July 12, 2010 Behind The Figures By Ijeoma Nwogwugwu

In the last couple of weeks, the Nigerian Stock Exchange has opened up the process for the recruitment of its next chief executive and three executive directors to run the institution. Its advertisement in local and international media seeking to recruit qualified and experienced candidates to occupy the positions, marks a departure from the past. In its 50 year history, executive management positions were usually filled by personnel from within the Exchange on a discretionary basis.

Another noteworthy change in the executive management structure of the NSE is the change in the nomenclature of its managers who will be responsible for its day-to-day operations. Instead of a director general and deputy director generals, the Exchange will be headed by a CEO and executive directors going forward. This presupposes that the NSE will jettison the arcane governing council it currently has in place and replace it with a proper board of directors, preparatory to its eventual demutualization at some future date.

Enquiries have shown that a leading management consulting firm has been handed the responsibility of filling the executive openings at the Exchange. Again, this presumes that the management consultant will conduct a transparent, rigorous and merit-driven recruitment exercise that will not be influenced by discredited entrenched interests in the NSE, capital market operators, and other extraneous forces with an interest in preserving the rot in the capital market.

For too many years, the Nigerian capital market has been plagued by several problems and a weak governance structure. This is characterized by a wasteful management with little or no integrity, lack of visionary and market-driven leadership, low trading liquidity and an underdeveloped market, doubtful disclosure, lack of transparency, poor corporate governance in listed companies, insecurity of clients’ accounts, and weak surveillance and enforcement structures.

Add to this stockbrokers and inexperienced asset managers, most of which are allowed to trade with insufficient capital, as well as the absence of an over the counter trading platform in which equities of public companies not listed on the Exchange can be traded through market makers. The latter will help to deepen the market and create an alternative avenue for smaller companies seeking to raise capital without resorting to the banks.

The recruitment exercise is therefore an excellent opportunity to inject fresh blood with the vision to turnaround a key segment of the Nigerian financial system. The NSE can propel growth if the new chief executive and management appreciate the enormity of the task at hand in developing the capital market. Off all the commanding heights in the financial system, this is the only one that is private sector driven. The others – the Central Bank of Nigeria, National Pension Commission, National Insurance Commission, and the Securities and Exchange Commission – being government departments, often succumb to political interference.

In determining who should take up the mantle of leadership at the Stock Exchange, the consultant would have to be thorough in scrutinizing the experience and background of the candidates to be hired. A keen understanding of the local financial market and its challenges, as well as global markets, is a major attribute the candidates must possess.

Particular attention must be paid to candidates brandishing resumes with international exposure. Experience has shown that some of these so-called Wall Street and City of London-types are overrated. Several Nigerian banks that rushed headlong shortly after the consolidation exercise to headhunt and recruit Nigerians and foreigners working in financial institutions overseas, felt short-changed, as they could not justify the fat perks and salaries they were paid.

Equally important, the candidates must be drilled extensively on what they will be bringing to the table in terms of restructuring and giving new direction to the NSE and the capital market. Right now the NSE does not appear to have any benchmarks to which it can aspire. As such, the gap between the NSE and other Exchanges such as the Johannesburg Stock Exchange keeps widening. The new CEO and his EDs must have the capacity to bridge this gap with a comprehensive plan on where they want the Nigerian capital market to be in the immediate to long term.

Their success, however, will be hinged on the quality of the board of directors to which they report. The last governing council of the NSE whose election was nullified by a Federal High Court last March did not inspire much confidence in the investment community. It is expected that none of such members find their way to the new board of the NSE. The new board must comprise men and women of proven track records in the corporate world, who are not conflicted, and of unquestionable integrity. There can be no room left for the underhanded dealings and insider abuse of the kind we witnessed in the last few years.     

But for the NSE to make significant progress, other crucial players in the financial system must move in lockstep with the new managers at the Exchange. The Financial Services Regulatory Coordinating Committee comprising the CBN, NSE, SEC, PenCom and NAICOM, and chaired by the CBN governor Sanusi Lamido Sanusi, still has its work cut out. Since it was set up a year ago, it has not evolved a national strategy for the complete overhaul and reorganization of the financial system. Most of the regulators work at cross purposes and turf wars continue to prevail.

Even financial markets development, a critical policy aspect of the coordinating committee, has been left untouched mostly because those responsible have no clue as to how to proceed with their assignment. But the time for the regulators and the NSE to work in unison is long over due. This is the surest way for Nigerian financial system in terms of design, focus, regulation, product variety, and risk management, to be elevated to the next level.

email:ijeomanwogwugwu@thisdayonline.com