Directors sitting on more than two companies’ boards in the Nigerian Electricity Supply Industry may have to resign from one following the latest Code of Corporate Governance released by the Nigerian Electricity Regulatory Commission.

The new code published by the commission warned against what it called multiple directorships, stating that no individual should be a director in more than two companies in the power sector simultaneously.

“An individual shall not concurrently serve as a director of more than two companies in NESI. Simultaneous service on numerous boards may impede an individual’s capacity to discharge their duties equitably and impartially, potentially leading to conflicts of interest.

“The board and shareholders must thoroughly assess the suitability of nominees for appointment, taking into account their other obligations and commitments,” the code declared.

It read further that a prospective nominee to the board of a licensee shall disclose any memberships on other boards before their appointment.

“The board shall consider the nominee’s other directorships and ascertain whether the nominee can effectively contribute to the board’s performance and responsibilities prior to endorsing them for appointment. Serving directors shall inform the board, through the chairman, of any potential appointments to other boards,” it was stated.

This directive requires individuals who are currently directors in more than two companies within the sector to reduce their memberships to two in order to comply with the code. The new code applies to electricity distribution companies, generation companies, system operators, and other licensees in the power sector.

The regulator ordered that each director is expected to avoid any conflict of interest, whether arising directly or indirectly through affiliations with other entities.

They are to continuously cultivate and enhance the necessary skills and competencies that are critical to the effective discharge of their duties as directors while also allocating the requisite time to the licensee’s affairs and actively participating in the board, committees, and other relevant meetings of the licensee.

The code stipulates that the board composition of licensees in large entities shall be a minimum of seven directors, while the board composition of smaller entities shall be in accordance with the provisions of the Companies and Allied Matters Act. The majority of the board should be non-executive directors serving to infuse external independent perspectives into the licensee’s governance, it was said.

The board members are expected to have a minimum of two executive directors, one of whom shall be the chief executive officer of the licensee.

“Each board must include at least one independent director. Large entities shall have a minimum of two independent directors. Subject to the provisions of CAMA, one-third of directors should retire periodically by rotation at the licensee’s annual general meeting, but retiring directors may represent themselves for reappointment. To ensure continuity and injection of fresh ideas, directors shall serve a maximum of three terms of four years,” it was ordered.

Spelling out the role of a board chairman, the code noted that the chairman’s primary role is to facilitate the efficient functioning of the board to achieve the licensee’s objectives, but he must not be involved in the day-to-day operations of the licensee as this is a responsibility that falls under the CEO and the management team.

It emphasised that the chairman, who shall be a non-executive director, will act as the principal liaison between the board and the CEO, as well as advising the CEO in fulfilling his responsibilities effectively.

“The chairman of the board, who must be a non-executive director, shall be elected by the directors from within their ranks. The chairman’s performance and ongoing ability to contribute value to the board shall be evaluated on an annual basis,” the code stated.

Also, the managing director or CEO of a licensee has a maximum of 10 years, broken into two terms of five years each, to run the organisation. According to the code, no one can be an MD/CEO unless they have a Bachelor’s degree in any discipline with a minimum of 10 years of management experience.

A potential CEO must also hold an advanced degree(s) or other relevant training(s). He must have completed the National Youth Service or have an exemption certificate with a proven track record of visionary leadership, demonstrated experience in strategic management skills, excellent financial literacy, good communication skills, and high ethical standards and integrity.

On the tenure of directors, it was stated that to ensure a balance between continuity and the infusion of fresh perspectives, a director may serve on the board for a maximum of three terms, each spanning four years. “No director should exceed a cumulative tenure of 12 years,” the code declared.

Subject to satisfactory performance and in accordance with the provisions of the CAMA, all directors are subject to re-election at regular intervals. NERC said the principles of corporate governance specified in the document are mandatory and binding on all licensees, threatening sanctions for non-compliance.

“The commission is responsible for overseeing licensee compliance and will enforce adherence when necessary. Licensees must indicate their degree of compliance with the code in the Annual Compliance Report filed with the commission in accordance with the provisions of section 14 of the code.

“The failure of any licensee to comply with the code shall attract appropriate sanctions as outlined in the Electricity Act and other regulatory instruments issued by the commission,” NERC warned.

Speaking, the Chairman of NERC, Sanusi Garba, said the challenges faced by the industry range from infrastructural deficits and financial constraints to operational inefficiencies and governance gaps.  These challenges, he added, have, over the years, hindered the sector’s ability to deliver reliable and sustainable electricity to Nigerians.

“The Electricity Act 2023, which empowers the commission as the apex regulatory body for NESI, provides a robust legal framework to address these challenges. The Act underscores the importance of effective regulation, accountability, and transparency in driving the sector towards its full potential. In line with this mandate, the development of this Code of Corporate Governance is a significant step towards fostering a culture of good governance, ethical conduct, and operational excellence in NESI,” Garba stated.

He maintained that the code is designed to establish a clear set of principles and standards that will guide the conduct of licensees in the power sector.

“By promoting accountability, transparency, and sustainability, the code seeks to restore confidence among investors, consumers, and other stakeholders. It also aims to enhance the sector’s ability to attract much-needed investments, improve service delivery, and ultimately contribute to the nation’s economic growth.

While stating that the objective of the code is to institutionalise best practices in corporate governance, he added that the commission believes that the implementation of this code will not only address the existing governance gaps but also lay a solid foundation for the sector’s sustainable growth.

“All stakeholders are urged to embrace principles of the code and work collaboratively towards achieving the shared vision of a vibrant, efficient, and reliable electricity sector.