Banks' CEOs' tenure: Heart of the matter



Organisations, tenureship of helmsmen and effective performance. The question is, is there any relationship among the three? Some will say yes, others no, all with justifiable reasons.



Today in Nigeria, especially as regards the banks, that seems to be the controversy. This is because nowhere in the world has the regulator fixed the tenure of leadership of a bank or any company because company or bank establishment has a lot to do with personal ownership.



While some people who spoke to The Guardian pointed out that they have searched whether the regulator have a right to dictate tenureship to a business/bank owner, other hailed the decision of the apex bank, saying that Nigeria in all ramifications have peculiar problems of managing its affairs not to talk of its financial sector, hence the need to take a peculiar approach by the regulators towards the country's banking sector.



So, what is it that led to all these?


The people who spoke to The Guardian all agreed that the banking sector needs serious sensitisation because the sector has been showing serious liquidity strain and was given financial support by the CBN former governor through an Expanded Discount Window. Therefore, as at the time when the new Governor Lamido Sanusi resumed, the total amount outstanding at the EDW was N256.8 billion most of which was owed by five banks.



A review of the activity in the EDW showed that four banks had been almost permanently locked in as borrowers and were dearly unable to repay their obligations. A fifth bank had been a very frequent borrower when its profile ordinarily should have placed it among the net placers of funds in the market.



Explaining, the CBN governor said, whereas the five banks were by no means the only ones to have benefited from the EDW, the persistence and frequency of their demand pointed to a deeper problem and the CBN identified them as probable source of financial instability, most likely suffering from deeper problems due to non-performing loans.



The impact of the situation of these banks was being felt by the market in different negative ways because of this strain in their balance sheets, the banks pushed up the interest rate paid to private sector deposits and their competitors had to follow suit. According to the CBN governor, they also contributed to the destabilisation of the inter-bank market, as many of their competitors were unwilling to take an unsecured risk on them.



After the examination conducted initially by a joint team of CBN and NDIC officials, the major findings included; excessive high level of non-performing loans in the five banks which was attributable to poor corporate governance practices, tax credit administration processes and the absence of non-adherence to the bank's credit risk management practices.



The total loan portfolio of these five banks was N2.9 trillion while margin loans amounted to N456.2 billion and exposure to oil and gas was N487.02 billion hence aggregate non-performing loans stood at N1.2 trillion representing 40.81 per cent.



Consequently, having reviewed all the reports of the examiners, it was found out that the initial five banks are in a grave situation and that the managements have acted in a manner detrimental to the interest of their depositors and creditors. Speaking with The Guardian, a public analyst based in Abuja, Jide Ojo hailed the decision of the CBN governor, saying that it has taken a step in the right direction.



His words: "I think the maximum of two terms of five years each will make bank CEOs to be alive to their responsibility knowing fully well that their re-appointment for the second term will be predicated on their satisfactory performance in their first term. "Moreso, the July 2010 commencement date also helps to put the necessary succession plan in place for the next six months. The fact that the bank board and the CBN have to be carried along shows that no bank CEO will be able to lose 'anointed candidate'. Whoever emerges to takes over would likely be a popular choice.



"Most importantly, the three year gap within the time of re-appointment shows that any sharp practices can be discovered before any re-appointment. CBN will, however, need to strictly monitor the entire process so that it does not get compromised.



Also bearing his mind on the matter, Chairman Lagos Mainland District Society, Institute of Chartered Accountants of Nigeria (ICAN), Chief David Alaribe said, "I think the maximum period is too much. The maximum tenure should be five years, not ten years, we are thinking that the CBN should have done something drastic earlier, because I don't know how they arrived at ten years, after working in the bank as assistants in top post, I think, five years is enough. If you go to multinational companies, their chief executive stay for four years, maximum of five years. If a university VC stays for five years, and a rector the same five years, then why should a bank MD stay for more, they would just make it a family business. Right now I think leaving them there for so long is just a case of old wine in new bottles.



Meanwhile, mixed reactions have trailed the news of the CBN guidelines that pegged bank directors' tenure at ten years. Shareholders under the aegis of Independent Shareholders Association of Nigeria (ISAN) described the tenure directive as anomalous, since the CBN is merely a regulatory body and not owners of the banks.



ISAN's national coordinator, Sir Sunny Nwosu said it is unfair, unjust and illegal on the part of the apex bank to determine the tenure of bank directors, over and above the owners. According to Nwosu, it is left for shareholders to decide when the managing directors could go since at inception, there was no memorandum of respect of tenure issues. "If there was any, the board and the shareholders would have to make up their minds on succession plans. So, it is wrong for CBN to midway, shift the goal post," he said.



Besides, Nwosu said, the managing directors that would be affected as we were told were cleared during the audit exercises conducted on their respective banks. "Why then, after four months, is CBN resorting to tenure system to oust them. It is against natural justice to remove people who had used their initiative in these private organisation to add value to the economy in various ways," he said.



On his part, the President of Finance Houses Association of Nigeria (FHAN), Mr. Eddie Osarenkhoe explained that the CBN took the step because the corporate governance was now being threatened because of long stay in office of some chief executive officers of banks.



According to Osarenkhoe, some people believe it is arguable because as owners of business, they have the right to determine who will manage their business but the CBN too has the right to supervise and monitor their professionals. "If you know that your tenure is defined, you will work hard to show your worth while in the office. It's too early in the day. We will watch how it will unfold because that is the way the CBN defines it, for players in that sector to play it," he said.



Reacting to questions as to why the tenure of managing directors and chief executives of other companies are not defined, Osarenkhoe said that this is banking practice that needs some level of professionalism and prudence to be able to manage other people's money.



A financial analyst and management expert, Alade Stephens explained that the CBN has taken a good step in the right direction. According to Stephens, the sit-tight attitude of some CEOs of these banks led to their inability to heed the voice of reason.



"How can you be a CEO of a company for 20 to 30 years. Are you the only wise person in the corporation even if you own the company," he said. Similarly, another financial analyst, Raphael Olaiya explained that even without setting any limit, these bank CEOs should know that they should quit when the ovation is loudest.



Olaiya explained that during the time of their working years, they should have groomed a successor but because they are so selfish, continue to sit tight forever if possible.



David Benson, a Public Relations expert said that the CEOs should have known when to leave and then use the wellspring of their experience in directing their successor. His words: "They need to take a bow without being told and then guide and watch the outcome of their years of labour from a distance," he said.



Benson cited the cases of some COEs of banks who have done this in past namely, the former Managing Directors and Chief Executive Officers of GT Bank, Diamond Bank, Mr. Fola Adeola and Mr. Pascal Dozie respectively. But former President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, chided the CBN over the directive.



In a chat, Unegbu disagreed with the position of the CBN and pointed out that a good chief executive could in fact stay for more than 20 years in that position. His words: "You can stay for 20 years in a position if you are good. There is no point suggesting tenure for banks' executives. It is not done, because there is a board, argued Unegbu.



Rather, he said, proper corporate governance should ensure that the board institutes appointment and compensation committee "which will assess the performance of the executives," he said. Therefore, he stated, the tenure of that executive should be determined by performance and his willingness to continue.



Another industry source, which pleaded anonymity, insisted that in banking, as a private but regulated business, the issue of tenure should be exclusively determined by shareholders.


(Source: Guardian)  

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