Undoubtedly, the corporation has become one of the most powerful forces in twentieth century economies. It is both a method of property tenure and a means of organizing economic life. The corporation’s separation of ownership into component parts, control and beneficial ownership has brought into sharp focus the fundamental divergence between shareholder and management interests. With sole proprietorships, the owners are usually the same people who manage and operate the business. But in large companies, corporate officers manage the business on behalf of the owners. This separation of ownership and control creates a potential conflict of interests. In particular, managers may care about their salaries, fringe benefits, or the size of their offices and support staff; or perhaps even the overall size of the business they are running, more than they care about the shareholders’ profits. This agency problem caused by the separation of ownership and control has long been a great concern globally. This is particularly so in the wake of mass corporate scandals witnessed in the past couple of years. Just like any other country, Nigeria has faced the same problem. In Nigeria, the Companies and Allied Matters Act, Cap. C20, LFN, 2004, was enacted as the principal statute regulating the formation and management of companies. The central tenets of the Act have been accountability, efficiency and objectivity on the part of management. However, cracks are visible in many areas of the Act with gross attendant consequences for directors. It is found out that the exercise of the powers as conferred by the Act on the directors to direct and manage the business of the company is vulnerable to abuse. This is particularly the case when directors are partially permitted to deal in contracts with their own companies. There is therefore the need for amendment of the Act. This study examines the relevant provisions of the Companies and Allied Matters Act, 2004 as well as the two Codes of Corporate Governance for public companies in Nigeria using doctrinal method. The objective is to ensure that there is corporate accountability.


A company once incorporated is a legal person; distinct and separate from the members that established it1and is also endowed with all the powers of a natural person of full capacity for the furtherance of its authorised business or objects specifically set out in its Memorandum of Association.2 The Company being an artificial person – in contra- distinction to a natural human being, therefore, can only function or operate through the instrumentality of its human organs, officers and agents.3 This view was observed and more vividly stated by Viscount Heldane L.C. in Lennands Carrying Co. v. Asiatic Petroleum Co. Ltd4
A corporation is an abstraction. It has no mind of its own any more than it has a body of its own; its active and directing will must consequently be sought in the person of somebody who for some purposes may be called an agent, but who is really the directing mind and will of the corporation, the very ego and centre of the personality of the corporation.

1See section 37 of the Companies and Allied Matters Act, Cap. C20, LFN, 2004 and Saloman v. Saloman & Co. (1897).
A.C 22. See also the cases of Marine Management Association Inc & Anor v. National Maritime Authority (2012) 18 NWLR (pt 1333) 506; Lee v. Lee‟s Air Farming Ltd (1961) A.C. 12; Macaura v. Northern Assurance Co. (1925) A.C. 619, and Marina Nominees Ltd v. Fed. Board of Inland Revenue (1986) 2 NWLR (pt. 20) 48. In Short v. Treasury Commissioners (1948) 1 KB 112, a controversy arose as to whether shareholders can be said to be real owners of the company in view of the principle of corporate personality and it was resolved in favour of the company where Lord Evershed stated that shareholders are not in the eye of the law, part owners of the undertaking of their company. See also Nwiedoh K.B. (1998). The Rights and Status of a Shareholder of a Company Under the Companies and Allied Matters Act, 1990. CJLJ, Vol. 4 at 206.
2 See section 38 CAMA.
3 Hence the acts of the company‟s organs are those of the company – see section 65 CAMA. However, under section 66(1)(a) of the same Act, the authority of the other officers or agents of the company derives essentially from the
delegation whether express or implied from the general meeting, the board of directors as well as the managing directors who are the company‟s organs.
4 (1915) A.C. 705 at 713-714.

Aniagolu, JSC (as he then was) approved and aptly summed up the view in Trenco (Nig) Ltd v. African Real Estate Ltd5 that … “a corporation, although having a corporate personality is deemed to have human personality through its officers and agents”. 6
This human element is as constituted in the body of directors referred to as the board of directors and also in the body of members constituted in the general meeting.7 The conception of company as a separate entity, and as such the exclusive owner of its own property is not just a convenient device for the ownership of business assets but also has a significant effect on the position of the members of the company, its directors and those who deal with it. While the nature of the relationship between the company and its directors is often described as that of principal and agent,8 on the one hand, that of the board of directors and the general meeting is still vague and has been a source of controversy for decades.
Until the end of the 19th Century, the shareholders in general meeting were usually regarded as the supreme organ of the company and directors as mere agents under the complete control of the shareholders in general meeting.9 However, this view has long faded out and been altered to the effect that the directors as a board are capable of exercising corporate powers independently from shareholders.

5 (1978) 1 L.R.N 146.
6 Supra at p. 153. See also the case of Bolton (Engineering) Co. Ltd v. Graham & Sons (1957) 1 QB 159 at 172-173, per Denning L.J.
7 Agom R. A. (2000). Powers of Court to Compel Company Meetings. Modern Journal of Finance and Investment Law,
Vol. 4 No.3, 42. Other officers and agents of a company may also exercise managerial powers under some circumstances such as liquidator, receiver and any other person vested with such powers by the Memorandum or Articles of Association. See for instance, section 76 CAMA.
8 See Ferguson v. Wilson (1866) L.R. 2 CH. 77, per Lord Caims. The Supreme Court in Okolo vs. Union Bank of
Nigeria Plc (2004) 3 NWLR (pt 859) SC 89, held that a director of the company is in the eye of the law an agent of the company, such that when a director enters into a contract for a company, it is the company, the principal which is liable on it and not the director.
9 See for instance, the case of Isle of Wright Railway Rly v. Tahourdin (1883) 25 Ch.D 320 CA. See also the case of
North-West Transportation Co. v. Beatty (1887) 12 App. Cas. 589, where the Privy Council held that shareholders are the owners of their own companies and accordingly can exercise their voting rights for selfish reasons even where the interest of the company is jeopardized.

The exercise of corporate powers is determined entirely by the construction of the Articles of Association; and unless as otherwise provided in the Articles, the board is to manage the company and exercise all powers not vested in the general meeting.10 Consequently, where powers have been vested in the directors, and so long as they act at a properly constituted board meeting and within the powers conferred on them by the Memorandum and Articles of Association, the general meeting cannot interfere with their exercise as the Articles constitute a contract by which the members agree that the “directors and directors alone shall manage‟‟.11
In exercising the powers conferred on them and discharging their duties therefore, the directors are neither bound by resolutions of the company in general meeting12 nor to obey the directions or instructions of the members in general meeting; provided that the directors acted in good faith and with due diligence.13 This prevailing view seems to be consistent with reality because directors are professionals trained to direct and manage the affairs of the company.14 However, the directors‟ powers as a whole, must be exercised in the best interests of both the company and all the shareholders, but not in their own sectional interests.15
One key feature of this managerial revolution is the temptation for the management to regard the company as essentially their own property and to look at their own interest in conducting the affairs of the company. The implication is that instead of trying to maximize the returns of investment for shareholders, those in management may be

10 See section 63(3) CAMA.
11 See the case of Automatic Self-Cleansing Filter Syndicate v. Cunningham (1906) 2 Ch. 34 CA and Quinard and Axtens Ltd v. Salmon (1909) 1. Ch. 311 CA; Shaw v. Shaw (1953) 2 K.B. 113 CA; Scott v. Scott (1943) 1 All E.R. 582.
12 See Gramophone and Typewriters Ltd v. Stanley (1908) 2 K.B. 89.
13 See sections 63(4) & 282(1) CAMA. The same standard of care as required in section 282(1) applies to both executive and non-executive directors – section 282(4). By section 64 of the Act the board of directors if so authorised by the Articles may delegate some or all of its powers to the Managing Directors or a committee of the directors.
14 See section 244 CAMA.
15 Sections 283(1) & 279(2) CAMA. See also sections 282(1), 279(3) of the Act and the case of Okeowo v. Milgore (1979) 11 SC 133, per Eso JSC, relating to the company alone.

concerned with making decisions that will preserve the company and its business; preserve managers‟ control over the company, and encourage growth and empire building in order to enhance their own well being rather than that of the shareholders‟. In this regard, managers are often in position to fix their salaries generously in relation to the company‟s profit. They may also arrange for themselves other fringe benefits. To put the matter bluntly, managers often take advantage of their control over the company to feather their nest.

The two concepts of juristic personality and abstraction theory of a company absolutely necessitate the separation of corporate ownership and control. This separation leads to potential divergence between the interests of owners (principals) and managers (agents) who exercise control over the decisions affecting the company. The problem therefore is aligning interests. Seeing that directors are the managers and also agents of companies, the question is whether there are adequate and appropriate provisions in the law for aligning the interests of the director with those of the company? How can the principal ensure that the agent always acts in a way that is consistent with the principal‟s objectives?

This research aims at critically examining the concept of corporate ownership and control in the light of general corporate laws in Nigeria. The objectives are: firstly, to provide answer to the central question of corporate interests; secondly, ensuring that there exists enhanced management accountability and transparency.

The scope of this research is limited to the central issues of interests and accountability arising from the separation of corporate ownership and control in Nigeria. The study

examines the relevant provisions of the Companies and Allied Matters Act, 2004 as well as the Code of Corporate Governance by Securities and Exchange Commission, 2011 and Code of Corporate Governance for Banks, 2006 by the Central Bank of Nigeria, respectively, among so many other corporate laws. Additionally, due to the global relevance of the subject matter of the research, references to and cases from foreign jurisdictions have been extensively used.


The research is largely based on doctrinal method. Two types of data – secondary and primary sources – are used in this research. Primary sources of data which are case law arising out of the decisions of courts and relevant statutes have been extensively used in writing this research. On the other hand, the secondary sources of data used in this research include text books, journals, magazines, newspapers and internet. This, it is strongly believed, will help for scholarship and deep appreciation of the subject matter. In all, an analytical mode of writing has been adopted followed with a descriptive style wherever necessary. Relevant data collected from different sources are duly acknowledged and analyzed at the foot of every page where they appear; and adequate recommendations made thereon.

Most of the available works and corporate governance deal with the concept of corporate ownership and control. Reference to the separation of ownership and management, and concern over its effect; go back at least to 1776 when Adam Smith,16 writing about joint stock companies, stated:

16 Smith, Adam (1776). An Inquiry Into The Nature And Causes Of The Wealth Of Nations (5th ed.). New York. Bantam Dell.

The directors of such companies ……., being the managers rather of other people‟s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matter as not for their master‟s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of affairs of such a company.
Adam Smith‟s „Wealth of Nations‟ is perhaps the major driving force for several modern economists to develop new aspects of organizational theory. Smith‟s basic contribution, therefore, was his ability to create insight into the need for managerial accountability. His criticism was focused on both the owners and the managers. Logically, he had stated that the equity owners quite often show that they have no knowledge or understanding of the business of the company. For the directors of an enterprise, he said that they cannot be expected to oversee the business activities with the same vigil and interest as the partners of a private organisation. In other words, their interest will be low since the equity invested in the business does not belong to them. On the whole, Smith‟s work was an explicit statement about laxity and levity on the part of corporate managers.
The major demerit of Adam Smith‟s work was that it is not contemporary with modern reality. Whereas the view of Adam Smith is quite valid but in the backdrop of the emerging global market and explosion of expertise and knowledge, there has got to be two sets of bodies-one that provides the capital and the one which manages. Of course, the complications of modern commercial enterprise make it virtually essential that the matters should be left to experts.
In 1932 Adolf Berle and Gardiner Means coined the phrase “the separation of ownership and control”. In their seminal book, The Modern Corporation and Private

Property,17 Adolf Berle and Gardiner Means alerted the public to the consequences of the emerging modern corporation in which ownership of shares, due to its diffusion, is separated from control. They identified the situation in the United States of America whereby the need for capital in larger companies was leading to the situation where no individual shareholder held a large or significant percentage of shares. They argued that this dispersion of capital among an increasing number of small shareholders has consequently led to a weakness of control by these shareholders over the activities of management. In Berle and Means‟ eyes, not only were managers in charge of the management of the company, but they were also in control of the control.
The book is well written and moreover, it shows evidence of deep research, particularly with regard to use of primary data. Also, it was one of the first few works elucidating separation of corporate ownership and control.
While acknowledging that Berle and Means have done a great work, their description of separation of ownership and control that was the main theme of their book was a pejorative one and also their understanding of the concept was rather pessimistic. They did not consider the evolution of the corporation as a positive economic force. Rather, they largely considered the emergence of the modern corporation in which managers were omnipotent and continuously expropriate dispersed shareholders as a market failure and the implications of their work was that the government must intervene to correct this market failure. They failed to realize that there is a difference between saying that there is a dispersion of stock holdings and a separation of ownership and control. The dispersion of stock holdings does not necessarily imply that managers are omnipotent and continuously expropriate shareholders. It is also interesting to note that while Berle and Means acknowledged the relationship between property rights and
17Adolf A. Berle Jr. and Gardiner C. Means (1932). The Modern Corporation and Private Property. New York. The Macmillan Company.

incentives, they never saw the implications of their statement with regards to the problem of separation of ownership and control.
Closely related to Berle and Means’ work is Paul Davies „Principles of modern company law‟18 which is concerned with corporate investment. Paul Davies while accepting Berle and Means‟ view explained that direct or indirect investment in companies constitutes the most important single item of property for most people19 but whether this properly brings profit to its owner no longer depends on their energy and initiatives but on that of the management from which they are merely reduced to suppliers of capital. The book is useful for its treatment of the topic under consideration. However there are embodied in the statement two concepts that are at odds with current analyses of the separation of ownership and control. First, modern analyses do not take as its ideal the notion that the shareholder should have the ability to monitor or control management. Indeed, policies that encourage shareholder control may undermine the benefits of separation of ownership and control. Rather, much modern analysis has focused how actors other than shareholders may effectively monitor and constrain managerial behaviour. Second, and perhaps more importantly, many modern analyses do not assume that it is socially desirable for managers to act in the interests of their current principals. The assumption of owners as mere suppliers of capital as stated by Paul Davies, therefore does not accord with realism. Jensen and Meckling,20 have expressed concern that the issues of the “separation of ownership and control” in modern corporations are purely associated with the general problem of agency in which they described the relationship of managers and shareholders in relation to corporate affairs as that between the agent and the principal. There is therefore an element of risk that the manager as agents may choose to act in their own
18 Davies P.L. Gower and Davies (2003). Principles of Modern Company Law (7th ed.). London. Sweet & Maxwell, at 291
19 After home ownership
20 Jensen, Michael C. and Meckling, William H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journal of Financial Economics, 305-360.

interests rather than the interest of shareholders. According to them, the principal is able to limit the divergences from his interest through the creation of various incentives to which the agent can benefit from and engaging in monitoring costs aimed at limiting future deviant activities of the agent. For example, providing bonding costs for the agent to guarantee that he will not harm the principal, and where this happens, ensuring that the principal is compensated. Though Jensen and Meckling mentioned the important role of monitoring in an agency relationship, they do not examine further how a large firm achieves efficient monitoring. In other words, how do firms structure their corporate governance in order to control the agency problem created by the separation of ownership and control? Similarly, Jensen and Meckling‟s suggestion for giving of incentives as a way of aligning the divergent interests of corporate stakeholders is quite an unrealistic assumption as managers have different preferences, goals, etc. There is therefore no unique line of behaviour expected of managers with regard to incentives.
Fama and Jensen, in their seminal paper,21 predicted that the separation of ownership and control leads to the decision systems that separate decision management from decision control. They broadly define decision management as the initiation and implementation of decisions, and decision control as the ratification and monitoring of decisions. As the board of directors is the common apex of the decision control system of organisations, their hypothesis implies that the greater the separation of ownership and control, the greater will be the separation of management and the board of directors. A testable implication of Fama and Jensen‟s hypothesis, therefore, is that board independence increases in the degree of the separation of ownership and control. Jensen and meckling‟s prediction on the issue is very weak and of limited application because most public companies have major owners who are likely to act as managers.

21 Fama, E.F. and Jensen M.C. (1983). Separation of Ownership and Control. Journal of Law and Economics, Vol. 26, 2, pp. 301-325

It is in the foregoing context that Shleifer and Vishny‟s suggestions become apposite. Shleifer and Vishny22 have suggested that if the individual is protected in the right both to use his property as he sees fit and to receive the full fruits of its use, his desire for personal gain, for profits, can be relied upon as an effective incentive to his efficient use of any industrial property he may possess. They further suggested that when control rights are concentrated in the hands of a small number of investors with a collectively large cash flow stake, concerted action by investors is much easier than when control rights, such as votes, are split among many of them. In particular, the majority shareholder has the incentive to collect information and monitor the management, thereby avoiding the traditional free rider problem faced by investors of widely held firms. The majority shareholder also has enough voting control to put pressure on the management in some cases, or perhaps even to oust the management.23 The shortfall in this suggestion is the clear lack of appreciation for the enormous benefits inherent in the separation of ownership and control of companies. Certainly, it would be very difficult to have a large number of shareholders – or even a relatively small number of shareholders – attempting to run the business directly through democratic means. Management by rationally apathetic shareholders would be both logistically problematic and substantively unwise. In contrast, decisions making is much more efficient with separating ownership and control.
Many authors believe that directors and managers are the agents of shareholders and therefore responsible for maximizing the shareholders‟ interest. Ayua Ignatius,24 one of the proponents of this belief, holds the view that the residuary powers of the company do reside in the general meeting of shareholders acting by ordinary resolution and that so far as traditional company law is concerned directors are no more than the agents of the

22 Shleifer, A. and R.W. Vishny (1997). A Survey of Corporate Governance. Journal of Finance, 737-783
23 See Shleifer, A. and Vishny R.W. (1986). Large Shareholder and Corporate Control. The Journal of Political Economy (3, Part 1), 461-488
24 Ayua Ignatius (1976). The Contest Between the Shareholders and the Directors (Unpublished LLM Dissertation). Faculty of Law, A.B.U. Zaria.

shareholders. He has argued that to hold otherwise will be to dissimulate the purely instrumental character of a company as a private property of shareholders. However, Kay and Silberston,25 offer a dissenting view and argue that a public corporation is not the creation of private contract and thus not owned by any individual. According to them, company law does not explicitly grant shareholders ownership rights because the corporation is regarded as an independent legal person separate from its members and shareholders are merely the “residual claimants” of the corporation.
This view as held by Kay and Silberstein agrees more with section 37 of the Companies and Allied Matters Act, 2004 and therefore more appealing and acceptable. The fact that, from an economic view point, shareholders collectively are regarded as the „owners‟ of the company does not alter the conclusion that the individual shareholder‟s right are not equivalent to “ownership” rights, i.e., rights to control and protect the property as well as to assert damage claims. The corporate law views shareholders‟ relationship to the company as merely contractual. The substantive content of the contract is found in the company‟s articles of association and in the Act. Therefore, shareholder neither has direct ownership rights in the capital which he has invested in the company, nor ownership of an interest proportionate to his investment in any corporate property. He merely has a contractual right to receive his proportionate share of corporate property when it is distributed.
There is also a controversy among scholars and other stakeholders as to the appropriate authority to which the company executives should be accountable. One school of thought is of the opinion that they should be accountable to the public or government since a company is created by government. Dodd,26 one of the pioneer proponents of this view

25 Kay J. & Silberston A. (1995). Corporate Governance. National Institute Economic Review, 84; pp. 84-97
26 Dodd, D. (1935). Is Effective Enforcement of the Fiduciary Duties of Corporate Managers Practicable? University of Chicago Law Review, 2; 194, 203-204, but see Karmel, S. R. (1991) Is It Time For a Federal Corporation Law?
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argued that since companies were brought about by the state, the state should regulate the absolute control of corporate property exercised by corporate managers not only for the benefit of shareholders but also for society at large. He viewed corporations as autocratic merchant state that derived their powers from the government and must be brought under government control for the benefit of society at large. In the same vein, Raph Nader,27 reinforced this position when he stated in 1970s that in view of the fact that the economic corner stone of corporate control has broken down, government should get more involved in the control of corporations.
Another school of thought has advocated that the company executives should be made accountable to the shareholders only. Spearheading this argument is Berle and Means28 who viewed corporate officers as representatives and was concerned about making corporate managers more responsive to the economic interests of shareholders. They hypothesized that shareholders had surrendered control of the corporation to management and that such control needed to be returned to shareholders through the enforcement of fiduciary duties owed to them by officers and directors. Nevertheless, Harold William warns that even when the directors are held accountable to the shareholders; it is not just individual shareholders but an institution.29