INTRODUCTION
The concept of corporate social responsibility (CSR) or simply corporate responsibility (CR)Footnote 1 originated from the United States of America.Footnote 2 Although some posit that it was in 1953 that the expression “corporate social responsibility” was actually first introduced in corporate America by Howard R Bowen in his book, Social Responsibilities of the Businessman,Footnote 3 othersFootnote 4 contend that CSR actually dates back to the philanthropic work of wealthy business owners such as John D Rockefeller and Andrew Carnegie, who gave away millions of dollars for social uses and causes.Footnote 5 Yet, others maintain that CSR should be traced to US boycotts in the 19th century of foodstuffs produced with slave labour.Footnote 6 Meanwhile, in the United Kingdom the concept of CSR was virtually non-existent before 1970.Footnote 7 As a matter of fact, it was not until 1973 that the most influential business community pressure group in the UK, the Confederation of British Industry, accorded CSR some recognition and made a statement on it.Footnote 8
It must be understood that, although CSR may entail some form of local community development and corporate philanthropy, it is not all about such philanthropic gestures. CSR might have evolved from charity but has obviously metamorphosed into modern conceptions such as: the triple bottom line of planet, people and profit;Footnote 9 the green movementFootnote 10 (including green advertising, green product manufacture and competition, and green management); and advocacy for sustainable development in business and society.Footnote 11 CSR is now said to mean the exercise of social responsibility in how corporate profits are made.Footnote 12 Further, it is now a comprehensive business philosophy that appreciates the economic, legal, ethical and discretionary expectations that society has of organizations at a given point in time.Footnote 13 It is the obligations (social or legal) that concern the major actual and possible social impact of the activities of the corporation in question, whether or not these activities are intended or do in fact promote the profitability of the particular corporation.Footnote 14 CSR is a comprehensive business philosophy that businesses must embrace a wider and broader level of accountability and responsibility to meet the expectations of groups (usually called stakeholders) other than shareholders. Therefore, CSR is much broader in scope than just corporate culture or some simple call for business ethics, which is concerned with moral dilemmas such as bribery and corruption.Footnote 15
The article has five sections. The first introduces the discussion, while the next highlights the conceptual framework towards an understanding of CSR regulation and enforcement mechanisms. The article then appraises the effectiveness or otherwise of CSR regulation under some specific pieces of legislation within the Nigerian business community, with a particular focus on the extractive industry, before setting an agenda for regulatory reforms towards a more efficient CSR regime in Nigeria and offering a conclusion.
CONCEPTUAL FRAMEWORK FOR UNDERSTANDING CSR REGULATION
Regulation is an intentional activity of attempting to control, order or influence the behaviour of others.Footnote 16 There are many reasons for introducing regulations. They can be used to cure problems associated with natural monopolies, to ensure proper allocation of scare resources, or for public safety and welfare, for example.Footnote 17 Regulation can include law but is not limited to law, as the concept of regulation is broader than law itself. That is to say, law can constitute the means through which the end of regulation may be achieved. When juxtaposed to governance, while governance concerns how and why an entity or system structures and conducts its affairs, regulation concerns how and why behaviour relating to the conduct of affairs of an entity is directed, steered and otherwise guided.Footnote 18 However, enforcement is a means to an end and not an end in itself.Footnote 19 The goal of enforcement is compliance with regulations and the achievement of the underlying goals of regulations.Footnote 20 Generally, in order to understand the rationale behind specific regulatory initiatives of corporate law as envisaged in this article, it may also be important to appreciate the regulatory consequences of different corporate law theories. Such discussions are outside the purview of this article and are thus excluded.Footnote 21
Further, it is also important to highlight the characteristic features and the various methods, forms and types that regulations have taken over the years. Generally, the vagariesFootnote 22 of regulations over time have been informed by the different theoretical stance of the regulators. The following forms and methods of regulation have been identified:Footnote 23 soft law versus hard law regulation; principle-based versus rule-based regulation; and voluntary versus mandatory regulation.
Soft law versus hard law regulation
Soft law regulations can be described as non-legally binding regulations usually containing aspirational goals, lofty ideals and other best practices expected to govern or regulate certain behaviours. The importance of soft law regulations is underscored in international law given their state-centeredness.Footnote 24 In other words, since international law is usually seen in terms of a law of nations, with its rules and regulations only applicable to state actors (as distinct from private individuals and companies), regulations to order corporate behaviour at an international level usually take the shape of soft laws. These soft law instruments do not have the status of international treaties that are ratified by states; they include guidelines, declarations, recommendations and resolutions.Footnote 25 Although soft law regulations are non-binding, they are not entirely useless. Sometimes they “provide official credibility and impetus for the development of complementary multi-stakeholder CSR initiatives at industry, regional or wider levels”Footnote 26 or help to galvanize “support for a particular programme or policy [and] can help to focus thinking about certain issues to clarify positions and to develop understanding between states”Footnote 27 or sometimes may “harden into positive law, where they are seen as evidence of emergent new standards of international law”.Footnote 28 Soft laws also provide a quick and flexible response to contemporary challenges and allow non-state actors to participate in international law where they cannot in traditional international law making processes.Footnote 29
Hard law regulations are the exact opposite of soft laws. Hard law regulations are positive, legally binding regulations with a clear and predictable enforcement mechanism, usually in domestic legislation. Very few CSR regulatory systems have adopted a hard law approach. The provisions of section 135 of the Indian Companies Act 2013 (Indian Companies Act) requiring, inter alia, the constitution of a CSR committee in the board of directors of qualified Indian companies, is a clear example of CSR hard law regulation. In the UK in 2002, efforts were made to harden CSR regulation by the introduction of a private member's bill on the subject of CSR,Footnote 30 but it never saw the light of day. Similarly, in March 2007, a bill was presented before Nigeria's highest legislative house, the Senate, but it also did not pass the second reading.Footnote 31
Principle-based versus rule-based regulations
Principle-based regulations are the regulatory modes, as the name suggests, that usually contain non-prescriptive guidelines and principles, such as the Organisation for Economic Cooperation and Development's Guidelines for Multi National Enterprises (MNE Guidelines) and the UN Global Compact (UNGC). Rule-based regulations are the prescriptive regulatory modes containing clearly defined enforcement mechanisms and predictable remedies for victims in cases where they are violated. Domestic legislation with positive rules and regulations includes the US 2002 Sarbanes Oxley Act (Sarbanes Oxley), English 2006 Companies Act (English Companies Act), Indian Companies Act and the Nigerian Companies and Allied Matters Act (CAMA).Footnote 32 It should be noted that, while principle-based regulations may be common in international regulatory dialogues for the reasons explained above, nothing intrinsically connects a principle-based regime and international regulations. Some provisions in codes of corporate governance in Nigeria are principle-based, such as the Nigerian Communication Commission Code of Corporate Governance for the Telecommunications Industry, 2014.Footnote 33
Invariably however, rule-based regulations contain positive rules and regulations, backed by predictable enforcement mechanisms. Rule-based regulation is said to provide clearer guidance for desired conduct than principle-based regulation does.Footnote 34 One major reason for less adoption of and the antagonistic attitude of the business community to a rule-based regulatory regime, such as Sarbanes-Oxley, is the accusation that it is over-regulative, too prescriptive, intrusive and sometimes disrespectful of the regulatory initiatives of other countries.Footnote 35
Voluntary versus mandatory regulations
Voluntary regulations are optional in terms of compliance. Under CSR discussions, voluntariness appears to have been informed by two phenomena: first, the false notion that CSR is synonymous with corporate charity and secondly the business case argument in CSR parlance. The idea that CSR is a corporate gift or donation, or represents something beyond the requirements of the law has been shownFootnote 36 to be faulty. This faulty notion constitutes a major factor behind the popular belief that CSR or its regulation must be voluntary. This is, without question, the stance of the EUFootnote 37 on CSR and its regulatory or enforcement regimes.
Further, the business case argument behind CSR appears to be the official CSR policy stance among many EU member states. It is argued that CSR is a voluntary concept and must be strategically shown to have some positive value, benefits and other company (shareholder) success related attributes before it may be embraced by the business community.Footnote 38 As a corollary of the former statement, it is also argued that the normal interplay of free market forces is the best method to regulate CSR and, therefore, there is no need for any hard law external and mandatory CSR rules.Footnote 39 Arguably, this is the most significant disservice to the CSR conception. This is partly because it appears to represent the official position of the EU (the largest economy in the world and the host community of the majority of the world's largest MNEs) and has provided a nest for the nefarious activities of many a rogueFootnote 40 company that will only fly below the radar of self-regulation. Regulatory initiatives under this regime will probably only scratch the surface and, at best, be good enough only for Thomas McInerney's Group A or B businesses, as analysed below:
“Many regulatory scholars recognize that there are four types of companies with which regulators have to deal. These four types include: those who know the law and are willing to follow it (Group A); those who do not know the law but would like to be law abiding (Group B); those who know the law and do not want to follow it (Group C); and those who do not know the law and do not wish to be law abiding (Group D). Most CSR literature does not even reflect these basics. As this analysis suggests, Group A firms are willing to comply on intrinsic grounds.”Footnote 41
The relevant question is, therefore, how effective and efficient are the voluntary initiatives against Group C and D businesses? In truth, however convincing the business case together with the voluntary CSR approach and free market forces argument may be, the voluntary regulatory initiatives will never be strong enough to secure responsible corporate behaviour.Footnote 42 Mandatory regulatory initiatives are the exact opposite of voluntary self-regulatory principles. They are not optional and must be complied with.
Despite these discussions in respect of the headings in which regulations may appear, it is important to note that the utility of identifying the methods in modern discussions on regulating CSR is also gradually reducing and the lines between the hitherto strictly voluntary and mandatory spheres are becoming blurred.Footnote 43 Further, Jennifer Zerk is quoted explaining that: “in short, the ‘voluntary versus mandatory’ debate is based on the mistaken impression that CSR and the law are somehow separate, whereas in reality they are intertwined which means that the crucial question is not whether CSR should be ‘voluntary’ or ‘mandatory’ but in light of a particular problem, what is the best regulatory response?”Footnote 44
REGULATING AND ENFORCING CSR IN CORPORATE NIGERIA: GENERAL OVERVIEW
This section discusses CSR regulatory and enforcement attempts in corporate Nigeria. It examines the CSR mechanisms contained in the hard law instrumentsFootnote 45 and soft law regulatory instruments of government agencies by way of codes of conduct.Footnote 46
Corporate Social Responsibility Bill 2007
With a view to providing comprehensive and adequate relief to host communities suffering the negative consequences of the industrial and commercial activities of companies operating in their localities,Footnote 47 a Corporate Social Responsibility Bill was introduced to the Nigerian National Assembly in 2007.Footnote 48 The bill sought to be the direct primary legislation on all CSR activities in corporate Nigeria and established a CSR Commission to collect a compulsory 3.5 per cent CSR spend from corporations, for the purpose of executing community development projects for the citizenry.Footnote 49
The bill received very strong criticism for its attempt to introduce another form of corporate tax and its poor atavistic conception of CSR as just some corporate gift or charity;Footnote 50 it therefore never became law but provides useful material in the archives of the National Assembly.
It is instructive to note that, in 2002, a similar bill was introduced in the UK Parliament, which also sought to create a government agency to be directly and primarily responsible for the coordination, regulation and enforcement of CSR activities within the UK business community.Footnote 51 Although the UK bill may be said to be similar to the Nigerian bill in the sense that both sought to legislate directly on CSR by means of a hard law approach, the UK attempt can be distinguished. The UK bill never tried to reduce CSR or corporate accountability or transparency to a corporate tax, levy or contribution. It sought inter alia to: make provision for certain companies to produce and publish reports on environmental, social, economic and financial matters; require those companies to consult on certain proposed operations; specify certain duties and liabilities for directors; establish and provide for the functions of a corporate responsibility board; and provide remedies for aggrieved persons. Very importantly, the current state of the UK bill must be appreciated against the backdrop of the UK's membership of the EU. The UK system is perhaps better understood as implementingFootnote 52 the EU 2003 Fourth Directive on annual accounts (popularly called the Accounts Modernisation Directive)Footnote 53 that imposes obligations on companies to consider and report on non-financial (social and environmental) matters in their annual reports. The Accounts Modernisation Directive states that companies in member states shall report annually on “non-financial key performance indicators relevant to the particular business, including information relating to environment and employee matters” in relation to the worldwide operations of that company.Footnote 54 Further, in 2014, the EU expanded and improved its disclosure requirements by requesting disclosure of information on sustainability, such as social and environmental factors, with a view to identifying sustainability risks and increasing investor and consumer trust through Directive 2014/95/EU of the European Parliament and Council of 22 October 2014 amending Directive 2013/34/EU regarding the disclosure of non-financial and diversity information by certain large undertakings and groups.Footnote 55 Legal transposition among member states in the EU is not expected until 2017 and the directive is clear in its adoption of the “comply or explain” compliance mechanism.Footnote 56 Therefore in the UK, CSR issues and disclosures on non-financial social and environmental matters are a matter both of requirements in UK principal company legislation (sections 172, 417 and 423(5) of the English Companies Act in compliance with the EU directives) and demands of best financial reporting practices (further to the 2005 Accounting Standards Board's reporting standard on operating and financial review).
The aborted Nigerian bill is also juxtaposed against CSR provisions in the Indian Companies Act.Footnote 57 It would appear that the Indian CSR regulatory regime also has some similarities with the aborted Nigerian one. They both specify that a certain percentage of corporate revenue be spent on CSR activities. However, there are a few differences. First, the Nigerian bill had sought to establish a CSR Commission to regulate CSR activities. The Indian regime however seeks some form of self-regulatory approach to CSR by creating a CSR committee on a company's board of directors. Secondly, the Indian regime creates a form of internalized self-regulatory regulator (the CSR committee on a board of directors), while the Nigerian system chose an externalized regulator in the form of the CSR Commission to monitor corporate accountability and responsibility from outside the business community.
In conclusion, it is instructive to reiterate the fundamental flaw in the first CSR regulatory attempt in corporate Nigeria in assuming or reducing CSR to some additional corporate tax and then establishing the CSR Commission, an externalized CSR regulator with little knowledge of or access to the internal workings of individual companies, and the resultant regulatory inefficiency that will arise.Footnote 58
Companies and Allied Matters Act 1990
CAMA is the primary corporate law legislation in Nigeria. The conception of CSR under CAMA has perhaps been the tremendous influence on the nature of CSR practices in corporate Nigeria. The earlier noted restrictive CSR conception amongst Nigerian corporate managers as just corporate gifting or philanthropy is directly attributable to CAMA provisions. As also noted earlier, while CSR may sometime entail some elements of corporate charity or philanthropy or the contribution of gifts from corporate profits, it is certainly not all about charity.Footnote 59 It is perhaps necessary to clarify that the position of corporate gift and charity has since been settled in judicial cases and eventually clarified in company legislation. A business is usually permitted to be engaged in charity and philanthropy only if that benefits the company in the long run and promotes the interests and success of the shareholders as a whole.Footnote 60 Otherwise, corporate law abhors corporate gifting, which is taken as undue depletion of capital and monies that would otherwise be available as profits for shareholders. Further, by virtue of section 38 of CAMA, all companies are said to have the powers of a natural person of full capacity, including the power to make donations. It is logical therefore to conclude that, having the powers of a natural person portends that any incorporated business will therefore be able to engage in corporate gifting, provided no contrary provisions exist in its memorandum and articles of association. Further, sub-section 2 only prohibits corporate gifts to political parties or to fund political associations or towards any other political purpose. Again, this can only mean that, provided a corporate donation does not have political ends or purposes and is not otherwise prohibited by the company's constitution (memorandum and articles of association), it will be within its powers, lawful and legitimate.Footnote 61
However, although it will be lawful for corporate managers to engage in such corporate gifting from corporate funds, where this is done randomly, purely in the name of corporate charity, it will constitute undue depletion of capital that would otherwise have been available to shareholders as profits.Footnote 62
Again, CAMA appears not to provide sufficiently conducive ideological support for effective CSR practices in Nigeria. CAMA adopts the traditional shareholder primacy model of corporate governance, whereby corporate responsibility towards stakeholder groups, such as employees, creditors, local communities and suppliers, is very limited.Footnote 63 Further, the combined effects of the provisions of section 279(4) and (9) of CAMA also buttress the assertion of very limited support for CSR in Nigeria, especially in terms of employee rights. Sub-section 4 appears to enjoin corporate managers to consider, have regard for and balance employee related issues and interests in making corporate decisions. However, sub-section 9 makes it abundantly clear that, while these employees may believe that their interests are being taken into account in promoting the success of the company, they should not attempt enforcing this right because they will fail, since only the company (that is the shareholders as a whole) can sue if this right is violated or perceived to have been violated by corporate managers. This statutory provision is not strange, as it simply confirms section 299 of CAMA and codifies the long standing common law principle established in Foss v Harbottle.Footnote 64
Furthermore, in terms of corporate reporting and disclosures, CAMA focuses strictly on the shareholder-centric model, with no provisions for consideration of important stakeholder interests (such as local communities or suppliers) nor any for corporate disclosure on non-financial (social and environmental) matters.Footnote 65 All matters regarding accountability, transparency and corporate responsibility under CAMA have been geared towards shareholder protection, with little or no protection afforded to other constituents, such the local community, suppliers, employees, contractors, government, the environment and other relevant stakeholders. It is interesting to note that neither CAMA nor the English Companies Act provides a sufficiently conducive corporate law ideological model for effective CSR. Just as in Nigeria, the UK corporate governance system, styled as an “enlightened shareholder value”Footnote 66 model (where extraneous competing interests of certain stakeholders are supposedly balanced for the long term benefits of shareholders),Footnote 67 has its ideological foundation deeply rooted in the shareholder primacy model. To start with, corporate managers are statutorily required to “promote the success of the company for the benefit of its members as a whole”.Footnote 68 By way of other examples, shareholders still retain ultimate control over corporate managers,Footnote 69 business owners have several participatory rights in corporate governance,Footnote 70 investors are specifically promised returns and benefits from the company's profits,Footnote 71 stockholders who may find themselves in the minority are also assured of some protection,Footnote 72 and the legislative and regulatory framework for company mergers and takeovers still largely prioritizes the interests of shareholders as opposed to those of other stakeholders such as employees.Footnote 73
Notwithstanding these similarities, the UK CSR regulatory regime is still markedly different, largely due to the UK's membership of the EU, where companies are encouraged to disclose and report on non-financial matters by virtue of the Accounts Modernisation Directive.Footnote 74 By virtue of section 417(5) of the English Companies Act (which implemented the EU directive), UK companies are required to disclose and report on non-financial matters. Under CAMA there are no such statutory requirements for annual reports on CSR non-financial matters, such as the environment, social and employee issues. It is interesting to add that even the corporate responsibility part VIII of the Nigerian 2007 Investment and Securities Act (ISA) (which established the Securities and Exchange Commission (SEC) and regulates the activities of public liability and quoted companies in Nigeria) also fails to provide for corporate reporting on non-financial matters.Footnote 75
Nigeria Extractive Industries Transparency Initiative Act 2007: Publish what they pay
The Nigerian Extractive Industries Transparency Initiative (NEITI) was inaugurated in February 2004 by former President Olusegun Obasanjo when he set up the National Stakeholders Working Group (NSWG) under the leadership of Mrs Obiageli Ezekwesili.Footnote 76 The NSWG oversees NEITI's activities and has representatives from the government, extractive companies and civil society. In order to give legal backing to NEITI's work, a NEITI Bill was introduced to the National Assembly in December 2004. This bill was eventually passed as the NEITI Act and harmonized by the two chambers of the National Assembly; it was subsequently signed into law by former President Obasanjo on the eve of the last day of his administration, 28 May 2007.Footnote 77 With this, Nigeria became the first Extractive Industries Transparency Initiative (EITI)Footnote 78 implementing country with statutory backing for its operations.Footnote 79
NEITI introduced a transparency and accountability framework into the reporting and disclosure of all extractive companies with revenue due to or paid to the Federal Government of Nigeria;Footnote 80 its governing body (NSWG) was to ensure compliance with due process, monitor and ensure accountability, eliminate corrupt practices, and “ensure conformity with the principles of Extractive Industries Transparency Initiative”.Footnote 81 NEITI's cardinal functionality (to ensure transparency through the publication of company accounts and through regular audits and tax returns on payments) complements CAMA requirements to prepare and report on financial matters. NEITI commissioned the first comprehensive audit of Nigeria's petroleum industry for the period 1999–2004 and has been working with various stakeholders to build national consensus on the need for extractive revenue transparency in Nigeria.Footnote 82
As NEITI's governing body, NSWG ensures that the requisite framework through which NEITI's mandate can be achieved is developed.Footnote 83 The Nigerian president has the power to appoint not more than 14 persons as representatives of relevant stakeholder groups (labour groups, civil society and extractive industries experts) into NSWG.Footnote 84 Despite significant optimism, the NEITI regime has, however, not lived up to expectations in affording an effective regulatory or enforcement framework for corporate accountability and responsibility. This is due to many reasons, a few of which are mentioned below.
First, the absolute power of the Nigerian president to make NSWG appointments for policy direction, without any recourse to the National Assembly, has been criticized for undermining NEITI's independence and disrupting its integrity as a genuine stakeholder engagement platform.Footnote 85 The appointment framework is also criticized as being faulty as it leads to political cronies and inadequately qualified individuals assuming such sensitive positions.Footnote 86
Secondly, NEITI appears to have nothing more than the power to monitor payments to the government from companies and publicize defaults. It is generally lamented that it has to rely on other government agencies to enforce any defaults or violations of its mandate.Footnote 87 Against this background, some scholars say NEITI is increasingly becoming toothless and institutionally moribundFootnote 88 and that the NEITI Act only succeeded in transforming NEITI into a barking dog or a toothless bulldog that cannot bite.Footnote 89
Further, there are other inherent obstacles to success within the NEITI Act itself, contained in sections 3(d), (e) and 14(1). These provisions show that NEITI is inherently and fundamentally hindered in its transparency, accountability and responsibility mandate, as it cannot utilize or otherwise publish reports considered prejudicial to a company's contractual obligations or proprietary interests (as there is no clear definition of what is prejudicial or highlighting its indicia). These provisions would appear to have precluded any hope of successfully realizing NEITI's mandate from the outset. In the author's view, this development is appalling and it probably borders on legislative mischievousness that the intentions of private parties contracting in the extractive industry (however dishonest they might be) should override the national interest, captured in the legislation. One wonders if this can be attributed to the fact that NEITI was not assented to until the very last day of former President Obasanjo's administration.
In summary, there is no gainsaying that the legal transplantationFootnote 90 of the EITI Standard into the 2007 NEITI Act is fundamentally faulty. It appears that, in adapting the EITI principles, the drafters of the act gave very little consideration to the existing legal, institutional and socio-economic realities of the recipient Nigerian system. In the author's view, the NEITI Act attempts to put a square peg in a round hole. The majority of jurisdictions with transparency and accountability standards or requirements (such as the EITI principles), ensure that the adopted framework fits into the country's general corporate law model.
To this end the US, for instance, adopts hard law mandatory regulations for its critical economic issues, such as accountability, and as such has passed laws including Sarbanes-Oxley and the Foreign Corrupt Practices Act.Footnote 91 The latter prohibits, inter alia, the payment of bribes to foreign officials to assist in obtaining or retaining business, in respect of prohibited conduct anywhere in the world and extending to publicly traded companies and their officers, directors, employees, stockholders and agents.Footnote 92 The UK's response is also coherent with its general corporate law model. That is, its CSR regulatory and enforcement regime is dependent on the disclosure regime and social reporting on non-financial matters, as contained in section 417(5) of the English Companies Act and in line with the EU Accounts Modernisation Directive and Directive 2014/95/EU.Footnote 93 Therefore, there is coherence in the legal instruments through which the UK authorities and agencies facilitate, endorse and encourage effective CSR practices. The relevant question is, what is the corporate law model on which NEITI is premised in corporate Nigeria? Even CAMA and ISA do not support or contain provisions to facilitate the disclosure of CSR non-financial matter to stakeholders, which is one of the principles on which EITI is premised.Footnote 94
Consequently, as a result of the sensitivity of NEITI's mandate to a prosperous, accountable and responsible business community in the Nigerian oil, gas and extractive industries (and, by extension, entire corporate Nigeria), proper legal transplantation should be implemented to adapt the EITI Standard to corporate Nigeria, together with any other relevant and complementary international best standards and principles; these include Transparency International's Promoting Revenue Transparency Project (PRT),Footnote 95 UN Global CompactFootnote 96 and the Guiding Principles on Business and Human Rights: Implementing the UN Protect, Respect and Remedy Framework.Footnote 97 Aside from legislative efforts to solve these inherent problems in the NEITI Act, the provisions of CAMA will also need amending to ensure coherence and in order to facilitate NEITI's mandate.
Petroleum Industry Bill 2012
The Petroleum Industry Bill (PIB) has been touted as the Nigerian oil and gas industry's “Messiah” legislation and is much awaited by all stakeholders to solve the myriad of problems and challenges in the oil and gas industry. PIB proposes to achieve overarching regulatory and enforcement reform in the Nigerian upstream, midstream, downstream and natural gas industries. Such reforms include the unbundling of the national oil company, Nigerian National Petroleum Corporation, in order to make it more effective, efficient, transparent, accountable and responsible. PIB has 362 sections, covering 223 pages and supported by five schedules. While there are so many versionsFootnote 98 of PIB and several of its provisions are controversial, this part of the article appraises its provisions relating to sustainability, accountability, transparency and other CSR related regulatory frameworks. This article is based on the version available on the Nigeria-Law websiteFootnote 99 and will examine sections 4, 116 and 190.
Section 4 provides: “[i]n achieving their functions and objectives under this Act, the institutions and the companies established in pursuance of this Act shall be bound by the principles of the Nigerian Extractive Industries Transparency Initiative Act LFN 2007 [sic]”. Section 190(6) provides: “[a]ll bids received based on the bid parameters established in subsection (2) of this section shall be handled in accordance with the published guidelines and monitored by the Nigeria Extractive Industries Transparency Initiative”.
These provisions demonstrate that PIB relies on the accountability, transparency and corporate responsibility regime established under the NEITI Act. This development of ensuring full compliance with the NEITI Act by all institutions is confirmed by the Nigerian National Petroleum Corporation's 2009 PIB Inter-Agency Project Team Report.Footnote 100 If this is the definition of transparency and accountability in PIB, then all the criticisms noted under the discussion of NEITI are applicable, mutatis mutandis, to PIB. Further, section 116 of PIB provides for the establishment of a fund to be known as the Petroleum Host Communities Fund (PHC Fund). PIB provides that each upstream petroleum company shall remit to the PHC Fund on a monthly basis 10 per cent of its net profit, to be utilized for the development of the economic and social infrastructure within petroleum producing communities.Footnote 101 This provision is interesting because it appears to adopt the same CSR conception as did the aborted 2007 CSR Bill, demanding the contribution of a percentage of corporate revenue to a fund.Footnote 102 As a result of its noted qualification, although this extra corporate taxation may not in fact be criticized, unlike that in the 2007 CSR Bill, it is however submitted that the capacity to channel such a fund effectively to support local / host community development projects is suspect. In the author's view, the fact that PIB cannot define how and by which agency the PHC Fund shall be effectively administered and managed to achieve its objectives, provides a recipe for further corrupt practices in oil and gas operations and further impoverishmentFootnote 103 of the host communities intended to be salvaged. This is because it gives oil and gas companies the impression of responsible and accountable corporate behaviour once monies have been remitted to the fund, without any corresponding monitoring efforts to minimize any other negative socio-economic and environmental impact of their business operations.
Based on this analysis, it is obvious that the relevant accountability and corporate responsibility provisions in PIB actually constitute a disservice to an effective CSR regulatory and enforcement framework. Therefore, the author submits that the government must carry out further consultations and stakeholder engagement before passing PIB. Such engagement will permit proper amendments and redrafts of the relevant sustainability and CSR provisions in PIB.
CSR and codes of conduct in Nigeria
The bulk of CSR and sustainability practices in Nigeria are currently largely regulated by voluntary,Footnote 104 self-regulatory, soft law initiatives in the form of codes of corporate governance in different sectors and industries. There are about half a dozen such self-regulatory and soft law initiatives.Footnote 105
It is quite commendable that notable Nigerian government institutions and regulatory agencies make attempts to facilitate and encourage corporate accountability, transparency and responsibility through the incorporation of sustainability provisions and transparency sections in their regulatory framework. An examination of principles 2.2, 2.8.1, 28.3 and 34.1 of the 2011 SEC Code and principles 6.6, 10.1 and 12.0 of the 2014 Nigerian Communication Commission Code of Corporate Governance for the Telecommunications Industry (NCC Code) shows that accountability to both shareholders and stakeholder groups is encouraged, and corporate transparency and responsibility towards sustainable development is enjoined in corporate Nigeria.
Although on the surface these appear commendable, the relevant question is how effective can they be? Most of the time, the provisions use the word “should” instead of “shall”, demonstrating their lack of hard law bite. Moreover, in situations where more binding expressions such as “shall” are used, the general connotation of the provisions does not demonstrate robust corporate responsibility regulation or effective enforcement mechanisms towards achieving responsible corporate behaviour.Footnote 106 In the wake of the soft law approachFootnote 107 of these codes, how efficient can these vague CSR regulatory provisions be in the effective enforcement of responsible and accountable corporate behaviour in Nigeria? It has been established that soft law regimes are generally only useful against law-abiding corporate entities and become grossly inadequate and inefficient against rogue corporate entities that are simply within the business community to maximize profits at all costs.Footnote 108
Furthermore, having had a faulty premise, these codes are also inefficient in ensuring accountability and corporate responsibility. It is arguable that they will be unenforceable against companies because their social reporting or stakeholder provisions are beyond the powers of the agencies prescribing them. For instance, throughout the principal corporate and securities law legislation in Nigeria (CAMA and ISA), there is no positive legal obligation on any company or its directors “to balance the interests of the shareholders and other stakeholders”, as required by principle 10 of the NCC Code. Further, nothing in this primary legislation requires corporate social reporting on non-financial matters as stated by principle 12 of the NCC Code. In addition, there is nothing in this primary legislation or in the Banks and Other Financial Institutions Act cap B3 LFN, 2004 requiring financial institutions in Nigeria to “demonstrate good sense of corporate social responsibility to their stakeholders”, as provided under principle 4.1.3 of the Central Bank of Nigeria Code of Corporate Governance for Banks and Discount Houses in Nigeria, 2014. Therefore, regardless of any provisions in the codes that attempt to ensure compliance with such requirements, they may simply just be unenforceable, as the agencies prescribing might have acted outside their powers.Footnote 109
The National Code of Corporate Governance, 2016
Effective 17 October 2016, the Financial Reporting Council of Nigeria (FRC)Footnote 110 has released the National Code of Corporate Governance, 2016 (NCCG), to be generally applicable in corporate Nigeria. Although there are three versions of the code (private sector, public sector and not-for-profit sector),Footnote 111 the comments below refer particularly to the private sector version. Employing the word “shall” in the NCCG suggests its hard law regulatory framework, complementing the enforcement provision in principle 37 of the code requiring mandatory compliance. This is an interesting development, considering the general self-regulatory principle-based regulations associated with similar (industry) codes in Nigeria.
The author submits that a few issues are pertinent under the NCCG. First, what enabling provision in the FRC Act empowers the FRC to prescribe mandatory compliance for companies to make non-financial disclosures and pay attention to stakeholder interests as required by the code? Secondly, by whom, where and how will non-compliance with the sustainability requirements of this subsidiary regulation be enforced without contravention (being ultra vires) of extant provisions of the primary legislation regime under both CAMA and ISA? Finally, considering the nature of CSR generally, what response will FRC give to the criticism of over-regulation as a result of its stark mandatory CSR disclosure regime? In other words, it is the view of the author that the regulatory option adopted by the FRC is not appropriate and its efficacy towards promoting CSR and sustainability is in doubt. It should also be said that it is customary for regulators to release regulations but postpone their effective date to give relevant actors and players in the business community the opportunity to adjust and ensure effective compliance when the regulation becomes operational. The FRC in this instance simply released and made the NCCG applicable and effective immediately. This does not suggest a regulatorFootnote 112 that understands the workings of the industry it seeks to regulate. In any event, it will be interesting to see how, when submitted for judicial adjudication, these issues will be decided in court.
AN AGENDA FOR REGULATORY AND ENFORCEMENT REFORMS
This analysis demonstrates that CSR, together with its values of corporate transparency, accountability and responsibility for sustainability issues and effective disclosure on non-financial matters in corporate Nigeria, is almost non-existent at the level of primary hard law legislation (such as CAMA, ISA, NEITI). Furthermore, it is not only grossly inadequate but also has a faulty legal premise at the level of soft law subsidiary legislation (such as the SEC Code of Corporate Governance and NCC Code).
Industrialized societies and their MNEs take advantage of non-existent and / or grossly inadequate CSR frameworks, as they export potentially liability-attractive activities to the less developed systems that are safe havens for substandard and irresponsible corporate behaviour.Footnote 113 Further, making matters worse, where a country with a weak system endeavours to strengthen its enforcement regime and hold companies (especially high-profile MNEs) legally accountable and responsible, those companies either bargain away effective accountability and efficient corporate responsibility regimes before investing in that country or, if they have already invested and see that the national government has awakened to its responsibilities, they simply liquidate and move their investment to another weaker jurisdiction.Footnote 114 The latter development is called “regulatory jurisdictional arbitrage”.
Consequently, from this rather delicate situation, the author submits that there are two alternatives for corporate Nigeria in ensuring effective corporate accountability responsibility. The first is that Nigeria works towards the harmonization of the different and incoherent hard and soft law regulatory and enforcement frameworks visible within its primary and secondary legislation to secure better CSR disclosure and an accountability framework as already prevails in industrialized systems such as in the UK. This option will not be drastic and is unlikely to cause regulatory jurisdictional arbitrage in corporate Nigeria. Alternatively, against the backdrop of the perception that soft law voluntary regulatory regimes are generally inadequate and inefficient on sensitive matters, Nigeria, just like the US, may opt for a hard law mandatory approach within the framework suggested below. These two options are explained further in turn.
Harmonization of soft law self-regulatory shareholder primacy framework
This first recommendation leverages enlightened shareholder value, which is an improved version of the shareholder primacy model as developed in the UK.Footnote 115 It encourages corporate managers and directors to manage companies in the interests of shareholders as whole but with adequate regard to stakeholder interests. CAMA already contains provisions towards the shareholder primacy model but lags behind on sustainability, accountability and responsibility matters, especially in respect of stakeholder interests such as the interests of employees and local communities. Therefore, in order to adopt this approach, the first step to be taken would be to amend relevant provisions of CAMA to expand its requirements on financial statements and annual reports to include corporate social reporting and disclosures beyond strict financial matters, which are presently only beneficial to shareholders. This will not be at all strange and will be modelled on section 417 of the English Companies Act. It may also be necessary to amend the relevant reporting / disclosure provisions in ISA to include non-financial reporting on issues regarding the environment, employees, social matters etc.
Further, the provisions of the NEITI Act will also require amendment to secure the independence and integrity of the NSWG, such that the NEITI Act achieves its mandate of ensuring transparency, monitoring accountability, eliminating corrupt practices and ensuring conformity with EITI's global standards. The drafters of the amendments must demonstrate proper appreciation of the issues and ensure proper legal transplantation of other relevant international best standards, such as the UNGC, UN Guiding Principles,Footnote 116 PRT and MNE Guidelines. Further, the provisions of sections 3 and 14 of the NEITI Act, which undermine NEITI's ability to use or publish audited reports considered prejudicial to some signed contracts of the extractive industries companies or the government, must be revisited. If these sections cannot be deleted from the NEITI Act, then a clause must be introduced clearly stating what may be considered prejudicial, which, in any event, should not override the national interests of Nigeria as a sovereign state.
Addressing these issues will also address the risk of the ultra vires argument and resulting non-compliance with the disclosure on non-financial and sustainability issues regime in the codes of conduct or in the NCCG.
Mandating hard law stakeholder framework
An alternative approach is to reject the strict shareholder primacy model on which the first option is based. It is based on a modern corporate law model which imposes a positive duty on companies not just to have regard to stakeholder interests but to demonstrate proper consideration and balancing of both shareholder and stakeholder interests in reaching corporate decisions. The ambits of this corporate law model have been espoused by the author elsewhere.Footnote 117 Therefore, it is recommended that an effective CSR regulatory regime will be better fostered, enhanced and implemented under this model, which presumes corporate social irresponsibility whenever a complaint is raised by a stakeholder and places a positive legal duty on companies to demonstrate transparency, accountability and responsibility in their operations. This onus of demonstrating transparency, accountability and responsibility should be reasonably discharged by showing, on a scale of probability, that the corporate behaviour, decision, action or inaction forming the basis of the complaint was taken or occurred having balanced all stakeholder interests and in the best interest of the company; this should include not just the myopic interests of members (shareholders) of the company,Footnote 118 but the interests of all relevant stakeholders, such as employees, the local community, creditors, customers, the environment, the government, as well as the shareholders.Footnote 119 A company against which a complaint has been lodged may demonstrate responsibility and accountability in its operations by way of: an internalized company procedure or framework that complies with international best practices and business guidelines contained in any NEITI guidelines, the UNGC, UN Guiding Principles, MNE Guidelines or other similar self-regulatory initiatives; membership of an international certification or global reporting scheme for responsible business conduct, such as the Global Reporting Initiative;Footnote 120 or verifiable stakeholder engagement practices demonstrating constant consideration and balancing of stakeholder and shareholder rights.
It is instructive to note that emphasis is placed on the word “may” in the last paragraph. In other words, demonstrating compliance with international best practices, business guidelines or international certification schemes or stakeholder engagement programmes should only be a rebuttable presumption and in no way conclusive proof or evidence that a company has acted or behaved responsibly in any particular circumstance. The conclusiveness of such actions will have to be determined, on a scale of probabilities, by judicial authorities (regular courts) acting both judiciously and judicially on a case by case basis.
Rather than any imposition of another corporate tax under the guise of corporate accountability and CSR regulations (as under Nigeria's aborted 2007 CSR Bill) or the introduction of highly prescriptive and intrusive external hard law initiatives that may deter investment opportunities,Footnote 121 this proposed framework enjoins individual companies, whatever their size,Footnote 122 to develop and implement their own sustainability, accountability and responsible corporate practice framework and ensure that any negative human, social, economic or environmental impact of their operations is duly addressed and curtailed.
In summary, it is submitted that, unlike popular perception, the problem with corporate Nigeria has not been lack of enforcement per se.Footnote 123 The argument attributes this to the double standards exhibited by many companies in different countries of their operations.Footnote 124 The author rather submits that the challenge is a case of wide-spread faulty extant or proposed legislation that is based on corporate law models that have been improperly transplanted into the Nigerian system. A very good case in point was demonstrated in the discussions under the NEITI Act and the proposed PIB.
Therefore, the government is advised urgently to consider the reform recommendations submitted in this article towards realizing the change it seeks in corporate Nigeria. It is also submitted that, rather than demanding that the business community assume the government's responsibility for providing public goods and / or social services to them, host communities and other stakeholder groups should channel their lobbying towards pressurizing the government to implement the amendments proposed in this article.
CONCLUSION
This article has examined the regulatory and enforcement framework of corporate transparency, accountability and responsibility in corporate Nigeria. It queries the assumption that there are sufficient, good and effective laws in Nigeria to facilitate corporate responsibility. Upon its appraisal of the different CSR provisions in some primary and subsidiary legislation (both hard law and soft law) applicable within the Nigerian business climate, it has established the incoherence of the regulatory attempts and laments the process of legal transplantation of some international regulatory initiatives within corporate Nigeria. In conclusion, in light of anticipated investment growth in Nigeria in the wake of the newly inaugurated administration of President Muhammadu Buhari, which rides on the mantra of promoting accountability and transparency at all levels, the article has argued for the regulatory reforms proposed in the article to be considered and adopted. The author believes that such adoption will ensure that investment opportunities and activities are conducted within the ambit of a more effective sustainability and CSR regime in Nigeria.
