MasterClass

We cordially invite you to our first MasterClass of 2022. Topic: How to be Board ready

A. How to be board ready: potential directors must have specific skill sets; have more than a working knowledge of the specific industry or economy sector in which the company operates. This note contains general highlights of director responsibilities and governance rules which will help anyone be "board" ready.

B. Duties/Responsibilities of Directors

· Fiduciary duty of care

Under Nigerian law, directors owe a fiduciary duty to a company and must exercise of due care, skill, and diligence in the discharge of their duties. Failure to exercise due care would be a reasonable ground for an action in negligence and breach of fiduciary duty

Directors also have a duty of utmost good faith. Directors must not have a conflict of interest during their time as directors. A director shall always act in what he/she believes to be the best interest of the company. The fiduciary duties of a director are as follows:

(a) Duty to act bona fide for the benefit of the company.

(b) Duty to exercise of power for proper purpose.

(c) Duty not to fetter discretion to vote in a particular way.

(d) Duty to prevent conflict of duty and interest.

(e) Duty not to make secret profits by appropriating corporate assets or opportunities.

· Duties of care and skill

The Companies and Allied Matters Act ("CAMA") stipulates that every director shall exercise the powers and discharge the duties of his office honestly, in good faith, in the best interest of the company and shall exercise that degree of care, diligence and skill which a reasonable, prudent director would exercise in comparable circumstances.

· The Liability of Directors under the CAMA

Generally, directors are personally liable for any breach of duty or negligent act occurring in the discharge of their duties as a director some CAMA defaults also attract director liability for defaults of company:

(i) fraud by the company; failure to apply the money or other property for the purpose for which it was received,

(ii) failure to file its annual returns or deliver the financial statements of the company as required under CAMA;

(iii) liability for all debts incurred by a company with less than 2 directors over a 6 months period;

(iv) where the name and registration number of company are not on its letterhead, business letters, notices, advertisements and official publications of the company;

(v) a breach of a director's fiduciary duties resulting in the insolvency of a company may, under section 305 of the CAMA, may result in civil or criminal liabilities

· Powers of Directors Under CAMA

The powers of the Board of Directors of a Company under the Companies' Act include but are not limited to the following:

i. Power to make calls on unpaid shares

ii. Right to call Board and shareholder meetings

iii. Issue shares, debentures, or any other instruments in respect of the Company

iv. Borrow and invest funds for the Company

v. Review and Approve Annual budgets and Audited Financial Statements

vi. Power to recommend dividend to the shareholders

vii. Power to grant loans

viii. Approve mergers and acquisitions

ix. Approve Capital expenditures

x. Authorize the buyback of securities

C. Criminal Liability of a Company and the Implication on the Directors of the Company

Instances where a director maybe criminally liable include:

1. Criminal liability of a company will only extend to a director or officer of a company if such director or officer was involved or aware that the company has committed a crime. Some specific instances where a director may be personally liable for offences committed by the company include false information is provided by an officer (directors are officers of companies) of a company to the company's auditors.

2. criminal liability will only be applicable to a director depends on direct knowledge of the criminal act.

D. Corporate Governance

A good grasp of the rules of good corporate governance are critical for anyone who wants to be on boards. Board Committees enable the Board achieve greater efficiency in the performance of its oversight functions and strengthening the governance structure.

Nigerian Code of Corporate Governance recommends board committees for efficiency and effectiveness.

Board committees can be useful for efficiency and effectiveness of the Board. Committees allow the board to focus on more strategic issues with Committees dealing with specific matters, make decisions within the framework of delegated authority and make recommendations to the board.

Committees prepare the groundwork for board decision making. All decisions and recommendations are placed before the board for information or for approval.

An effective board should be composed of Directors with diverse experience, skills and expertise. To maximize the benefits of this diversity, Committees should comprise of Directors with relevant skills and competences in specific areas who can commit time and skills to committee work.

Membership of Committees will give Directors better insight into the business of the company in respect of which they have oversight responsibilities.

Board committees should have specific charters or terms of reference setting out their roles and responsibilities in membership, quorum, scope of work, voting/decision making, as well as authority and reporting obligations.

The role of the Committee Chairman is an important one and the effectiveness of a chair ultimately determines the effectiveness of the committee. Committee Chairs must be strategically selected, based on availability, strength of character, relevant skills i.e. (knowledge, experience, leadership and interpersonal/people management).

We look forward to seeing you at the April 2022 WIEN MasterClass by Oghogho Makinde - Partner, Aluko & Oyebode Law Firm