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Tuesday, 2 September 2014
The return of former bank CEOs in non-executive capacity
When the Central Bank of Nigeria (CBN) rolled out a policy fixing the tenure of bank chief executives for two terms of five consecutive years in 2010 in furtherance of the banking reforms, it was seen by many as the end of era of sit tight CEOs as well as a good omen to instill good corporate governance in the banking sector. However, with the return of Tony Elumelu and Jim Ovia as Chairmen of their former banks after three years in compliance with the CBN guidelines, some analysts are wondering if it might have any corporate governance implications.
Experts believe that given the pedigree of the duo as bankers per excellence and their international network; their banks will enjoy high ratings, both within and outside the country with the attendant impact on the industry as a whole.
According to Bismarck Rewane, foremost economist and chief executive of Financial Derivatives, banking in Africa is dynamic, exciting and an increasingly competitive and challenging industry. Tony Elumelu is visionary, courageous and has shown an ability to both, think for the long term, and to create significant shareholder value. The drive, dynamism and competitiveness that we saw during his period as CEO of UBA, was one of the catalysts of the enormous changes in the Nigerian banking sector.
While in the opinion of Johnson Chukwu, managing director and chief executive, Cowry Asset Management limited, the return of Tony Elumelu and Jim Ovia to the boards of UBA and Zenith bank respectively as board Chairmen should bring a lot of intensity to the boards of these banks given the personality attributes of both men. He further stated that to moderate the influence of core investors sitting as Chairmen of banks, the Central Bank may have to impose a higher percentage of independent directors on such banks. To make for an even playing ground, CBN can require all systemically important banks to maintain at least 40 percent of their Board members as independent directors. Such policy will ensure that the banks maintain strong corporate governance standards without compromising the drive for legitimate businesses. The CBN should strive for consolidation of these achievements and should commence with an inbuilt checks and balances through close monitoring and supervision. Enlarging the number of independent directors to forestall likelihood of corporate governance abuses, in addition to enhanced supervision will not be a bad idea.
This is a welcome development as it portends to the fact that the era of appointing figurehead chairmen of companies for political patronage as was evidenced in the past may be over as the new development will engender confidence with the attendant value addition to stakeholders.
Although the emerging scenario is good for the industry and the economy, the largest on the continent of Africa, there is need for enhanced supervisory role of CBN to ensure that the principles of corporate governance are adhered to strictly.
As a matter of demonstration of its commitment to the ideals of good corporate governance, CBN, should increase the number of independent directors on the boards of all systemically important banks (SIBs) to which the two banks belong so as to moderate the influence of core investors sitting as Chairmen of their boards and also to ensure that higher level of corporate governance is maintained. Finally, there are benefits and risks in lengthy director tenure, but the biggest risk lies in not being strategic in board talent management. Hence, balancing tenure and skills so that the distribution of length of tenure across board members represents a reasonable mix of “old” and “new” thinking, and skill sets are appropriately diverse is also important.