Business Leaders fear for Corporate Governance in Nigeria as draft code Plans Excessive Control

As the May 14, 2015 deadline for public comments on Nigeria’s draft code of corporate governance (NCCG) approaches, business leaders and investors have expressed fears that the policy document could wield excessive powers over Nigeria’s already challenged private sector.

According to comments received exclusively by BusinessDay on conditions of anonymity, the NCCG may swing the country from one extreme of weak corporate governance to another extreme of excessive regulation.

The NCCG is the government’s comprehensive response to the weak corporate governance environment in Africa’s largest economy, identified as a main cause of the 2008/2009 banking sector crisis.

The document harmonises existing codes in the banking, pension, insurance and other sectors into a unified code of rules for board compositions, audit processes and shareholder protection, among others, which will be regulated by the Financial Reporting Council of Nigeria (FRC).

However, business leaders say the convergence of the codes into a one-size-fits-all would miss out on industry specific details or contradict existing industry policies.

For instance, the draft code prescribes a mandatory rotation for company external auditors every five years, which shortens the existing 10-year rule adopted by the Central Bank of Nigeria (CBN) for the banking system.

Experts are concerned that the mandatory rule would diminish audit quality, make financial reporting less reliable, and add costs for investors arising from the loss at fixed intervals of an auditor’s cumulative knowledge of the companies they audit.

On board compositions, investors and business leaders are of the view that a minimum eight-member board might be onerous especially for smaller private companies who would find it difficult to comply.

In addition, the code may be impractical in its requirement for directors not to sit on boards of more than one company in the same industry, given the typical case of business groups having more than one operating company in the same industry.

“This is unreflective of the business environment in Nigeria”, says the CEO of a business consultancy who declined to be named, suggesting that the draft NCCG largely mirrored after the UK’s FRC rules, did not fully capture the peculiarities of the Nigerian business environment.

The NCCG also rules for joint audit of public listed companies, in a bid to enforce patronage of indigenous audit firms in line with Nigeria’s local content policy.

But the big four audit firms in Nigeria say “this is a non-issue”, suggesting that the draft rule is an attempt to break an oligopoly that audits approximately 90 percent of listed companies in Nigeria – according to UK-based NEXUS Strategic Partnerships.

“The big four audit firms in Nigeria are locally registered and are 100 percent owned and managed by Nigerians”, says a reliable audit industry source.

“Due to the international nature of accounting, these firms are affiliated to international networks and bring this to bear for the benefit of the Nigerian economy,” he added

The Financial Reporting Council released the draft corporate governance code on April 15, 2015 with a 30-day window for stakeholders to comment on the 133-page document, ahead of a planned public hearing on May 19, 2015.

However, stakeholders have said that was putting the cart before the horse, suggesting that the policy document was a unilateral product of the FRC, void of sufficient contributions and engagements with the business community.

Furthermore, with the coming of a new government on May 29, 2015, it would appear that the FRC is seeking to hurriedly enact the regulation.

Business leaders and other stakeholders are now seeking a six-month period for adequate engagement to “achieve the right level of discourse for such a far-reaching document.”

AKIN-OLUSOJI AKINYELE