Corporate governance refers to the framework that guides the leadership and oversight of an organization.
It encompasses the structures, policies, and procedures that dictate how a company is run;how it interacts with its stakeholders, and how it maintains transparency and accountability.
In essence, corporate governance ensures that an organization’s management is managed effectively, responsibly, and in the best interests of the company and its shareholders.
This is in tandem with the Agency Theory of Corporate Governance, which postulates a contractual relationship between the owners or shareholders (principals) of the business and the managers of the business or board of directors (agents), who are entrusted to act on behalf of the principal’s interests, leading to a principal-agent conflict.
Thus, the Agency theory focuses on the potential for conflicts of interest and agency problems that arise when agents prioritize their own interests over those of the principal.
As argued by Jensen and Meckling (1976), agents may pursue self-interest, thus creating a need for robust governance structures, such as a well-composed board, to ensure accountability. The presence of effective board oversight can mitigate agency costs and promote shareholders’ value.
Particularly, the aspect of corporate governance, which deals with the structure and composition of the board of directors, plays a pivotal role in the oversight, accountability, and long-term financial performance of companies. In Nigeria’s banking sector, where financial health is critical to economic stability, board composition remains a key area of regulatory attention. The growing complexity of banking operations, the need for risk oversight, and public trust in financial institutions have made sound board composition practices indispensable in the Nigerian banking industry.
Although Central Bank of Nigeria (CBN) has released the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Service Banks inNigeria for banks and other financial institutions under its regulatory purview, this article is focused on the extent of compliance with Principle 2 of the Nigerian Code of Corporate Governance (NCCG, 2018), which mandates that boards possess an appropriate mix of skills, experience, independence, and diversity to effectively carry out their oversight role.
It critically assesses whether board composition practices in Nigerian banks align with the expectations of Principle 2 of the NCCG, 2018, and how these practices affect financial performance, with performance typically proxied by Return on Equity (ROE) and Return on Assets (ROA).
Board composition practices in Nigerian banks
Board composition simply refers to the structure and makeup of a company’s board of directors. It involves decisions about the number of directors, their roles, diversity, tenure, and how effectively they work together to oversee corporate governance and strategic direction. An effective board is crucial in shaping a company’s success, providing guidance to management, ensuring accountability, and safeguarding shareholder interests. Over time, corporate failures and governance challenges have shaped global thinking on how boards should be composed and how they should function.
The evolution of board composition as a governance concern gained momentum in the early 2000s, particularly after the collapse of companies like Enron and WorldCom. These corporate scandals exposed the dangers of poor oversight, weak board independence, and conflicts of interest.
In response, governments, regulators, and corporate governance bodies began to codify best practices. The Sarbanes-Oxley Act of 2002 (SOX) in the United States mandated stronger board oversight and independence for public companies. In the United Kingdom, the Cadbury Report of 1992, spearheaded by Sir Adrian Cadbury, was a landmark in corporate governance, calling for independent non-executive directors and clear separation between board leadership and executive management. Globally, the Organisation for Economic Co-operation and Development (OECD) played a leading role by publishing the Principles of Corporate Governance, first in 1999 and revised in 2015, emphasizing board responsibilities, independence, and transparency.
The King Reports from South Africa, particularly King IV (2016), also championed ethical leadership and integrated governance, further reinforcing global standards. In Nigeria, the drive to codify best practices in corporate governance began with sector-specific initiatives, like the Code of Corporate Governance for Banks and Other Financial Institutions in 2003, followed by the Securities and Exchange Commission (SEC)Code of Corporate Governance for Public Companies in 2014, which sought to reflect international best practices.
The modern emphasis on board composition in Nigerian banks can be traced back to governance reforms introduced after the 2004–2005 banking consolidation exercise and the 2009 banking crisis, which exposed governance weaknesses in the sector. The CBN responded with sweeping reforms, including the introduction of the CBN Code of Corporate Governance for Banks and Discount Houses (2006), later revised and integrated into the CBN Code of Corporate Governance for Banks and Other Financial Institutions in Nigeria (2014).
By 2019, the Financial Reporting Council of Nigeria (FRCN)issued the Nigerian Code of Corporate Governance (NCCG 2018) as the single Corporate Governance Code for the country. Thus, the NCCG 2018 replaced all sectoral codes in Nigeria, including the extant Code of Corporate Governance for Banks and Discount Houses in Nigeria issued by the Central Bank of Nigeria (CBN) in May 2014. The Code, supported by the Companies and Allied Matters Act (CAMA) 2020, lays down mandatory standards for board structure, size, independence, tenure, diversity, and succession planning. Thus, board composition is not only a corporate priority but also a regulatory obligation. It encompasses the number and classification of directors, their independence, gender and ethnic diversity, expertise, tenure, and the effectiveness of their collective oversight over management.
A key feature of board composition best practices in Nigerian banks is the requirement for independent directors. The CBN Code mandates that a substantial portion of non-executive directors on the board must be independent, meaning they must have no significant financial or personal ties to the bank. This ensures that independent directors can provide objective oversight, challenge executive management where necessary, and protect the interests of shareholders and depositors. For example, Zenith Bank and Guaranty Trust Holding Company (GTCO) both maintain boards with a mix of executive, non-executive, and independent non-executive directors, in compliance with CBN’s independence standards.
Board diversity, especially gender diversity, has become increasingly prominent in Nigerian banking. While not always legislated as in some jurisdictions, diversity is now encouraged as a good governance practice. The rise of women like Ibukun Awosika (former Chairperson of First Bank of Nigeria) and Osaretin Demuren (former Chairperson of GTBank) reflects a slow but growing recognition of gender inclusivity at the highest levels of banking governance. Diversity in skills, regional background, and professional experience also enhances board effectiveness by bringing varied perspectives to complex banking decisions.
Skills and expertise are paramount in an industry as dynamic and regulated as banking. The CBN requires board members of banks to possess relevant academic and professional qualifications in areas such as finance, economics, law, risk management, and banking operations. As such, banks like Access Bank and UBA have actively recruited individuals with deep sectoral experience, including former regulators, technocrats, and business leaders. This not only ensures compliance but also equips the board to provide strategic guidance in areas such as fintech, cybersecurity, and regulatory compliance.
The size and tenure of the board are also carefully regulated in Nigeria. The CBN stipulates a minimum of five and a maximum of twenty board members for banks, with a clear balance between executive and non-executive directors. Furthermore, directors in Nigerian banks are subject to tenure limits: non-executive directors can serve a maximum of three terms of four years each (12 years total), while executive directors may serve up to ten years. This framework, which applies regardless of ownership structure, is designed to prevent entrenchment and encourage board refreshment. For instance, the resignation of long-serving executives like Segun Agbaje from GTBank’s board upon transitioning to GTCO was in line with the CBN’s tenure guidelines.
Transparency and accountability are vital, particularly in a sector that holds public funds and economic trust. Nigerian banks are required to disclose their board composition, director profiles, attendance at meetings, and governance policies in their annual reports. Furthermore, board evaluation practices are mandated. Each bank must conduct annual evaluations of the board, its committees, and individual directors, often through independent consultants. These evaluations are submitted to the CBN as part of routine supervision. Such practices are now evident in institutions like Stanbic IBTC and Fidelity Bank, where governance sections of their annual reports provide detailed disclosures on board activities, evaluation outcomes, and governance improvements.
The importance of sound board composition in Nigerian banks cannot be overstated. Firstly, it enhances corporate governance by ensuring directors can discharge their fiduciary responsibilities independently and competently. In a sector prone to systemic risks and regulatory scrutiny, a well-composed board is the first line of defense against misconduct and poor risk management. Secondly, it improves strategic decision-making, particularly where the board includes directors with digital, regulatory, and risk expertise. As banks navigate digital transformation, such as Access Bank’s expansion into fintech, boards with the right expertise are better equipped to steer innovation responsibly. Sound board composition also contributes to investor confidence and shareholder value.
Foreign and institutional investors increasingly evaluate board composition as part of their ESG and governance risk assessments. A stable, competent, and diverse board suggests sound leadership and long-term sustainability. Finally, robust board practices help to mitigate risk, especially credit, operational, reputational, and compliance risks, through effective oversight and policy setting.
The following subsections specifically assess whether the board composition practices of Nigerian banks conform to the standards set by Principle 2 of the NCCG 2018, which advocates for a competent and balanced board as a cornerstone of effective corporate governance.
3.1 Board Size and Financial Performance
Principles 2.1 and 2.2 NCCG 2018 recommend that the board size should be sufficient to handle the scale and complexity of a company’s operations. A review of Tier-1 banks in Nigeria, such as Zenith Bank, Access Bank, and GTCO, reveals board sizes ranging from 12 to 15 directors. These align with global best practices and correlate with robust financial performance. GTCO, for instance, reported ROE of 26.5% in 2023 with a board size of 14. A study by Ogbechie et al. (2022) found a statistically significant positive correlation between board size and ROA among Nigerian commercial banks, which supports the view that larger, well-structured boards contribute to superior financial oversight and strategy execution.
Another study by Aginam and Obi-Nwosu (2024) also found a positive and significant relationship between board size and ROA for deposit money banks in Nigeria. Empirical evidence suggests that boards with an average of 8 to 11 members perform optimally, enhancing decision-making without diluting efficiency. For example, Zenith Bank (board size: 13) reported an ROA of 3.1%, indicating that an adequately sized board can positively influence performance.
3.2 Independence and Non-Executive Representation
Principle 2.3b of the NCCG 2018 recommends that a majority of the board should be non-executive directors (NEDs), and most of these should be independent. CBN Guidelines further reinforce this by requiring a minimum of two independent NEDs for commercial banks.
However, while banks comply formally with the Guidelines requiring the majority of board members to be non-executive (with a fair proportion being independent), the independence of some NEDs has been questioned due to prior affiliations (i.e., the practice of banks retaining long-serving directors). For instance, in a 2021 report, the Financial Reporting Council (FRC) noted that some banks had NEDs with long-standing ties to management, weakening effective oversight. While most Nigerian banks meet the minimum numerical requirement of having independent non-executive directors, substantive independence remains questionable. The FRC has raised concerns about affiliations between some non-executive directors and executive management, which potentially weakens objective oversight.
Gender and Diversity
Principles 2.4, 2.5, and 2.6 of the NCCG 2018 encourage diversity, including gender, age, experience, and professional background. Although female representation on bank boards has improved in recent times (for instance, Access Bank and First Bank now have over 20% female directors), on the whole, gender parity is yet to be achieved.
According to the 2024 PWR Advisory NGX-30 Board Gender Diversity Scorecard, the percentage of female board directors on the NGX-30 companies rose from 27.9 percent in 2023 to 29.7 percent in 2024. This means that out of 323 board seats on the NGX-30 listed companies, women occupy only 96 seats in 2024.
The report disclosed that United Bank for Africa topped the list of banks with the most female gender representation on their boards among the NGX-30 listed companies. Furthermore, diversity in age and professional background remains limited, with most directors being over 50 and from finance or legal backgrounds, limiting innovation and generational perspectives.
Also, Aginam and Obi-Nwosu (2024) found that although female board representation averaged 33.4%, its impact on ROA was statistically insignificant (coefficient = 0.00035; p = 0.70). This finding suggests that while gender diversity is symbolically improving, the roles assigned may not yet be transformational or strategically significant. Further, the lack of younger directors and professionals from non-financial backgrounds continues to limit strategic innovation and generational insight.
CEO Duality
CEO-Chairman duality is discouraged under Principle 2.7 of the NCCG 2018, due to risks of power concentration. This provision is widely adhered to in the banking sector. For example, UBA’s Chairman and CEO are distinct individuals, which aligns with both NCCG and CBN directives.
This separation has been linked to stronger risk governance and internal control systems, enhancing financial performance and investor confidence.Aginam& Obi-Nwosu (2024) in their study “Corporate Governance and Performance of Deposit Money Banks in Nigeria” confirm that duality had no significant effect on ROA (coefficient = 0.00048; p = 0.69), indicating compliance across most banks. Nonetheless, the subtle presence of informal dominance by Chairmen in strategic decision-making (incidence shadow directorship) generally remains a governance concern.
Concurrent Directorships and Conflict of Interest
Principles 2.8 and 2.9 of the NCCG 2018 prohibit directors from holding multiple board roles that may affect their availability or present a conflict of interest. Also, the CBN’s Code of Corporate Governance for Banks and Discount Houses limits directors to serving on the boards of no more than two institutions within a financial holding company or group structure.
However, evidence suggests this remains a challenge. It is often common practice for bank directors to hold three or more board positions in public companies. The negative effect is that it dilutes attention and hinders effectiveness. Furthermore, conflict of interest refers to situations in which personal, occupational, or financial considerations may affect, or appear to affect, a director’s objectivity, judgment, or ability to act in the best interests of the Bank.
Conflicts of interest involving directors and banks are a concern, particularly when directors serve on boards of firms with significant transactions with their banks. While the Companies and Allied Matters Act (CAMA) and other regulations require disclosure and prevent directors from placing their personal interests above the company’s, instances of perceived conflicts have been reported, raising questions about impartiality.
Thus, Aginam and Obi-Nwosu (2024) cautioned against over-committing directors, especially when directorships cross into affiliated companies, as this risks conflict and confidentiality breaches.
Impact on financial performance
Several studies (Olayiwola, 2018; Magoma, Ernest, & Kasheshi, 2024; Nwdighoha, 2024; Otuya & Akpoyibo, 2022; Ariyo-Edu, 2024; Igbinosa, Akinuli, Popoola, & Adeola, 2024) consistently find a direct and positive relationship between the structure and composition of the board of directors, and the oversight, accountability, and long-term financial performance of companies.
Particularly, a 2024 study conducted by Aginam, C. J., & Obi-Nwosu, V. O., entitled “Corporate Governance and Performance of Deposit Money Banks in Nigeria” used regression model to find the following impacts on ROA among deposit money banks:
| Variable | Coefficient | Significance |
| Director’s Remuneration | 0.3027 | Significant (p = 0.0525) |
| Board Size | 0.1236 | Significant (p = 0.0157) |
| Board Duality | 0.00048 | Not Significant |
| Gender Diversity | 0.00035 | Not Significant |
These findings reinforce that board size and director remuneration are statistically significant factors influencing ROA, while gender diversity and CEO duality, though directionally positive, do not yield significant impact.
Gaps in compliance
Despite partial alignment with NCCG 2018, we find that several gaps persist:
- Tokenistic female appointments with limited strategic influence.
- Overlapping board seats and a lack of enforcement on concurrent directorship limits.
- Nominal independence without substantive detachment from management.
- Inconsistent board refreshment policies hindering the inflow of fresh perspectives.
- Weak oversight of director remuneration creating possible agency cost spikes.
Conclusion and recommendations
By and large, it has been shown that the composition of bank boards in Nigeria is a critical determinant of both effective corporate governance and financial performance.
While significant strides have been made toward aligning board practices with regulatory expectations, particularly those outlined in Principle 2 of the Nigerian Code of Corporate Governance (NCCG, 2018), notable gaps in compliance still persist. Evidence from top-performing banks suggests that optimal board size, diversity, independence, and expertise can enhance strategic oversight, mitigate risk, and improve financial outcomes such as ROE and ROA.
However, inconsistencies across the sector, ranging from inadequate gender diversity to insufficient board evaluations, highlight the need for stricter enforcement and greater transparency. Bridging these gaps is essential not only for boosting shareholder confidence and operational resilience but also for safeguarding the broader financial system. Therefore, continuous monitoring, stronger enforcement mechanisms, and a commitment to governance reforms are necessary to ensure that Nigerian banks fully realize the value of sound board composition in driving sustainable performance.
Recommendations
The findings show that while Nigerian banks are increasingly aware of governance expectations under Principle 2 of NCCG 2018, full compliance is uneven. Based on the findings of this study, the following recommendations are made for improved governance and sustained financial performance:
- Diversity Policy Enforcement
- FRC should mandate measurable gender and age diversity objectives.
- Banks must report diversity metrics in annual disclosures.
- Independent Director Vetting
- Independence must be validated beyond tenure and title—scrutinize affiliations.
- Director Remuneration Monitoring.
- Implement “clawback” provisions and performance-based pay structures.
- Concurrent Directorship Regulation.
- Cap the number of boards a director may serve on within the financial sector.
- Strategic Role Allocation for Women.
- Avoid tokenism by assigning female directors to critical committees (e.g., audit, risk)
