Duties and Position of Company Directors Under Nigerian Company Law
Chapter One
OBJECTIVE OF THE STUDY
It is against the foregoing background that this article analyses, in the succeeding chapters, the duties of directors in line with CAMA, corporate governance codes and case law.
Having adopted the black-letter approach as well as a comparative approach to our legal analysis, the article proceeds with an examination of corporate law jurisprudence and a review of the duties of directors under three broad categories fiduciary duties, the duty of care and duty of loyalty. This article also seeks to elucidate on certain pertinent terms like what it means for directors to act ‘in the best interests of the company’ or for ‘corporate benefit’.
CHAPTER TWO
OWNERSHIP, MANAGEMENT AND CONTROL OF A COMPANY
INTRODUCTION
The corporate personality rule clearly draws a demarcation between the company and its owners. In the past, the ownership and control of companies were usually merged and vested in the same persons; today, however, with the nature of limited liability companies more especially that of public companies and the spread of investment consciousness in the society, it is almost practically impossible for the affairs of companies to be officially and effectually managed by the shareholders. Therefore, management has been divorced from ownership. It is therefore the purpose of this chapter to examine the relevant provisions of the Companies and Allied Matters Act governing the division and exercise of powers as it affects the corporate organs with a view to ascertaining who truly controls the company and for whose benefits is a company formed, within the fundamental and well accepted conception of separation of ownership from management and control.
THE CONCEPT OF OWNERSHIP
The term ownership is a controversial one and hardly has any settled meaning. A whole lot of jurisprudence has been expended and weighty discourse made on the meaning of the term. Therefore, no further attempt will be made here, since, as Pollock said, “there is…rather too much talk about definitions. A definition, strictly speaking, is nothing but an abbreviation in which the user of the term defined may please himself…”
Ownership is simply defined as the collection of rights allowing one to use and enjoy property, including the right to convey it to others. It therefore follows from this definition that ownership can be described in relation to something that is capable of being owned‟‟ or belonging to a particular person. It also consists of claims, rights or powers exercisable by a person or persons over a piece of property.
Legally, ownership is viewed as a bundle of rights specified in a contract that defines the relationship between individuals with respect to material or immaterial object. It is where the owner has exclusive rights of possession, use, gain and legal disposition of a material or an immaterial object.
Loh and Zin, defined ownership as the legal right over the use of factors of production of a company whereas control is the authority over the course of action of the company.
The concept of ownership is better appreciated against the background of company practices where the corporate personality rule exists to the effect that upon incorporation, the company becomes a legal person albeit artificial, separate and distinct from its members and directors.7 The separate legal personality of the company means that its property must be regarded as distinct from that of its shareholders, despite the fact that those shareholders collectively have ultimate legal authority over its use and disposal.
CHAPTER THREE
MEANING, APPOINTMENT AND REMOVAL OF DIRECTORS
Meaning of Directors
The directors of a company are persons duly appointed by the company to direct and manage the business of the company whether in an executive or non-executive capacity. A person is deemed to be duly appointed and has authority to exercise the powers and perform the duties customarily assigned to directors who is so described in the particulars required to be filed with the Corporate Affairs Commission pursuant to the provisions of sections 35 and 292 of the Act.The term “director” also includes a shadow director; that is, a person on whose directions and instructions the directors are accustomed to act.
However, the fact that a person in his professional capacity gives advice which a director acts upon customarily does not automatically render such a person a director. Directors are variously called by other names depending on the positions they occupy. For instance, executive and non-executive directors, managing directors, life directors, representative directors and alternate directors, etc.
CHAPTER FOUR
POWERS AND PROCEEDINGS OF DIRECTORS
Section 38 of the Companies and Allied Matters Act gives a company all the powers of a natural person of full capacity for the furtherance of its authorized business or objects. These powers of the company are given to directors in section 63(3) of the Act and usually set out in the Articles, to the extent that the board of directors may exercise all such powers of the company as are not expressly reserved to members in general meeting.
CHAPTER FIVE
SUMMARY AND CONCLUSION
Summary
This article considers the duties imposed by law and sound principles of corporate governance that directors of a company should adhere to. It posits that it is ‘in the best interest’ of a public company that directors should not only discharge their duties dutifully, as required under the law, but also act ‘conscientiously,’ in accordance with sound principles of corporate governance. The article asserts that the Securities and Exchange Commission (SEC) Code of Corporate Governance for Public Companies (SEC Governance Code) is not intended as a rigid set of rules, but as a guide to facilitate sound corporate practices and minimum standards of corporate governance expected particularly of public companies with listed securities. The responsibility for ensuring compliance with the principles and provisions of the SEC Governance Code lies primarily with the Board of Directors.
Conclusion
From the ‘sudden bankruptcy of Enron in 2001’ to WorldCom and Tyco joining ‘the ranks of infamy’ as well as ‘the collapse of Lehman Bros.’, adherence to sound corporate governance principles plays cannot be overemphasized. Gone are the days when public companies and even non-companies alike could afford to ‘keep doing business the same old way’ without any form of ‘corporate ethics’ to guide corporate dealings. Such public companies definitely need not be told that it is in always in the best interest of public companies to ensure that directors not only discharge their duties as required under the law but also in accordance with sound principles of corporate governance. Consequently, whilst it is noted that the SEC Governance Code is not intended as a rigid set of rules but expected to be viewed and understood as a guide to facilitate sound corporate practices, it is pertinent to note, as rightly stated by the very respected learned Professor of Law and Senior Advocate of Nigeria, Prof. Konyinsola Ajayi SAN that: “[a] genuine embrace of Corporate Governance will bring about a positive multiplier effect on the corporate success and wellbeing of a corporation”.
BIBLIOGRAPHY
A. BOOKS
- Adolf A. Berle Jr. and Gardiner C. Means (1932). The Modern Corporation and Private Property. New York. The Macmillan Company.
- Akanki E.O. (ed.) (1992) Essays on Company Law. Lagos. University of Lagos Press, p.58-74, 109.
- Alchian, Armen A. (1969). Corporate Management and Property Rights. In: Manne, Henry G. (ed.) Economic Policy and the Regulation of Corporate Securities. Washington. America Enterprise Institute for Public Policy Research.
- Amupitan J.O. (2008). Corporate Governance: Models and Principles. Abuja. Hilltop Publishers, pp. 8-256.
- Ayua Ignatius (1976). The Contest Between the Shareholders and the Directors (Unpublished LLM Dissertation). Faculty of Law, A.B.U. Zaria, Nigeria.
- Davies P.L. Gower and Davies (2003). Principles of Modern Company Law (7th ed.). London. Sweet & Maxwell, at 291.
- Dias, R. W. M. (1976). JURISPRUDENCE (4th ed.). London Butterworths, page 402-403.
- Dine J. (2000). The Governance of Corporate Groups. Cambridge. Cambridge University Press, pp. 17-27.
- Emeka Chianu (2012). Company Law. Abuja. Pan Press. 2012, p. 554.
- Gower, L.C.B. (1969). The Principles of Modern Company Law (3rd ed.). London. Stevens and Sons.
