On 13 July 2023, the Central Bank of Nigeria (CBN) released the Corporate Governance Guidelines (“the Guidelines”) for Commercial, Merchant, Non-Interest, Payment Services Banks, and Financial Holding Companies in Nigeria.

The Guidelines seek to provide additional guidance on the principles, recommended practices, and responsibilities contained in the Nigeria Code of Corporate Governance 2018 (NCCG), outline industry-specific corporate governance standards for banks; and promote high ethical standards amongst operators, whilst enhancing public confidence in the referenced entities.The Guidelines which came into effect on 1 August 2023, supersede all previous codes, circulars, and related directives on corporate governance issued by the CBN.

In addition to other recommended practices, the Guidelines also set out principles for the applicable entities to comply with in the composition and structuring of their Boards. These principles are to enhance the transparency, diversity, and efficiency of the board.

Key provisions of the guidelines focused on board governance

1. Board Structure and Composition

a. The Guidelines require that the number of directors on the Boards of Commercial, Merchant, and Non-Interest Banks (CMNIBs) shall be a minimum of 7 (seven) and a maximum of 15 (Fifteen) directors. Also, the minimum and maximum number of directors on the Board of a Payment Service Bank (PSB) shall be 7 (seven) and 13 (thirteen) directors respectively.¹

b. The number of Independent Non-Executive Directors (INEDs) shall not be less than 3 (three) for commercial banks with international and national authorization, merchant banks, and Non-Interest Banks (NIBs) with national authorization. The number shall not be less than two (2) for PSBs, commercial banks with regional authorization; and NIBs with regional authorization.²

c. At least two Non-Executive Directors (NEDs), one of whom shall be an INED having requisite knowledge and experience in innovative financial technology, Information Communication Technology (ICT), and/or cybersecurity³ must be appointed to the board of each CMNIB.

d. Another remarkable provision in the Guidelines is on gender diversity. In line with the NCCG, 2018, the Guidelines prohibit the constitution of a Board with only one gender.⁴

e. The Guidelines also provide that not more than two members of an extended family shall be on the Board of a bank. The term “Extended Family” in the Guidelines is defined extensively to include any other construed relationship as may be determined by the CBN.

2. Appointment and Resignation of Board Members

a. The Guidelines require that the procedure for appointment to the Board shall be formal, transparent, and documented in the Board Charter; and Board members shall be appointed by the shareholders of the bank and approved by the CBN.⁵

b. A Director resigning his appointment on the Board of a bank shall give 90 (ninety) days written notice of his resignation addressed to the Chairman of the Board and the Board is required to appoint a replacement within 90 (ninety) days, where any such resignation will result in the minimum requirement of INEDs on the Board not being met or the NEDs not being in the majority on the Board.⁶

3. Meeting of the Board and its Committees

The meeting of the Board and its Committees can be held virtually if it is not feasible to hold physical meetings which shall be held at a specified location.⁷ To qualify for re-appointment, a director must have attended at least two-thirds of all Board and committee meetings.⁸ All INEDs shall hold a formal meeting at least once a year without the other directors being present⁹ and the Chairman shall meet formally with NEDs at least once every year.¹⁰

The Guidelines also prohibit the combination of the functions of the Board Risk Management Committee and the Board Audit Committee of banks.

4. Cool-Off Period¹¹

An Executive Director (ED) who exits from the Board of a bank either upon or prior to the expiration of his/her maximum tenure, shall serve a 2-year cooling period before being eligible for appointment as a NED in the same bank. In the same vein, a NED shall serve a 2-year cooling period before being eligible for appointment in any executive role in the same bank. Also, a director of a bank who transitions to a sister subsidiary, resulting in a change of role is expected to observe a 2-year cooling period. It is important to state that where the director transitions to a sister subsidiary and his role does not change, the cool-off period will not apply.

5. Tenure of Office

The tenure of the MD/CEO/EDs¹² of a bank shall be in accordance with their terms of engagement with the bank subject to a maximum period of twelve (12) years.¹³ NEDs of a bank are to serve for a maximum of twelve (12) years comprising three terms of four (4) years¹⁴ while the tenure for INEDs shall not exceed 8 years comprising 2 terms of four (4) years each.¹⁵

6. Induction and Continuing Education

The Guidelines mandate that a formal induction programme for new directors should be conducted within 3 months of their appointment and the Board is now required to approve an annual budget for the training and continuing education of directors and ensure its proper implementation.¹⁶

7. Company Secretary

The Guidelines recognize the Company Secretary as an officer of the Board and prohibit the outsourcing of the function.¹⁷ It also provides that except with the approval of the CBN, the function of the Company Secretary and the Head of Legal should be separated. 

Conclusion

The Guidelines introduce novel provisions to ensure that the Board of Nigerian Banks function in line with 21st century corporate governance requirements. They contain provisions to ensure diversity, transparency, and accountability on Boards in the banking sector, which are imperative for such of a critical sector of the economy. While the Guidelines focus on the “big banks”, it is expected that the CBN will extend the coverage or introduce similar guidelines for other classes of banks such as Mortgage Banks and Microfinance Banks. This will further bolster confidence in the Nigerian banking industry.

1. Section 1.3 of the Guidelines
2. Section 1.5 of the Guidelines
3. Section 1.7 of the Guidelines
4. Section 1.8 of the Guidelines
5. Section 1.1 and 1.2 of the Guidelines
6. Section 1.18-1.21 of the Guidelines
7. Section 5.4 of the Guidelines
8. Section 5.6 of the Guidelines
9. Section 3.5.7 of the Guidelines
10. Section 3.1.2 of the Guidelines
11. Section 7 of the Guidelines
12. Managing Director and Chief Executive Officer
13. Section 3.2 and 3.3.1 of the Guidelines
14. Section 3.4.2 of the Guidelines
15. Section 3.5.2 of the Guidelines
16. Section 9.1 and 9.2 of the Guidelines
17. Section 3.6.2 of the Guidelines