CORPORATE MANAGEMENT (2)

The Directors
When we are talking about the directors, we have established that as a group they are a board. S. 246(1) CAMA mandates that every company must have at least two directors. It is not permitted for a company to operate without at least two directors. Thus, directors are a core institution in corporate governance. Thus, the shareholders can’t do without the board.

The Chairman of the Board is usually the head of the board. Apart from the board, we have the MD appointed by the board with the latter empowering him to act where necessary. The MD is the first employee of the company and he is a full time employee. His role is also recognized by the Act. We also have committees of the board. Remember that S. 64(a) empowers the board to delegate its powers to committees. Thus, a board is also operated through committees.
Some of the directors mentioned above are called Executive Directors and some are called non-executive directors. What is the difference between these two? Executive directors are those directors who are also employees of the company. They act as members of the board and also employees of the company (dual role). Put in other words, they are employees of the comp any whose roles have been elevated to directors. How many executive directors a company is expected depends on the choice of the company and the size of the company. Thus, it is not impossible to find a company having more than five executive directors. Non-executive directors are directors that are not employees of the company but appointed to work as members of the board. These non-executive directors could be independent directors or non-independent directors. Independent directors mean they have nothing to do with the shareholders of the company. Thus, apart from the fact that they are not employees of the company, they are also not in any relationship with the shareholders. They are appointed because of their quality and the value they add to the board. In essence, they are non-partisans. Please note that regardless of the nomenclatures, they are all called directors. The executive directors are appointed because of their quality and value in the sense that that they are in the company and should be aware of certain things going on in the company. Please note that the MD is also an Executive Director. But he is the principal executive director since others are answer to him. He is bound to inform the board of their performances and challenges (if any).
A question is asked if it is possible to have one person as the MD and the Chairman of the Board. It is possible because the law is silent as to who may be the chairman. But corporate governance dictates that the position be split. The essence is to curtail abuse since if one man is made to act as both, he would have conflicting interests. In such a situation, nobody would be made to supervise him and this may lead to problems. Please note that it doesn’t matter whether one is an executive or non-executive director, the duty to the company is the same.
How are the directors appointed? The relevant provision in this regard is contained under sections 247 and 248 of CAMA. The number of directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum of association or a majority of them or the directors may be named in the articles. The members at the annual general meeting have the power to appoint new directors including the power to reject a director and appoint another. Where there is a casual vacancy, the board of directors shall have the power to new directors to fill such vacancy. The shareholders are however at liberty to approve or reject such director appointed. The board of directors may increase the number of directors provided it is not in contravention with the content of the company’s articles. But generally, it is the general meeting that has the power to increase or reduce the number of such directors. What this means is that the power of the board to appoint directors is limited to casual vacancy since it is the GM that has the power to increase or reduce the number of such directors. But does the Board have the power to remove directors? If yes, under what circumstance is this possible?
What about share qualification? Sometimes the company’s articles may provide that the directors of a company must have share qualification and such may be fixed by the articles. Unless and until it is fixed by the articles, no shareholding qualification shall be required. Where a person is made director and the company’s articles mandates him to obtain qualification, he shall do so within two months after his appointment otherwise the office shall be vacated and he shall be incapable of being reappointed until he has obtained his shareholding qualification.

Remuneration
There are two issues involved. First, we have the remuneration of the directors (S. 267). Secondly, we have the remuneration of the Managing Director (S. 268). One may be wondering what the relevance of studying the appointment of directors is. In Nigeria, it is typical to find companies where the foreign shareholders hold more shares than the local ones. As a result, they dictate virtually all that happens. They often nominate those who would be the MD of the company. In most cases, these MDs are nominated and their letters of nomination would be issued by the parent company abroad. The terms of engagement of the MD (e.g. whether he will be paid in local or foreign currencies) are even fixed without call to the local board. What is the legal significance of such practice? To start with, appointment of the MD must be done by the Board. At worst, the letter of appointment of the MD must come to the Board who will scrutinize the conditions of service.
By S. 267, the remuneration of the directors shall be determined by the GM. The directors may also be paid all expenses incurred in attending and returning from meetings of directors or meetings in connection with the business of the company. Where remuneration has been fixed by the articles, it shall be alterable only by a special resolution. A company is not bound to pay remuneration to its directors but where there is an agreement to do so, the remuneration must be out of the company fund. The remuneration is a debt from the company which the directors can sue on. A director can’t take more than what he is entitled to otherwise he would be guilty of malfeasance and shall be accountable to the company for such money. The remunerations of directors shall be apportionable.
By S. 268, the remuneration of the MD shall be as determined by the directors. Where the MD is removed under any reason, he shall have a claim for breach of contract if there is any or where a contract could be inferred from the terms of the articles. Where he performs some services without a contract, he shall be entitled to payment on a quantum meruit.
Is the remuneration of the MD subject to the articles? This would depend on the couching of the provision of the law. If you can recall, we have talked about mandatory, empowering and default provisions. It stands to reason that much depends on the provision dealing with remuneration. This is why it is important to determine whether a provision is default, empowering or mandatory.
Worthy of note is the provision of S. 257 which lists certain persons disqualified from being directors of a company. Such persons include:
An infant, that is, a person under the age of 18 years
A lunatic or person of unsound mind
A person disqualified under sections 253, 254 and 258 of this Act;
A corporation other than its representative appointed to the board for a given term.



Removal of directors
We must now turn to S. 262 CAMA which deals with the procedure for removing directors. The law allows the company to remove its directors by ordinary resolution regardless of what its articles provide. Thus, even where the articles provide that the director is not removable before the expiration of his office, the law provides otherwise.
The first step or procedure to be adopted in removing a director is the issuance of a special notice of resolution to remove a director. Upon receipt of this notice, the company shall forthwith send a copy of it to the director concerned and the director shall be entitled to be heard on the resolution at the meeting. Where upon receipt of a copy of the special notice, the director may make representations in writing to the company. The company shall (unless the representations are received by it too late) state the facts of the representations and send a copy of the representations to the members of the company. But where this isn’t done, the director may require that the representations be read out at the meeting. A vacancy created by the removal of a director under this section may be filled at the meeting which the director is removed or as a casual vacancy. Ultimately, nothing in this section:
a. precludes the director removed from claiming damages or compensation upon such removal
b. derogates from any power to remove a director which may exist apart from this section.
If a company reserves a right in its articles to remove a director but the procedure stated in that article is not in line with that stated in S. 262, can the company be said to have violated the provision of the law where it goes ahead to remove the director in line with the procedure stated in its articles but not under the law?
In Longe v First Bank, the appellant Bernard Longe was appointed as the MD of the bank after a resolution of the Board in accordance with the company’s articles. The appointment was to be for a period of six years (i.e. two terms of three years each). Following complaints about irregularities in certain loans advanced by the appellant, an extra ordinary meeting of the Board was convened (without giving notice to the appellant) where the appellant was informed about his suspension. The Board met later and the appellant’s appointment was terminated. Aggrieved, the appellant instituted action in the Federal High Court where his claims were dismissed in toto. Dissatisfied, the appellant appealed to the Court of Appeal which also dismissed his appeal. On further appeal, the Supreme Court unanimously allowed the appeal. The court noted that to the effect that the appellant was not given a notice of the meeting of the Board as required under sections 262 and 266 CAMA, the revocation of the appellant’s appointment in that meeting was wrongful, unlawful, invalid null and void and incapable of having any legal consequence.
The court also considered the effect of a suspension. The court noted that suspension of an employee from work only means the suspension of the employee from performance of the ordinary duties assigned to him by virtue of his office. Suspension is not a demotion and does not entail a diminution of rank, office or position. Certainly it cannot import a diminution of the rights of the employee given to him under the law. Therefore, suspension would not deny a director the protection afforded him under Section 266. The respondent cannot first suspend the plaintiff without notice to him of the meeting at which the suspension was discussed and agreed and then turn round to say that that suspension had removed the necessity to give him the notice as mandatorily required under Section 266(1) of C.A.M.A. It was on the basis that the removal didn’t comply with S. 262(1)-(6) and S. 266(1)-(2) CAMA that the appellant’s appeal was allowed.
As we know that in registering a company, a memo is expected to be filed together with an article. There is a prototype article which is attached to the Act. Have you seen it? Please look at it again. You will see how short these articles are. If you want to make this article useful, the law says you can adopt it or modify or alter it to fit the company’s purpose. The law provides that an article must be filed but the CAC has come up with a regulation to the effect that the article need not be filed so as long as one signs their form to say that they have complied with the table A. This means that one may register a company without any article at all. The point is the law expects a company to change or alter so many default rules or provisions via its articles. How can the company do this where it has registered itself without having filed an article? This no doubt would leave untold hardship on the company. Also, articles need not contain mandatory provisions. They are supposed to be regulations for the company. If the article contains mandatory provisions already contained in the Act, it is purely a waste of time and lack of understanding on the part of the drafters of such articles. In what way is the last part of S. 262(6) relevant when indeed the law says directors are removable only where the company complies with the procedure under s. 262(2)-(5). 

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