The office of a director in a company is in no means an office to be taken with levity or for granted. They are the management of the company and their decisions have far reaching consequences to the company and the economy. The news is agog with the recent happenings in FBN Holding Plc. and its subsidiary First Bank Plc., where the decisions of the board of directors, in relation to granting of loans to the tunes of billions of naira and the restructuring of the loans to a company in which the chairman also has interests in. This article is to highlight the fiduciary duties of a director and their obligation the company and its members. I shall consider the provisions of the substantive law the Companies and Allied Matters Act 2020 (the “CAMA” or “Act”), the Corporate Governance Code 2018(the “Code”) and the recent Banks and Other Financial Institutions Act 2020 (“BOFIA”).
Duties of Directors
Under the CAMA, a director has a fiduciary duty to the company, to observe utmost good faith towards the company in transactions with it or on its behalf. The Act provides that a director shall act at all times in what he believes to be the best interests of the company as a whole so as to preserve the assets, further the business, and promote the purpose for which the company was formed and this should be done in a faithful, diligent, careful and ordinarily skilful director would act in such circumstance, and shall have regard to the impact of the company’s operation on the environment in the community where it carries on business operations (emphasis mine). This provision of the Act places a high reliance on the person on the director via his position on the board of a company; to act professionally, skilfully and ensure that his actions do not jeopardize the business and reputation of the company.
Disclose interest– the Act mandates a director to disclose his interest (directly or indirectly) in a transaction or a proposed transaction with the company, to immediately notify the directors of such company in writing, specifying the particulars of the director’s interest. The Act however fails to specify an effective sanction for failure to make such disclosures, it leave the Corporate Affairs Commission (the “Commission”) with the power to prescribe a fine for such erring directors. This is not the case in respect to the directors of banks; according to BOFIA, such a director who fails to declare his interest is liable on conviction to a term of imprisonment of not less than three years or a fine of not less than N5,000,000 or both, and any gain he derived from such transaction shall be forfeited.
Conflict of interest/multiple directorship– the Act provides that the personal interest of a director shall not conflict with any of his duties as a director. The Act also provides that the fact that a person holds more than one directorship shall not derogate from his fiduciary duties to each company, including a duty not to use the property, opportunity or information obtained in the course of the management of one company for the benefit of the other company, or to his own or other person’s advantage. This provision does not provide a sanction for the breach of this duty which should act as a deterrent to individuals who breach this provision of the law.
Trustees/agents– the Act provides that directors are trustees of the company’s money, properties and their powers and as such shall account for all the money over which they exercise control, refund any money improperly paid away, and shall exercise their powers honestly in the interest of the company and all the shareholders, and not in their own sectional interests. Directors are agents of the company under part 3 of CAMA. The implication of this provision is that any such acts done by the directors will be directly linked to the company and if any liability arises from such acts, the company will bear such liability.
Corporate Governance Code 2018, Code aims to promote public awareness of essential corporate values and ethical practices that will enhance the integrity of the business environment. The Code provides for principles which are to guide to how boards are to be set up and function. The Code also provides recommendations to these principles. One of such principles is- “the establishment of professional business and ethical standards underscores the values for the protection and enhancement of the reputation of the Company while promoting good conduct and investor confidence”. The Code recommends that directors should not engage in conduct likely to discredit the Company, and should encourage fair dealing by all employees with the Company’s customers, suppliers and competitors.
Despite the seemingly clear duties and obligations of the directors, there seems to be a lack of strict sanctions for breach of these duties. We are aware of the warning from the regulatory bodies such as Central Bank of Nigeria in the case of banks and the numerous threats of sanction; and the scrutiny from credit rating agencies (Fitch, Moody etc.). Notwithstanding these, the boards of directors are free to carry out transactions which they have interests in and with nobody to put them in order. The laws need to provide stricter sanctions and proper implementation of these sanctions in order to avoid loss to company and invariably the shareholders.
Taiwo Peregrino is a Lagos based commercial attorney.