The Board of Directors (the "Board") of a company play a crucial role in its success or failure; more often than not, successful companies are headed by effective Boards. The Board of a company is responsible for providing entrepreneurial and strategic leadership, and also serves as a link between investors, shareholders, and the company. Although this is one aspect that is typically overlooked by Startups and small businesses in structuring their operations, it plays a key role in building long-lasting businesses.
The applicable legislation for the conduct of Board meetings in Nigeria is the Companies and Allied Matters Act 2020. Boards are also to be guided by their Articles of Association and the Nigerian Code of Corporate Governance 2018 issued by the Financial Reporting Council of Nigeria (the "Code") which sets out best practices for all companies operating in Nigeria including startups (the "Company").
We have set out below useful information with respect to setting
up a Board in Nigeria and
holding Board meetings.
1. What is the role of the Board? The Board is to exercise oversight and control over the Company, to ensure that the management acts in the best interest of the shareholders and investors whilst sustaining the prosperity of the Company.
2. How is the Board to be structured? The Code recommends that the Board of a Company is of a sufficient size to effectively undertake and fulfill its business and to constitute a quorum. The Board should comprise of a mix of the following directors:
(i) Executive Director (ED) - The ED should be an employee of the Company, involved in the operations of the Company who provides support to the Managing Director;
(ii) Non-Executive Director (NED) - The NED should contribute his/her expertise and independent judgment on issues of strategy on the Board and should not be an employee of the Company;
(iii) Independent Non-Executive Director (INED) - The INED should bring a high degree of objectivity to the Board for sustaining stakeholder trust and confidence should not be an employee of the Company; and
(iv) Managing Director (MD) - The MD should be an employee of the Company involved in its daily operations with good knowledge of the Company's business.
3. Can a Foreigner sit on the Board of a Nigerian Company? Foreigners can sit on the Board of a Nigerian Company.
4. How do you call a Board meeting? A director/ the company secretary (acting on the instructions of a director) may at any time summon a meeting. A statutory notice of at least 14 days, is to be provided by the company secretary of the meeting to all the Board members with the Board Pack (containing all necessary documents for the meeting). Such notice can, however, be waived upon a unanimous agreement of all the directors to waive this right, and a notice lesser than 14 days can be provided.
5. What documents are necessary? It is good practice that the agenda of the meeting and all other documents to be used during the meeting is provided by the company secretary to all the directors before the meeting or alongside the notice of the meeting. It is recommended that a Board Charter be provided to all directors to define their roles (a Board Charter is a document that defines the roles of the directors).
6. How frequently should a Board meet? To effectively perform its oversight function and monitor management's performance, the Board is advised by the Code to meet at least once every quarter.
7. How should the meeting be conducted? There should be a Quorum to start the meeting. (CAMA stipulates that a quorum is formed when at least 2 directors are present out of a total number of 6 directors. Where the directors are more than 6, one-third of the directors should be present). The Chairman is to conduct the activities of the meeting as itemized in the agenda. The minutes of the meeting should be taken and sent to the directors on a timely basis.
8. Should Board members receive remuneration? The Code recommends that EDs should be paid per their contract of employment, while the NEDs and INEDs be paid sitting allowances and compensation for other expenses incurred.
9. Is diversity encouraged on the Board? The Board should show diversity in membership in age, gender, and experience.
10. Are sub-committees required? The board is encouraged to form sub-committees to make decisions on various aspects of the Company, such committees may include; the audit risk, compensations, remunerations, and governance committees. Each committee should comprise of at least 3 members who are directors.
Conclusion
The benefit of setting up a competent and independent board is immeasurable and greatly outweighs the cost. The presence of a Board in a Company places it in a competitive edge, and also boosts investors' confidence, as it implies that the Company has guidance and unilateral decisions can not be made by individuals without recourse to the Board. It is, however, important that Board members are selected with care to ensure they add good value to the Board.
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.
