A review of the draft Nigerian Not-For-Profit Governance Code 2023

The proposed Code recognizes the key role of Not-For-Profit Organizations (NFPOs) owned by individuals, corporate bodies and philanthropists play in addressing societal issues and the amount of donations these NFPOs receive to achieve their goals. The Code therefore seeks to introduce a framework that will elevate public trust in the not-for-profit sector, particularly among citizens, beneficiaries of these organizations, donors, volunteers and other key stakeholders. It is also expected that the Code would improve the performance of NFPOs by promoting efficient and effective management practices that lead to improved outcomes for all stakeholders.

Application, Objectives, and Scope of the Code

The Code is intended to apply to all organizations operating in the Not-for-Profit sector in Nigeria whether registered or not and covers areas such as Board, Board Responsibilities, Financial Management and Stakeholder Engagement. Types of organizations covered by the proposed Code include charitable, educational, professional and scientific organizations. It also extends to trade unions, political and administrative bodies.² The proposed Code seeks to enhance the fulfillment of the overall mandate of organizations and serve as a useful tool for the board and management of NFPOs to operate efficiently and ethically. The proposed code classifies NFPOs into the following cadres:³ a. Micro – Not more than N10 million in average annual gross receipts or total expenditure for the last two years of operations. b. Small – Above N10 million but not more than N100 million in average annual gross receipts or total expenditure for the last two years of operations. c. Medium - Above N100 million but not more than N1 billion in average annual gross receipts or total expenditure for the last two years of operations. d. Large - Above N1 billion in annual gross receipts or total expenditure for the last two years of operations.

Key Highlights of the Proposed Code

The proposed Code consists of 12 principles and is arranged into sections with every section starting with a general principle, followed by the recommended guidelines based on the organization's size. Some of the recommended guidelines based on the principles of the code are as follows:

1. All classes of NFPOs are to have a Founding Instrument or Charter that clearly states its purpose, and this should be communicated to its stakeholders. Also, members of the board are to understand and commit to the organization's purpose. Additionally, the board is expected to periodically review the vision and objectives of the NFPO and to ensure that its activities align with its purpose.⁴
2. The proposed Code advises all classes of NFPOs to familiarize themselves with all the laws and regulations that apply to them and to periodically review all applicable laws to ensure that their processes comply. The board of NFPOs are also advised to seek professional advice where necessary on their compliance obligations.⁵
3. The proposed Code recommends the constitution of board committees for all classes of NFPOs except the Micro NFPOs. The proposed committees for NFPOs in the Code are Finance and General Purpose, Audit and Risk Management and Nomination and Governance.
4. Micro and small NFPOs are not required to conduct board and corporate governance evaluation. Other classes of NFPOs are advised to conduct these evaluations periodically.
5. The proposed Code recognizes the need for diversity on the board. Additionally, the Code permits the position of the board chairman and the chief executive officer in small and micro NFPOs to be held by the same person. Other classes of NFPOs are required to have separate persons occupying each office.
6. The proposed Code provides for sustainability in the operations of NFPOs. The medium and large NFPOs are advised to incorporate sustainability in their investment options and to adopt sustainability reporting practices.⁶

Review and Recommendations on the Proposed Code

Following a review of the Code, we observed some gaps and propose the following recommendations:

1. The role, duties, and qualifications of a Company Secretary is not provided for in the Code. Given the importance of this office in ensuring good corporate governance, the role, duties and qualifications of the Company Secretary should be clearly stated in the Code.
2. On the composition and membership of the Board, the Code does not stipulate a minimum and maximum number of Directors. We believe that a minimum and maximum limit should be stipulated to prevent a situation where NFPOS have oversized or undersized boards. The limits can be introduced based on the identified classification of NFPOs.
3. The Code permits concurrent directorships on the Board of other NFPOs. However, we believe that it will be helpful for the Code to introduce a limit on the number of concurrent directorships. This is to ensure undue conflict of interest and ensures that directors can dedicate sufficient time to the organization.
4. The Code recommends that the Head of Finance and Administration of an NFPO should be a member of the organization’s Board Finance and General-Purpose Committee (“BFGPC”). This contradicts the general principle of corporate governance where only directors can be appointed as member of board committees. The head of finance and administration can however be invited to attend meetings of the BFGPC as required but cannot be a standing member of the committee. We believe that a further review is required to align with best governance principles and practice.
5. Additionally, in addition to the requirement for the Chairman of the BFGPC to be knowledgeable in Finance, it is advisable that the Code requires the Committee to be composed of members knowledgeable in other administrative areas such as Communications, Programs, Fundraising etc.

Conclusion

An initial attempt in 2017 to introduce a Corporate Governance Code for NFPOs was met with stiff opposition from stakeholders, particularly with the provisions on control and succession. The proposed Code avoids such issues and adopts the spirit of the Nigerian Code of Corporate Governance, the Companies and Allied Matters Act and international best practice suited for the peculiar needs of the Nigerian not-for-profit sector. The adoption of the Code, subject to the identified amendments, would ensure enhanced transparency and accountability for the not-for-profit sector in Nigeria.⁷