Corporate Governance in Nigerian Companies: The Role of the Board of Directors in Preventing Corporate Misconduct

PRESENTED BY GROUP 10, GREDAN LEGAL PRACTITIONERS VIRTUAL INTERNSHIP.

Abstract

This article examines the legal duties that the Companies and Allied Matters Act 2020 imposes on the board of directors of Nigerian companies, and the extent to which those duties operate to prevent corporate misconduct. Adopting a doctrinal approach, it traces the statutory duties of good faith, loyalty, and care, skill and diligence, together with the structural safeguards of board composition rules, independent directors and disclosure obligations that reinforce them. It considers judicial reinforcement of these duties in Yalaju-Amaye v Associated Registered Engineering Contractors Ltd and Longe v First Bank of Nigeria Plc, and tests the framework against Nigeria’s 2009 banking crisis. The article concludes that while CAMA 2020 has strengthened the legal standard applicable to directors, the practical prevention of misconduct depends on genuine board independence and the willingness of shareholders to invoke the remedies the Act provides.

1. Introduction

Corporate governance describes the system of rules, structures and relationships through which a company is directed, controlled and held accountable to those who depend on it. The relationship at its centre is that between a company’s owners, who supply capital but rarely manage the business day to day, and its board of directors, who exercise that management on their behalf.

In Nigeria, where corporate ownership is frequently concentrated in individuals, families or the state, this separation of ownership from control is especially consequential: it is the board, more than the shareholder body, that stands between a company and its own misconduct.

This article examines what the Companies and Allied Matters Act 2020 (CAMA 2020) actually requires of the Nigerian board of directors, how the courts have enforced those requirements, and why, despite an increasingly detailed statutory framework, corporate misconduct persists.

2. Corporate Governance: Principles and Importance

Nigerian corporate governance discourse organises itself around four recurring principles: accountability, transparency, fairness and responsibility.

Accountability requires that directors answer for the decisions they take; transparency requires timely and accurate disclosure of financial and non-financial information; fairness requires equal treatment of shareholders, including minorities; and responsibility requires recognition of the company’s obligations beyond its shareholders, extending to employees, creditors and the wider public.

These principles matter for reasons that are not merely theoretical. Good governance protects shareholder and, in regulated sectors, depositor value; it sustains investor confidence in the capital market; and it lowers the cost of capital by reducing the risk premium investors attach to a company.

Where governance fails, the cost is frequently systemic rather than confined to a single company, as Nigeria’s 2009 banking crisis demonstrated.

3. Corporate Misconduct: The Misconduct Corporate Governance Seeks to Prevent

The misconduct that a governance framework exists to prevent takes recognisable forms: breach of fiduciary duty, where a director prefers personal gain to the company’s interest; insider lending and related-party self-dealing, where transactions benefit a director or an associate without disclosure; accounting manipulation, where losses are concealed or asset quality overstated; abuse of majority control, which is oppressive or unfairly prejudicial to minority shareholders; and simple failure of oversight, where a passive board allows management’s misconduct to go undetected.

Nigeria’s 2009 banking crisis illustrates several of these forms at once. Cecilia Ibru, chief executive of Oceanic Bank International Plc, was removed from office by the Central Bank of Nigeria and subsequently pleaded guilty to charges bordering on negligence, reckless grant of credit facilities and mismanagement of depositors’ funds, forfeiting assets valued at approximately ₦191 billion.¹

The episode is a useful reminder that the object of directors’ statutory duties is not abstract compliance; it is the prevention of exactly this kind of loss.

4. The Statutory Duties of the Board Under CAMA 2020

CAMA 2020 answers the question of what a director must do with considerably more precision than its 2004 predecessor.

4.1. Duty to Act in Good Faith and in the Company’s Best Interests

4.2. Duty to Avoid Conflicts of Interest

4.3. Duty of Care, Skill and Diligence

CAMA 2020 also codifies an explicit standard of competence.

Sections 308 and 309 impose a dual objective-subjective test: a director must exercise the care, skill and diligence that a reasonably diligent person would bring to that role, and where the individual director in fact possesses greater knowledge or expertise, that higher personal standard applies.⁸

This is coupled with a business judgment rule under which a director will not be liable for a decision that later proves unwise, provided it was made in good faith, without a personal financial interest, on an informed basis and in the rational belief that it served the company’s best interests.

The rule protects considered risk-taking; it affords no protection to a director who was simply inattentive.

The importance the Act attaches to due process, as distinct from substantive outcome, was underlined by the Supreme Court in Longe v First Bank of Nigeria Plc, where the Managing Director’s removal at a board meeting held without proper notice to him was declared invalid notwithstanding the underlying allegations against him.⁹

The lesson for practice is that a board’s compliance with procedure is not a formality excused by a compelling substantive case; it is itself part of what the law requires.

4.4. Disclosure and Record-Keeping Obligations

5. The Board’s Preventive Role in Corporate Governance Practice

The statutory duties above operate alongside structural requirements designed to make their breach harder to conceal.

CAMA 2020 requires a minimum of two directors for any company other than a small company, so that control cannot rest with a single individual,¹² and requires public companies to appoint independent directors constituting at least one-third of the board.¹³

The Nigerian Code of Corporate Governance 2018 goes further for public companies, requiring the separation of the roles of chairman and chief executive.¹⁴

Section 284(2) of CAMA 2020 requires that a director’s attendance record be disclosed to members before any vote on their re-election, converting passive board membership into a matter members can see and act upon.¹⁵

None of these mechanisms is self-executing: an audit committee that does not genuinely test management’s figures, or an “independent” director who owes an informal loyalty to a controlling shareholder, provides the appearance of oversight without its substance.

The board’s preventive function therefore depends as much on the good faith with which these structures are used as on their existence in the company’s constitution.

6. Legal Remedies and the Wider Corporate Governance Framework

Where prevention fails, CAMA 2020 provides members with remedies.

Section 346 permits a member, with the leave of court, to bring a derivative action in the company’s name in respect of a director’s negligence, default or breach of duty or trust.¹⁶

Section 353 allows a member to petition the court where the company’s affairs are conducted in a manner unfairly prejudicial to their interests, with reliefs ranging from regulation of future conduct to winding up.¹⁷

Personal and representative actions may now claim damages, not merely injunctive or declaratory relief.¹⁸

Auditors, too, owe a duty of care, skill and diligence, and a board that fails to pursue a negligent auditor exposes itself to member action in turn.¹⁹

These remedies, however, depend on minority shareholders who are willing and able to use them. In a market where ownership is often concentrated and the cost of litigation is real, that willingness cannot be assumed.

The “apply and explain” character of the Nigerian Code of Corporate Governance means that its more demanding principles must be considered within the applicable regulatory framework and the circumstances of the company concerned.²⁰

7. Conclusion

CAMA 2020 has converted the director’s fiduciary position from a set of equitable principles borrowed through case law into directly pleadable statutory duties, and Nigerian courts, in Yalaju-Amaye and Longe, have shown a consistent willingness to enforce both the substance and the process those duties require.

Yet the 2009 banking crisis remains the clearest evidence that statutory duties alone do not prevent misconduct; they merely supply the standard against which a board’s failure can be measured after the fact.

Closing that gap requires more than further legislative drafting: it requires independent directors who are independent in substance, audit and risk committees willing to challenge management, and minority shareholders equipped and willing to invoke the remedies the Act already provides.

The board’s role in preventing corporate misconduct is, in the end, only as strong as the practice built around the law that defines it.

References

1. Channels Television, ‘Cecilia Ibru: EFCC to Account for N191 Billion Forfeited Assets’ (Lagos, 25 February 2013) https://www.channelstv.com/?p=52727 accessed 25 September 2026.
2. Companies and Allied Matters Act 2020, s 305(1).
3. ibid s 305(4).
4. ibid s 305(6).
5. ibid s 306.
6. ibid s 303.
7. Yalaju-Amaye v Associated Registered Engineering Contractors Ltd (1990) 4 NWLR (Pt 145) 422 (SC).
8. Companies and Allied Matters Act 2020, ss 308–309.
9. Longe v First Bank of Nigeria Plc (2010) 6 NWLR (Pt 1189) 1 (SC).
10. Companies and Allied Matters Act 2020, s 307; ibid s 278.
11. ibid s 318.
12. ibid s 271.
13. ibid s 275.
14. Financial Reporting Council of Nigeria, Nigerian Code of Corporate Governance 2018, principle 3.2.
15. Companies and Allied Matters Act 2020, s 284(2).
16. ibid s 346.
17. ibid s 353.
18. ibid s 344.
19. ibid s 415.
20. Aluko & Oyebode, ‘Corporate Governance and Directors’ Duties in Nigeria: Overview’ (Practical Law, 2023).