CORPORATE GOVERNANCE SCORECARD OF SEC NIGERIA 1

CORPORATE GOVERNANCE SCORECARD OF SEC NIGERIA 1

BACKGROUND Definition A Corporate Governance Scorecard is a tool for assessing companies’ level of compliance with the Corporate Governance Code. It adopts a systematic and quantitative evaluation approach, based on benchmarks established to achieve best practice which companies are expected to follow. With this in mind the Commission decided to develop a Corporate Governance (CG) Scorecard for market-wide use in order to instill good CG practice among public companies. 2

BACKGROUND (CONT’D) Highlights on the Scorecard Development Process Scorecard jointly developed with the International Finance Corporation (IFC) Indicators of the scorecard are closely linked with the provisions of the SEC Code of Corporate Governance for Public Companies, 2011 Indicators scaled down from over 500 to about 130 Exact wordings of the code used The SEC Code is the underlying document for the scorecard. Companies required to understand the requirements of the code prior to using the scorecard Pilot Testing conducted on selected companies in the process of developing the scorecard 3

THE GOAL The goal of the CG Score Card is to enforce better public disclosure and to create a market for information, thereby incentivizing companies to evaluate and modify their practices. The SEC intends to make available quality information on CG to the market, and let the market exercise pressure on companies to comply with the requirements of the Code 4

THE OBJECTIVES Facilitate analysts and investors’ understanding of a company’s CG practices through a systematic review of relevant CG issues. Help companies easily assess the level and quality of their own governance while also pointing to areas for improvement. Enable comparison and benchmarking across companies, industries and countries. Facilitate the availability of CG compliance reports to stakeholders via communication channels e.g. website, print media, etc. Raise awareness of good CG practices. Guide investors in making informed investment decisions. Pilot Testing conducted on selected companies in the process of developing the scorecard 5

CURRENT FILING SYSTEM Form 01 Filing done on an half-year basis Companies required to provide responses to questions on the Form 01 Paper Filing Certification by key representatives (Chairman, Company Secretary, Managing Director, Chief Finance Officer, Chairman Audit Committee) Observations from responses are communicated to companies in form of comment letters and directives issued where necessary 6

CHALLENGES WITH CURRENT SYSTEM Companies do not actually demonstrate compliance with sections of the Code Incidences of filing the same return from one reporting period to another (“copy and paste”) Frequency of change in the nature of information being reported is low (usually on an annual basis) No mechanism for disclosing compliance level to the market Poor corporate governance reporting by companies 7

PROPOSED FILING SYSTEM New Form 01 Filing on an annual basis Web-based/Email Companies required to provide a “yes”, “no” or “partial” response to questions on compliance with sections of the code Substantiating Comments are to be provided to support the response provided Documentary evidence would be required where necessary Companies required to disclose on their websites and in the annual report Filing of a supplementary form when there are material changes 8

LEGAL DISCLOSURE REQUIREMENTS Rule 42 on half –yearly returns is being amended Grace period for filing Penalties for late or non-filing to subsist 9

OVERVIEW OF THE SCORECARD # Item PART B- THE BOARD OF DIRECTORS 2 2.1. Yes No Partially Substantiating Commentary Responsibilities of the Board a) Does the Board act in accordance with the principle that it is ultimately accountable and responsible for the performance and affairs of the company? b) Does the Board define the company's strategic goals and ensure that human and financial resources are effectively deployed towards attaining those goals? a) Does the Board ensure that the company is properly managed? 2.2. b) Does the Board oversee the performance of Management, protect and enhance shareholder value? c) Does the Board ensure the company meets its obligations to employees and other stakeholders? a) Does the Board act to ensure good corporate governance in the company? 2.3. b) Does the Board ensure that the company operates in accordance with its Articles and Memorandum of Association, and complies with relevant law? c) Does the board ensure observance of the highest ethical standards by the company? 2.4. Has the Board defined a framework for the delegation of authorities or duties to Management specifying matters that may be delegated and those reserved for the Board? 10

SCORECARD IMPLEMENTATION STRATEGY - Training Development of a guide to filling the scorecard Availability of a helpdesk Self Assessment by Companies Regulatory Assessment by the Commission i) Passive (Off-Site Evaluation) ii) Active (On-Site Verification) 11

REVIEW OF FILINGS “Yes" responses attract a point, "no" responses attract no point while partial responses attract half a point “Yes” responses may be revised to “partial” or “no” in the event that a company is unable to substantiate the “yes” adequately (companies would be carried along during this process) Total scores are summed up to determine companies total score and ultimately, the percentage compliance level Compliance within sectors and compliance with specific sections would also be determined Individual company’s areas of strength and weakness would be identified 12

REVIEW OF FILINGS/CONT’D Level of compliance within sectors to be generated Individual company compliance level would not be published. However, comments on general level of compliance would be made available to the market Training needs to be identified based on areas of weakness observed Improvement in compliance levels among companies to be monitored 13

INFORMATION TO BE GENERATED FROM THE REPORTS Level of compliance among all listed companies Level of compliance within different industries Level of compliance by individual companies Level of compliance with specific parts or requirements of the code Benchmarking with other companies, industry-related companies and other jurisdictions Identification of training needs 14

EXPECTED OUTCOMES FROM THE SCORECARD PROJECT NIGERIAN CAPITAL MARKET Increased Market Confidence Transparency Accountability Greater inflow of foreign direct investments Information driven market Improved Liquidity LISTED COMPANIES Effective Control Systems Increased Performance Improved Corporate Governance practices Increased investor confidence Attract investors 15

EXPECTED OUTCOMES/CONT’D SEC Investor Protection Development of the Nigerian Capital Market Informed Rule making Proactive Regulation Market Stability Leadership in Standards’ Setting Enhanced Reputation 16

FILING PROCESS The Form 01 is the existing form upon which corporate governance information is filed Given that the Form 01 is currently being used to monitor compliance with the Code, it is appropriate to amend the form instead of over-burdening the companies with two returns. The Scorecard is incorporated in the new Form 01 The Form would be filed on an annual basis Filing of a supplementary form when there are material changes Self evaluation Web-based platform 17

Thank you! 18