The role of Non-Executive Directors in Nigeria has traditionally been viewed as distinct from that of employees, emphasizing their independent oversight and strategic guidance within corporate governance frameworks. However, a recent Court of Appeal ruling in the case of Odua Investment Company Limited v. Bolanle Oguntola has introduced a new perspective on the legal status of Non-Executive Directors, suggesting that Non-Executive Directors may, in certain contexts, be classified as employees, which has introduced a paradigm shift, challenging the conventional understanding.
Non-Executive Directors: Defined Roles and Responsibilities
Under the Nigerian Code of Corporate Governance (NCCG) 2018, non-executive directors are distinct from executive directors in that they do not engage in the company’s daily management. Their primary functions include:
- Providing Objective Oversight: Offering an impartial view of company strategies and decisions to promote accountability and transparency.
- Board Independence: Acting as a check on the executive team, ensuring that management’s actions align with shareholders’ and stakeholders’ interests.
- Risk and Compliance Monitoring: Helping the board identify and mitigate risks, thus promoting adherence to governance standards.
Principle 6 of the NCCG 2018 emphasizes that Non-Executive Directors should be independent of management to safeguard their objectivity. This principle underpins the conventional view that Non-Executive Directors are not employees but serve the company in an advisory capacity.
The Court of Appeal Decision: Odua Investment Company Limited v. Mrs. Bolanle Oguntola
In the case of Odua Investment Company Limited v. Mrs. Bolanle Oguntola (Appeal No. CA/IB/469/2022), decided on July 16, 2024, the Court of Appeal in Ibadan addressed the classification of Non-Executive Directors within corporate structures. The central issue was whether the removal of a Non-Executive Directors should be treated as an employment matter or remain within the realm of corporate governance.
The appellant, Odua Investment Company Limited, contended that Non-Executive Directors are not employees and that their removal falls under corporate law, specifically the Companies and Allied Matters Act (CAMA). Conversely, the respondent, Mrs. Bolanle Oguntola, argued that her role as a Non-Executive Directors constituted an employment relationship, thereby invoking protections under Section 254C(1) of the Constitution, which deals with labor disputes and employment matters and falls under the jurisdiction of the National Industrial Court of Nigeria (NICN).
The Court of Appeal ruled in favor of Mrs. Oguntola, determining that, in certain circumstances, Non-Executive Directors can be classified as employees and are entitled to employment law protections. This decision muddies the waters between corporate governance and employment law for Non-Executive Directors.
The main insights from the court’s ruling are as follows:
Reclassification of Non-Executive Directors as Employees: Where the relationship between a company and its Non-Executive Director (NED) exhibits characteristics typical of employment, NEDs may be classified as employees. This shift carries notable legal implications for both the directors themselves and the appointing companies.
Expanded Authority of the NICN: The court affirmed that the National Industrial Court of Nigeria (NICN) has jurisdiction to handle disputes concerning the removal of Non-Executive Directors. This decision challenges the traditional perspective that such cases fall solely within the domain of corporate law and under the jurisdiction of the Federal High Court.
Impact on Corporate Governance
The Court of Appeal’s decision has far-reaching implications for corporate governance practices in Nigeria. Some key considerations for organizations would be:
- Redefining the NED Role
Companies must revisit contracts with non-executive directors to ensure clear definitions of roles, responsibilities, and the legal framework governing their engagement. A distinction must be made between the roles of executive and non-executive directors, ensuring that non-executive directors maintain their independence and objectivity. Companies should also assess potential liability implications for NEDs, particularly in cases of negligence or breach of duty.
- Navigating Employment Law
Companies must determine whether non-executive directors qualify as employees under relevant employment laws. If non-executive directors are considered employees, companies must ensure compliance with statutory obligations, including minimum wage, pension contributions, and social security. Organizations should establish clear procedures for resolving disputes with non-executive directors, including potential recourse to labor tribunals.
- Reshaping Board Dynamics
Companies may need to re-evaluate the optimal composition of their boards, considering the balance of executive and non-executive directors. Mechanisms must be in place to safeguard the independence of non-executive directors, including clear guidelines on conflicts of interest and financial incentives. Effective board dynamics require clear roles, responsibilities, and communication channels and non-executive directors must be empowered to ask critical questions, challenge decisions, and provide constructive feedback.
Alignment with the Nigerian Code of Corporate Governance 2018
The Nigerian Code of Corporate Governance 2018 outlines 28 principles intended to foster an improved corporate governance regime in Nigeria. Principle Six of the Code deals with Non-Executive Directors: “Non-Executive Directors bring to bear their knowledge, expertise and independent judgment on issues of strategy and performance on the Board”. The recent Court of Appeal decision appears to challenge this principle by potentially classifying non-executive directors as employees, thereby affecting their perceived independence and oversight capabilities.
Challenges and Opportunities for Nigerian Companies
This judgment presents both challenges and opportunities for Nigerian corporations as they navigate the evolving landscape of corporate governance, such as:
- Compliance with Corporate Governance Codes: Nigerian companies are now faced with reconciling this judgment with Principle 6 of the Nigerian Code of Corporate Governance 2018, which emphasizes the independence of Non-Executive Directors. Organizations may need to adopt more flexible governance structures or clearly define the roles of non-executive directors to maintain compliance.
- Review of NED Contracts: Companies should consider revisiting the contracts of NEDs to specify roles, duties, and limitations, potentially excluding certain employment benefits that would otherwise apply to standard employees.
- Reinforcing Board Independence: Organizations may also consider introducing additional mechanisms to reinforce the independence of NEDs while adhering to their new status as employees under the law. This might include clear guidelines on the scope of their involvement in operational activities, ensuring their role remains advisory rather than managerial.
Conclusion
The Court of Appeal’s ruling in Odua Investment Company Limited v. Mrs. Bolanle Oguntola has sparked a critical reassessment of the role of Non-Executive Directors in Nigeria. While the classification of non-executive directors as employees challenges traditional corporate governance practices, it also presents an opportunity for companies to strengthen their governance frameworks by clarifying non-executive directors’ roles and responsibilities.
As companies grapple with the implications of this decision, it is imperative for corporate boards to stay abreast of developments in this area and seek legal counsel to ensure compliance with evolving regulations. This decision underscores the importance of continually revisiting corporate governance practices to align with legal standards and uphold the integrity and independence of the board.
References
- Odua Investment Company Limited v. Mrs. Bolanle Oguntola, Appeal No. CA/IB/469/2022, Court of Appeal, Ibadan Division, Nigeria
- Nigerian Code of Corporate Governance 2018, Principle 6. Available at: https://pwcnigeria.typepad.com/files/nigerian-code-of-corporate-governance-2018-1.pdf
- Companies and Allied Matters Act (CAMA) 2020.
Disclaimer: This publication is for informational purposes only and does not constitute legal advice. For specific inquiries, please contact your legal advisor or reach out to our team at Manifield Solicitors for comprehensive guidance.
