PenCom CODE OF CORPORATE GOVERNANCE FOR LICENSED PENSION OPERATORS RR/P&R/08/013 www.pencom.gov.ng National Pension Commission June 2008 Content Page 1.0 Introduction 3 2.0 Definitions 3 3.0 Purpose of the Code 3 4.0 Code on Board Issues 4 4.1 Board Composition and Balance 4 4.2 Appointment of Directors 4 4.3 Responsibilities of Directors 6 4.4 Conduct of Affairs of the Board 7 4.5 Performance Evaluation of the Board 8 4.6 Re-election of Members of the Board 11 5.0 Code on Industry Transparency 11 5.1 Conflicts of Interest – Relationship between PFAs and PFCs 11 5.2 Conflicts of Interest – Relationship between PFAs and their Service Providers 11 5.3 Directors Remuneration 12 5.4 Reporting Requirements 12 5.5 Non Compliance 13 National Pension Commission 1 June 2008 About this Code The Code of Corporate Governance essentially aims to set out rules based on best practices to guide PFAs (including CPFAs) and PFCs on the structures and processes to be used towards achieving optimal governance set up. It is developed with a view to establishing overall economic performance and market integrity as it creates incentives for the pension scheme to impact positively on the stakeholders. This is necessary in gaining the confidence of the stakeholders directly affected by the pension reform. The Code is also to promote the transparent and efficient implementation of the scheme by all the operators. It is intended to encourage self- regulation by providing a common value system among the operators. The Code is based on internationally accepted principles of good corporate governance and its requirements are consistent with the provisions of the Pension Reform Act 2004, rules, regulations and guidelines issued by the Commission and are also considered transparent and enforceable. Review and Enquiries The Code shall be subject to review by the Commission from time to time as the need arises. All enquiries regarding this Code shall be directed to the Director General, National Pension Commission. National Pension Commission 2 June 2008 RR/P&R/08/013 CODE OF CORPORATE GOVERNANCE FOR LICENSED PENSION OPERATORS 1.0 Introduction 2.3 From the perspective of the pension 1.1 All stakeholders in the Industry have industry, it embodies the structure a responsibility towards the and processes put in place for actualization of the main objective of overseeing, managing and the Pension Reform Act 2004, which administering the pension schemes is to ensure that every worker to ensure that fiduciary and other receives his/her retirement benefit as obligations of the scheme are met. and when due. It is in the light of this, that the Commission has 2.4 Deriving from 2.1 to 2.3 above, good designed a Code of Corporate corporate governance, therefore, Governance for Licensed Pension embodies both enterprise (i.e. Operators to help them meet their performance) and accountability (i.e. own governance responsibilities. compliance) concerns. 1.2 The Code outlines minimum corporate governance requirements, 3.0 Purpose of the Code meant to ensure that governance 3.1 Essentially, the Code has been policies are entrenched in the developed to create: companies. 3.1.1 Necessary conditions for shareholders to exercise an active 2.0 Definitions and responsible ownership role; 2.1 In broad terms, corporate governance 3.1.2 A clear delineation of authority deals with the manner in which between the owners, the Board of companies are to be run to meet the Directors and the Executive owners’ required return on invested Management; capital and thus contribute to economic growth and efficiency and 3.1.3 A clear division of roles and ethical behaviour in society. responsibilities between the various levels of authority; and 2.2 Put differently, it refers to the processes and structure by which the 3.1.4 Transparency amongst operators. business and affairs of the company are directed and managed, in order to enhance long term shareholder 3.2 However, the aim is not only to value through enhancing corporate define what acceptable corporate performance and accountability, governance practice is, but also to whilst taking into account the serve as a source of inspiration for interests of other stakeholders. operators to aim at installing National Pension Commission 3 June 2008 reasonably good corporate or officers that could interfere, or governance practices in their be reasonably perceived to organizations. interfere, with the exercise of his independent business judgment, 3.3 It promotes transparency and directs which is in the best interests of the PFAs and PFCs to include in their company. annual report, a narrative statement of how they apply the relevant 4.1.4 A director shall not be considered principles to their particular to be independent if he: circumstance and also to post such (a) is being employed for any form information to their website. of service by the company or any of its related companies for 3.4 Additionally, it directs the PFAs and the current year or any of the PFCs to submit a separate report to past three (3) financial years; the Commission on corporate governance activities within their (b) has an immediate family organization. The report should member (i.e. spouse, child, include an explanation for any adopted child, step-child, deviations from the rules and brother, sister and parent) who guidelines set out in this document. is, or has been employed by the company or any of its related 3.5 The Code deals with two broad areas: companies at least in the last (a) Board Issues three (3) years; (b) Industry Transparency (c) is accepting any compensation 4.0 Code on Board Issues from the company or any of its related companies other than 4.1 Board Composition and compensation for Board service Balance for the current or past three (3) financial years; or 4.1.1 The number of non-executive members (excluding the Chairman) of the Board shall at all times, in (d) is a substantial shareholder of, the minimum, equate the number or a partner in (with 5% or of executive members, if applicable. more equity interest), or an This shall ensure that the Board executive officer of any profit- has a balanced view of issues at all making organization to which times. the company made, or from which the company received 4.1.2 Each Board shall have at least one significant payments, in the Independent Director. current or past three (3) financial years. 4.1.3 An Independent Director shall be one who has no relationship with 4.1.5 The relationships set out in 4.1.4 the company, its related companies (a) to (d) above, are not intended to (i.e. subsidiary, associate or parent) be exhaustive and are examples of National Pension Commission 4 June 2008 situations, which could make a 4.2.2 In the case of re-nominations, the director not to be deemed as criteria should have regard to the independent. If the PFA/PFC director’s contribution and however wishes, in spite of the performance (e.g. attendance, existence of one or more of these preparedness, participation and relationships, to consider the candour) on the Board. director as independent, it shall disclose in full, to the Commission, 4.2.3 It shall constitute a Nominating the nature of the director’s Committee (NC) to make relationship and explain why he recommendations to the Board on should be considered independent. all Board appointments. 4.1.6 The Board shall not exceed the size 4.2.4 The NC shall consist of at least that will allow it to employ simple three directors, including the and effective methods of work to Chairman and an Independent enable each director to feel a Director. personal responsibility and 4.2.5 In the case of new appointments commitment. The Board shall take and re-appointments, the NC’s into cognizance, the scope and recommendations shall be based on nature of the operations of the the agreed criteria for the company. appointment or re-appointment of 4.1.7 The Board shall comprise of directors. It shall also be based on directors, who as a group, provide the requirements of the Guidelines core competencies that are for Appointment to Board and Top beneficial to the operations of the Management Positions in PFAs company. and PFCs, GL/APPT/01, issued by the Commission. 4.1.8 The roles of Chairman and Chief Executive Officer (CEO) shall be 4.2.6 The Commission shall be charged separate, to ensure an appropriate with the responsibility of balance of power, increased determining, annually, whether or accountability and greater capacity not the Independent Director is of the Board for independent truly independent, bearing in mind decision making. the circumstances set forth in 4.1.4 (a) to (d) above and any other 4.1.9 The PFA/PFC shall disclose the salient factors. relationship between the Chairman and the CEO, where they are 4.2.7 The PFA/PFC shall develop a related to each other. comprehensive, formal induction programme that is tailored to the 4.2 Appointment of Directors needs of the company and individual non-executive directors. 4.2.1 The Board shall specify and A combination of selected written document the procedures and information together with criteria for appointing a new presentations and activities such as director. meetings and a tour of the company’s offices could help to give National Pension Commission 5 June 2008 a newly appointed director a (c) Build an understanding of the balanced and real-life overview of company’s main relationships, the company. including the major shareholders, PFC(s), corporate 4.2.8 The induction process shall: customers and competitors. (a) Build an understanding of the nature of the company, its (d) A new non-executive director business and the market in shall be provided with necessary which it operates. It shall information to help ensure his necessarily cover: early effective contribution to the company. i) the company’s products or services; 4.3 Responsibilities of Directors ii) the company’s Memorandum and Articles of Association, 4.3.1 The Board, based on what is in the Board procedures and best interest of the company, its matters reserved for the shareholders and other stakeholders, Board; shall set objectives for the company’s business operations and make sure that the company has an appropriate iii) the company’s major risks strategy, organization and and risk management management for achieving these strategy; objectives. 4.3.2 The Board shall ensure that the iv) key performance indicators; company has an effective and management team. It shall monitor and evaluate the performance of the management team on a regular v) Regulatory requirements. basis. 4.3.3 The Board shall appoint and, if (b) Build a link with the company’s necessary, dismiss the company’s people including; Managing Director. i) meetings with senior 4.3.4 On a regular basis, the Board shall management; and follow up and evaluate the company’s operations against the objectives and ii) visits to company’s branches guidelines established by the Board. (in the case of PFAs), to see more of the company’s 4.3.5 The Board shall ensure that control operations and meet the of the company’s financial situation employees in an informal and also in respect of PFAs, the setting. financial situation of the Fund administered by it, is satisfactory; that the company’s risk exposure is National Pension Commission 6 June 2008 reasonable; that accounting and senior management for further financial management are of high enquiries, as may be required. quality and are monitored in a satisfactory manner; and that the 4.3.12 The Board shall ensure that the company has good internal control. company has a sound system of internal controls. 4.3.6 The Board shall ensure that the company, in its reporting to owners, 4.3.13 The Board shall be responsible for the Commission and other issuing the company’s audited stakeholders, gives an accurate financial statements. picture of the company’s progress, 4.3.14 All members of the Board shall profitability, financial position and complete the Code of Conduct Forms risks. for Directors, issued by the 4.3.7 The Board shall ensure that there is Commission. a satisfactory process to monitor the 4.4 Conduct of Affairs of the Board company’s compliance with the law and rules and regulations governing 4.4.1 The Board shall meet at least once its operations. every quarter of the financial year. 4.3.8 The Board shall ensure that 4.4.2 Written notices, including agenda of necessary guidelines are established the meeting, shall be circulated not on the company’s ethical conduct in less than seven days before the its relations with employees, meeting, except in the circumstance customers, competitors and other of emergency meetings, where the related parties. The guidelines shall notice period may be reduced or be in line with the Code of Ethics waived. and Business Practices for PFAs and PFCs, issued by the Commission. 4.4.3 The Chairman of the Board shall ensure that minutes of meetings are 4.3.9 The Board shall put adequate appropriately recorded and structures in place by which staff of circulated to members. the company may, in confidence, raise concerns about possible 4.4.4 The Board shall establish Board improprieties. Committees to facilitate its work. The Committees shall include the 4.3.10The management of the company Audit Committee, the Investment shall have an obligation to supply Strategy Committee, the Risk the Board with complete and Management Committee, and the adequate information on the Nominating Committee. operations of the company, in a timely manner. 4.4.5 Where the nomenclature, Nominating Committee is 4.3.11 The Board shall not rely purely on undesirable, the Board may adopt information volunteered by the any other nomenclature considered management and shall, in all suitable for the Committee. The circumstances, have separate and Committee, however, irrespective of independent access to the company's its nomenclature, shall be National Pension Commission 7 June 2008 constituted as specified in 4.2.4, and weaknesses. The results of the shall perform the functions that shall Board evaluation shall be shared include those specified in 4.2.3, with all members of the Board. The amongst others. Chairman shall act on the results of the performance evaluation by 4.4.6 Where the Board appoints a recognizing the strengths and committee, it shall issue, in writing, addressing the weaknesses of the the terms of reference to guide the Board and, where appropriate, committee’s work and shall also spell proposing the appointment of new out the authorities of the committee, members or seeking the resignation and in particular, whether the of non-performing directors. committee has the authority to act on behalf of the Board or simply has 4.5.5 The Board shall disclose, in the the authority to examine a particular Corporate Governance Report to the issue and report back to the Board Commission, the total number of with a recommendation. Board meetings held in the financial year and names of the directors that 4.4.7 The Board shall have a formal attended each of the meetings. schedule of matters specifically reserved for the Board’s decision, to 4.5.6 The Board shall state in its ensure that the direction and control Corporate Governance Report to the of the company is firmly in its hands. Commission, how such performance evaluation was conducted and 4.5 Performance Evaluation of the actions taken to address the issues Board brought to fore as a result of the evaluation. 4.5.1 The Board shall, on an annual basis, undertake a formal and rigorous 4.5.7 To bring objectivity to the process, evaluation of its own performance the Board may consider the use of and that of its committees and external third party to conduct the individual directors. evaluation, 4.5.2 Individual evaluation shall aim to 4.5.8 Where the use of external third party show the contribution of each is not desirable, the PFA/PFC may director to the Board, including time decide to design and institute its own committed for Board and committee internal board review and evaluation meetings and any other duties. process, or the following shall apply: 4.5.3 The outcome of the evaluation shall (a) The NC shall be responsible for be prepared in two copies and one evaluating the performance of the copy submitted to the Commission Board as a whole; along with the company’s annual report on corporate governance. (b) the non-executive directors, led by the Independent Director, shall be 4.5.4 The evaluation process shall be used responsible for performance constructively as a mechanism to evaluation of the Chairman, taking improve Board effectiveness, into account the views of the maximize strengths and tackle executive directors; National Pension Commission 8 June 2008 (d) Are inside and outside the Board relationships working (c) the Chairman and the non- effectively? executive directors shall be responsible for the evaluation of executive directors; and (e) How has the Board responded to any problems or crises that have emerged and could or should (d) the Chairman and the executive these have been foreseen? directors shall be responsible for the evaluation of non-executive directors. (f) Are the matters specifically reserved for the Board the right ones? 4.5.9 Where the PFA/PFC decides to design and institute its own internal Board review and evaluation process, as (g) How well does the Board specified in 4.5.8, details of such communicate with the processes shall be forwarded to the management team, company Commission for prior approval. employees and others? 4.5.10The following questions shall form the basis of the performance (h) How effectively does the Board evaluation. They are, however, by no use mechanisms such as the means definitive or exhaustive and Annual General Meeting? the PFA/PFC shall be at liberty to tailor the questions to suit their own needs and circumstances: (i) Is the Board as a whole up to date with latest developments in 4.5.11 The Board: the regulatory environment and the market? (a) How well has the Board performed against any performance objectives that (j) How effective are the Board’s have been set? Committees? (Specific questions on the performance of each committee should be included (b) What has been the Board’s such as, their role and contribution to the testing and effectiveness, their composition development of strategy? and their interaction with the Board.) (c) Is the composition of the Board and its committees appropriate, (k) Is appropriate and timely with the right mix of knowledge information of the right length and skills to maximize and quality provided to the performance in the light of Board and is Management future strategy? responsive to requests for National Pension Commission 9 June 2008 clarification or amplification? 4.5.13 The Directors: Does the Board provide helpful feedback to Management on its (s) How well prepared and informed requirements? are they for Board meetings and is their meeting attendance satisfactory? (l) Are sufficient Board and Committee meetings of appropriate length held to (t) Do they demonstrate a enable proper consideration of willingness to devote time and issues? Is time used effectively? effort to understand the company and its business and a readiness to participate in (m) Are Board procedures conducive events outside the Boardroom to effective performance and such as site visits? flexible enough to deal with all eventualities? (u) What has been the quality and value of their contributions at 4.5.12 The Chairman: Board meetings? (n) Is the Chairman demonstrating effective leadership of the (v) In the case of Executive Board? Directors, how well have they handled the day-to-day operations of the company? (o) Are relationships and communications with shareholders well managed? (w) What has been their contribution to development of strategy? (p) Are relationships and communications within the Board constructive? (x) How successfully have they brought their knowledge and experience to bear in the (q) Are the processes for setting the consideration of strategy? agenda working? Do they enable Board members to raise issues and concerns? (y) How effectively have they probed to test information and assumptions? Where necessary, (r) Is the Company Secretary being how resolute are they in used appropriately and to maintaining their own views maximum value? and resisting pressure from others? National Pension Commission 10 June 2008 (z) How effectively and proactively Association relating to the removal of have they followed up their a director. areas of concern? 4.6.2 The re-election of a director shall not be automatic and shall be based on (aa) How effective and successful the favourable performance of the are their relationships with director on the Board. fellow Board members, the Company Secretary and senior 4.6.3 Where a director is not re-elected management? thus causing a vacancy on the Board, the shareholders shall appoint another director to replace the (ab) Does their performance and outgoing director, in line with the behaviour engender mutual provisions of the Guidelines for the trust and respect within the Appointment of Board and Top Board? Management Positions in PFAs and PFCs, GL/APPT/01, issued by the Commission. (ac) How actively and successfully do they refresh their knowledge and skills and are they up to 5.0 Code on Industry Transparency date with the latest developments in areas such as 5.1 Conflict of Interest – corporate governance Relationship between PFAs and framework, financial reporting PFCs and the industry and market 5.1.1 The PFA shall not have any conditions? relationship with the PFC with which it chooses to do business, as specified in the Code of Ethics and (ad) How well do they communicate Business Practices, issued by the with fellow Board members, Commission. senior management and others, for example shareholders? Are 5.1.2 A relationship as in 5.1.2 above shall they able to present their views be deemed to exist in situations convincingly, yet diplomatically where: and do they listen and take on (a) any director in a PFA is an Board the views of others? employee or principal officer or 4.6 Re-election of Members of the shareholder in a PFC that the Board PFA appoints to carry on any form of business on its behalf, or 4.6.1 Directors shall be appointed for in its subsidiary or associated specific tenors, subject to re-election company, or its parent bank; in line with relevant statutory requirements and sections of the Memorandum and Articles of (b) any director in a PFA is a director on the Board of a PFC National Pension Commission 11 June 2008 that the PFA appoints to carry PFA or the PFC which the PFA on any form of business on its appoints, the PFA shall disclose such behalf, or is on the Board of its relationship to the Commission. subsidiary or associated company; and 5.2.4 In the circumstance highlighted in 6.2.3 above, the Commission reserves the right to allow or (c) an associated company of the disallow such investment. PFA has a significant business relationship with the PFC or its 5.2.5 To avoid potential conflicts of parent or its associated interest, spouses of operator (PFA, company, and vice versa. CPFA, & PFC) employees shall be prohibited from working at the Commission. Similarly, spouses of 5.2 Conflict of Interest - the Commission employees shall be Relationship between PFAs and prohibited from working with the their Service Providers operators. 5.2.1 A PFA/PFC shall engage service 5.3 Directors Remuneration providers that have a relationship with it on an arms length basis and 5.3.1 The Board should report to the customary disclosures shall be made shareholders each year on in their audited financial statements. remuneration. The report should form part of, or be annexed to, the 5.2.2 A relationship as in 5.2.1 above shall company’s annual report and be deemed to exist where: accounts. It should be the main vehicle through which the company (a) the PFA and the service reports to shareholders on directors’ providers, which it appoints, remuneration. have common ownership or directorship, no matter how 5.3.2 The report should set out the insignificant; and company’s policy on directors’ remuneration. It should draw attention to factors specific to the (b) an immediate family member PFA/PFC. (i.e. spouse, child, adopted child, step-child, brother, sister and 5.4 Reporting Requirements parent) of a shareholder or director of a PFA is a 5.4.1 The PFA/PFC shall include a shareholder or director of a statement in its annual report and service provider, which the PFA on its website on the level of its appoints. compliance with this Code of Corporate Governance. 5.2.3 Where the PFA decides to invest 5.4.2 Additionally, the PFA/PFC shall pension funds in a company whose submit a separate report to the registrar is related (i.e. shareholder, Commission on corporate governance subsidiary or associate) to either the activities within its organization, not National Pension Commission 12 June 2008 later than two months after its financial year end. (g) The relationship between the 5.4.3 The report shall include the Chairman and the CEO where description of corporate governance they are related (spouse, child, practices instituted in the company adopted child, step-child, within the reporting year and shall brother, sister and parent) to also disclose and explain any each other. deviation from any guideline of the Code. Specifically, the report shall include reports on: (h) The composition of the Nominating Committee. (a) Delegation of authority by the Board to any Board Committee, to make decisions on certain (i) The process for the selection and Board matters. appointment of new directors to the Board. (b) The number of Board meetings held in the year and the (j) Key information regarding attendance of every Board directors, which directors are member at the meetings. executive, non-executive or considered by the Nominating Committee to be independent. (c) The number of Board committee meetings held in the year and the attendance of every Board (k) The process for assessing the committee member at the effectiveness of the Board as a meetings. whole and the contribution of each individual director to the effectiveness of the Board. (d) The terms of reference of all Board committees. (l) Composition of Risk Management, Investment (e) The type of material Strategy and Audit Committees transactions that require Board and details of the committees’ approval under the company’s activities. internal guidelines. (f) The nature of a director’s relationship and the reason for (m) The adequacy of internal considering him as independent, controls, including financial, where the company considers operational and compliance him to be independent in spite of controls and risk management the existence of a relationship as systems. stated in 5.1.4 above that would (n) How performance evaluation of otherwise deem him as non- the Board, its committees and independent. its directors has been conducted. National Pension Commission 13 June 2008 5.4.4 The PFA/PFC shall attach the outcome of the annual evaluation of the Board, the Board committees and the directors, referred to in 5.5.1 above, to its Corporate Governance report. 5.5 Non Compliance 5.5.1 Non compliance to this Code will attract sanctions by the Commission. National Pension Commission 14