The Companies and Allied Matters Act (“CAMA”), the Securities and Exchange Commission Code of Corporate Governance for Public Companies (the “SEC Code”) and the Nigerian Code of Corporate Governance 2018 (the “NCCG Code”) all allow directors to hold multiple directorships.
It is therefore not uncommon to find a director sitting on multiple boards, especially when such a director has proven to be an expert in his or her field. A director with multiple directorships is perceived to have diverse experience that can impact positively on his individual performance and that of the respective boards on which he serves. Also, directors holding multiple directorships may be beneficial to a company by bringing in the much-needed resources and clients.
Despite the benefits aforementioned, multiple directorships also come with its disadvantages some of which include, conflict of interest, commitment to some boards more than others and lack of proper oversight of management. It is also important to note that the SEC Code and the NCCG Code discourage multiple service on too many boards as this may interfere with a director’s ability to discharge his responsibilities
In view of the disadvantages of multiple directorships, companies are now faced with the task of determining the appropriateness of appointing a director who sits on other boards. To assist companies in this regard, the NCCG Code recommends the following determinants in ascertaining the appropriateness of multiple directorships:
1. Prospective directors should disclose memberships on other boards, and current directors should notify the board of prospective appointments on other Boards. This information should be kept current by serving board members;
2. The board should consider the disclosed directorships, taking into account the number of other directorships and the responsibilities held, and determine whether the individual can discharge his responsibilities and contribute effectively to the performance of the board before recommending such a person for appointment or continued service;
3. Directors should not be members of boards of competing companies to avoid conflict of interest, breach of confidentiality, diversion of corporate opportunity and divulgence of corporate information.
It is noteworthy that the SEC Code also recommends similar determinants in ascertaining the appropriateness of multiple directorships. It expressly states that current directors should notify the board through the chairman of prospective appointments on other boards.
In addition to the determinants set by the NCCG Code, boards should consider the size of the company and complexities of its business in determining the appropriateness of appointing directors with multiple directorships. Most importantly, given the significant role of directors in a company, it is advisable that the board should consider setting a numerical limit of multiple board membership for prospective directors. This is to ensure that they are able to dedicate the required time and resources required to discharge their duties effectively.
 Clause 2.8 of the NCCG Code
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