BOARD OF DIRECTORS EFFECTIVENESS AND CG

The Board of Directors of a company is defined as “a committee made up of directors appointed by the shareholders of the company, charged with the responsibility of managing and directing the affairs of the company”.[1]
 Another definition is that it “is a group of people elected or nominated by shareholders of a company to represent their respective interests in running the affairs of enterprise”.[2]
The primary duties of the Board of Directors are:

(i)                The duty to ensure that the company is operating within legal requirements and the provisions of the memorandum and articles of association.
(ii)             The duty to ensure that adequate capital is available to enable the company fulfill the powers contained in the memorandum and articles of association.
(iii)           The duty to ensure that all capital expenditures are approved first before management can embark on it.
(iv)           The duty to maintain an efficient system to enable it govern effectively the company's affairs.
(v)              The duty to oversee and approve all disposal of profits and the yardstick for such disposals.
(vi)           The duty to appoint managing director or other chief executive officers. The duty to ensure that the managing director develops good morale and create the feeling of security and job fulfillment amongst the employees in the company.[3]

Flowing from the primary duties are also other subsidiary duties. These entail the duty to: determine, assess and decide the nature of businesses which a company will engage in within the spectrum of the objectives of the company; to select suitable managers or executive management team having regard to their capability, experience and expertise that would bring out the desired realization of the corporate objectives; the responsibility to monitor the activities of the management team who is in charge of the day to day running of the company's business; management team; setting a high team; set the standard of performance for the company's management moral tone for the company.4 This also entails that the Board as the policy tink tank of the company must be able to influence positively the corporate image of the company and become a source of pride not only to the company as an entity but also to the companies employers, shareholders, and customers alike.

At the apex of the corporate hierarchy is the board of directors. Curiously, corporate law scholarship rarely focuses on the board as a team production problem. The default model of corporate governance envisioned by modern statutes demonstrably contemplates not a single hierarch, but rather a multimember body that typically will act by consensus.[4]
A defining characteristic of public corporations is the so-called separation of ownership and control.[5] Shareholders, who are said to “own” the firm,[6] have virtually no power to control either its day-to-day operation or its long-term policies. Instead, the key players in the formal decision-making structure are the members of the board of directors. As the Delaware Code puts it, the corporation’s business and affairs “shall be managed by or under the direction of a board of directors.”10 Accordingly, shareholders have essentially no power to initiate corporate action and, moreover, are entitled to approve or disapprove only a very few board actions. The statutory decision-making model thus is one in which the board acts and shareholders, at most, react.

Management and control are in the hands of the board of directors, who are vested with universal powers. In larger companies, managerial power is revocably devolved to groups of directors (committees) or individuals below board level although formal schedule of matters is reserved to the board for decision. To understand the control function, a pivotal distinction has to be made between executive directors who are employed as managers parallel to their directorate and non-executive directors who are not involved in the running of the day-to-day business of the company. There has been considerable debate over the effectiveness of non-executive directors.[7]

According to Professor Peter Umoh:[8]
Instability of tenure tends to breed insecurity in Board members, some of whom are likely to quietly look for ways of helping themselves immediately on appointment. For the many directors with names and integrity to protect, sudden and unexpected removal from ... Boards tend to cast a dark shadow over their integrity, leading to bouts of temporary depression and disillusionment.
The above clearly portrays the potential havoc that could be caused to the reputation of a company's business especially with regard to large corporations and the Banks and financial institutions. Tenure of Board members ought to be long enough to give room for effective formulation, implementation and monitoring of policies.
In fact, board members are supposed to be people of unquestionable integrity, knowledge and experience in their professions. Apart from being persons committed to excellence and justice, they ought to be aware of the responsibilities and the obligations attached to their positions and the limits of the privileges and benefits derived there from. Unfortunately, they are not. A Board filled with right quality of members no doubt will give birth to a good quality Board. [9]
While multiple directorship and multiple Board membership, guarantees more exposure, experience and equips the director with useful information of the Board of another company, and thus enhances the director's ability for a thorough evaluation of alternatives, time has proven that it can also create the feeling of arrogance and the wielding of excessive powers by directors.[10]
Still on that, Ebhodaghe[11] is of the view that:
 Such directors may not have enough time to devote adequate attention to the multiplicity of companies and may therefore operate below standard of expertise requires. Also, they may either unilaterally approve or influence the Board to grant credjt facilities to these companies without disclosing their interest to other members. Such cases, when discovered, often lead to conflict.
In addition, there is also the rampant violation of legal provisions and rules regulating the operation of directors, for instance, the provision of Section 18 of BOFIA[12] states that no director, manager, or officer shall have any personal interest in any advance, loan, or credit facility, except where he declares his interest to the bank in question or grants such loan pursuant to the banks' rules and regulations. But, this has not been the case. Many of the crises that rocked the Nigerian Board arose due to interest shown in such loans by Board members; a sad reality occasioned by bad corporate governance practices.



[1]  Irukwu, J. (1994), The Company, the Shareholders, the Director and the Law (Enugu: Forth Dimension Publishing co. ltd. 1994) p. 89.
[2]   Yahaya, M.I. "The Role and Functions of the Board" (Being a paper presented at the joint Bureau of Public  Enterprise and Zonal Shareholders Association National Workshop on Corporate Governance and the Rights and responsibilities of shareholders in Nigeria, Abuja, 1992 p. 2. The writer is one time Managing Director/CEO Union Bank of Nigeria PLC.
[3]   Irukwu, J. (1994) Supra
[4] Margaret M. Blair & Lynn A. Stout, A Team Production Theory of Corporate Law, 85 VA. L. REV. 247 (1999)
[5] Thomas S. Ulen, The Coasean Firm in Law and Economics, 18 J. CORP. L. 301, 318-28 (1993)
[6] G. Mitu Gulati et al., Connected Contracts, 47 UCLA L. REV. 887 (2000)
[7] Davies, Paul L., Gower and Davies’ Principles of Modern Company Law, 7. ed., London: Sweet & Maxwell, 2003, at 294 et seq.; Pettet, supra n. 55, at 173 et seq
[8]  See Umoh, p. "The Problems of Corporate Government in the Nigerian Banking System," in Eguonu R. (ed). Board Room Management: A Book of Reading (Ikeja, Lagos: Strides Associates Ltd. 1994) p. 100. The author had the privileged of holding the following positions: Director of Research, Nigeria Deposit Insurance Corporation; professor of Finance and Former Head of Department, University of Port-Harcourt: Director, Fidelity Union Merchant Bank (1992-93); Director Agricultural Development Corporation, Calabar (1985-86) etc.
[9] Ogwuma, P.A. "Problems and Prospects of the Nigerian Banking Industry", being a paper presented at the Financial Institutions Training Centre Seminar, Lagos, 1985.
[10] Eguono R. (ed). Board Room Management: A Book of Reading, (Ikeja, Lagos: Strides Associated Ltd. 1994) p.1
[11] Ebhodaghe, J.(1989) "Responsibilities and the Performance of a Bank", being a paper presented at the Seminar on Bank Directors organized by the Department of Finance, Faculty of Business Admin., University of Lagos, November 22, 1989.
[12] Cap. 83, L.F.N. 2004.
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