AN EVALUTION OF THE COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020 AND ITS IMPACTS ON CORPORATE GOVERNANCE

ABSTRACT

 

Corporate Governance has been identified as the totality of rules, codes, laws and regulations that are instituted to guide corporate managers in governing the affairs of companies. Nigeria’s prospect of economic recovery is linked to strong corporate governance and greater reckoning among nations. Studies attribute the collapse of Enron, Parmalat and many Nigerian banks; and the success stories of HSBC Holdings; Apple and Samsung to corporate governance practices. Corporate Lawyers argue that laws and regulations help in circumventing corporate failures to which poorly-governed enterprises may be exposed. For instance, experts state that the Companies and Allied Matters Act 2020 was accented to, primarily to promote best practice in Nigeria and engender adherence to good corporate governance principles. However, there appears to be limited studies, currently, on the innovations in the new Act regarding corporate governance. This study has assessed the impacts of the amended Act on corporate governance, using a doctrinal approach to research and analytical review of the provisions of CAMA 2020. It has also examined, to a certain extent, how the provisions in the new Act compare to CAMA

1990 Cap. C20 LFN 2004. Overall, the study will helped in identifying the implications of CAMA 2020 for corporate governance frameworks in Nigerian companies. It will also helped in identifying areas that require future improvements through scholarly writings.

 

 

 

 

 

 

 

 

CHAPTER ONE GENERAL INTRODUCTION

                    Background to the Study

 

Corporate governance refers to the way and manner companies are governed. It encompasses the principles, rules, codes, guidance, regulations and policies that govern the relationship between companies’ shareholders and their board of directors. It also relates to the structures and processes which ensure fairness, proper accountability and transparency between the Board, shareholders, and other stakeholders.

Public analysts predicate prospects of economic recovery and greater reckoning amongst comity of nations on strengthening corporate governance principles.^[1] Rampersad^[2]and others have identified poor corporate governance practices as the factors that caused the collapse of Enron in the USA and Parmalat S.p.A. of Italy, amongst others. On the other hand, the International Finance Company^[3]has attributed the success stories of the Abu Dhabi Commercial Bank (UAE); Butec Holding and Dana Gas (India), to sound governance practices – particularly board effectiveness; management control; disclosure and transparency, amongst others.

Research indicates that Nigeria lost 75 banks since the year 1914^[4]. Evidence shows that the banks’ failures were largely due to weaknesses in corporate governance. Uzokwe and Ohaeri⁵identify mismanagement (an indication of poor governance) as one of the major causes of operational failure in many of the banks.

The earning for better corporate practices began in the late 1980s and ‘90s when huge corporate scandals broke out. Following that, companies sought and began to appreciate the need for compliance with the laws and regulations, corporate governance, and its

 

overall effect in business prosperity.

A scholarly writing stresses the importance of regulation as a way of circumventing corporate failures, to which poorly governed companies may be susceptible^[5]. Company law in Nigeria transcended from the Received English Law to the Nigerian Legal System through an evolution ranging from the Companies Ordinance 1912, the Companies Ordinance 1922, the Companies Act 1968, to the Companies and Allied Matters Act,

1990, 2004 and now 2020, with remarkable initiatives.^[6]

The extant Companies and Allied Matters Act 2020 (“CAMA 2020”) was enacted into law to promote the ease of doing business and corporate development in Nigeria; and engender adherence to the ethos of good governance.^[7]Whilst empirical studies show that many innovations have been introduced in the new Act, as would later be enunciated in this research work, it is considered imperative to examine the impacts that such new initiatives could have on corporate governance and overall company performance. Thus, based on this observed relationship between corporate governance and macroeconomic development, this legal essay is considered necessary for examining the elements characterizing such relationship.

                      Statement of the Problem

 

Despite ongoing reforms in the world of corporate governance, we still witness several corporate failures that leave a tale of woes for investors, shareholders, depositors, employees, and the community. Many have argued that though, the CAMA 1990 had a detailed regulatory guideline and framework for businesses and companies, it was amended only once, in 2004^[8]. However, that amendment did not address current realities of business operations in the twenty-first century: global economic meltdown and recession, technology and innovation, business administrative dynamics, career prospects and bureaucratic problems of business ownership in Nigeria.^[9]Here we are now with the

 

CAMA 2020, and since its enactment, it has generated arguments amongst key stakeholders – which is the focus of this research – to analytically review the expected contributions and challenges of the new Act, regarding ease of doing business, promotion of good governance and corporate compliance in Nigeria, etc.

There appears to be limited studies, currently, on the innovations in the new Act, regarding its influence on stewardship reporting, compliance framework and other aspects of governance principles. This leaves a knowledge gap in the realms of corporate management, public corporate practice, and the academic circle. Intuitively speaking, therefore, this appears a better time to assess the impacts of the new Act on corporate governance. The research work therefore helps in answering the following questions:

1. What innovations have been introduced in CAMA 2020 in relation to corporate governance in Nigeria?
2. What impacts could the innovations introduced by the CAMA 2020 have on corporate governance in Nigeria?

• What can lawyers, corporate managers and other key stakeholders do, to improve and sustain sound governance practices in Nigeria?

                      Aim and Objectives of the Study

 

The aim of the research is to examine how the CAMA 2020 will impact on corporate governance practice in Nigeria. Therefore, the objectives of this study are as follows:

1. To identify the innovations, which have been introduced by the CAMA 2020 in relation to corporate governance in Nigeria;
2. To examine the impact of the innovations introduced in the CAMA 2020 on corporate governance in Nigeria; and
3. To identify what lawyers, corporate managers and other key stakeholders can do, to improve and sustain sound governance practices in Nigeria.

 

 

 

 

<http://ominirainitiative.org/pros–and–cons–of–nigerias–new–companies–and–allied–matters–act–cama–2020/>, accessed 10

August 2021

                      Scope and Limitations of the Study

 

In conducting this study, I will undertake an analytical review of the provisions of

CAMA 2020 (“the Act”). I will make reference to few organisations in foreign and Nigerian organisations where good governance is either rated as effective or adjudged as “failed”, and some relevant judicial precedents; as a basis of understanding the application of the statute and how the new or modified provisions in the Act may potentially influence governance practices in companies. However, the research work has some limitations. First, it was impracticable to have physical interface with the target top executives of companies, to study how the new Act is being implemented – owing to COVID-19 restrictions. Also, the research is limited to governance practice in profit- oriented companies, due to the robust nature of the discourse on corporate governance and its applicability to different facets of organisational management. Nonetheless, I do hope this study somewhat adds to knowledge; and that future researches would help in bridging possible gaps highlighted in the study.

                      Significance of the Study

 

A research work as this has the potential of causing a deeper understanding of how CAMA 2020 can aid ethical compliance; and serve as a catalyst for robust discourse on good corporate governance. It is sine qua non for attaining statutory and ethical compliance by companies that fall under the regulatory purview of the Corporate Affairs Commission (“CAC”); and, more specifically, companies that are profit driven. Captains of industry, corporate lawyers and the academia will therefore tremendously benefit from its findings and propositions – the recommendations therein will be very useful in such entities’ day-to-day governance practices and compliance framework. Furthermore, it will help in setting performance standards for corporate managers, reward systems and promote macroeconomic prosperity.

                      Research Methodology

 

In carrying out this research work, I adopted a doctrinal legal approach, employing a descriptive and analytical review of the CAMA 2020. Moreover, I used comparative approach to examine how the provisions in the Act compare with the CAMA 2004^[10]. As to how the provisions apply to day-to-day governance framework in companies; amongst corporate practitioners and the academia, I examined a few judicial precedents and how these case laws potentially serve as guides.

Literature Review

Introduction

Several studies have been conducted and opinion expressed regarding corporate governance and laws and statues. These inputs are from authors, judicial precedents, national and international financial institutions, amongst others.

 

From the perspective of the Institute of Directors, Nigeria, corporate governance is regarded as “…a framework of rights, responsibilities, procedures and relationships amongst the various stakeholders of an organization, including its directors, managers, shareholders and regulators.”^[11]

 

In like manner, Wigwe^[12]opines that it is “…the exercise of power over the enterprise direction, supervision, management and control of enterprise actions, with the concern for the effect of enterprise on other parties, particularly the shareholders, and accountability of corporate administrators.”

 

I concur with the two submissions above as governance aims at structuring corporate processes, procedures and outline responsibilities and rights. It helps to ensure decorum and accountability. In the corporate world, governance is of critical importance – not only that it help to structure the company, but because it also helps to protect other stakeholders of the company by ensuring the accountability of persons in charge of the company.

 

 

 

Zhang^[13] describes it as “…a system of policies, processes and rules that direct and control a business’s behaviour.”

 

I agree with Zhang^[14]on the description of corporate governance as it touches on how the operations of a company are managed. The fact that it is a ‘policy’ portends that the company’s officers must adhere to its principles and, that it controls the business behaviours helps in carving a market identity and outlook for the company.

 

Corporate governance is pivotal to the survival of organisations. The International Financial Company^[15]holds this position when it argues that a good corporate governance system facilitates solutions to conflict of interests between majority and minority shareholders; managers and shareholders, and also a company and the stakeholders generally.

 

I agree with this position because where conflict of interests amongst the parties is resolved through this ‘platform’, goal congruence and cohesion are attained.

 

According to Jesover & Kirkpatrick^[16], corporate governance contributes to “the growth and financial stability by supporting market confidence, integrity of financial markets and economic efficiency.” The OECD^[17]also regards corporate governance as one of the key elements of increasing economic productivity and growth as well as gaining the trust of investors.

 

The separate assertions by Jesover and Kirkpatrick¹⁹and the OECD are similar and germane in that, agreeing with Jesover and Kirkpatrick, a well-governed entity is expected to attract institutional and individual investors; and financial lenders with the business objectives of providing financial support to well-governed business entities. OECD’s position implies that well-governed entities contribute to capital market growth and the national economy.

 

 

Whilst the Central Bank of Nigeria^[18] identifies sound application of governance practices as responsible for the successes of large corporates like BNDES (of Brazil); Rabo Bank (of The Netherlands) and Stanbic IBTC Bank PLC, Rampersad^[19] attributes the failure or outright absence of good governance practices as responsible for the failures of Enron and WorldCom (in the USA); Parmalat S.p.A. (in Italy).

 

These statistics are thoughtful but Rampersad²² fails to explain how the managers of the failed companies were made accountable for the collapse of the entities the governed.

 

Punuka^[20]argues that; “CAMA 2020 is a welcomed innovation in the Nigeria’s corporate and commercial sectors after 30 years of abiding by the repealed CAMA. The Act enhances productivity, flexibility, corporate governance and promotes the ease of doing business…”

 

This study aligns with Punuka’s position because areas of gap on issues bordering on governance in the CAMA 1990 may now be addressed. Business dynamism also justifies the innovations after such a long while.

 

1. Elias^[21]believes that the new Act has some provisions that will impact on business transactions, e.g. merger and acquisition.

 

This position is instructive because a well-managed company will be an attraction for other corporate organisations who may seek to form business partnerships with well- managed entities; whilst others may wish to hold quantum shares in such companies as part of their corporate expansion targets

 

 

 

 

Rampersad^[22]argues that the mere existence of governance principles is no warranty for avoidance of corporate failure; hence such philosophies must be evidently practiced. He stresses that unless governance codes are complied with, a company may still fail.^[23]

 

Rampersad^[24] however fails to propose what must be specifically done to ensure that governance principles are adhered to, to avert the failure he moots.

 

As a general overview, scholars argue that the primary objectives of a firm are sustainable growth and long-run maximisation of its share value. Solomon and Solomon^[25]posit, “…profit maximization to be the primary objective of business.”Gordon^[26]asserts that there could be divergence of interest between officers, directors, and shareholders, and that this influences the actions and decisions of corporate managers, who may become detached from shareholder’s interests. This speaks to the imperative of governance and controls in organisations – otherwise described in various literatures as corporate governance.

 

Section 87(1)^[27] provides that the responsibility for corporate governance falls on members in general meeting and directors. Section 87(3)^[28]endorses agency arrangements and assigns governance responsibilities to directors, provided the Articles and CAMA 2020 do not state otherwise.

 

This portends that the shareholders and directors both have responsibilities for sound corporate governance. However, under agency arrangements, directors are answerable for the success or otherwise of accompany.^[29]

 

Okafor^[30] identifies a number of sound governance practices. These include transmission of notices of meetings and minutes of proceedings at meetings, delegation of duties by directors,

 

amongst others. Okafor^[31] states, “Under the Corporate Governance Code of the UK and Nigeria, matters relating to approving financial statements and approving major contracts must not be delegated by the Board.” She further stresses that board members must exhibit high standard of corporate governance; and that, notwithstanding the ‘business judgement

rule’, a director is personally liable for failing to act in good faith or in an informed basis and without conflict^[32].

 

On the adequacy of service of Notice of Meeting on any person entitled to it; Okafor stresses that, “…the law creates a distinction between failure to serve notice on a person entitled to it and failure to give adequate notice.” Okafor^[33] posits that inadequate notice invalidates a meeting to which the notice purportedly relates unless the inadequacy is accidental on the part of the notifying party. She postulates that failure to give a Notice is incurable.^[34] In addition,

Okafor echoes the importance of Minutes of meetings and states that they must not remain in

“draft” form; otherwise, they may be rendered inadmissible evidence in court.^[35]

 

Okafor observes that where a Board defies the provision of its Articles by proceeding with a meeting of directors, with number less than the Articles specify, quorum is not constituted, and any resolution passed is invalid.^[36]

 

On other governance responsibilities of directors, Okafor⁴⁰ posits, “…directors’ must formulate and implement a company’s overall strategy; attend to all board matters, avoid selfdealing; fulfill their duties, considering integrity and that of their colleagues…and demand integrity of reports and approve financial statements of the company.”

 

In spite of her laudable contribution, Okafor^[37] fails to identify the sanction(s) prescribed under the Act for non-compliance; or how, specifically, compliance could be beneficial to the Company.

 

 

Solomon and Solomon^[38] identify “…restrictions on contract severance compensation for directors…” as a good example of sound governance practice.

 

They however fail to elucidate on how disgruntled managers may react to such restrictions and the long-run effect(s) on the company.

 

The Harvard Law School Forum on Corporate Governance^[39] cites examples of sound governance practice to include board composition; oversight of strategy and risks; executive compensation; and governance structure.

 

I agree with this example. The experiences in Butec Holding (India) ‘showcase’ these attributes.

 

Rampersad⁴⁴ states that, “poor ethical leadership, lack of integrity, mismanagement, fraud, corruption and violation of corporate governance rules are the main contributors towards bankruptcy and financial failures.”

 

Whereas he identifies the failed companies as Enron, WorldCom, Parmalat S.p.A., etc., Rampersad⁴⁵ fails to identify how the regulators held the directors responsible for the failure of the companies or how shareholders specifically reacted to the corporations’ failures.

 

Kabeyi⁴⁶identifies the “…lack of independence of a board or committee, for instance where a

Chief Executive Officer (CEO) is controlling all board functions.”

 

However, Kabeyi⁴⁷ did not mention how a company may make its board immune to undue interference and conflict of interests.

 

 

 

 

Researchers identify two factors that may occasion governance failure, but both are tied to disparity in remuneration and compensation. First, ‘The Economist’^[40]finds the gap between executives’ pay and those of workers on the factory floors between 1982 and 2002. The magazine^[41] observes lack of uniformity in the commitment exhibited by executive and nonexecutive directors, in monitoring companies’ managements.

 

The magazine^[42] however failed to disclose the financial effects on the companies’ results.

 

Synopsis of the Chapters

 

Chapter One provides an introduction of the topic, the problem which the topic is aimed at addressing and the methodology adopted in carrying out the study. It also covers the scope and key limitation of the study, literature review and synopsis of chapters. The Chapter Two deals with the conceptual and theoretical framework of the study, the key historical and conceptual perspectives and definition of key terms. Chapter Three examines the key innovations in the CAMA 2020 with brief insights on how these may influence governance practice in companies. Chapter four involves a deep analysis of the topic and the impacts of the CAMA 2020, key issues, challenges and prospects. Chapter Five highlights key observations from the analysis undertaken, articulates how the study has added to knowledge, key recommendations and the conclusions, drawing from the analysis undertaken,

[1] OECD. “Strengthening corporate governance should be a priority to boost economic recovery”. Newsroom (30 June  2021). <https://www.oecd.org/newsroom/strengthening–corporate–governance–should–be–a–priority–to–boost–economic–  recovery–says–oecd.htm>, accessed 12 July 2021

[2] Hubert K Rampersad, Why Corporate Governance Fails and Lacks Sustainability [2015], July Edition, Journal

<https://www.researchgate.net/publication/279513173> accessed 12 June 2021

[3] IFC, ‘Corporate Governance Success Stories’ – MENA, www.ifc.org, accessed 1 August 2021

[4] Uzokwe Nnamdi J and Ohaeri Chibuikem, ‘Distress in the Nigerian Banking Industry – Causes, Effects and Strategies for    Solution’, International Journal of Science and Research (IJSR), ⁵Ibid.

[5] See Note 3.

[6] Powers and Duties of the Corporate Affairs Commission as a regulatory body, M.N. Umenweke, published in the Vol.  2(2011) Nnamdi Azikiwe University Awka Journal of International Law and Jurisprudence, p.15

[7] Banwo & Ighodalo, ‘Companies And Allied Matters Act 2020: Reforming Provisions That Impact The Nigerian Business,  <https://www.banwo–ighodalo.com/grey–matter/companies–and–allied–matters–act–2020–reforming–provision–that–impactthe–nigerian–business–community–1>, accessed 11 August 2020

[8] Cap C20, LFN 2004

[9] Pros and Cons of Nigeria’s new Companies and Allied Matters Act 2020 by Olakunle Mohammed, 8 September 2020,

[10] An amendment of the CAMA 1990

[11] Institute of Directors (IoD), Nigeria, ‘Corporate Governance’, <http://www.iodnigeria.org/membershipgrades/About–IoDNigeria/Corporate–Governance> accessed 23 July 2021

[12] Chris C. Wigwe. Introduction to Company Law and Practice with Companies and Allied Matters Act 2004, (Mountcrest

University Press 2006),p.226

[13] Jean Zhang, What is Corporate Governance and Why is it Important? <www.accru.com> accessed 12 June 2021

[14] Ibid.                                                           

[15] IFC, ‘Corporate Governance Success Stories’ – MENA, www.ifc.org, accessed 1 August 2021

[16] Kirkpatrick, G. (2005) ‘The revised OECD principles of corporate governance Their relevance to non-OECD countries’,     Corporate Governance: An International Review, Vol. 13, No. 2, pp.127–136.

[17] Organisation for Economic and Cooperation and Development (OECD), ‘The OECD Principles of Corporate     Governance, OECD Publishing, (2004, p.9)  ¹⁹ See Note 17.

[18] Available at <www.cbn.gov.ng>, accessed 1 August 2021

[19] See Note 2 ²²Ibid.

[20] Punuka, “Get to Know the New Companies and Allied Matters Act”, <https://punuka.com/get– to–know–the–newcompanies–and–allied–matters–act–cama–2020/...>, accessed 13 August 2021

[21] G. Elias, ‘THE CAMA 2020 SERIES: Changes Introduced by the Companies and Allied MATTERS Act 2020 to Business Combinations. <https://www.gelias.com/news/the–cama–2020–series–changes–introduced–by–the–companies–andallied–matters–act–2020–to–business–combinations

[22] See Note 21

[23] Ibid. My emphasis added.

[24] Ibid.

[25] Jill Solomon and Aris Solomon, “Corporate Governance and Accountability”. John Wiley & Sons. 2004, 1st Ed. p.22

[26] Jason Gordon, ‘Agency Theory of Corporate Governance – What does it mean for Officer and Director Decision  Making’, The Business Professor, 1 July 2021

[27] CAMA 2020

[28] CAMA 2020

[29] Section 83 – Supra

[30] Kathleen E. Okafor, “Contemporary Issues in Company Law”, Shollud Associates, First Ed. 2020, p.87

[31] Ibid.

[32] Ibid.

[33] See Note 34

[34] See Bernard Longe v First Bank of Nigeria PLC (2010) 6 NWLR (pt. 1189) 1 SC

[35] Ibid. – p.88

[36] Ibid. – p.87 ⁴⁰Ibid.

[37] See notes 39 – 42 above

[38] See Note 28. p.60

[39] Harvard             Law           School Forum on              Corporate              Governance,

<https://corpgov.law.harvard.edu/2019/05/01/what–we–do–how–we–do > accessed 12 June 2021 ⁴⁴ See Note 26. ⁴⁵Ibid. ⁴⁶Moses Jeremiah Barasa Kabeyi, ‘Corporate Governance in Manufacturing and Management with Analysis of

Governance Failures at Enron and Volkswagen Companies’, American Journal of Operations Management and  Information Systems, January 2020 Edition ⁴⁷Ibid.

[40] The Economist, November 2002 Edition

[41] Ibid.

[42] See note 47

AN EVALUTION OF THE COMPANIES AND ALLIED MATTERS ACT (CAMA) 2020 AND ITS IMPACTS ON CORPORATE GOVERNANCE

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