Permit me to stimulate your intellectual composition
by introducing this age-long debate on corporate governance. But before that,
let me make some prefatory remarks on the meaning of the subject matter.
Corporate governance is the system by which companies
are managed, directed and controlled. The system of corporate governance reflects
a set of actors interacting within the framework of the law. It protects the
interests of major stakeholders in a corporation by ensuring that adequate
checks and balances are not just enshrined but complied with. The stakeholders in a corporation are the
shareholders, directors, employees, customers, vendors/suppliers, creditors and
the community.
Leaving that aside, under the Shareholders' Model of corporate governance, there are the
following underlying assumptions and these assumptions underscore the supremacy
of shareholders over directors within the Nigerian Corporate Governance
framework. The assumptions include the following:
a) Section
244(1) of the Companies and Allied Matters Act: directors are persons duly appointed by the company
to direct and manage the business of the company.
b) Section
262 of the Companies and Allied Matters Act: director can be removed but subject to confirmation
at the general meeting.
c) Section
233 of the Companies and Allied Matters Act: confirmation is by ordinary resolution (by way of simple
majority of votes cast by members in a meeting).
d) Section
63(5)(c) of the Companies and Allied Matters Act: members may ratify or confirm any action taken by
the Board of Directors.
e) Section
299 of the Companies and Allied Matters Act: only the company can sue for any wrong or ratify any
irregular conduct committed in the course of a company’s affairs.
f) Section
300 of the Companies and Allied Matters Act: exceptions to the rule on Foss v. Harbottle on minority protection.
g) Section
248 of the Companies and Allied Matters Act: members in general meeting have the power to
re-elect or reject directors and appoint new ones.
In contradistinction to the above, there are the
following arguments in favour of the Supremacy of Directors in corporate
governance within the Nigerian corporate law framework.
(i) The company is a legal person different from its
members. A decided case stated a principle that directors are agents of the
company and not agents of the members because even if members want to change
the objects, they cannot without the resolution by the directors.
(ii) Members must follow laid down procedure before
removing directors. They cannot just remove the directors without following
this procedure.
(iii) Section
244 of the Companies and Allied Matters Act: directors are appointed to run the company (not the
members).
(iv) Section
63(1) of the Companies and Allied Matters Act: this section merely stated the three persons that have
power to run the company (members in general meeting, board of directors or
agents appointed by board of directors or by the members of the company). It
does not state that shareholders are more powerful than directors.
(v) Section
63(3) of the Companies and Allied Matters Act: Board of directors run the company.
(vi) Section
63(4) of the Companies and Allied Matters Act: Board of directors shall not be bound to obey
instructions of general meeting if acting within powers in their Articles of
Association. Thus, it depends on the articles of association as to whether or
not the directors or members will be more powerful.
In the light of the foregoing, which
argument best describes your take on the issue of supremacy between
shareholders and directors.
© Onyekachi Duru Esq and www.legalemperors.com,
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