Corporate governance plays a vital role in ensuring that the interests of all shareholders, including minority shareholders, are protected in Nigeria. Given the unique challenges in the Nigerian business environment, effective corporate governance practices are essential to fostering investor confidence, promoting transparency, and preventing the exploitation of minority shareholders by dominant or majority stakeholders. This newsletter explores the importance of corporate governance in safeguarding minority shareholders’ rights in Nigeria, highlighting key legal frameworks, challenges, and the impact on business sustainability.
Understanding Minority Shareholders’ Rights
Minority Shareholders are investors who own a smaller percentage of a company’s shares, typically lacking sufficient ownership to exert significant influence over corporate decisions. They generally hold less than 50% of the company’s shares and thus do not have control over key votes, such as those for board elections or major corporate actions. Because of their limited ownership and voting power, minority shareholders are often at risk of having their interests overlooked or disregarded by the majority or controlling shareholders. Minority shareholders are often vulnerable to oppression and marginalization due to their limited voting power and lack of influence over the board of directors. Safeguarding their interests necessitates upholding fair corporate governance principles and implementing legal protections. Effective governance mechanisms serve as a buffer against unfair practices, ensuring that corporate actions align with the interests of all shareholders, regardless of their stake size.
In Nigeria, the rights of minority shareholders are safeguarded by several laws, notably the Companies and Allied Matters Act (CAMA) 2020. CAMA offers specific protection, including the right to take legal action against the company or its officers in cases of misconduct, the right to convene meetings, and the ability to seek redress for oppressive or unfair treatment.[i] Additionally, the Nigerian Code of Corporate Governance 2018 promotes best practices to enhance accountability, transparency, and fairness within corporate structures.[ii]
The Legal Framework for Corporate Governance in Nigeria
Nigeria has adopted a robust legal and regulatory framework to enhance corporate governance standards. The Securities and Exchange Commission (SEC) Code of Corporate Governance (2011) and the Nigerian Code of Corporate Governance (2018) provide comprehensive guidelines for corporate governance in public and private companies. These regulations emphasize transparency, accountability, and fairness, which are pivotal in safeguarding minority shareholders’ rights.
The Companies and Allied Matters Act (CAMA) 2020 has been instrumental in strengthening corporate governance provisions in Nigeria. CAMA mandates that directors must act in the best interests of the company and all its shareholders, not just the majority. This provision is particularly significant for minority shareholders, as it imposes a fiduciary duty on directors to consider their interests.[iii]
Mechanisms for Protecting Minority Shareholders
- Rights to Fair Treatment: Corporate governance in Nigeria mandates equal treatment for all shareholders, particularly in decision-making processes that affect shareholders’ interests. Provisions in CAMA 2020 and the SEC Code of Corporate Governance emphasize fair treatment, preventing the oppression of minority shareholders by ensuring that major decisions require approval from all shareholders, not just a dominant few.[iv]
- Access to Information: Transparency is crucial for protecting minority shareholders. The Nigerian Code of Corporate Governance (2018) stresses that companies must disclose material information promptly to all shareholders. This provision grants minority shareholders access to critical information, enabling them to make informed decisions and monitor the company’s actions.
- Board Composition and Independent Directors: One of the fundamental principles of corporate governance is the establishment of a balanced and diverse board. In Nigeria, the Nigerian Code of Corporate Governance and CAMA 2020 mandate the inclusion of independent directors who act as neutral parties in safeguarding the interests of all shareholders. This measure reduces the risk of board decisions that solely favor majority shareholders.
- Minority Shareholders’ Legal Remedies: Nigerian law grants minority shareholders certain legal rights to protect their interests. Under CAMA 2020, minority shareholders have the right to initiate derivative actions against directors who engage in misconduct or abuse of power. Additionally, minority shareholders can seek redress if they experience oppression or unfair treatment. These rights underscore the importance of corporate governance in providing mechanisms for minority shareholders to hold directors accountable.[v]
Challenges in Enforcing Minority Shareholders’ Rights
Despite these robust frameworks, enforcing the rights of minority shareholders in Nigeria faces several challenges. Firstly, the Nigerian judicial system is often criticized for delays in resolving corporate disputes, which can hinder minority shareholders from obtaining timely relief.[vi] Additionally, minority shareholders may sometimes hesitate to challenge majority shareholders or management due to fear of retaliation, particularly in family-owned or closely-held companies. Moreover, some companies may not fully comply with the Nigerian Code of Corporate Governance due to weak regulatory oversight. Although the SEC and the Corporate Affairs Commission (CAC) hold enforcement authority, limited resources and inconsistent enforcement can restrict their capacity to effectively monitor all registered companies.
Additionally, some companies may lack full compliance with the Nigerian Code of Corporate Governance due to weak regulatory oversight. While the SEC[vii] and Corporate Affairs Commission (CAC) have enforcement powers, resource limitations and enforcement inconsistencies may limit their ability to oversee all registered companies effectively.
The Future of Minority Shareholder Protection in Nigeria
To enhance minority shareholder protection, Nigerian corporate governance standards must continue evolving. Reforms should prioritize improving judicial efficiency, strengthening regulatory oversight, and promoting alternative dispute resolution mechanisms. Additionally, fostering board diversity and director independence should remain central to ensuring that all shareholder interests are represented in decision-making. Incorporating global best practices can also guide local reforms. For example, adopting elements of the UK Corporate Governance Code, such as mandatory engagement with minority shareholders and establishing a shareholder committee, could significantly improve protections for minority shareholders in Nigeria. Global best practices can also inform local reforms. For instance, adopting aspects of the UK Corporate Governance Code, such as mandatory engagement with minority shareholders and creating a shareholder committee, may enhance protection for minority shareholders in Nigeria.[viii]
Conclusion
Effective corporate governance is indispensable for the protection of minority shareholders’ rights in Nigeria. Through robust legal frameworks like CAMA 2020, the SEC Code of Corporate Governance, and the Nigerian Code of Corporate Governance, Nigeria has laid a solid foundation for safeguarding these rights. However, continuous improvements are essential to overcome enforcement challenges and align Nigeria’s corporate governance standards with global best practices. By fostering transparency, accountability, and fairness, corporate governance can protect minority shareholders, contributing to sustainable business practices and a more vibrant Nigerian economy.
References
[i] Sections 346 – 348 of CAMA 2020
[ii] Securities and Exchange Commission (SEC) (2011). Code of Corporate Governance for Public Companies in Nigeria. Available at: https://sec.gov.ng/code-of-corporate-governance
[iii] Section 305 of the Companies and Allied Matters Act (CAMA) 2020
[iv] Section 343 of CAMA 2020; Principles 1 and 2 of the SEC Code of Corporate Governance
[v] Section 346 and 353 of CAMA 2020
[vi] O. C Aduma & C.S Ibekwe, “Protection of Minority Shareholders under Nigerian Company Law” Nnamdi Azikiwe University Journal of International Law and Jurisprudence [2019] Vol 8 No.2
[vii] Securities and Exchange Commission (SEC) in Nigeria enforces investor protection through ISA provisions and rules. The SEC, along with the NSE, works to protect investors.
[viii] Financial Reporting Council (2023). Guidance on Board Effectiveness: A Comparison with the UK Corporate Governance Code. Retrieved from: https://frc.org.uk
