Managing Stakeholders’ Expectations
Stakeholder management has come to assume prominence in the corporate world due to the ever increasing need for organizations to deliver value to all who have stakes in their existence. Indeed, there seems to be a growing consensus, from the volumes of literature on the subject, that meeting stakeholders’ expectations is crucial to the very existence of organizations.
NDIC AND STAKEHOLDERS' MANAGEMENT
Since inception, the Corporation had striven to satisfy the expectations of its multiple stakeholders in keeping with its objectives of value delivery. Although the Corporation is a public institution in which every Nigerian has a stake, its specified statutory responsibilities had necessitated the delineation of its relevant and immediate stakeholders as well as focusing on their satisfaction. To manage the stakeholders’ expectations also requires a good understanding of their expectations, which the Corporation tried to decipher from the terms of its mandate, public surveys that were conducted and years of operational experience. Highlighted below are some of the various stakeholders, the relevance of their stakes, their expectations and the Corporation’s stakeholder management efforts.
STATUS OF THE STAKEHOLDERS, THEIR EXPECTATIONS AND THE CORPORATION’S CORPORATE RESPONSE
As a public institution with a unique mandate, the Corporation’s enabling Act sets the tone for determining who its stakeholders are. Accordingly, the Corporation’s major stakeholders had been identified to include:
i. Depositors of insured deposit-taking financial institutions;
ii. Insured deposit-taking financial institutions;
iii. The Central Bank of Nigeria;
iv. The Federal Ministry of Finance;
v. The National Assembly;
vi. The Media;
vii. The Corporation’s Employees; and
viii. The General public.
The efforts of the Corporation towards meeting the expectations of the above listed stakeholder since inception are discussed below:
Depositors of Insured-Deposit Taking Institutions
From the mandate of the Corporation, the primary reasons for its existence is the protection of depositors of licensed banks and other deposit-taking financial institutions. Depositors are also the reason why banks exist. Should there be loss of confidence in the banks by depositors, the payment system in the country will be greatly threatened and so will be the entire financial system.
Secondly, it is the deposits in banks that represent the basis for assessment of premium, which banks pay to the Corporation. It is within these contexts that the Corporation considered depositors as very critical (primary) stakeholders in the running of the Corporation, recognizing their stakes as both legitimate and requiring urgent attention. Depositors’ expectations from the Corporation derived either from what they understood to be the Corporation’s official mandate regarding the protection of their insured deposit as stipulated in its enabling Act or from their self defined expectations. The Corporation gauged depositors’ expectations to include:
Protection of deposits in the event of bank failure;
Effective oversight function on the banks in a manner that reduced distress and failure situations in the banking system;
Periodic review of coverage levels;
Prompt payment of guaranteed amount in the event of bank failure; and
Payment of uninsured deposits in the form of liquidation dividend.
It is on record that over the years, the Corporation had successfully managed those expectations to the requirements and limits of its mandate. Those efforts had resulted in positive outcome in terms of engendering public confidence in the banking system. In the final analysis, the depositors had enjoyed reasonable level of protection and services from the Corporation.
Indeed, managing depositors’ expectations in the last twenty years had been synonymous with the Corporation’s activities over the same period, because virtually every official decision and action taken by the Corporation was geared towards the protection of depositors and the preservation of their confidence in banking. However, some specific mention of such efforts will be made here on how the Corporation directly or indirectly managed or influenced the expectations of depositors.
a. Public Awareness:
Since its inception, the Corporation recognized the need to carry bank depositors and other members of the public along with a view to creating market discipline in the banking system and facilitating the implementation of the DIS scheme. The Corporation believed that enlightened depositors would be able to make informed decisions regarding where to place their deposits and to monitor the performance of the banks. This in turn would reduce the chances of bank failure and sustain depositor confidence in the banking system. Accordingly, the Corporation published information about the financial conditions and performance of deposit-taking financial institutions on a regular basis, embarked upon public enlightenment campaign to create awareness about its existence and about the rationale and values of deposit insurance scheme.
b. Stakeholder Survey:
The Corporation recognized also that in addition to its general public awareness campaign, a satisfactory management of depositors’ expectations would require some inputs from them, which should add value to its general administration of the deposit insurance scheme. In that regard, the depositors and other stakeholders as well as the general public became targets of periodic public surveys aimed at gathering relevant stakeholder information. Among surveys conducted in this regard were those of 1994, 1999 and 2004. The surveys revealed vital information such as the awareness gap about the deposit insurance system among the banking public and facilitated review of policies as well as strategies for enhancing depositor awareness.
c. Support for Banks in the Interest of Depositors:
Managing depositors’ expectations in the implementation of DIS also requires sustained efforts to ensure that there are no disruptions to the payment system. However, the first challenge to the Corporation occurred in 1989 when the banking system experienced liquidty crisis sequel to the Federal Government directive to all public-sector institutions to withdraw their deposits from commercial and merchant banks to the Central Bank. That resulted in “about N8.7 billion deposit loss to the banking system ... and some banks were clearly unable to meet their commitments” (NDIC, Annual Report, 1989: 10). The situation posed a big stakeholder management challenge to the Corporation, especially coming on the heel of its establishment. In order to prevent chaos and loss of depositor confidence in the banking system, the NDIC drew accommodation bills to the tune of N2.3 billion for the affected banks in order to regain liquidity. Even though some of the banks later failed due to insolvency, the action was a mark of successful stakeholder management.
Claim settlement is a statutory obligation of the Corporation to depositors. Over the years, the Corporation had four (4) major episodes of claims settlement. The first was in 1994 and 1995, the second in 1998 and the third was in 2000, while the fourth was in 2006. The first case involved five banks with few branches. The real test case for the Corporation in claims settlement was in 1998 when the licences of 26 banks were revoked leading to the crystalisation of deposit insurance reimbursement obligation in significant proportion. The Corporation was conscious not only of its responsibility, but also of the need to satisfy the expectations of the teaming depositors. A good stakeholder achievement for the Corporation then was its ability to take payment centres closer to depositors all over the country and to continue for years to attend to late claims beyond the statutory period of 18 months after which a claim was deemed to have lapsed. The Corporation was indeed not unmindful of the low level of awareness and the illiteracy level among the small depositors.
Furthermore, after the policy-induced revocation of the operating licences of 13 banks in 2006, the depositors’ interest remained central in the failure resolution decisions of the Corporation. On appreciation of the circumstances under which the banks failed, the CBN guaranteed full payment to private depositors. The Corporation on its part, introduced the Purchase and Assumption (P&A) option, in order to facilitate prompt access to deposits trapped in the failed banks. Under the option, the private sector depositors were guaranteed full recovery of their deposits while continuity of banking services was assured as the acquiring banks offered banking services in the same premises used by the failed banks.
e.Review of Coverage Level
In response to developments in the financial services industry, the Corporation undertook a survey which indicated that the initial coverage level fixed at N50,000, was inadequate. Subsequently, new coverage limits of N200,000 and N100,000 were proposed for universal banks and other deposit-taking financial institutions, respectively. The increases in the coverage levels were part of the Corporation’s response to the yearnings of depositors of insured institutions in Nigeria.
The Insured Deposit-taking Financial Institutions:
It is worth noting that the legal status of the insured institutions witnessed some changes since the Corporation commenced operation twenty years ago due to government regulatory reforms. As at the end of 2008, the insured deposit-taking financial institutions were the Universal Banks, the Micro Finance Banks (MFBs) and the Primary Mortgage Institutions (PMIs).
Deposit-taking financial institutions were, by operational necessity, stakeholders in the running of the Corporation. Their stake was informed by several reasons. First, although the Corporation existed primarily to protect insured deposits, deposit-taking financial institutions were the vehicles through which deposits were received and managed. The Corporation therefore took interest in how the deposits were managed.
Second, it was the insured deposit-taking institutions that paid premium to the Corporation. Third, the premium paid by deposit-taking institutions was the source of the Deposit Insurance Fund, which the Corporation maintained and from which reimbursements were made when the payment of insurance claims crystallized. The ability of the Corporation to meet its insurance obligations was highly dependent on how much of the deposit insurance fund it had been able to build. Also, as a public institution with a stake in general public interest, the Corporation’s focus on the banks went beyond its immediate mandate of protecting depositors’ interest to the promotion of stability of the entire financial system which was dominated by banks.
It is within the above stated contexts that the Corporation regarded the deposit-taking financial institutions as primary stakeholders in the running of the Corporation and recognized their stakes as commanding urgent attention. Based on its relationship with the banks, the Corporation deciphered banks’ expectation to include:
Consultation with them on major regulatory matters affecting their operations;
Provision of financial and technical assistance to them should the need arise;
Minimising premium burden on them; and
Value-adding bank supervision
Over the years, the Corporation had been sensitive to the concerns of its stakeholders. At commencement of its operation, the banks had expressed reservations over such issues as charging premium on inter-bank placements. Although the Corporation had at the time explained its position, it was not unmindful of the concerns of the banks. In 2007, after a comprehensive assessment of the situation, the Corporation gave a premium relief to the banks by removing inter-bank placements from assessable deposits.
Another issue some banks objected to was the mandatory participation in the deposit insurance scheme. The objection was made particularly by the large banks which had the belief that their failure was a remote possibility. However, although the Corporation at the time also explained, with empirical citations, that bank failure was no respecter of size, it was not unmindful of the need to reward good risk management system. Thus, in January2008, although mandatory participation still remained in force, a partial resolution of the concern was made by the introduction of differential premium assessment system (DPAS). The DPAS removed the worries that some banks subsidized the risk of others, which was the bane of flat premium assessment.
The Central Bank of Nigeria
The Central Bank of Nigeria is the apex regulator of the banking industry and is part owner of the Corporation by virtue of its 60% equity holding. The Corporation shares bank supervision and failure resolution responsibilities with the CBN. As a stakeholder and part-owner, the CBN expected the Corporation to deliver in the following major areas:
Good corporate governance;
Collaborative supervision of the banks;
Effective resolution of bank failures; and
Contribution to financial system stability.
At the corporate level, not only did the CBN have a seat on the board of the Corporation but had served as the Chair of the Board in the first few years of its establishment. At the operational level, the Corporation partnered with the CBN on bank supervision and failure resolution matters. For instance, they partnered to conduct examination of banks. On routine examinations a mutually agreed upon plan was made by the two institutions prior to examinations to avoid duplication of efforts. It is noteworthy also that the two institutions collaborated to come up with a bank rating system and jointly conceptualized and development and deployment of the Electronic Financial Analysis Surveillance System (e-FASS) that facilitated the submission of periodic bank returns real time online. They similarly collaborated on how best to handle resolution of failing and failed banks.
Federal Ministry of Finance:
The Federal Ministry of Finance (FMF), through FMF incorporated, had 40% share capital in the Corporation and by this a power relationship was established. More than that, however, the Federal Ministry of Finance served as the supervising ministry of the Corporation. In the absence of the Board, major approvals needed by the Corporation were considered and granted by the Ministry. The Corporation therefore considered it as a primary stakeholder in its operations. In much the same way as the CBN, the Ministry’s expectations from the Corporation was the pursuance of good corporate governance as that was critical to the achievement of other organizational objectives.
Since inception, the Corporation had tried to operate by the dictates of its mandate and to comply with the requirements of good corporate governance to meet the expectations of the Ministry, which was also the watchdog of the government on its activities. In respect of corporate governance practice, the Corporation’s performance and activities revolved around 4 key elements of sound regulatory governance namely: independence, accountability, transparency and integrity. These were aptly captured in its strategic plan.
The National Assembly
The National Assembly, which is the highest law making body in the country, had a stake in the Corporation by virtue of its general oversight functions on major national institutions and through its legislative authority. It was therefore a key stakeholder in the governance of the Corporation.
By the strength of its position as the highest law making body in the country and with oversight powers on the implementation of government policies, the expectations of the National Assembly on the Corporation was to ensure sound corporate governance and effective discharge of responsibilities.
It is worth noting that the Corporation had at different times honoured the invitation of relevant oversight committees of the National Assembly to appear before it for briefing. The committees included Banking and Currency, Public Accounts and Federal Character. On other occasions, the Corporation hosted some of the committees that came for oversight function and were given maximum cooperation. As part of the Corporation’s contribution to legislative oversight, it invited relevant members of the Assembly to its seminars to broaden their understanding of deposit insurance issues.
There is no denying the fact that today the media, whether print or electronic play significant role in fostering human development. The media provides information on socio- economic and political events; economic activities are facilitated by the media through spread of relevant information to both the urban and the geographically isolated dwellers; it mobilizes people to participate in governance. It assists government to maintain law and order through information dissemination. It spreads information to people on government services and expenditure and on their rights and obligations.
While the media is available to provide the above publicity services, the Corporation, on the other hand, recognized that for deposit insurance scheme to succeed, the general public must be well aware of is existence, purpose and operational modalities. This therefore called for close partnership with the media. However, given that reportage of events and developments is greatly influenced by the reporters’ perceptions, worldviews, and personal biases, the Corporation found it imperative to manage its relationship with the media in order to achieve its desired public advocacy objectives. In this context, therefore, the Corporation considered the media as an important stakeholder in its operations.
Having noted the importance of public advocacy to the success of its mandate and the role of the media in that regard, the Corporation, from the on-set patronized its services through purchase of airtime and newspaper spaces to reach out to its target groups and the general public. However, in its desire to ensure accurate reportage and effective communication with target groups, the Corporation undertook to educate the media personnel themselves on the functions and activities of the Corporation with a view to enhancing their capacity to adequately communicate deposit insurance issues and related challenges. It was also believed that such exposure would acquaint the media professionals with the intricacies of the deposit insurance scheme and the banking business and therefore enable them to disseminate information that would promote financial system stability.
Towards this end, the Corporation institutionalized an annual workshop for business editors and members of the Finance Correspondents’ Association of Nigeria (FICAN). Through the annual workshops, the Corporation had succeeded in imparting substantial knowledge to the business editors and the finance correspondents on deposit insurance, the banking system and the financial system as a whole.
The employees of any organization are often described as the most critical resource of that organization as they are central to the management of other resources of the organization as well as the implementation of the organisation’s business strategies. From the onset, the Management of the Corporation was conscious of the nature and enormity of its responsibility as well as the challenge of manpower requirement for running the organisation. Among the challenges were that although deposit insurance could easily be situated within the general financial services industry, it was a specialized service that required a crop of specially trained personnel.
Based on a survey conducted by the Corporation in 2004, it summarized its employees’ expectations in the following dimensions:
Competitive compensation package that would create and sustain the motivation needed for the job of the Corporation;
Training and development that would create well informed, highly skilled and versatile workforce;
Career path that would keep the hopes and aspirations of employees flying;
Reward system that would sustain the morale of eployees;
Conducive work environment that would minimize physical and mental stress to the barest minimum; and
Organisational culture that was supportive of hard work, loyalty, respect, transparency, accountability and employee socialization.
In managing the above expectations of its valued employees, the Corporation formulated policies which facilitated employee well-being and discipline so as to achieve organizational goals. In its approach to staff compensation, the Corporation had, in the last 20 years, been guided by its understanding of both its status as a public institution and its supervisory role in the banking industry. As a public institution, the Corporation was concerned about public probity and the need to utilize resources judiciously. On the other hand, its supervisory role in the banking industry dictated the need for an average standard in compensation relative to the industry, which was to ensure recruitment and retention of skilled workforce. Accordingly, therefore, the Corporation, over the years, implemented financial compensation packages that kept the morale of the staff high and ensured high performance standards.
Source:Nigeria Deposit Insurance Corporation (NDIC)