OLABISI ONABANJO UNIVERSITY

AGO-IWOYE, OGUN STATE

ASSIGNMENT SUBMITTED

BY

NAME: AKANMU OLATUNJI LUQMAN

MATRIC NUMBER: PLA/F/23/24/0001

FACULTY: LAW

PROGRAMME: MASTERS

COURSE TITLE: COMPARATIVE COMPANY LAW II

TOPIC

THE FUNCTIONS AND DUTIES OF THE BOARD OF DIRECTORS AND THE

EFFECTS OF THE CORPORATE GOVERNANCE CODE

LECTURER-IN-CHARGE

MR. ADEOJO

1
 ABSTRACT

The paper review the functions and duties of the board of directors and the effects of the

corporate governance code. The aim is to contribute to the field of knowledge in the domain

of corporate governance. Using a relevant multiple‐source secondary data, the study

concludes that the benefits of good corporate governance in ensuring the success of every

organisation cannot be overemphasised. From regulating organisational behaviour to

providing efficient and optimal operations, mitigating risk, improving access to capital, and

safeguarding the interest of shareholders, the list is endless. However, in providing good

governance, it behoves on the Board of directors as the controlling mind of the company to

steer the wheel of the company in the right direction by upholding accountability and

transparency, complying with the relevant laws and Corporate Governance Codes and

protecting the interest of stakeholders in the best interest of the company.

2
Introduction

A board of directors is a group of individuals elected to represent shareholders and oversee

the activities and strategic direction of a corporation. The board is a critical component of

corporate governance, ensuring that the company's management acts in the best interests of

the shareholders and other stakeholders. The board of directors plays a pivotal role in the

governance and strategic direction of a company. Its effectiveness depends on the

composition, expertise, and commitment of its members, as well as adherence to best

practices in corporate governance1.

Within a company, all the powers are usually given to the board of directors. For example,

this is an article in the standard articles of association (constitution) of Nigerian companies.

The board of directors then delegates some of its powers to executive management, and

executive management are responsible for the day-to-day business operations.

There are no laws or standard rules, however, about what the role of the board of directors

should be, or how much authority for decision-making should be retained by the board (and

how much should be delegated to executive management). The delegation of power within a

company may therefore vary between companies.

The Role of the Board of Directors

The role of the board of directors is not to manage the company 2. This is the role of

management. Specifying the role of the board of directors, and making the board accountable

for its performance in the role, is a key aspect of corporate governance. The role of the board

1
Ghaya, H. (2011) Board of Directors’ Involvement in Strategic Decision Making Process: Definition and
Literature Review. Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
2
Hendry, K and Kiel, G. C. (2004) The role of the board in firm strategy: integrating agency and organisational
control perspectives. Corporate Governance: An International Review, 12, 500‐520

3
of directors is specified in codes of corporate governance 3. There are many different codes or

statements of corporate governance principles.

In Nigeria, the Code of Corporate Governance states that the board is accountable and

responsible for the performance and affairs of the company. The Code also states that the

board shall:

1. Strategic Direction: Setting the company's overall strategic direction and ensuring

that management implements the board’s strategy.

2. Oversight and Accountability: Monitoring the performance of the company and its

management, including the CEO and other senior executives. They ensure that the

company operates effectively and efficiently.

3. Fiduciary Duties:

o Duty of Care: Making informed and thoughtful decisions in the best interest

of the company.

o Duty of Loyalty: Acting in the best interest of the company, avoiding

conflicts of interest.

o Duty of Obedience: Ensuring the company adheres to laws and regulations.

4. Financial Oversight: Overseeing the company's financial performance, approving

budgets, financial statements, and ensuring the accuracy and integrity of financial

reporting.

5. Risk Management: Identifying, evaluating, and managing risks that the company

may face.

3
Abdullah, M. (2018). The Role of Board of Directors in Corporate Governance: A Case of Pakistan.
Journal of Business and Management, 20(2), 1-10

4
 6. Corporate Governance: Establishing a framework for effective corporate

governance, which includes setting policies and practices that affect the board’s

structure, decision-making processes, and accountability mechanisms.

7. Succession Planning: Ensuring there is a plan for the succession of key executives

and board members.

8. Stakeholder Engagement: Considering and balancing the interests of shareholders

and other stakeholders, including employees, customers, suppliers, and the

community

Decision-Making and Monitoring Roles

The role of a board of directors is a combination of decision-making and monitoring.

• A board should retain certain responsibilities, and should make decisions in these areas

itself.

• Where the board delegates responsibilities to executive management, it should monitor the

performance of management. For example, the board should expect senior management

(usually the Chief Executive Officer) to account to the board for the performance of the

company. In addition, the board should be responsibl in e for monitoring the system of

internal control that management has put in place.

In addition, the board should be accountable to the shareholders for its performance in

carrying out these twin roles of decision-making and monitoring.

5
Corporate Governance

Corporate Governance refers to the system of rules, processes and policies by which a

company is controlled and managed4. These rules and policies dictate the corporate behaviour

of all entities in the company and ensure that the company achieves its objectives. It may

also be defined as the exercise of ethical and practical leadership by the governing body

towards the achievement of ethical culture, excellent performance, effective control and

legitimacy. Corporate Governance is also crucial for companies that seek external sources of

funding, for example, companies such as start-ups and those seeking venture capital

investments5.

Some of the key benefits of good Corporate Governance to companies include:

● Good corporate governance ensures the organisational success of the company and

improves its economic growth.

● Good corporate governance maintains and improves investors’ confidence which may

lead to an increase in the company’s capital.

● As a corollary to the above, good corporate governance boosts the reputation of the

company before shareholders, stakeholders and the general public.

● Corporate governance helps to prevent corporate scandals through the existence of

mechanisms for relevant disclosures by the Board and management to stakeholders in

the company.

4
Khan, A. U., & Ahmad, N. (2018). The Impact of Corporate Governance on Firm Performance: Evidence from
Pakistan. Journal of Business and Management, 20(2), 11-24.
5
Ali, S., Nazir, S., Shah, S. Z. A., & Abbas, M. (2020). Corporate governance practices, firm
innovation and performance: evidence from Pakistan. Journal of Management Development, 39(3),
252-269

6
 ● With a proper auditing framework in the company, good corporate governance

minimises wastage, corruption, risks and mismanagement by the Board or

management of the company.

● Corporate governance ensures that the company is managed in a manner that

considers the interest of all stakeholders in the company.

Effects of the Corporate Governance Code

Corporate governance codes are guidelines and principles intended to improve the

governance practices of companies. Their effects include:

1. Improved Transparency and Accountability: Companies are required to disclose

more information regarding their governance practices, leading to greater

transparency and accountability.

2. Enhanced Board Effectiveness: Codes often include provisions related to the

composition, independence, and functioning of the board, which can lead to more

effective oversight and decision-making.

3. Strengthened Shareholder Rights: Governance codes often emphasize the rights of

shareholders, ensuring they have a say in important decisions and access to necessary

information.

4. Better Risk Management: By promoting a structured approach to risk management,

governance codes help companies identify and mitigate risks more effectively.

5. Increased Investor Confidence: Adhering to high standards of corporate governance

can enhance the company’s reputation and attract investment by providing assurance

to investors about the company’s management and oversight.

7
 6. Compliance with Legal and Regulatory Requirements: Governance codes help

ensure that companies comply with relevant laws and regulations, reducing the risk of

legal and regulatory issues.

7. Promotion of Ethical Conduct: Governance codes often include guidelines on

ethical conduct and corporate social responsibility, encouraging companies to act

responsibly and ethically.

8. Enhanced Performance and Sustainability: Good governance practices can lead to

improved company performance and long-term sustainability by fostering a culture of

accountability, transparency, and strategic focus.

Implementation of the Corporate Governance Code

Implementation of the CG Code is on an ‘apply or explain’ basis; the board is encouraged to

apply each Principle and Sub-Principle by means that are suitable for the company’s

business. If any of the Principles or Sub-Principles cannot be applied or are not applicable,

the board shall provide an explanation as appropriate. The Guidelines and Explanations in

part 2 are for further clarification and contain recommended practices in relation to each

Principle and Sub-Principle.6

In contrast to a ‘comply or explain’ requirement, the ‘apply or explain’ basis intends to

encourage the board to comprehensively apply the CG Code to the company’s business in the

interest of long-term sustainable value creation.

A company’s board should conduct and record an annual internal review of the

implementation of the CG Code. Effective from 2018, the company is required to disclose in

the annual report and Form 56-1 an acknowledgement of the board that it has considered and

reviewed the CG Code by means that are suitable to the company’s business. CG Code
6
Securities and Exchange Commission of Pakistan. (2019). Code of Corporate Governance.

8
implementation could be an indicator of proper performance of board duties and

responsibilities7.

Unapplied Principles and Sub-Principles

In order to apply the CG Code’s Principles and Sub-Principles, the board should consider

their suitability to the company’s business, resulting in the board’s ‘conscientious’ decision

about their application. This should be:

1. Recorded as a board resolution,

Reflecting that the board has, on an informed basis, annually reviewed the application of the

CG Code’s Principles and Sub-Principles, including reasons for not following any particular

Principle or Sub-Principle, and alternative practices (if any) that can fulfil the intended

outcomes of the Principles and Sub-Principles.

2. Disclosed in the company’s annual report and the SEC Form 56-1.

The SEC Form 56-1 disclosure remains unchanged. To the extent that disclosure is required

pursuant my no to SEC Form 56-1, a company is expected to succinctly explain the reasons

for not following a particular CG Code Principle or Sub-Principle. Matters that must be

disclosed relating to the CG Code include corporate governance policy, board committees,

nomination and appointment of directors and key executives, governance of subsidiaries and

associated companies, control over use of insider information, auditor’s fees, and compliance

with CG and Corporate Social Responsibility standards.

7
Mallin, C. (2020). Corporate governance. Oxford University Press.

9
The disclosure must include an acknowledgement of the board that it has properly considered

and reviewed the application of the CG Code Principles and Sub-Principles. The company is

not obliged to disclose the full content of the board resolution.

LEGAL FRAMEWORK FOR CORPORATE GOVERNANCE IN NIGERIA

Several legislations and corporate governance codes have evolved over the years to prescribe

rules, policies and processes for the successful management of the companies. In Nigeria, the

fundamental laws and Corporate Governance Codes regulating Corporate Governance are 8:

● The Companies and Allied Matters Act, LFN 2020

● The Banks and Other Financial Institutions Act, 1991

● The Investment and Securities Act, 2007

● FRCN Nigerian Code of Corporate Governance 2018

● SEC Code of Corporate Governance for Public companies, 2011

● CBN Code of Corporate Governance for Banks and Discount Houses in Nigeria and

Guidelines for Whistle Blowing in the Nigerian Banking Industry 2014

● Code of Corporate Governance for Licensed Pension operators, 2008

DIRECTORS AND THE LAW

Appointment, Election and Removal of Directors

An aspect of corporate governance is the power of the shareholders to appoint directors and

remove them from office. Practice in the UK is fairly typical of other countries.

8
Monks, Robert A.G. & N. Minow (2004). Corporate Governance. Third Edition. Malden, MA: Blackwell
Published

10
• When a vacancy occurs in the board of directors during the course of a year, the vacancy is

filled by an individual who is nominated and then appointed by the board of directors.

• However, at the next meeting of the company’s shareholders (the next annual general

meeting), the director stands for election. In Nigeria, as in the UK, the director is proposed

for election, and is elected if he or she obtains a simple majority (over 50%) of the votes of

the shareholders.

• Existing directors are required to stand for re-election at regular intervals. In Nigeria, as in

the UK, most companies include in their constitution (articles of association) a requirement

that one-third of directors should retire each year by rotation and stand for re-election. This

means that each director stands for re-election every three years. (This is why appointments

of NEDs are for periods of three years.)

• It is usual for directors who retire by rotation and stand for re-election to be re-elected by a

very large majority. However, when shareholders are concerned about the corporate

governance of a company, or about its financial performance, there might be a substantial

vote against the re-election of particular directors.

• When a director performs badly, it should be expected that he or she will be asked by the

board or the company chairman to resign. This is the most common method by which

directors who have ‘failed’ are removed from office.

• Occasionally, a director might have the support of the board, when the shareholders want to

get rid of him. UK company law allows shareholders (with at least a specified minimum

holding of shares in the company) to call a meeting of the company to vote on a proposal to

remove the director. A director can be removed by a simple majority vote of the

shareholders. When a director is removed from office, he retains his contractual rights, as

specified in his contract of employment. This could involve a very large payment.

11
Conflicts Of Interest

A director would be in breach of his fiduciary duty to the company, for example, if he puts

his own interests first, ahead of the interests of the company. One example from UK law is

the case of an individual who was the managing director of a company that provided

consultancy services. One client decided that it would not use the company for planned

consultancy services, but indicated that if the managing director applied for the contract

personally, it might be willing to give the consultancy work to him. The managing director

informed his fellow directors that he was ill, and persuaded the company to release him from

his contract of employment. On ceasing to be a director of the company, he applied for the

consultancy work with the client, and was given the work. His former company successfully

sued him to recover the profits from the contract. The court decided that the former managing

director was in breach of his fiduciary duty to the company, because he had put his own

interests first, ahead of the interests of the company in obtaining the contract work for

himself.

Disclosure of Interests

A breach of fiduciary duty would also occur if a director has an interest in a contract with the

company but fails to disclose this interest to the rest of the board and obtain their approval.

Typically, a company director might be a major shareholder in another company which is

about to enter into a supply contract with the company. When this situation occurs, the

director must disclose his interest as soon as possible to the rest of the board, and obtain their

approval9. Failure to disclose the interest would make the director liable to hand over to the

company all his secret profits from the contract. In Nigeria, as in the UK, it is also a criminal

9
Kiel, G. C. and Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian
experience informs contrasting theories of corporate governance. Corporate Governance: An International
Review, 11, 189‐205.

12
offence for a director to fail to disclose an interest, and the punishment for a breach of this

law is a fine.

Stock market restrictions on share dealings by directors

Taking advantage of price-sensitive information about a company to buy or sell shares, or to

encourage anyone else to buy or sell shares, is a criminal offence, known as insider dealing.

Insider dealing is an offence. However, directors of a company will often be in a position to

judge how well or badly the company is performing when other investors are not in a position

to make the same judgement. If they buy or sell shares in their company, they might be

suspected of insider dealing and putting their own interests first.

When an individual such as a director is found to have carried out insider dealing (or insider

trading)10:

•he might be found to have committed a criminal offence, and face a fine and imprisonment,

and/or

• he might be found liable in civil law to the individuals at whose expense he made his profit.

In the UK, the law on insider dealing has been supplemented by a code of conduct for

directors and other senior employees of listed companies. This code is known as the Model

Code. All listed companies are required to apply this code of conduct, or a code that is no less

strict.

THE ROLE OF THE BOARD IN ENSURING GOOD CORPORATE GOVERNANCE

It takes some combination of people, rules, processes and procedures to manage the business

of a company. This is how we define corporate governance. Corporate governance forms the

10
Lei, A. C. and Jie, D. (2011) Multiple Directorships of Independent Directors and Firm Performance:
Evidence from Hong Kong”

13
basis for corporations to make decisions that consider many environments, including

economic, social, regulatory and the market environment. Corporate governance gets its roots

in ethical behavior and business principles, with the goal of creating long-term value and

sustainability for all stakeholders.

Corporate board directors face the continual challenge of aligning the interests of the board,

management, investors, shareholders and stakeholders. They respond to their duties and

responsibilities with full regard to transparency and accountability.

It's often said that corporate boards are responsible for providing oversight, insight and

foresight. That's a tall order in today's marketplace, which is complex and volatile. Good

governance principles are fundamental to the work that board directors do.

Here, we discuss the board of director's role, board composition, stewardship and how board

management technology can aid efficiency and better decision making

The Board of Directors as the mind of the company is saddled with the statutory

responsibility of directing and managing the business of the company. Accordingly, the role

of the Board in ensuring good corporate governance are11:

● To define the purpose of the company: this should be in line with the company’s

Memorandum and Articles of Association

● To define the values by which the company will perform its daily duties

● To identify the relevant stakeholders of the company and ascertain the impact of the

company’s decision on stakeholders.

11
Talaulicar, T., & Ryan, L. V. (2020). Board of directors and CEO turnover: An integrated analysis.
Journal of Business Research, 112, 492-502.

14
 ● To develop strategies for achieving the company’s goals.

● To ensure the implementation of set strategies for the attainment of the company’s

goals: this is usually done by setting up relevant committees to oversee the critical

issues in the company.

In ensuring good corporate governance, the Board is, among other things, saddled with the

responsibility of protecting the interest of all stakeholders in the company, in the overall best

interest of the company. The stakeholders in a company may be broadly categorised as

financial stakeholders and other stakeholders. Financial Stakeholders are stakeholders with a

commercial interest or stake in the company. They include shareholders and creditors of the

company. Other stakeholders in the company include the management, employees,

significant suppliers to the company, and the general public. The interest of these

stakeholders often conflict, hence it is the responsibility of the Board to work with

management in striking the right balance between the conflicting interest of stakeholders in

ensuring that the goals of the company are achieved.

In striking the right balance between the conflicting interest of all stakeholders, the Board

may be guided by the following corporate governance principles12:

1. Fairness

The Board should ensure the fair treatment of all shareholders in the company, including the

minority shareholders. The Board must also ensure that its employees are treated well by

providing a pleasant working environment, reasonable remuneration and excellent welfare

12
van der Elst, C. (2019). Shareholders and the board of directors: From agency theory to stakeholder
theory. Corporate Governance, 19(2), 225-238.

15
packages. With regard to its customers, the Board should provide quality goods and services

to ensure customer satisfaction.

2. Transparency

The Board must make the necessary disclosures (financial and non-financial disclosures) to

stakeholders in the company as at when due. This information may be contained in the

company’s annual reports and website which should be available to all stakeholders.

3. Compliance

The Board must always ensure compliance with all relevant laws and Corporate Governance

Codes that apply to the company.

4. Accountability

In ensuring accountability, the Board must ensure that management keeps the proper records

and books of account. The Board should set up an Audit Committee which will be

responsible for overseeing the financial position of the company. This Audit Committee

would work with the external auditors in auditing the company’s books and upholding the

company financial integrity.

5. Inclusiveness

The Board must recognise the rights and interests of all stakeholders in the company and

strive to ensure the inclusiveness of all stakeholders in the administration of the company.

CONCLUSION

16
Indeed, the benefits of good corporate governance in ensuring the success of every

organisation cannot be overemphasised. From regulating organisational behaviour to

providing efficient and optimal operations, mitigating risk, improving access to capital, and

safeguarding the interest of shareholders, the list is endless. However, in providing good

governance, it behoves on the Board of directors as the controlling mind of the company to

steer the wheel of the company in the right direction by upholding accountability and

transparency, complying with the relevant laws and Corporate Governance Codes and

protecting the interest of stakeholders in the best interest of the company.

Therefore, board members should engage in ongoing training programs to enhance their skills

and knowledge. Workshops, seminars, and educational initiatives can keep board

members updated with the latest industry trends and governance best practices,

ensuring their effectiveness in the ever-changing business landscape. Also, building a

positive board culture is essential. Encouraging open communication, mutual respect, and a

collaborative atmosphere among board members can enhance trust and teamwork. A

supportive culture fosters a conducive environment for constructive discussions and robust

decision-making processes.

17
BIBLIOGRAPHY

Ghaya, H. (2011) Board of Directors’ Involvement in Strategic Decision Making Process:

Definition and Literature Review. Bureau d'Economie Théorique et Appliquée, UDS,
Strasbourg.
Hendry, K and Kiel, G. C. (2004) The role of the board in firm strategy: integrating agency
and organisational control perspectives. Corporate Governance: An International
Review, 12, 500‐520
Abdullah, M. (2018). The Role of Board of Directors in Corporate Governance: A Case of
Pakistan. Journal of Business and Management, 20(2), 1-10

Khan, A. U., & Ahmad, N. (2018). The Impact of Corporate Governance on Firm Performance:
Evidence from Pakistan. Journal of Business and Management, 20(2), 11-24.

Ali, S., Nazir, S., Shah, S. Z. A., & Abbas, M. (2020). Corporate governance practices, firm
innovation and performance: evidence from Pakistan. Journal of Management
Development, 39(3), 252-269

Securities and Exchange Commission of Pakistan. (2019). Code of Corporate Governance.

Mallin, C. (2020). Corporate governance. Oxford University Press.

Monks, Robert A.G. & N. Minow (2004). Corporate Governance. Third Edition. Malden, MA:
Blackwell Published

Kiel, G. C. and Nicholson, G. J. (2003). Board composition and corporate performance: How the
Australian experience informs contrasting theories of corporate governance. Corporate
Governance: An International Review, 11, 189‐205.

Lei, A. C. and Jie, D. (2011) Multiple Directorships of Independent Directors and Firm Performance:
Evidence from Hong Kong”

Talaulicar, T., & Ryan, L. V. (2020). Board of directors and CEO turnover: An
integrated analysis. Journal of Business Research, 112, 492-502.

van der Elst, C. (2019). Shareholders and the board of directors: From agency theory
to stakeholder theory. Corporate Governance, 19(2), 225-238.

18
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