A new directive from the Nigerian Electricity Regulatory Commission (NERC) is set to shake up the boardrooms of Nigeria’s power sector. Under the recently unveiled Code of Corporate Governance, no individual will be allowed to serve as a director on more than two boards within the Nigerian Electricity Supply Industry (NESI), a move designed to tackle governance lapses and conflicts of interest.
“An individual shall not concurrently serve as a director of more than two companies in NESI,” the code stated. “Simultaneous service on numerous boards may impede an individual’s capacity to discharge their duties equitably and impartially, potentially leading to conflicts of interest.”
This development, described by analysts as a long-overdue step towards boardroom reform, is binding on all licensees including generation and distribution companies, system operators, and other stakeholders regulated under the Electricity Act 2023.
The new rule compels directors currently sitting on more than two NESI boards to step down from excess positions. It also requires nominees to disclose any existing board appointments during nomination, with shareholders and boards mandated to consider these affiliations before confirming appointments.
“The board shall consider the nominee’s other directorships and ascertain whether the nominee can effectively contribute to the board’s performance and responsibilities,” the code explained.
The code outlines a clear mandate for proactive board involvement and skill development. Directors are required to avoid any form of conflict of interest and must demonstrate the necessary expertise to perform their oversight functions effectively.
The number of directors required per board depends on company size. For large entities, a minimum of seven directors is stipulated, including at least two executive directors one of whom must be the chief executive officer. At least one independent director must be appointed, or two in the case of large entities.
“To ensure continuity and injection of fresh ideas, directors shall serve a maximum of three terms of four years,” the document declared, setting a 12-year limit for board members.
It further mandates one-third of directors to retire periodically by rotation, in line with provisions of the Companies and Allied Matters Act (CAMA).
MDs Limited to 10-Year Terms
In a significant change targeting top-level leadership, the code also limits the tenure of managing directors and CEOs to a maximum of two five-year terms. Prospective CEOs are expected to hold at least a Bachelor’s degree, possess ten years of management experience, and demonstrate “visionary leadership, strategic management skills, excellent financial literacy, and high ethical standards.”
They must also hold relevant postgraduate qualifications or advanced training, and show compliance with the National Youth Service Corps (NYSC) requirements.
Chairman’s Role Clearly Defined
Highlighting the separation of powers, NERC’s code draws a strict line between governance and management functions. While the chairman is expected to ensure the board’s effectiveness, operational duties fall strictly within the CEO’s remit.
“The chairman of the board, who must be a non-executive director, shall be elected by the directors from within their ranks,” the code said. It further added that the chairman’s performance must be evaluated annually to ensure continued value addition to the board.
Sanctions for Non-Compliance
The code is not just advisory it is enforceable, with penalties for those who fail to comply. All licensees must report their adherence levels annually in line with 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.
‘Reform Is Non-Negotiable’ NERC Boss
Speaking on the rationale behind the new governance framework, NERC Chairman, Sanusi Garba, pointed to long-standing inefficiencies and poor governance practices that have hampered the sector.
“The challenges faced by the industry range from infrastructural deficits and financial constraints to operational inefficiencies and governance gaps,” he said.
According to Garba, the Electricity Act 2023 empowers the commission to implement far-reaching reforms. “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.”
He added, “By promoting accountability, transparency, and sustainability, the code seeks to restore confidence among investors, consumers, and other stakeholders.”
The regulator believes that implementing this code will boost investor confidence, improve service delivery, and stimulate economic 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,” Garba concluded.
