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.