Corporate governance for churches: A miscarriage of regulation

Last week the nation woke up to any unscripted opera. The General Overseer of the Redeemed Christian Church of God (RCCG), Pastor EA Adeboye, suddenly announced that he was stepping down as the General Overseer of the church in Nigeria on account of a little known Nigerian law. The law issued by the Financial Reporting Council (FRC) required that founders of not-for-profit organizations, including churches, should not stay at the helms beyond 20 years. The story unhinged the Internet as all manner of bloggers and commentators drew blood.

Two things came out of the tragicomedy. First, Nigerians don’t trust the Pentecostal churches, even as the flock there daily for miracles. Second, Nigerian regulators are severe incapacitated in understanding their craft. Nigerian administrative law is thoroughly underdeveloped. We are far off from understanding how the administrative state works.

The truth is that as much as we rightly deplore some of the actions of Pentecostal churches, and many of their activities ought to be regulated, this regulatory intervention is wrongly conceived and implemented. The corporate governance code as it relates to leadership succession in not-for-profit organizations is a regulatory misstep period. It shows how much we need to learn about the administrative state. The code erred in addressing the wrong issue and addressing it wrong way.

The Administrative State and the Social Complexity 

Before we dig into the legalities of the code it is important to emphasize the need for competence and restraint in managing the complexities of the modern state. As Nigeria embraces a private sector economy and the social sector expands it launches itself deeper into the administrative state. The administrative state describes a situation where the regulatory function of the state has transformed and expanded into far reaching and complex social sectors. Traditionally, governments were producers of goods and services and manage a rudimentary engagement with the private and non-profits sectors. But with the triumph of market economics and the post-New Deal involvement of governments in social security, the state took up itself a much more expansive managerial responsibility, even to the extent of regulating the working of private markets. That is the administrative state.

One of the critical attributes of an administrative state is the almost infinite capacity to solve problems, different kinds of problem, even polycentric problems. The administrative state deals with complexities.  Problems of the modern state are polycentric and multidimensional. Therefore public administrators need to develop capability to evaluate these complexities and intervene in manners that secure public good without causing severe unintended negative consequences.

Therefore the regulatory craft, which is the alchemy of the administrative state, is such that is not based on hubris or on outrage; it is based on intelligent assessment of problems and solutions. In Nigeria we are often driven by outrage to solutions that are both illicit and conceptually muddled. We are impatient and incompetent to properly conceive the problem we want to solve so we know what kind of intervention is required. When problems overwhelm the capacity to solve them we easily slide into truculence and populism.

But the rule of law helps to constrain this tendency. The rule of law framework control the regulatory interventions of the administrative state such that it does not undermine the interests, values and benefits of the modern state. The rule of law critique of the administrative state therefore works to ensure that in solving complex social problems we don’t destroy the simple beneficences of a modern state.

The Nature and Ambit of the Governance Code for Not-for Profit Sectors in Nigeria

The Not-For-Profit Organizations: Governance Code 2016 is a regulatory directive issued by the Financial Reporting Council pursuant to its powers under Sections 7 and 8 of the Financial Reporting Council Act of 2011 and the directives of the Minister of Trade and Investment to the Steering Committee on the National Code of Corporate Governance. The ministerial directive recognized the importance of extending corporate governance to the social sector including churches and mosques. Therefore the Minister asked the Steering Committee to develop an appropriate corporate code for not-for-profit sector. It is in pursuance of the ministerial directive that the code.

The main objective of the code is good governance in the Not-For-Profit sector, which it defines as “ a transparent decision-making process in which the leadership of a non-profit organization, in an effective and accountable way, directs resources and exercises power on the basis of shared values”. The code is full of verbiage on the features of NFPOs and all the right sounding concepts on good corporate governance.  There is some degree of conceptual confusion with the code as a regulatory tool. It brings everything in sight within its regulatory purview. It makes no distinction between different categories of non-profits in the larger context of the social sector. The social sector houses different and divergent organizations. Social enterprises are a form of not-for-profit. But they are definitely different from churches, mosques and other religious organization.

The Code is a mishmash of the necessary and the frivolous. For example, there is no need to require annual general meetings for all NFPOs irrespective of the nature and mandate. The provisions of the Company and Allied Matters Act (CAMA) suffice in this respect. The Code in paragraph 6 in Pact C provides that all NFPOs must hold annual general meeting at which the directors and trustees of the NFPOs shall be appointed. The language of the code is not legal enough. It sounds like a commentary on the social crises of the social sector in Nigeria and a sentimental approach to solve an ill-conceived problem. From its language and provisions one can argue that the code is not a proper subsidiary legislation and may not be accorded the usual degree of compliance.

The Administrative Law Compliance of the Code

Let us presume that the code is a subsidiary legislation made pursuant to the Financial Reporting Council Act No.6 of 2011. A regulation issued by an agency of government passes the first test of validity if it is made clearly within the powers that a legislature has denoted to that agency. This is so because of the doctrine of separation o; f power enshrined in Sections 4, 5 and 6 of the Constitution. An executive agency’s lawmaking power through delegated legislation is only possible because it the legislature has authorized it to make such rules. Therefore, where the exercise of such delegated legislative authority is not strictly in the terms such powers were granted, such rulemaking would be unlawful.

The code is an example of administrative regulation. It sources its legality from the powers the National Assembly grants the Financial Reporting Council to regulate the financial transactions of organizations in Nigeria. But from reading of Sections 7 and 8 of the Act, dealing with the mandate and function of the Council it would appear that some of the provisions of the code are not valid exercise of agency rulemaking powers by the Council.

The mandate and the object of the council show clearly that the purpose of creating the Council is to institutionalize good financial governance in the various private and public organizations. All of the functions that the Act permits it to do relate to ensuring integrity in the financial systems of organizations in Nigeria. But the focus of the code is more on governance system or structure of not-for-profit organizations. When the executive or agencies in the executive branch of government take actions to execute the law through subsidiary legislation or other forms of legislative interventions, they must ensure that they do not violate any part of the constitution or enabling legislation or impose duties that are not within the ambit of the authorizing law (A.G.Ogun & Ors. V. A.G. Federation (1982)1 NCLR 166); Attorney General of Bendel v. Attorney General of the Federation 7 ors. (1982) ANLR 85). 

The power of regulatory agencies to interpret their laws is fully acknowledged by the courts. The regulatory agency has the power to interpret its law as long as such interpretation does not violate the clear provisions of the enabling law. In the famous chevron Case (Chevron USA, Inc.v. Natural Resources Defence Council 467 U.S 837 (1984), while conceding that the “the power of an administrative agency to administer a congressionally created ….program requires the formulation of policy and the making of rules to fill any gap left impliedly or explicitly by the statutes” held that where such policy or rulemaking or interpretation are manifestly contrary to the express and unambiguous provisions of the enabling law, the court will not offer to the agency the usual deference.

Another issue is that administrative rulemaking ought to be focused on solving a legitimate problem that has public interest impact. The code rambled so much about the mission and vision of Not-for-Profit Organizations and at times talked about strategies to cajole founders and leaders of churches to accept their replacement. The question for administrative rulemaking is whether intervention will address any manifest public interest. In this case, what is the public interest in enforcing tenure for voluntary associations? What legitimate public interests is served by stimulating how non-profits elect their leadership? Focusing on these issues is an illegitimate exercise of executive powers

Constitutional Validity of the Code

Every exercise of legislative power, whether by a legislature or an administrative agency must comply with the constitution to be valid. The primary test of validity is compliance with the fundamental rights. These rights are guaranteed against the state because the idea of democratic governance is to secure for citizens a zone of non-interference where the citizen disposes his affairs, as he likes. The constitutional principle, established in many cases by Nigerian courts and courts in other democracies, is that before the state can interfere with these rights it must establish an overriding public interest. This is an interest that would be severely undermined but for such interference.

Section 40 of the Constitution guarantees to every person in Nigeria the right to associate freely with others in pursuit of lawful personal interests. In the language of the constitution, “Every person shall be entitled to assembly freely and associate with other persons, and in particular he may form or belong to any political party, trade union or any other association for the protection of his interests”. By the language of the constitution, apart from political parties that require the recognition of the electoral management body, there is no constitutional restriction to the right of association.

As Calvin Massy puts it in his American Constitutional Law: Powers and Liberties, “Whenever government action significantly impinges upon a ‘fundamental right or interest’ that action is presumptively void. The government action is only valid only if it can prove that the infringement is necessary to accomplish an overriding government interest”. This is the essence of all the decisions of the Nigerian and US Supreme Court, decisions ranging from Ransome Kuti v. AG Federation (1985) 2NWLR Pt. 6, page 211, to Director, SSS V Agbakoba (1999) 3 NWLR pt. 596, page 314. Section 45 of the Constitution captures this important constitutional law principle by requiring that before government can interfere with these rights it must show that the enjoyment of the guaranteed rights undermined national defence, national security and public health.

Any regulatory intervention that would encroach on the right of free association must be justified on the basis of an overriding public interest. This is the canon of constitutional law in a written constitution with a guarantee of fundamental rights. It is the protection of substantive due process. The guarantee of the right to freedom of association means that the government is restrained from interfering with this right except it shows that there is a threat to security, defence or public health or other. This restriction applies to both the exercise of legislative, executive or judicial power. Neither the legislature, the executive or judiciary can make rules or orders to abridge the exercise of these rights without making out a clear case of overriding threat and danger to public interests. This is the essence of the heroics of the Supreme Court in many cases stating that any exercise of executive or legislative action against these guaranteed rights is unconstitutional.

Beyond Sentiments: Protecting Public Good 

Responses on the code have been mostly sentimental. People have pointed out the need to regulate the churches because of alleged excesses. The argument is that many church founders and leaders have constituted these churches into private estates and therefore the state needs to intervene to protect the hapless members of the churches. Another variant of this argument is that the churches are very rich that they need to be regulated. The churches ought not to be beyond the reach of the law, they argue.

The problem with this line of thought is that it assumes that it is the responsibility of government to correct every ill of life. Many things are wrong with life and those things are not the business of government and not the subject of public regulation. There is room for private regulation. The family and the society play a role in regulating ills in private domain. Governments do step in through regulatory activities to shape outcomes in private domain through clever use of incentives. Even at that, such use of incentive must be indirect and through manifestly public action.

So, the question that the FRC should ask is what overriding public interest is being achieved by regulating the tenure of leaders of private associations that do not depend on government funding. What wrong does the public suffer when such founders and leaders stay a lifetime as General Overseers in their churches? Do such wrongs conceivably amount to significant threat to public order, security or public health such that government has to intervene?

Public sector leadership in a constitutional democracy calls for sensitivity to the complexities and intersections of the different domains. If a church is using animal or human beings for sacrifice then the government many intervene with a rule that prohibits the use of animal or humans for sacrifice. There is a manifest and overriding public interest to protect endangered species or human beings. This is what happened in the case of the Church of the Lukumi Babalu Aye, Inc. v City of Hialeah, 508 US 520 (1993) where the city regulated religious sacrifice of a Yoruba sect in the US. The US Supreme Court still struck it down because the rule targeted religion. The rule was not properly targeted to address any specific public interest. It rather burdened religion unfairly. As Justice Blackmum put it, the rule was not ‘precisely tailored to a compelling governmental interest”. 

Conclusion

The Governance Code for Not-For-Profit issued by the Financial Reporting Council may be well intentioned. But it is a bad and dangerous regulation. It is bad because it violates the principles of administrative rulemaking by exceeding the powers granted to the Council by the legislature by being so imprecise and vague that it could not be a valid exercise of delegated legislation. The code is dangerous because it attempts to abridge the right to free association without any compelling government interests or threat to national security, defence, public safety and public order. Therefore, it is an unlawful regulatory intervention.