The Companies & Allied Matters Act 1990 describes directors as those “duly appointed by the company to direct and manage the business of the Company”. It also lists as ineligible for appointment, a person less than 18 years of age, of unsound mind, an undischarged bankrupt; or who has been disqualified by a High Court from being a director.
Size of the Board
While Nigerian law requires a minimum of two directors, companies are at liberty to have as many directors as they desire. However, some Codes of Corporate Governance have increased the minimum requirements, whilst capping the number of directors.
Composition of the Board
In view of corporate governance best practices, the process of scrutinizing nominations for directorship must ensure corporate transparency and integrity. Directors have fiduciary duties to ensure that suitably qualified persons are appointed as directors. Prior to the publicizing of corporate failures, corporate governance best practices were not given due priority. In many companies, Board appointments were based on frivolous considerations such as quotas, personal sentiments or affiliation, cabal or regional considerations, minority interest, family inheritance, or for political reasons.
In recent times, there appears to be a changing pattern. Corporate governance issues raised by regulators like the CBN, NAICOM, PENCOM and SEC have made it
mandatory for companies to apply the best practice procedure by requiring the establishment of Board Selection Committees to scrutinize candidates nominated for appointment and to make recommendations to the Board as deemed appropriate. The emerging pattern has also necessitated an injection of professionalism into the Board selection process with increasing emphasis on competence, experience, reputation and the requisite qualifications.
Criteria for Selection of Directors
Importantly no two Boards are identical. Therefore, there cannot be a standard composition template. Suffice to say, one size does not, cannot and should not fit all. In general, certain factors must be taken into consideration when appointing Directors. These include the size of the company, the industry the company operates in, any issues the company has faced. In addition, personal characteristics that directors should have as a minimum are experience and a good reputation.
It is recommended that every Board have a minimum of one Independent Director, with and appropriate ratio of Executives to Non- Executives. Furthermore, as a minimum, any director should possess financial literacy, adequate connections and some knowledge of the industry the company operates in. They should also have no conflicts of interest and be available to serve for a suitable period of time.
The effectiveness of any company is dependent on the value added by its Board. It is therefore imperative that a Board is composed of the right mix of skills and qualifications. This is not merely in terms of the academic/professional nature, but other possibly unconventional factors. On a final note, it is important to ensure that the composition and needs of the Board are reviewed at least annually, in order to determine any changes that may be required.