SHOULD NON-EXECUTIVE DIRECTORS BE PAID FOR ATTENDING VIRTUAL BOARD MEETINGS

In a quintessential Board meeting recognised under the Nigerian Code of Corporate Governance (NCCG), Companies and Allied Matters Act (CAMA), and Investments and Securities Act amongst other laws and regulations, internal and external that guide Corporate Governance,  Executive and Non-executive members are expected to attend and participate in a structured manner, and debate on all issued raised by the agenda. The afore mentioned laws and regulations dictate and determine what constitutes a meeting, requirement of attendance, a quorum, voting procedure amongst others.

However, in the wake of COVID-19[1], Companies are beginning to rethink the rationale behind the payment of sitting allowance, because Board members are no longer required to incur any tangible expense to attend and participate Board meetings.

It is important to note that Section 267 of the Companies and Allied Matters Act provides that a company is not bound to pay remuneration to Directors but where the company agrees to pay[2], Directors shall be paid such remuneration out of the funds of the company and such remuneration shall from time to time be determined by the company in general meeting. In the same vein, Principle 16 of NCCG provides that the Board ensures that the Company remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term. It also recommends that NEDs may be paid sitting allowances, Directors’ fees and reimbursable travel and hotel expenses and that remuneration policy should be designed to attract, motivate, reward and retain high performing human capital.[3]

A cursory look at the role of Non-executive Directors show that they are expected the devote significant time and effort to their boardroom and non-boardroom duties. These begs the following questions;

  1. What is the motive for sitting allowance?
  2. How can sitting allowance be determined for Non-executive directors?
  3. Can these “time and efforts” be quantified, where the NED does not incur any travel and hotel expense to attend the meeting?
  4. If there had been no Covid-19 breakout, and NEDs participate in a Board meeting virtually, would they still earn a sitting allowance?
  5. How will the remuneration of NEDs be treated in the face of Covid-19?

The origin of sitting allowance is unknown, but allowance has been defined as an amount deducted or allotted or granted as a reimbursement, bounty or as appropriate for any purpose. Business Dictionary defines it as Amount paid to employees as part of their salary package, or to defray their out-of-pocket expenses incurred on behalf of the firm[4] and amount deducted from an invoice as an incentive for a large order, or to compensate the buyer for an expense or mistake. It is also known as an abatement or deduction which takes into account mitigating circumstance. A consistent thought in these definitions is that allowance is a sum made for compensation of expenses.

The NCCG is silent on how sitting allowance is determined for NED, however it provides that remuneration should be fair, response and designed to attract, motivate and retain high performing human capital. It also provides that NEDs should not receive performance-based compensation as it may lead to bias in their decision-making and compromise their objectivity.[5] Notwithstanding, the Board is responsible for setting the direction of how remuneration should be addressed in the Company. Thus, remuneration for NEDs are determined by the Board, taking cognisance of rules of transparency and making sure that the goal of remuneration policy is to promote the achievement of strategic objectives of the Company.

In Ideal Board meetings, members are required to show up and participate in meetings. Members are expected to travel out of and into town to attend meetings, lodge in hotels as applicable and in the event that the Company has by the terms of appointment, specified that the NEDs shall be entitled to a sitting allowance, the Company makes good on its promise. Today, these intangible efforts include time, internet subscription, spontaneous strategic ideas which differ per industry. It should also be noted that NEDs are also appointed for their expertise and the wealth of experience they bring towards the strategic growth of the Company. Hence, where a NED is instrumental in driving the growth of the Company, through the birthing of ideas and transfer of industry experience, even though He/She is not physically present, the NED should be paid a sitting allowance especially if the terms of appointment has specified that the NED shall be entitled to one.

Due to the movement restrictions and lockdown order by the Government, individuals can no longer participate physically in meetings and have resorted to the use of tele-conferencing platforms. Most companies have been affected the Covid-19 pandemic as they cannot carry out the day to day businesses consequently leading increase in revenue and profit making for the company. Some Companies have so far recorded losses and are looking to cut down on fixed costs, allowances and remuneration of staff and Board members inclusive.

It is recommended that where the terms of appointment has specified that NEDs should be paid sitting allowance for participating the Board meetings, the Company should make good on those terms and make such payments, as the Board members has not only earned the said allowance by attending the meeting but had expended intangible resources to ensure that he fulfils his obligations to the company, whether or not participation was done virtually.  However, due consideration should be made in regards to the unprecedented nature of COVID-19, the uncertainty of the economy, the viability of the Company’s product in today’s market, excessive bonuses and reward schemes amongst other factors which may affect the payment of sitting allowance.  Where the terms of appointment have specified that the NED shall be paid sitting allowance, the Board may, in consensus with NEDs and approval of the shareholders in a General Meeting, make a realistic adjustment of the allowance pending an improvement in the company’s financial performance.

As a forward-thinking Board, the importance of maintaining transparency and emotional intelligence in Company matters cannot be overemphasized and all decision should ultimately be in the best interest of the Company.

 

 

 

Disclaimer: Please note that the critical items highlighted above are solely for academic purposes and should not be taken as legal counsel. For further information, kindly send an email to u.ukefi@zuriel.com.ng or contact our office, ZCL SOLICITORS, 14a Dasilva Street, Off Ayo Jagun Street, Lekki Phase 1, Lagos.

 

[1] The coronavirus disease 2019 (COVID-19) is a communicable respiratory disease caused by a new strain of coronavirus that causes illness in humans. It was first reported in China late 2019, but it has now spread throughout the world, and as at the date of this article has no cure. See https://africacdc.org/covid-19/

[2] Emphasis Mine.

[3] NCCG, Principle 16, Recommended Practices 16.3 and 16.13.

[4] Read more: http://www.businessdictionary.com/definition/allowance.html

[5] NCCG, Principle 16, Recommended Practices 16.12

 

By Urechi Ukefi

Comments
  • Well written and it is good to hear someone talking about this.

    I must note from your recommendations that you have not thrown out the idea that the NEDs are the most resourceful set of individuals needed at this time that companies are in a tight corner at the wake of the crashing world economy.

    Except for companies who produce essential items needed by households and the health sector, most other companies have actually started seeing the financial impact of the pandemic in their financial books.

    Be that as it may, the role of the NEDs comes handy in developing risk mitigation policies that can strategically yank out the company out of this post COVID.

    I think your article has made meaningful recommendation on how to keep these resourceful people satisfied while putting the company’s Financials into proper consideration.

    Thanks.

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