An appraisal of the fundamental rights of shareholders in corporate governance under the Nigerian law

 Introduction

When an individual or a group of persons purchase shares in a company, they become shareholders of that particular company. In Nigeria, there are over twenty million shareholders who own shares in public and private companies. A shareholder is a part owner of a company and is entitled to take part in making decisions for the running of the company. He is entitled to access information regarding the performance or otherwise of the company as contained in its annual report at the end of every year. He can vote on company issues at shareholders’ Annual General Meetings (AGMs) and other meetings. A shareholder benefits immensely whenever the company is doing well, then his shares would be worth more than when he bought them, and he may receive an income called dividend; as well as participate in the rights issued by the company.
Under the Companies and Allied Matters Act 1990, there are two principal organs of the company, to wit; the General Meeting and the Board of Directors. The General Meeting is the Shareholders acting in a properly convened meeting. The Board of Directors is given exclusive powers to manage the company. The powers of the shareholders under Companies and Allied Matters Act include default powers to act in any matter if the members of the board of directors are unable to act probably due to a deadlock, or are disqualified from acting in that respect; power to institute legal proceeding in the name of or on behalf of the company, where the board of directors refuse or neglect to do so; they also have power to ratify or confirm actions taken by directors, and to make recommendations to the board of directors regarding actions to be taken by the board of directors. Additionally the shareholders acting in the general meeting have power over the appointment and removal of directors and also to amend the articles of association to alter the powers of directors. Shareholders need to be protected against the increasing incidences of abuse of powers by Directors and holders of managerial posts. Recent advances in Nigeria have contributed to shareholder involvement in cooperate governance.
Nigeria has adequate laws intended to safeguard shareholders’ rights. There are numerous regulations and policies for ensuring that management of companies act in the shareholders’ interest.5 The early companies in Nigeria between 1876 and 1922 were virtue of colonization and British based. The applicable laws then were: common law, the doctrines of equity and the statute of general application in England as at January 1, 1900, subject to any relevant statute that had been enacted. This implied that doctrines such as that of separate legal personality of a company were received into Nigeria under the Companies Ordinance of 1912, which was the home enactment of the Companies (Consolidation) Act of England, 1908.
The Companies Ordinance of 1912 was in force only in the colony of Lagos, but by the amalgamation of Southern and Northern protectorates in 1914, the Ordinance was extended to the whole Country. The Companies Ordinance of 1912 was subsequently repealed by the Companies Decree 1922, which had it foundation from the United Kingdom Companies Act 1929. In 1968, a new Companies Decree was promulgated. This Decree replaced the 1922 Companies’ ordinance. The Company Act 1968 was mainly based on the United Kingdom Companies Act 1948 as part of the recommendations of the Jenkins Committee. Deficiencies in the 1968 Act gave birth to the Law Reform Commission in 1987 headed by his Lordship Hon Justice Dr Olakule Orojo (Rtd) whose Commission ushered in the current Companies and Allied Matters Act 1990.1 The Companies and Allied Matters Act 1990, Cap C 20 Laws of the Federation 2010 is currently the statute for regulating the registration and operation of all types of companies in Nigeria. Under the section 79 of Companies and Allied Matters Act, shareholders are recognized as members of the company and the directors owe duties to both the company and shareholders. The directors therefore do not have any legal liability or power to embark on any other duty apart from their duties to the Company. In Kotoye v. Saraki4 the Supreme Court of Nigeria conceded that shares are vested in the company directors but, the director hold such shares in trust for the shareholders. The Annual General Meeting is constituted by the Shareholders and is provided for under the law.5 Certain powers are conferred on shareholders by the law,6 which if exercised, are important in the administration of a company. These powers which are exercised at the General Meeting, including the power to appoint and remove directors, approve the remuneration of authors’ and even the power to institute legal proceedings to prevent the directors from entering into illegal or ultra vires actions, power to declare dividends, presentation of financial statements and the reports of Directors and Auditors and even the power to institute legal proceedings to prevent the directors from entering into illegal or ultra vires actions, power to declare dividends, presentation of financial statements and the reports of Director and Auditors, the election of directors in place of retiring ones, fixing remuneration and appointment of members of the audit committee.
The General Meeting thus, affords an opportunity for shareholders to supervise the management of the company. Since the Articles of Association regulates the management of the company, and the power to alter these articles lies in the shareholders, the shareholders can alter the Article for their own protection, and can also prevent the directors from perpetuating fraud. Every member is bound by the decisions of the Directors, who are the majority and this implies that while the majority shareholders will always have their say, the directors will always have their way.  It has been observed that most Annual General Meetings in Nigeria are fraught with dishonesty. These AGMs are prearranged in such a way that leaders of the shareholders association are induced by the majority shareholders, rather than look closely into the accounts presented by the Directors. Private enforcement of shareholders rights has provided means of regulating corporate conduct. Company law principles made recovery by shareholders very complex. At common law, shareholder actions were restricted in scope, fraught by procedural rules of complicated intricacy, and prohibitively costly.By Section 299 of CAMA, where irregularity has occurred in the course of a company’s affaires or any wrong has been done to the company, only the company can bring a legal action to remedy that wrong and only the company can ratify that irregular conduct. This is a statutory codification of the Rule in Foss v. Harbottle.  The legal derivative action was therefore enacted as legislative response to the apparent failure of the common law to effectively protect the interests of shareholders and the public from inequitable and dishonest company administration, and is contained in Section 310 – 312 CAMA, 1990. These Sections allow a shareholder to bring a derivative action for illegal or unfairly prejudicial and operative conduct, but in spite of these legal provisions, many impediments have discouraged a harmonized shareholder democracy in Nigeria such as “inadequacy of notices of statutory meetings”, “lack of information, apathy on the path of shareholders and a weak judicial system” as such impediments. Therefore, the legislative derivative action did not just inherit much of the intricacy of the common law, but also acquired additional obstacles of its own.