Omodele Adigun
“The high standards of corporate governance and financial reporting practices, which the FRC was set up by law to promote and enforce are geared ultimately towards encouraging and increasing trade and investment in Nigeria,” says Mr. Adedotun Sulaiman, the Chairman of the Fnancial Reporting Council (FRC) of Nigeria.
At the inauguration of the special Technical Committee to fashion out national code of corporate governance in the country, he explains the various benefits of the code for investment climate in the country.
Excerpts:
Old FRC
Recall that an NCCG (National Code of Corporate Governance) was issued by the FRC (Fnancial Reporting Council of Nigeria) on October 17, 2016, but was suspended by the Federal Government on October 28, 2016 following widespread expression of concerns and reservations by a cross-section of the business and not-for-profit community. That code comprised separate codes for large, formal corporates, NGO’s and not-for-profit organisations and the public sector. The one that drew the more vociferous and strident reaction was the code for the NGO and non-profit sector.
Recall also that the Federal Government appointed a new leadership for the FRC on January 9, 2017, while the Minister for Investment, Trade and Industry, Mr. Okechukwu Enalema, inaugurated a new board for the FRC in May 2017.
The board has been working over the past several months taking stock and developing a new strategic direction and plan for FRC. The resulting strategic plan was approved by the board in December 2017. This clarifies and resets a new direction and operating style for FRC and articulates the areas of focus and priority for the council over the next three to five years. The identified strategic priorities of FRC in the near term include review and reissuance of the NCCG; conducting a post-implementation review of IFRS adoption in Nigeria; introducing IFRS-lite for the SME sector; working with other regulators and agencies of government to introduce a uniform government-wide financial reporting system; and improvement of financial reporting and standards of corporate governance practices in the public sector, including the issuance of IPSAS, the public sector equivalent of IFRS and a Code of Corporate Governance for the Public Sector.
Today’s event is therefore an important step towards realisation of one of the high-priority objectives of the FRC, namely, the review and resistance of the NCCG. We have assembled a distinguished panel of experts and knowledgeable and experienced Nigerians to assist us with this important national assignment. I am delighted to see the many experienced professionals, academics and practitioners that have offered themselves for the change of introducing a credible and widely accepted NCCG.
The high standards of corporate governance and financial reporting practices, which the FRC was set up by law to promote and enforced are geared ultimately towards encouraging and increasing trade and investment in Nigeria. It is only logical therefore that we introduce and adopt rules and regulations that strengthen the operating environment, create a more enabling and supportive environment for investment and protect the interest of investors, while promoting the ease of doing business in Nigeria and making the country a more attractive destination for industry, trade and investment.
In this regard, we will seize the opportunity of the impending exercise to harmonise and streamline the various sectoral codes on corporate governance currently in existence in the country. While the absence of a NCCG provides the vacuum which industry regulators sought to fill within their respective spheres of regulatory purview, we will use the introduction of a revised national code to provide a fulcrum around which different industry or sector regulators can align their efforts to introduce, promote and entrench high standards of corporate governance practices in their respective sectors.
Differences
The board of the Financial Reporting Council (FRC) of Nigeria has put together a technical committee to assist the review and the reissuance of the new code of corporate governance for Nigeria. In doing so, we are going to apply all the lessons learnt in the first attempt. I think the major difference between this major effort and the last would be the fact that it is going be much more consultative and much more participatory so that by the time we have the code, all those who are going to be affected by the code will have every opportunity for their inputs, for their views to be heard and reflected in the code.
Another thing that will be different is that before it is finalised, there would be exposure draft and we will allow sufficient time for feedback. So what we challenged the technical committee to come up with is first exposure draft, which will then be exposed to the public and all those who will be affected by it will have a chance to express their views. And all those views will be taken into account and reflected in the final code that will be released not too long after the exposure draft.
We are going to do it in phases, unlike the first time when we did all the three codes at the same time. This first effort will focus on the corporate sector, the large corporate and the formal corporate. Subsequent effort will address the public sector and the last sector, will look at the not-for-public sector.
By corporate, we mean those entities that are formally organised, whether Nigeria or international, whether government-owned or private-owned that engage in commercial activities. And we are going to try to make it cover what we call public interest entities. Those entities in which the public have an interest in their well being because their activities impact the general public either on the account of their size, whether on account of their scale, on account of their reach or on account of the products or services they provide and how important those products and services are to the running of the economy. Those are public interest entities which can include those doing substantial business with the public. Those that are building hospitals or railway lines and so on. The public need to know how those that are doing that are organised are so on.
Again, we are going to leave it to the technical committee to determine the coverage of this first phase of their assignment.
Churches
The code is not about the account of churches and so on. The corporate governance code is not about accounting. It is about organisation, it is about accountability; being accountable to your constituency or whatever your stakeholders are. Even for religious organisations, they are accountable to people.
The accountability of what I would call the doctrinal part of the businesses of churches and mosques is to God. But the accountability is also to members of their congregation. So the whole idea of corporate governance is to make sure that businesses, all human endeavours are organised well. A few people manage on behalf of a large number of people. That those few people are held to account to the larger community so that you don’t abuse the privilege of leadership. That is what corporate governance is all about really. And when it comes to whether it is NGO, a church, whether it is a large corporation, you are there as management to hold position of trust on behalf of a wider array of stakeholders. Those stakeholders could be shareholders, congregations, members of large not-for-profit organisations or the public. So corporate governance is about accountability and to make sure things are done in the best interest of the public that are served by the entity. So it is not about money or accounting and so on. Even if there is money involved, part of that accountability is financial as well.
Companies with existing codes
We are talking of companies or secotrs that have existing corporate governance code. The committee is going to take a look at that. Sectors have codes, no doubt about that. There is code for telecoms; there is a code for banking; there is a code for insurance; there is a code for pension industry; there is code for listed companies; and there is SEC code. So there are all sets of codes out there. And one of the things we are going to look out for in coming out with a national code is this: Should the national code supersede or complement? I don’t know. That is question for the technical committee. We will have some clarity by the time they are done. So the interrelationship between sectoral code and the national code. But one of the things we will do is to make sure we reduce overlap; we will reduce duplications and we reduce conflicts where there are conflicting provisions in those codes. Imagine, of course, that as part of process to do the national code all those sectors that already have their own codes are represented on the committee. So if you look at the membership of the committee, all the sectors that already have sectoral codes have members on the committee that are coming up with national code. And the people on the committee are not necessarily representatives of the sectors or the organisations, but the people that played active roles in the formulation of those sectoral codes so that they can bring their sectoral perspectives to the discussions or deliberations that can birth the national code. So hopefully at the end of the day, we will get some harmony between the various codes.
Inputs
Like I said, I think the committee will physically solicit inputs from a cross-section of knowledgeable people as wide as possible. Remember the committee is not going to do their work in vacuum. It is not going to be an academic exercise but something that is going to be based on real world practices. I imagine the committee will reach out to those people who know about the subject matter; solicit inputs; solicit their perspectives and point of views, and so on, seek expert opinions before they come up with the draft.
The whole idea of the exposure draft is for people to see what the code will look like in its final form so that people can review it and see how it may affect their businesses. And if there is anything they may have missed or we haven’t paid enough attention to or whatsoever, we still have a chance to do some corrections. That is the whole idea of bringing out first an exposure draft, take in additional comments or inputs before we bring out the final document. Even after we bring out the final document, the code is a living document, it is not to be cast in concrete. We live in a dynamic world, things change. And therefore I don’t imagine that, once we set out the national code, we would say it is the Bible and it cannot be revised. No! The process is going to be continuous.
Last efforts
The second question is why the last code didn’t go very well. It was simply on account to regulate the activities of not-for-profit sector. And there were a lot of reactions from religious organisations and so on.