How Should Boards Handle Corporate Governance Crises? Lessons from Paystack on Crisis Response and Prevention
How Should Boards Handle Corporate Governance Crises? Lessons from Paystack on Crisis Response and Prevention
How Organisations Must Respond When Leadership Fails the Trust Test
The recent allegations surrounding Ezra Olubi, co-founder of Paystack, have thrust into the public arena a pertinent question that will give governance professionals something serious to ponder on: what happens when those entrusted as corporate guardians and stewards within an organisation become the source of an ethical crisis?
The Paystack situation is not an isolated incident but rather indicative of a widespread governance gap across the African corporate landscape. When a board member, particularly a founder with significant equity and societal influence, faces credible allegations of misconduct, the very structures designed to ensure accountability are put to their ultimate test.
The Nigerian Regulatory Framework:
Nigeria’s body of codified corporate governance guidelines has evolved significantly over the past two decades. The Financial Reporting Council of Nigeria (FRC) guidelines and the Nigerian Code of Corporate Governance 2018 (NCCG 2018) establishes in Part A Principle 1 that the board and its members must act “with utmost good faith, in the best interest of the shareholders and other stakeholders while sustaining the prosperity of the Company.” It further states in Principle 1.7 that the board and its members must “establish and maintain the Company’s values and standards (including an ethical culture) as well as model these values and standards;”
Section 305 of the Companies and Allied Matters Act (CAMA) 2020 crystallises directors’ fiduciary duties, requiring them to “act in good faith and in what the director believes to be in the best interests of the company.”
Particularly, subsection 4 of Section 305 of the CAMA provides “A director shall act at all times in what he believes to be the best interests of the company as a whole so as to preserve its assets, further its business, and promote the purposes for which it was formed,…”
When misconduct allegations emerge, these duties transform from abstract principles into concrete action imperatives.
The expectation of having a fiduciary duty to an organisation requires placing organisational interests far above personal relationships, founder mystique, or fear of reputational damage to Nigeria’s burgeoning tech ecosystem.
It was very encouraging to see how Paystack reacted speedily as the news broke on social media with the announcement that its CTO Ezra Olubi was suspended and relieved temporarily from his duties, this would not be surprising given the heavy scrutiny and spotlight the founders and company have been under ever since it became a unicorn. However the reality is quite different for thousands of other companies that are far from the spotlight. In such situations, where the pressure is not high, implementation may falter precisely because boards often fail to prepare for such scenarios. The African Development Bank’s Report on Corporate Governance in Africa (2021) emphasises that “effective governance frameworks must extend beyond paper compliance to practical accountability mechanisms, particularly regarding senior leadership conduct.”
The Anatomy of Institutional Failure
In my experience reviewing post-crisis governance failures across African jurisdictions, certain patterns emerge with disturbing regularity;
Founder Immunity Syndrome: Organisations often operate under an unspoken assumption that founders exist in a separate category from other employees. This cognitive bias is particularly pronounced in Africa’s relatively young technology sector, where founders are celebrated as nation-builders and job creators. The Commonwealth Association for Corporate Governance warns against this “leadership exceptionalism,” noting that it undermines the very systems designed to prevent abuse.
Mind your Optics: When allegations surface, the critical first 72 hours often determine whether an organisation will navigate the crisis competently or compound the harm through mismanagement. Nigerian companies that lack pre-established investigation protocols invariably stumble, creating secondary victims through institutional negligence.
Misguided Course of Action: Boards sometimes engage in misguided cost-benefit analyses, weighing the “value” of retaining a talented but allegedly abusive leader against the “cost” of their departure. This framework is fundamentally flawed. As the Commonwealth Association for Corporate Governance argues in its Principles for Corporate Governance in Africa (2020), such calculations fail to account for the corrosive effect of tolerating misconduct on organisational culture, employee morale, and long-term sustainability.
Independence Is Non-Negotiable
When serious allegations emerge, the board’s first responsibility should be to initiate an independent investigation. Note the emphasis on “independent”,this exercise cannot be an internal review led by those with personal or professional ties to the board and must be outsourced to competent firms or companies.
Principle 19 of NCCG 2018 mandates that Nigerian companies establish “effective frameworks for whistleblowing mechanisms” and “so that action can be taken to verify the allegation and apply appropriate sanctions or take remedial action to correct any harm done.” Best practices require immediate engagement of external counsel with specific expertise in workplace investigations and Nigerian employment law; formation of a special board committee composed entirely of independent directors with no personal ties to the accused; clear terms of reference defining the investigation’s scope, methodology, and timeline consistent with Nigerian legal requirements; interim measures to protect potential victims and prevent retaliation or evidence destruction; and transparent communication protocols balancing the need for confidentiality with stakeholder accountability.
Nigerian Case Law: Accountability Cannot Be Selective
Nigerian courts have increasingly held directors accountable for governance failures. The Superior Courts have affirmed in a plethora of cases that directors owe fiduciary duties to the company itself, not just to dominant shareholders or fellow directors. This principle becomes critical in misconduct cases where personal loyalties may conflict with institutional obligations.
More instructively, in Haston (Nig.) Ltd. v. A.C.B. Plc (2002) FWLR (pt. 119) 1476 at 1492, the Supreme Court emphasised that fiduciary duties require “the highest standard of honesty, openness, and probity.” Sexual misconduct allegations against a director clearly trigger this heightened scrutiny.
Section 288 of CAMA 2020 provides that directors may be removed by ordinary resolution of shareholders. However, waiting for shareholder action whilst misconduct allegations remain unaddressed violates the board’s duty of care. The board itself must act swiftly, utilising its authority under the company’s articles of association and employment contracts.
Founder Dynamics: Equity vs Ethics
The Paystack situation highlights a particularly thorny governance challenge prevalent in African startups: what happens when the alleged wrongdoer holds significant equity and potentially contractual protections?
Nigerian venture capital investors have increasingly insisted on governance provisions that specifically address founder misconduct. The African Private Equity and Venture Capital Association (AVCA) Corporate Governance Guidelines (2019) recommend good leaver/bad leaver clauses that distinguish between voluntary departures and terminations for cause; conduct-based dilution provisions that reduce equity stakes following substantiated misconduct findings; independent director majorities that can act without founder approval on sensitive matters; and explicit definition of “cause” that includes sexual harassment and misconduct.
The Cultural Dimension: Beyond Compliance to Prevention
Whilst crisis management response and escalation protocols are essential, the more modern and proactive approach is crisis prevention. The African Corporate Governance Network (emphasises that African organisations must develop governance cultures firmly rooted in both international best practices and contextual understanding of local and cultural workplace dynamics.
Psychological safety is paramount. Organisations where employees feel safe reporting concerns without fear of retaliation experience earlier detection and resolution of ethical issues. This is particularly challenging in hierarchical African corporate cultures and in founder-led startups where power dynamics are pronounced. Boards must actively measure and reinforce this safety.
The NCCG 2018 states that “the board should provide entrepreneurial leadership within a framework of prudent and effective controls, which enables risk to be assessed and managed.” Ethical culture flows from leadership behaviour. When board members model accountability, including holding themselves to the same standards as others, the entire organisation benefits.
Transparency and Stakeholder Communication
One of the most fraught governance questions in misconduct cases is: what do we tell stakeholders, and when?
The NCCG 2018 requires that companies “disclose all material matters, including matters that have the potential to affect the performance and sustainability of the company.” Sexual misconduct allegations against a co-founder clearly meet this materiality threshold.
The Nigerian Exchange Limited (NGX) Rules mandate the timely disclosure of material developments. Whilst Paystack is not listed, the principle applies: stakeholders, including employees, investors, customers, and the broader tech ecosystem, have legitimate interests in understanding how the organisation responds to serious allegations.
Best practice typically means acknowledging the situation without premature conclusions about culpability; describing the process being followed to investigate and address the matter; committing to actions based on investigation findings; and providing regular updates, even if only to confirm that the process continues.
The African Corporate Governance Network advises that boards must avoid the instinct towards silence or obfuscation. In the age of social media and stakeholder activism, information voids are filled with speculation, often damaging the organisation more than controlled, honest communication would.
Looking Ahead: Rebuilding Trust After a Crisis
Assuming an investigation substantiates misconduct allegations, the board faces the challenging work of organisational recovery.
Swift accountability is paramount. Any disciplinary action must be proportionate, consistent with organisational policies and Nigerian employment law, and clearly communicated. Section 46(1) of the Labour Act prohibits ill-treatments and harassment of employee, and CAMA 2020 provides mechanisms for director removal. Half-measures that appear to protect powerful individuals destroy institutional credibility.
Systematic review becomes essential. The board should commission an examination of how misconduct occurred undetected and what systemic failures enabled it. The NCCG 2018 requires boards to “ensure effective evaluation of its performance.” This evaluation must extend to governance failures that allowed misconduct to occur or persist.
Policy enhancement follows naturally. Based on investigation findings, organisations must update harassment policies, reporting mechanisms, investigation protocols, and whistleblower protections. Each crisis represents an opportunity to strengthen governance infrastructure.
Cultural repair cannot be overlooked. Misconduct, and particularly how it’s handled, creates organisational trauma. This may require external facilitators, listening sessions, and visible commitment to cultural change from remaining leadership.
Long-term monitoring closes the circle. Following a misconduct crisis, boards should critically examine whether the current composition provides the independence and expertise needed for effective oversight. The CIoD Nigeria recommends regular board evaluations that assess not just skills and experience, but also independence and ethical leadership capacity.
Implications for Nigeria’s Tech Ecosystem
The Paystack situation carries particular weight given Nigeria’s position as one of Africa’s leading technology hubs. According to various industry reports, Nigeria attracts a large chunk of Africa’s startup funding. How this case is handled will signal to international investors whether Nigerian companies can self-regulate effectively or whether external governance oversight is needed.
The Central Bank of Nigeria’s recent fintech regulations include governance requirements specifically because the regulator recognised that technology-driven business models do not exempt companies from fundamental governance obligations. The Paystack case will likely accelerate regulatory scrutiny of governance in Nigerian fintech and tech companies more broadly.
The Securities and Exchange Commission (SEC) Nigeria has also shown increasing interest in governance standards for unlisted companies that raise capital from the public or institutional investors. High-profile misconduct cases typically trigger regulatory reviews and potentially expanded requirements.
Lessons for the Broader Governance Community
The Paystack situation offers several transferable lessons for Nigerian and African companies.
- First, prepare well before a crisis strikes and never be caught unawares. Have investigation protocols in place , independent expert counsel relationships retained, and communication frameworks implemented BEFORE you need them.
- Second, founder status carries weight but provides no immunity. The individual who built the company is subject to the same behavioural standards as everyone else, arguably higher standards given their influence.
- Third, speed matters. Delayed response compounds harm and signals institutional tolerance of misconduct.
- Fourth, independence is non-negotiable. Investigations must be led by those with no stake in protecting the accused.
- Fifth, regulatory compliance is the floor, not the ceiling. The NCCG 2018 and CAMA 2020 establish minimum standards; best practice requires proactive governance.
- Sixth, context matters. Whilst learning from international best practices, Nigerian boards must apply governance principles within the specific context of Nigerian law, business culture, and stakeholder expectations.
- Seventh, ecosystem reputation is collective. High-profile governance failures affect investor confidence in the entire Nigerian tech ecosystem, not just the company involved.
Conclusion: The True Test of Governance
Sexual misconduct allegations against board members or senior leaders represents corporate governance’s litmus test moment. The structures, policies, and principles that look impressive in annual reports and compliance documents mean nothing if they cannot be activated when most needed.
As governance professionals practising in Nigeria and across Africa, we must be honest: and admit that TODAY, many boards will fail this test. They will prioritise protecting individuals over protecting the institution. They will delay, obfuscate, and hope the situation resolves itself. They will discover too late that their governance frameworks were aspirational rather than operational.
But some boards will rise to the moment. They will activate investigation protocols, support survivors, hold wrongdoers accountable, and emerge stronger for having demonstrated that their ethical commitments are real. These organisations will prove that Nigerian companies can hold themselves to the highest governance standards without external compulsion.
For Nigeria’s technology sector specifically, this moment is definitional. The world is watching to see whether one of Africa’s most celebrated success stories can demonstrate governance maturity. Paystack board’s response will either reinforce international confidence in Nigerian tech governance or confirm sceptics’ concerns that growth has outpaced institutional development.
The question for every board in Nigeria and across Africa is not whether you will face such a crisis; research suggests that most organisations eventually will, but whether you will be prepared to respond with the integrity and courage that governance responsibility demands.
In the end, effective corporate governance is not about preventing all misconduct though maintaining a zero toler; human fallibility makes that impossible. It’s about creating systems that detect problems early, respond decisively, and demonstrate to every stakeholder that no individual, regardless of their contributions, status, or equity stake, stands above the ethical standards upon which trust and sustainability depend.
The NCCG 2018 concludes with a powerful reminder: “Good corporate governance is not just good business practice; it is also a moral imperative.” For the sake of Nigeria’s reputation, its technology ecosystem, and most importantly the individuals harmed by misconduct, we must hope, and demand that boards choose conviction over convenience.
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