Multiple Directorships Under the New Companies and Allied Matters Act
With the enactment of the Companies and Allied Matters Act (CAMA) 2020, much ado has been made about how its provisions will contribute to the ease of doing business. In addition to this is it is much needed fresh take on several aspects of corporate governance. One of such aspects was the thorny issue of multiple directorships and its close relative, interlocking directorate.
Multiple directorships refer to the practice of members of a corporate board of directors serving on the boards of multiple companies. A person that sits on multiple boards is known as a multiple director. An interlocking director is a director who simultaneously serves on the boards of two or more corporations that deal with each other or have allied interests.[1]
Whilst it can be argued that multiple directorships help increase directors’ range of experience with the resultant effect of aiding their efficiency in carrying out their duties on the board, one cannot ignore the inherent conflict of interest in instances where an individual serves on the board of two or more competing companies.
Section 281 of the Repealed Companies And Allied Matters Act 1990 (as amended) allowed for an individual to be a member of more than one board of directors but prohibited such a director from using the property, opportunity or information obtained in the course of the management of one, for the benefit of the other company or even his own or someone else‘s advantage.
Pre-CAMA 2020, another noteworthy legislation that touched on the issue was the Nigerian Code of Corporate Governance 2018 (NCCG), particularly, Principle 2.8 which prescribes that Directors should not serve concurrently on too many Boards so that it does not interfere with their ability to discharge their duties. The Code also prescribes certain conditions that a company should take into account to determine the appropriateness of multiple directorships. The said Principle is reproduced below:
“2.8 Directors may hold concurrent directorships. However, concurrent service on too many Boards may interfere with an individual’s ability to discharge his responsibilities. To assist the Board in determining the appropriateness of concurrent directorships:
2.8.1 Prospective Directors should disclose memberships on other Boards, and current Directors should notify the Board of prospective appointments on other Boards. This information should be kept current by serving Board members.
2.8.2 The Board should consider the disclosed directorships, taking into account the number of other directorships and the responsibilities held, and determine whether the individual can discharge his responsibilities and contribute effectively to the performance of the Board before recommending such a person for appointment or continued service.
2.8.3 Directors should not be members of Boards of competing companies to avoid conflict of interest, breach of confidentiality, diversion of corporate opportunity and divulgence of corporate information. “
So, while the NCCG did allow for multiple directorships, it precludes same where the companies are competing companies. It is, however, noteworthy that the NCCG does not apply to all companies. As stated in Paragraph 1 of the Regulation on the Adoption and Compliance with Nigerian Code of Corporate Governance 2018, the Code only applies to the following companies:
(a) all public companies (whether a listed company or not);
(b) all private companies that are holding companies of public companies or other regulated entities;
(c) all concessioned or privatised companies; and
(d) all regulated private companies being private companies that file returns to any regulatory authority other than the Federal Inland Revenue Service (FIRS) and the Corporate Affairs Commission (CAC).
Thus, not all private companies are covered by the Code. A private company not covered by the Code could thus have a Director on the board of different companies, including a competing company except where their Articles of Association prohibited them.
However, with the enactment of the CAMA 2020, another regime is now in place. Rather than merely dictating the use of information by directors on multiple boards, as was the case under the old Act, Section 307(2) expressly prohibits an individual from being a director of more than five public companies simultaneously. Even in such situations where the maximum allowed number of directorships is not exceeded, the director in question is obligated by law to inform any public company proposing to make him a director of any existing board membership he has in another public company.[2] The CAC is empowered to prescribe a penalty via a Regulation for failure to disclose this. [3]
The Act provides for a daily penalty for directors holding more than the maximum allowed number as shall be specified by a Regulation by CAC and a refund to each of the companies remuneration and allowances paid to him as a director in each of the companies. [4]
A grandfather provision for individuals already serving on more than five boards of public companies is found in Section 307(3), allowing for a two-year period from the commencement of the Act to resign from all but five of the companies.
The reasons for these provisions are not far-fetched. The limit on the number of directorships is clearly to ensure that efficiency is not sacrificed by reason of overwhelming responsibilities on various boards. Informing a company of existing directorships is to make certain that the company in question is aware of any possible conflict of interest to enable it make an informed decision.
In conclusion, the provisions of the newly enacted CAMA strike the right balance in allowing for multiple directorships to ensure that directors can have a larger network and wealth of experience while limiting the number of such directorships to ensure that efficiency is maximized. Making provisions for a company proposing to make an individual a director is in line with corporate governance best practices as it is quite key in limiting or altogether avoiding instances of conflicts of interest and misuse of confidential information for the benefit of a competitor.
[1] Black’s Law Dictionary, 9th ed., p. 527
[2] Section 278(2) CAMA 2020
[3] Section 278 (3) ibid
[4] Section 307(4) ibid
