In the wake of the New Year 2017, the social media and the newspapers were awash with the news of a Financial Reporting Council Code for Not for Profits Organisations (NFPO) 2016 that allegedly prevents a founder or leader of a mosque, church or civil society organisation from heading the organization after 20 years and the resignation of Pastor Adeboye as Nigerian Overseer of the Redeemed Christian Church of God. The news was brought to limelight after the resignation of Pastor Adeboye, popular Pentecostal head of the Reedemed Christian Church of God over what was described as “legal restrictions” of his tenure as set in the Code. However although the public backlash over the said restriction has led to its suspension by the Federal Government, this write-up intends to give a general overview of the NFPO Code in the light of President Buhari’s promise to exhaustively review and consult with stakeholders during the period of its suspension.
The NFPO Code is part of a consolidation and refinement of different sectoral codes on corporate governance and issued as a subset of the Financial Reporting Council of Nigeria ‘s National Code of Corporate Governance 2016. The National Code of Corporate Governance consists of: the Code of Governance for Not-for-Profit Organizations 2016; Private Sector Code 2016 and Public Sector Code 2016. However, prior to its suspension, the Code of Corporate Governance for the Private sector was mandatory while that of the Public Sector was stated to become operative whenever an executive directive was secured from the Federal Government of Nigeria. However, the Code for Not-for-Profit Organizations was to be operated on a “Comply or Justify non-compliance” basis, which the Code neither expanded on nor gave examples of what constitutes justifiable reasons for non-compliance.
The FRCN that the Codes were issued pursuant to Sections 50 and 51 of its Act (Financial Reporting Council of Nigeria Act, No. 6, 2011), which among other things requires the Directorate of Corporate Governance to develop the principles and practices of Corporate Governance applicable in Nigeria and in line with the general objectives of its Act that mandate it “as responsible to ensure good corporate governance in the public and private sphere of the Nigerian economy”. Prior to its suspension on Monday, January 9th 2016, the Corporate Governance Code had been in effect since 17th October 2016.
The NFPO Code is described as an outcome of a directive given to the Steering Committee on the National Code of Corporate Governance on 29th November 2013 by Mr. Olusegun Aganga, the then Honorable Minister of Trade and Investment[1]. The remit of the said Committee was to extend corporate governance to NFPO in Nigeria on the basis of increasing “transparency”, “good governance” and “humanitarian concerns” among others. It describes good governance within the context of NFPO as
“a transparent decision making process in which the leadership of a non profit organisation, in an effective and accountable way, directs
resources and exercises power on the basis of shared values.”
However, although transparency should be encouraged, the NFPO Code is somewhat castigatory alleging that “some NFPOs set themselves up
by claiming expertise over some local problems which they define, and attempt to solve it what is sometimes referred to as faceless or ‘blind money’ which they think they do not have to account
for”. Also despite the principal regulation of NFPO being the Companies and Allied Matters Act, Cap C20, LFN 2004[2], the Code appears to be premised on the basis that “many NFPO operate with unknown frameworks.”
For the purposes of the Code, 9 categories of NFPO are defined as falling within its scope. They include 1. Charitable, 2.educational, 3.professional and scientific, 4.religious, 5.literary/artistic, 6.political/administrative grouping, 7.social and recreational clubs and associations, 8.trade unions and an omnibus “Others” for organisations with similar missions but not deemed classifiable under the previous mentioned categories by the Founders or Governing Bodies. The application of the NFPO Code is for all Not for Profit Organizations irrespective of their description or nomenclature adopted.[3]
The Code is divided into 7 parts. That is:
Part A—–Preliminary Matters
Part B —-Application of the Code
Part C—– Board Matters (which lists the organizational
structure)
Part D—– Accounts and Audit
Part E——Relations with Stakeholders
Part F —- Transparency
Part G —- Miscellaneous
The NFPO Code provides for an Organizational structure consisting of a General Assembly, Board of Trustees, Governing Board, Management Committee, Founder/Leader, Chairman of the Governing Board, Chief Executive Officer, Organisation Secretary, Organisation Treasurer, Executive Directors, Non-Executive Directors and Directors. It also envisages that NFPO have well-structured Committees which may include a Finance and General Purpose Committee, Governance Committee and an Audit and Risk Management Committee. For the purposes of the NFPO code, the Chief Executive Officer is the head of the management of an NFPO and answerable to the Board. However, the Chief Executive Officer is barred from being the only executive director on the Board of the NFPO. The Management Committee also has responsibility for the organization and the purpose for which it is set up.
However, the Code appears to be informed by a parochial or protectionist need to whittle down what it describes as “the absolute or pioneering control exercised by founders of these organizations” which prevents the Founder or Leader of an organization from occupying the position of Chairmanship of Board of Trustees, Governing Board or Council and the Headship of the Executive Management simultaneously on the grounds of separation of power. However, this is subject to its Annual General Assembly, Annual Meeting, Annual Stakeholder Engagement, Annual Synod, Annual Fellowship Assembly or their equivalents, he may choose one of the three governance positions subject to his tenure except where he has occupied all or any of the three governance positions for more than twenty years or he is more than seventy years old. Where this exception applies, he can only be on the Board of Trustees except the constitution of his organization otherwise provides.[4]
Nevertheless, the provision in paragraph 9.3 the NFPO Code appears to affect all not-for profit organizations except religious or cultural organizations as the proviso in paragraph 9.3 states that “nothing in this code is intended to change the spiritual leadership of founders, General Overseers, Pastors, Imams, Muslim Clerics, Presidents, Bishops, Apostles, Prophets, which are distinguishable from purely corporate governance and management responsibilities and accountabilities of the entities”. However, it would seem that the proviso in paragraph 9.3 is somewhat contradicted in paragraph 9.4(c) which states that Conflicts with Founders or Leaders should therefore be addressed by “considering and ensuring Founder’s or Leaders continued advisory or spiritual role by creating a Board of Trustees (BOT) for which the original Founder or Leader can become the First or Life Chair.”
The Code also imposes a duty to prepare an annual financial statement on NFPO’s in accordance with the approved framework of accounting and financial reporting issued from time to time by the Financial Reporting Council of Nigeria[5]. The duty of preparing annual and other financial statements is on the Chief Financial Officers of the organization. Other restrictions include preventing external audit firms from being retained for no longer than five years continuously.[6] However, they may be reconsidered for appointment five years after their disengagement. However, if the external audit firm has already exceeded five years at the commencement of the Code (October 17, 2016), it must cease to hold office as an auditor of the organization in the year that the code comes into force. In a seeming departure from the Companies and Allied Matters Act, NFPO’s are also required to publish their annual reports and accounts on their website[7]. Under CAMA, only public limited companies are mandated to do so.
The Board of the NFPO must also disclose matters such as a statement of the director’s responsibilities, details of accounting policies utilized and reasons for changes in accounting policies, the Executive directors’ remuneration, compensation for loss of office, and terminal benefits, the non-Executive Directors’ fees and allowances and any donations, contributions, payments, etc. made to any entity in its annual statement. In addition, the Board must establish a whistle-blower policy that encourages individuals to report credible information on illegal practices or violations of policies of the organization and specifies that the organization will protect the individual from retaliation, and identify the parties to whom such information can be reported.
There may be a need to re-draft some provisions of the Code, which appear to be unnecessary. For instance, the provision guiding the appointment and removal of Directors[8] says that candidates should be formally interviewed and appointed on merit and even details what an induction process for a director should involve[9].
Also the NPFO Code seems to delve into what would ordinarily seem as internal matters by demanding that NFPOs adopt and implement a communications policy that enables the Governing Board and Management to communicate, interact with and disseminates information regarding the operations and management of the NFPO to its members, beneficiaries, stakeholders and/or the general public. Additionally, the Board must ensure reports of the NFPO and other communications to members, beneficiaries, stakeholders and the general public are in plain language, readable and understandable and consistent with previous reports[10]. Other seemingly superfluous requirements include that the NFPO’s map out its major stakeholders and facilitate how to satisfy them through a stakeholder analysis to create public value and advance the common good.
Lastly, although there is nothing wrong in strengthening the regulations of NFPO care must be taken during consultations to be open and ensure that future codes for NFPO encourage not needlessly stifle the growth of an already regulated sector. Already, the House of Representatives has led the way in promising a detailed public hearing on the matter.
[1] Paragraph 1 of the Not- For Profit Organisations Governance Code
[2] See s. 26 of the Companies and Allied Matters Act (CAMA), Cap c. 20, LFN 2004 and Part C (Incorporated Trustees)
[3] Paragraph 7. 1 of the Not- For Profit Organisations Governance Code
[4] Paragraph 9.3 of the Not- for Profit Organisations Governance Code
[5] Paragraph 25.1 of the Not -for Profit Organisations Governance Code
[6] Paragraph 28.2 of the Not -for Profit Organisations Governance Code
[7] Paragraph 31.2 of the Not -for Profit Organisations Governance Code
[8] Paragraph 16.4 of the Not -for Profit Organisations Governance Code
[9] Paragraph 17.3 of the Not for Profit Organisations Code
[10] Paragraph 38.2 of the Not for Profit Organisations Code