However, it does not manifestly solve the challenge of having multiple codes which appear to remain applicable in the different sectors; seeing that the Code does not clarify whether the NCCG will supersede; where it is in conflict with the provisions of existing sector specific codes.

It is also commendable that the Code has a wider application, as it mentions that it would generally be applicable to both public and private sectors, thus not creating any distinction or classification for the private companies to which the Code applies. 

The FRC is yet to publicly declare the effective date of the Code. However, what is more important is that the FRC puts in place an effective mechanism for enforcement and compliance with the Code once effective, in order to achieve sustainability of our corporate entities, which good corporate governance practice seeks to promote.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.