Change of Ceo in Nigerian Banking System

February 09, 2010
Nigerian Bank CEO Tenure Limits:

CBN’s Shift from Laudable & Sustainable Corporate Governance Initiatives to Controversial Meddlesomeness
Prepared By:
Martin Oluba, PhD, DBA
President/Chief Economist
ValueFronteira Limited
42 Olowu street, Ikeja Lagos – Nigeria

Web: www.valuefronteira.com
Email: fronteira@valuefronteira.com
The End of Long-Tenured CEO I
“It may pay exorbitantly and provide the ultimate career challenge, but
don’t count on the CEO job lasting very long, says the first global study
ever focused specifically on CEO tenure. Conducted by Drake Beam Morin
(DBM), the world’s leading provider of human resource solutions, the
study reveals that the long-tenured CEO will become increasingly rare,
and fewer CEOs can expect to hold their jobs until retirement. Further, it
shows that CEOs’ abbreviated reigns require them to implement their
plans within tighter timeframes, reinforcing the current corporate focus
on achieving short-term business results”.
- http://www.amgr.com/pdf/0200.pdf
09/02/2010 Nigerian Bank CEO Tenure Limits 2

The End of Long- Tenured CEOs II
DBM studied 476 of the world’s largest private and public corporations,
spanning 50 industries in 25 countries, to examine the impact of corporate
change on CEO careers and job security, and to determine how companies
handle these high level transitions. Nearly half of all current CEOs have held their
job for less than three years. In just the past five years, close to two-thirds of all
companies have installed a new CEO.
“In virtually every industry and country, CEO turnover is rising and leadership
changes are occurring more frequently,” said Anne Messenger, President of
Messenger Associates, Inc., A Member of the Drake Beam Morin Worldwide
Network. “The impact of this high turnover is directly shaping today’s definition
of corporate leadership. Faced with a merger-fueled economy, impatient
shareholders and an uncertain future, CEOs can’t help but adopt a short-term,
high-payoff mindset when it comes to planning and pursuing desired business
goals. Just as today’s worker should expect multiple careers, so, too, should
today’s CEO.”
- http://www.amgr.com/pdf/0200.pdf

It is important to note that these fascinating global trend in decline in
CEO tenure is neither forced nor based on regulation but by voluntary
discharge of the legal trusts of the shareholders over their CEOs.

The Bank CEO Tenure Limit Policy
All CEOs who would have served for 10 years by July 31, 2010, to
cease to functioning in that capacity;
The guidelines shall apply notwithstanding the terms of
engagement or the provisions of the Memorandum and Articles of
Association of any bank;
Banks to kick-start a succession programme that would be
supervised by their respective boards and monitored by the CBN
Where a bank is a product of a merger, acquisition, takeover or any
other form of combination, the CBN said that the 10-year period
shall include the pre and post combination service years of the
CEOs, provided that the bank in which he previously served as CEO
was part of the new bank that emerged after the combination.

Underlying Reasons
“The apex bank said that it took the decision in order to
enthrone good corporate governance practices in Nigerian
banks; institutionalize the arrangement of the
appointments of bank CEOs; ensure that banks developed
good succession plans, and also ensure that banking
institutions were not personalized”.
-
http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactio
ns-greet-10-year-tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-
considered-instead&catid=26:business&Itemid=153

…In the Footpaths of Our Predecessor
"All we are saying is that we will not approve
the appointment of a person as an MD for
more than 10 years. What is the difference
between that and saying you will not get a
banking licence if you do not have N25
billion?"
- CBN Governor
It does not matter what you think or how superior your arguments
are…just comply or else you lose your licence!!

The Numbers
Nigerian Banks Name of CEO CEO Tenure in office No of years
Access Bank Aigboje Imoukhuede 2002 - 2010 7
Diamond Emeka Onwuka 2005 - 2010 4
Ecobank Offong Ambah 2006 - 2010 3
Fidelity Bank Reginald Ihejiahi 2004 - 2010 5
First Bank Bisi Onasanya 2009 - 2010 1
FCMB Ladi Balogun 2005 - 2010 4
GTB Plc Tayo Aderinokun 2002 - 2010 7
Skye Bank Akinsola Akinfenwa 2000 - 2010 9
Stanbic IBTC Chris Newson 2008 - 2010 2
UBA Plc Tony Elumelu 1997 - 2010 12
Wema Bank Segun Oloketuyi 2009 - 2010 -1
Zenith Bank Jim Ovia 1990 - 2010 19+

… the Foundations
“On term limits, over 160 bank directors that attended a corporate
governance training seminar in Lagos in 2008 had recommended a
term limit of twelve years consisting of three terms of four years each
for all directors of banks, as part of their communiqué. The
communiqué was widely circulated and published as a full-page
advertorial in the Guardian Newspaper in the last quarter of that year.
Thus, it would be wrong for anyone to see the new rule as an attempt
by the new CBN governor to target any one set of bank CEOs”.
- Dr. Oladimeji Alo* ‘The New Tenure Rule and the Bank Governance
Debate’. 29 January, 2010. http://proshareng.com/blog/?p=174
It is debatable whether the communiqué empowered the CBN to regulate the limits. I am
of the opinion that the communiqué asked banks to go back and institute appropriate
succession arrangements. It is also debatable whether the CBN showed interest in
knowing how the respective banks responded.

Policy Has Strong Support Base
Why?

Banks are Different…
“But I understand the fear of the CBN in this regard. Banks are different
from private business because they take depositors’ fund. The policy is
in tune with corporate governance and risk management and in the
interest of the public. The policy is good going by what has been
happening in the nation’s banking sector”
- Opeyemi Agbaje (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-

year-tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-considered-instead&catid=26:business&Itemid=153)
"What (Sanusi) is saying is that a bank is the custodian of public funds and the
CBN regulates banks. As the governor of the CBN, he has the right to control
what happens in the banks. With what has happened since August 14, 2009, we
know that there is a problem. "The only challenge is professionalism. It is a threat
to professionalism for those who choose banking as their career."
- Chief Timothy Adesiyan, President of the Nigeria Shareholders Solidarity
Association,
CBN’s right to control the banks should be used within the bounds of common
sense, the law and natural justice. It should not be abused.

Longer Tenure Kills New Initiatives
“Definitely, if you stay too long in an office you run out of ideas and I
think while there is rightsizing in the staff strength, there should be
similar exercise in the management level”
- Olusoji Salako (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-year-

tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-considered-instead&catid=26:business&Itemid=153)
“I think it is a good idea to allow new innovation. 10 years is long enough for
any manager to contribute whatever good to an organization, anything
above that, doesn’t make sense. Again, the policy will stop the ‘sit don’
syndrome among the bank CEOs”.
- Alhaji Yussuff, chairman Association of Stockbrokerage Houses of Nigeria,
Longer tenure does not kill initiatives. Where lies the benefits of experience on
the job. Some CEOs learning and experience curves are amazing….I think
Akinfenwa, Elumelu, Ovia have demonstrated that much in the industry.

Many CEOs Were Running the Banks as
their Private Property
“It is good but it should not be retroactive. The CBN should give the existing
banks tenure because the transition would not be that easy.“Even in small
branches six months is not possible to raise a successor to a manager talk more
of large banks, so the decision is too sudden.” “Don’t forget that most of the
banks MDs were running the banks as their property because of their
investment, some don’t have other investments elsewhere and you are asking
them to retire all of a sudden. I think is it is too drastic.” He said some of the
MDs have not reached retirement age yet because they are less than 60 years.
- Abdulrasheed Abubakar, the managing director and chief executive officer, Fresh Field
Asset Management Limited Abuja
Sense of ownership is a strong entrepreneurial incentive. It makes the CEO to

work doubly hard. On the otherhand, pocketing what belongs to the bank as if
it were the CEO’s is criminal and should be dealt by the law on the
promptings of the shareholders and the CBN

Ten Years is Enough for Entrenching
Succession Plan
“The policy is good because it would entrench good corporate governance, adding
that ten years is long enough for any CEO to institute a succession plan. He said it
would also discourage the run of banks like personal properties”.
- Mr. Joe Ameh, MD/CEO, Nigeria Reinsurance Corporation
“succession planning is part of the attributes of a well organized and governed

entity. It builds confidence and ensures sustainability. Whilst a domineering lone
CEO may be appropriate at certain phases of organizational life, prolonged stay
may become counter-productive and create anxiety in the market. The measure
conduces to good government and should have positive effect on the
markets…The term limit is one of the steps towards addressing the corporate
governance challenges in the banking sector as revealed by recent events. One
other measure that can be helpful is the adoption of professional independent
directorship as practiced in the UK and other climes. This will bridge the existing
gap in corporate ownership and control, especially in sophisticated industries like
banking”.
- Ubong Awah, the Chief accounting Officer, XDS Credit Bureau

It will Tame the Excesses of CEOs
“…the huge influence of CEOs on their banks would have been broken in the long
run. "It will guarantee the safety of depositors' fund,…there would be transparency in
the disbursement of loans - as such loans would be given out to genuine borrowers
and not to favour the CEOs' cronies, friends, relatives and lovers. "If loans are given
genuinely, it would have effect on the economy,"
- Mr. Ahmed Musa, International Bank Plc
“it was worthwhile to know if the apex bank was acting within the provisions of
Companies and Allied Matters Act (CAMA)…the fixing of tenure would help put a
check on the excesses of bank CEOs, stressing that revelations from the recent audit
examinations into the banks had lent credence to tenure fixing. Staying longer in
office made the CEOs act beyond their powers, thereby becoming difficult to
control…"I quite agree with the CBN that most management failures result from
long stay in office. Diminishing returns tend to set in. Fixed tenure will enhance
performance and check their excesses. Two terms of five years is okay for the
CEOs,“
- Mr. Wale Adeyemi, Former chairman, Chartered Institute of Bankers of Nigeria
(CIBN), Lagos State Chapter
CEO excesses is never tamed by regulated tenure limits. On the contrary effective
monitoring of compliance with full disclosure requirements is a good start.

Banks are Public Interest Institutions
“…the new policy was a good guide since the banks were all quoted
companies and were subject to good corporate governance. …Banks are
public interest institutions. They are all quoted companies and, therefore,
subject to good corporate governance. A 10-year tenure is a good guide.“
- The Managing Director, Partnership Investments Limited, Mr. Victor Ogiemwonyi

…Help Improve Corporate Governance
“Staying indefinitely in office makes the CEO become more powerful than the
board… the same measures should be extended to the auditors in the various
banks… the longer they stayed in their respective banks, the more the opportunity
they would have to commit corruption”. He however advised the CBN to first of all
seek for the amendment of CAMA before arbitrarily fixing the CEOs' tenure.
- Former National President, Association of National Accountants of Nigeria (ANAN), Dr.
Samuel Nzekwe
“…though the directives of the CBN governor was challengeable and debatable, he
had the right to lay down some policy directive that would enhance corporate
governance. The policy is a welcome development because it will help improve
corporate governance badly needed in the country. It is a policy that you cannot
stay in office forever,"
- Former President of the Nigerian Bar Association (NBA), Mr. Olisa Agbakoba (SAN)

Why Stay More Years in Office than
the President?
Mr. Tayo Oyetibo (SAN) welcomed the policy and wondered why a
man would remain in office for more than 10 years. He argued that
if the president of the country would occupy office for a maximum
of eight years, why would any other person stay in office beyond
that? Staying in office for long as chief executive could lead to
abuse, he added.
Ridiculous!!

Long Tenures Strengthen Personality
Cults in the Industry
“It is in that context that one must see the imposition of tenure on bank CEOs.
Whilst long tenure may not necessarily lead to abuse of office
or mismanagement it can create a personality cult that stifles good and optimal
management and decision making. Indeed Shareholders Associations have forced
some banks to have limited tenure of two terms of four years in recent
times and the CBN governor's decision on the matter is nothing new in
the industry.
What is instructive is that some banks CEOs have bought the Shareholders associ
ations over completely such that nobody dare limit their tenure.
This is what this CBN governor has done and we think it is a step in
the right direction”.
- CBN and Bank CEOs’ Tenure; 01.31.2010. http://www.thisdayonline.com/nview.php?id=165474

Nigerian Bankers Need to be Saved
from their Greed
Also we know that power corrupts and absolute power corrupts absolutely. Nigerian
bankers, like their overseas counterparts, should be saved from their greed as well
as themselves. They should leave office early so that taxpayers’ money will not be
used to bail them out of the mess they create from indeterminate and long tenure.
An actor quits whilst the ovation is loudest and bank CEOs
should learn this early enough.
Indeed it is a measure of the indiscipline in the banking industry that immediately the CBN
made the tenure announcement some banks announced the appointments of CEO-
designates which is a clear breach of protocol and practice. As a rule
such appointments have to be cleared and approved
by the CBN which has correctly called the errant banks to order. Such violations of simple
procedures and laid down rules by those who should know better and who have been in
the saddle for over a decade highlight again the dangers of long tenure in
banking where depositors funds are at stake.
- CBN and Bank CEOs’ Tenure; 01.31.2010. http://www.thisdayonline.com/nview.php?id=165474

… and Even More Justifications

CEOs Do Not Own the Banks
“The Royal Bank of Canada (RBC) and the Bank of Nova Scotia (BNS)
are individually bigger than half of Nigerian banks put together and yet
they have no corporate jet, so why should neophytes and struggling
pretenders to great banking be spending depositors' funds in
procuring corporate jets? Most of these executives think the banks
belonged to them. Putting one hundred million naira into a bank at its
inception does not make you the owner of the bank. What percentage
of the bank's equity directly belongs to the self-advertised owners?
How about the shares these executives allotted to themselves and
their families without paying for the shares, are they exempted from
paying for shares they subscribed for?”
- Babs Ajayi (August 19, 2009) - ‘Five Failed Banks: A Tale of Greed, Ego and
Deception’. NigeriaWorld.
http://nigeriaworld.com/feature/publication/babsajayi/082109.html

Banking is a Highly Regulated Business
“All over the world, banking is a highly regulated business. When a company
applies for a banking license, it voluntarily signs up to be bound by the rules
and regulations guiding that business issued by the relevant authorities. The
banking license itself confers on the holders certain rights, powers and
privileges. Those who grant the license have a duty to ensure that those
powers are exercised in a manner that balances the interests of all
stakeholders in the business. When a bank goes bust, what is at stake is far
more than the investment of the shareholders. There is thus a need, which is
universally recognized, to protect the interests of these other stakeholders”.
- Dr. Oladimeji Alo* ‘The New Tenure Rule and the Bank Governance Debate’. 29
January, 2010. http://proshareng.com/blog/?p=174

Weak Shareholder Model of
Corporate Governance in Nigeria
“Without going into details, it is apparent from the recent and persistent
banking failures and scandals in Nigeria that proper corporate governance and
effective internal control mechanisms, including shareholder control, in banks
are either non-existent or at least severely attenuated in many banks. A
corporate governance model based on shareholder control and other internal
mechanisms has not worked with many Nigeria banks. The result is that the
CBN cannot effectively perform its role of ensuring financial stability and
promoting a sound financial system without intervening in apparently private
arrangements in banks. CEOs’ tenure is presumably one of such arrangements
that affect internal corporate governance and the national financial system”.
- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter

School of Law, Cornwall Campus, United Kingdom

…Even with SEC ?
To further enhance the powers of shareholders in the corporate decision making
process, the Nigerian Securities and Exchange Commission introduced the Code of
Best Practices for Public Companies in Nigeria. One of the core focuses of the code
is shareholders right and responsibilities. The code expressly provides that the
company or the board should not discourage shareholder activism whether by
institutional shareholders or by organized shareholders' groups.
- Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism

in Emergent Democracies: a case study of Nigeria. Center for the Study of
Globalization and Regionalization.
What the CBN ought to have done is to leverage ealier communique by the
claimed 160 bank directors and strengthened by the efforts already made in
this respect by SEC and seek ways of strengthening shareholder control of the
CEO.

Weak Shareholder Control Model
“…a senior official of the Nigerian SEC said, “We have been attending AGMs where directors
are elected or re-elected, such proceedings are just formalities. Even the so called shareholder
associations that attend such meetings are easily compromised by the board and management
of these companies”
It must be noted that regulatory agencies have legal provisions to attend AGMs as observers
only, with no right(s) to interfere on deliberations. As another respondent puts it, “…some
AGMs are so predetermined that you notice from the onset that this is a doctored
proceeding…” In the same vein, a former CEO and Chairman of a listed corporation said; “I
acknowledge that management and boards do hijack the independence and activism of
shareholder associations, by giving them financial incentives/bribes. It got to a point that a
president of one of the shareholder associations became a director on a company which was
really bad”. In sum, it is possible to conclude that shareholder activism in Nigeria is bogus.
- Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism in

Emergent Democracies: a case study of Nigeria. Center for the Study of Globalization and
Regionalization.

Unregulated Tenure Behind Monumental
Corruption in Banks
“…unregulated tenure brought about "entrenched monumental
corruption, the type that we have just seen as revealed by the
Economic and Financial Crimes Commission (EFCC) and from the end
of year audited accounts of the banks. What that means is that some
of these CEOs had compromised their positions by enriching
themselves and putting depositors' investments at risk. Under this
circumstance, do we encourage such a regime to continue? No of
course; this new regime must be sustained to engender corporate
governance and best practices”.
- Abubakar Nagona, President of Integrated Development and Investment Service (IDIS).
http://allafrica.com/stories/201002010719.html

Why the CBN is wrong in its Decision

How Much Will Tenure Fixing Help
“Please, talk to the agency in charge first, may be EFCC or the ICPC to
make a mark on curruption, witch-hunting, collecting money without jail
sentences will assume that they are still not doing nothing, if you like fix
two months, billioniares will be made within the short time as CEO,
listen, nigerians are so currupt ridden, we are so perfect and are not
even afraid of trial because we are sure nothing will come out of the
trial, a CEO buying an SUV for over 35 million naira weeks after assuming
office shows that he is worse that his predecessors, please we need to
fix Nigeria first”.
- OJO OLUBUNMI (BBD) on 24/01/2010 02:25:13 http://thewillnigeria.com/business/3482-
Central-Bank-Fixes--Year-Tenure-For-CEOs.html

What if the CBN was
Uncompromised & Effective?
“It is not clear what determined the 10 years tenor, but what is clear is that this directive is in
tandem with the 'holier than thou attitude' brazenly flaunted by the current CBN Governor
since his appointment last year.
However, serious analysts have begun to wonder if we are not again gullibly being led to the
slaughter slab on the wings of public deceit and ignorance! The CBN Governor has carried on
as if the CBN he inherited was the Pope's Inner Sanctum with angelic officials.
Indeed, editorials in Nigerian dailies rightly recognize that the incidence of rampant margin
loans, reckless share price manipulations and heavily cooked trading results, which
precipitated the banking crisis, could not have happened if the regulatory authorities were
effective and uncompromised!”
- Les Leba (2010). ‘The Putrid Messalso in CBN (2)’ Vanguard Newspaper 1 February

CBN Worsened Corporate Governance
Situations
“The failure of corporate governance in the Nigerian financial system and its exacerbation
over the time was due to the failure of the central bank of Nigeria to exercise its supervisory,
monitoring and sanctioning roles effectively. It was not a failure that was substantially tied to
the tenure of bank CEOs. The reason being that corporate governance is best achieved in an
environment of full disclosure and effective monitoring that ensures that the disclosures are
indeed authentic and at desired level and on desired items. Therefore the CBN should be more
concerned with establishing the rules and procedures that ensure the safety of depositors
funds as well as healthy competition within the financial market, ensures that the parameters
that enable itself (as the regulators) and the market to guage participant’s performance and
compliance with these procedures are clear and known, disclose levels of actual performance
and compliance as well as infractions, punish or reward violations where applicable. All these
information will equally allows the market to determine who to penalize or reward with its
patronage”.
- Martin Oluba, The Fronteira Post

Legal & Regulatory Dimensions

Legal & Regulatory Dimensions I
“First, it arguably interferes in private arrangements by intervening in and rewriting
banks’ memorandum and articles of association as well as the service contracts of
the CEOs. These documents are generally regarded as private contracts. For
example, this private contractual status is recognised in section 41(1) of the
Companies and Allied Matters Act which provides that the memorandum and
articles of association of companies (including banks) constitute a contract
between the company, and its members and officers. Second, the CBN’s guideline
purports to have a retroactive effect”.
- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law,
Cornwall Campus, United Kingdom

Legal & Regulatory Dimensions II
“…the legality of the CBN’s action depends on the relevant statutory provisions. Specific
provisions of BOFIA relating to qualifications of directors and officers of banks appear to be in
sections 19, 33 and 44. It seems that none of the provisions expressly permit the CBN to issue a
guideline restricting the tenure of bank CEOs. Section 19 prohibits employment of bankrupts
and persons convicted of offences involving fraud, dishonesty or professional misconduct. It
also prohibits joint directorships of banks and engagement of bank directors in any other
business or vocation. Section 19 does not in any way authorize the CBN to limit the tenure of
CEOs or prevent banks from engaging their CEOs for more than 10 years”.
- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall
Campus, United Kingdom

Legal & Regulatory Dimensions III
“The theme of qualification as a bank director is also contained in section 44. Section 44
disqualifies the following from being directors or continuing as directors of banks: persons of
unsound mind, bankrupts, persons convicted of fraud or dishonesty and persons subject to
actual or suspected disqualification from professional practice. Section 44(3) prevents
directors and other persons directly concerned in the management of a bank that has been
wound up from managing banks without the express authorization of the CBN.
Section 33, which is concerned with a failing bank, contains provisions for removal of bank
directors and other officers. A failing bank under section 33(1) is a bank which has informed
the CBN of its likely inability to comply with its obligations under the BOFIA, an insolvent bank
or a bank the CBN has determined to be in a grave situation after carrying out a special
examination under section 32. Section 33(2) (c) and (d) provide that the CBN Governor may
remove directors, managers and officers irrespective of anything to the contrary in any
written law or in a bank’s memorandum and articles of association. The CBN Governor may
also appoint any person as a director or adviser of a failing bank. The reasonable
interpretation of section 33, therefore, is that the CBN’s power to remove a bank director,
whether or not the CEO, is conditional on the bank’s status as a failing bank”.
- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall
Campus, United Kingdom

Legal & Regulatory Dimensions IV
The clear conclusion is that there are no explicit enabling provisions in the BOFIA for the
recent CBN tenure limit guideline. However, there are provisions in the CBN Act and BOFIA
that suggest the CBN’s legal right to impose tenure limit on banks’ CEOs. It is submitted that a
holistic approach to both statutes would indicate that the CBN was probably legally right, at
least under the two statutes, in issuing the tenure limit guideline. For example, section 42(1)
of the CBN imposes a duty on the CBN to, among other matters, ensure high standards of
conduct and management in the banking system. Although tenure limit is arguably an issue of
high standards of conduct and management, the difficulty here is that the CBN’s duty is to
“seek the co-operation of and co-operate with other banks in Nigeria.” Mandatory tenure
limit is plainly not a co-operative activity.
- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall Campus,
United Kingdom

Legal & Regulatory Dimensions V
“However, section 2(d) of the CBN Act provides that one of the principal objects of the CBN is
the promotion of a sound financial system in Nigeria. More importantly, section 33(1)(b) of the
CBN Act confirms that the CBN has the power to “issue guidelines to any person and any
institution under its supervision” (emphasis supplied). Read with section 2(d), the implication
is that the CBN can issue guidelines to any such person and institution while acting in
furtherance of the statutory object of promoting a sound financial system in Nigeria. Tenure
limit arguably comes within this remit. It is clearly a question of proper governance of banks
which, in turn, is connected to the existence of a sound financial system. Incidentally, sections
1 and 2 of BOFIA confirm that the CBN retains and can exercise its powers under the CBN Act
and BOFIA”.
-The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall Campus, United Kingdom

Inconsistent with International
Best Practices

No Regulator-imposed Term Limits in
US and UK
“Other commentators have argued that no regulator-imposed term limits exists for CEOs of
banks in the US and the UK. My simple answer to that point is that these other jurisdictions
have mature institutions and had developed complimentary structures of checks and
balances for their corporate governance regimes. It is common knowledge that some of the
corporate chieftains we celebrate in Nigeria today, even outside the banking sector, would
be languishing in jail in these other countries were they to attempt some of the things that
brought them their fabled wealth. If we must set time limits for bank CEOs while we work to
build a sustainable culture of good corporate governance in the sector, so be it”.
-Dr. Oladimeji Alo* ‘The New Tenure Rule and the Bank Governance Debate’. 29 January, 2010.
http://proshareng.com/blog/?p=174

In Advanced Countries…
Tony Elumelu, out-going Group Managing Director of United Bank
for Africa (UBA), posits that “in more advanced countries, it
tends to be a shareholder issue. However, we must respect the
fact that the authorities here clearly believe it is not a matter that
can be left to shareholders in our environment”
http://www.businessdayonline.com/index.php?option=com_content&view=article&id=8010:fixed-
tenure-for-bank-ceos-what-expectations&catid=117:news&Itemid=278

When Do Retroactive Policies Make
Sense?

Aside in Punishing Crime Unsavoury
Retroactive Policy …
“If the CBN is excited by that model, then it
should focus rather on getting the banks to
put in place ‘going forward’ arrangements
that enable the transition of leadership not
‘retroactively’. Going backwards is aside
being military negates the principles of
liberty upon which the market economy
should sit”.
Martin Oluba, The Fronteira Post

Policy Was Retroactive, and So What?
"What is being termed as retroactive is nothing new. It has
precedence. When consolidation was done, the policy was that
every bank must have a minimum of N25 billion capital. It did not
matter if you were just getting a licence or you had been in
existence for 100 years. So I don't really see the point about a
retroactive policy. When you make a policy, you apply it across
board," CBN Governor
http://allafrica.com/stories/201001220233.html

Infringement on Shareholder Rights

Shareholders to the Rescue
“Apart from specific situations where the law requires shareholders’ consent,
“the traditional model of directorial accountability to the shareholders
depends heavily upon the ability of the shareholders to review the
performance of the board” and “to take decisions if they think that the
performance has not been adequate.” (Gower and Davies 2008: 411-412). The
balance of power between the board and shareholders has thus emerged as
one of the centrepieces of the discourse on corporate governance and
accountability”.
- Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism in Emergent
Democracies: a case study of Nigeria. Center for the Study of Globalization and Regionalization.

The Role of Shareholders is
Sacrosanct
“This is a position no one can and should fault – That the role of the shareholders is
sacrosanct and that the use of ‘military-type’ executive fiat does very little to enthrone and
promote good corporate governance.
I have, and I repeat (recall that issued my position 24 hours after the announcement) relied
on the documents I was privy to in which bank Directors – executive and non-executive- had
three years ago agreed on the issue of tenure limits (after so many years of deliberations on
how to deal with the issue across board) but could not resolve the question of when tenure
limits should begin.
Certain CEO’s were able to resolve this and some could not – the ironic truth is that this
decision has to be made”
- Olufemi Awoyemi, MD/CEO Proshare Nigeria Limited. www.proshareng.com

…Only the Shareholder
The industry is one where experience is a key factor in ensuring
growth and overall good performance,” Pianim told BusinessDay in
Accra. “Such decisions are better left for the shareholders and
boards of such banks to determine. Where the stakeholders see
that the bank is better off under a particular CEO they ought to be
free to say ‘please continue’ so long as the CEO has not reached the
mandatory retirement age,”
Kwame Pianim, Chairman of UBA Plc Ghana,

http://www.businessdayonline.com/index.php?option=com_content&view=article&id=7748:banks-
ceos-tenure-should-be-left-to-shareholders-directors-to-determine-says-uba-ghana-
chairman&catid=85:national&Itemid=340#yvComment7748

Tenure Limit is Anomalous
“Shareholders, under the aegis of the Independent Shareholders
Association of Nigeria (ISAN) described the tenure directive as
anomalous, since the CBN is merely a regulatory body and not
owners or part owners of the banks. Sunny Nwosu, President of
ISAN, says it is unfair, unjust and illegal”.
http://www.businessdayonline.com/index.php?option=com_content&view=article&id=80
10:fixed-tenure-for-bank-ceos-what-expectations&catid=117:news&Itemid=278

Greater Board Diligence Should Lead to
Shorter CEO Tenures
“Because the probability of dismissal increases with the intensity of board monitoring, a
straightforward prediction of the model is that greater board diligence should lead to shorter
ceo tenures on average. This effect is strengthened in an indirect way: Because greater
diligence increases the option value of a new ceo, increased diligence makes boards more
willing to give up a higher estimated ability in exchange for greater uncertainty about ability.
Hence, the average estimated ability of ceos hired should decrease as board diligence
increases. Given that the sample of hired ceos is of lower average quality, their tenure should
be correspondingly lower on average as well. Depending on the underlying distribution of
estimated abilities in the populations of internal and external candidates, this last insight
plausibly suggests that external candidates’ expected tenure as ceo will be less than internal
candidates”.
- Hermalin (2004). Trends in Corporate Governance. The Journal of Finance. P. 2.

http://www.afajof.org/afa/forthcoming/hermalin.pdf

Where Is the Board in CBN’s Calculations?
“…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…it is left for shareholders to decide when the
managing directors could go, "since at inception, there was no memorandum in respect of
tenure issues. If there was any, the board and the shareholders would have to make up their
minds on succession plan. So it is wrong for CBN to, midway, shift the goal post.“
"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 initiatives in these private organizations to add value to the economy, in
various ways."
- Sir Sunny Nwosu, national coordinator, Independent Shareholders Association of Nigeria.

http://www.ngrguardiannews.com/news/article03/indexn2_html?pdate=220110&ptitle=Mixed+reactions+trail+CBN+guidelin
es+on+bank+chiefs%27+tenure

Where Is the Board in CBN’s Calculations?
“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.
"You can stay for 20 years in a position if you are good. There is no point in the
CBN suggesting tenure for bank 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 executive. Therefore, the tenure of that executive should be
determined by performance and his willingness to continue.“
- Mazi Okechukwu Unegbuformer President of the Chartered Institute of Bankers of Nigeria.

http://www.ngrguardiannews.com/news/article03/indexn2_html?pdate=220110&ptitle=Mixed+reactions+trai
l+CBN+guidelines+on+bank+chiefs%27+tenure

To What Extent Does CEO Tenure
Matter in Preventing Bank failures?

Why Banks Fail
“Banks fail for three reasons. First, bad management (poor internal controls,
self-dealing, bad lending and investment decisions, excessively rapid
expansion, and so forth) is the main cause of isolated or non-contagious bank
failures. Second, an economic contagion, almost always triggered by a
decline in the market value of assets, causes many banks to fail that in normal
economic times would not. Third, government restrictions on asset and
geographical risk dispersion limit the ability of individual banks to diversify
their asset risk in order to protect themselves against contagious events such
as a regional asset deflation made worse by asset fire sales. In effect, asset
and branching restrictions magnify contagion losses by increasing the
number of bank failures”.
Bert Ely (1999). Regulatory Moral Hazard. The Real Moral Hazard in Federal Deposit Insurance. The
Independent Review, v. IV, n. 2, Fall 1999, ISSN 1086-1653, Copyright © 1999, pp. 241–254

Bank Failures Reflect Regulatory Failure
“Because it is unrealistic to trust bank owners to comply at all times with safety-and-
soundness requirements, governments have enforced these failure-prevention schemes
through a bank inspection or examination program complemented by banking supervision.
Government banking supervisors intervene, formally or informally, in the management of a
bank to prevent its failure.…Therefore, unlike the failure of other businesses, bank failure
reflects regulatory failure. There are different kinds of regulatory failure, including restricting
branch banking, encouraging institutions to borrow short and lend long (which did in the
savings- and-loans), failing to identify problems in banks, sweeping known problems under
the rug (“regulatory forbearance”), and others”.
- Bert Ely (1999). Regulatory Moral Hazard The Real Moral Hazard in Federal Deposit Insurance.
The Independent Review, v. IV, n. 2, Fall 1999, ISSN 1086-1653, Copyright © 1999, pp. 241–254

Why Should CEO Tenure be Made to Look
at as the Cause of the Problems?
“The action of the CBN is a transfer of the penalty or blame due to itself over its inability to
appropriately monitor, supervise and sanction the system over to entrepreneurs that have
successfully steered their organizations over these years. We should not loose sight of the
fact that the innovations and the progress made by this industry in the last decade have
been triggered by the foresight and resilience of these CEOs whose incentive was that they
saw these banks as their own property, nurtured it as well as triggered the much needed
competition that eventually brought about lots of the positive changes that have brought
the financial system where it is today. It was actually the because of grossly poor monitoring,
supervision, sanctioning and high levels of complicity and tolerance of corporate governance
violations on the side of the CBN itself that the competition over-stepped the bounds of
professionalism and industry ethics which led to the degrees of gross abuses that are
witnessed today”.
Martin Oluba, The Fronteira Post

The More the Tenure, the Less the
Initiative for Better Performance

Perhaps, Zenith Bank & UBA Plc Suffered
Poor Initiatives. Quite the Contrary!!
“We should not loose sight of the fact that the innovations and the progress made by this
industry in the last decade have been triggered by the foresight and resilience of these CEOs
whose incentive was that they saw these banks as their own property, nurtured it as well as
triggered the much needed competition that eventually brought about lots of the positive
changes that have brought the financial system where it is today. It was actually the because
of grossly poor monitoring, supervision, sanctioning and high levels of complicity and
tolerance of corporate governance violations on the side of the CBN itself that the
competition over-stepped the bounds of professionalism and industry ethics which led to
the degrees of gross abuses that are witnessed today”.
Martin Oluba. The Fronteira Post.

So, What Should Preoccupy the
CBN At this Point?

What Should the CBN be Doing Now?
“For instance, I ask myself whether these atrocities were committed in the financial year
leading to the August date of the first public announcement of the new CBN governor. From
some of the information coming out recently, some of these acts went far back in time. If that
is so, what is the CBN doing to learn from the banks’ Compliance Officers, Chief Inspectors,
Resident Examiners, and External Auditors how they missed out on all these information?
What must change in the structure of things to ensure that these important gate keepers earn
their keep in the corporate governance structure? Where were the boards of these banks
when all the alleged acts, some of which bother of plain criminality, were being perpetuated?
In addition to prosecuting particular board members who might be found to have committed
criminal offences, how do we reach out to others to learn of their experiences on the board of
these banks? Were they compromised, blindsided or fooled? What must change in the
appointment, screening, orientation, remuneration and education of board members to fortify
them against such occurrences in the future?”
Dr. Oladimeji Alo, The New Tenure Rule and the Bank Governance Debate. 29 January, 2010

What Should the CBN be Doing Now? II
“In the last four years, a lucrative business had grown around the conduct of
corporate governance audits and the issuance of governance certificates to banks
by some reputable professional firms. The reports of these audits were proudly
published by the banks concerned in their annual reports. In retrospect, it would
appear that these reports helped in the mass deception of the public on the health
of these institutions until the stress tests initiated by the CBN and the NDIC. In this
regard, I wonder if the CBN had gone back to read the reports of these governance
audits in the light of recent revelations. If so, one would like to know if the authors
of these audit reports have been invited by CBN to discuss their methodologies and
the scope of their audits. More importantly, there must exist some useful lessons to
learn from these corporate governance auditors on the large gap between their
rosy reports and the stark reality uncovered by the stress tests?”
- Dr. Oladimeji Alo* ‘The New Tenure Rule and the Bank Governance Debate’. 29 January, 2010.

What Should the CBN be Doing Now? III
What the CBN should be doing is to ensure that the various
banks put in place and agree processes and procedures that are
consistent with upholding the highest standards of corporate
governance without infringing on the private property rights of
the owners and decision makers in those banks. In addition to
that, the CBN should put in place adequate mechanisms to
ensure that banks comply with the specifications of those
procedures and processes.
Martin Oluba. The Fronteira Post.

Determinants of CEO Power &
Influence Over Board
“…set of governance structure variables to capture the level of CEO
power and influence over the board and the compensation committee,
including: (1) the proportion of inside directors on the board; (2) the
proportion of gray outside directors on the board; (3) the proportion of
outside directors appointed by the incumbent CEO; (4) whether the CEO
serves as chairman of the board; (5) whether an inside director serves on
the compensation committee; and (6) CEO tenure”.
- Collinsa, Gongb, Lic (2008). ‘Corporate Governance and Backdating of Executive
Stock Options’.
http://www.personal.psu.edu/faculty/g/u/gug3/CollinsGongLi082008.pdf

In Conclusion

This Policy is Not Core to Solving the
Problem at Hand
This policy is not at the heart of the problems
facing the sector;
CBN needs to concentrate more actively in
ensuring that it develops adequate capacity and
effective processes for monitoring, supervision and
sanctioning;
Less of the noise on tenure limit is necessary.

This Policy is Meddlesome
“…the CBN has set the guidelines because our businesses failed to take the
actions themselves.
Frankly, I do not support the meddlesome nature of the CBN and I concluded
that this was an ineffectual policy that can be easily side-stepped.
I guess the central argument is that – should CBN be allowed to wield so much
influence or interference? The answer lies in the law granted it and it is open to
debate”.
- Olufemi Awoyemi, MD/CEO Proshare Nigeria Limited. www.proshareng.com

Nigerians Do Not Understand their Rights
“The removal of CEOs’ traditionally is the function of shareholders, or the

board in extreme cases. Unfortunately, the history of shareholders activism in
Nigeria has not been very encouraging. That said, I believe the CBN should
have handled this issue in a different manner. I have always complained about
the governance of most of these banks. Most of these CEOs’ ran their
institutions as extensions of their personal businesses, even though the
institutions were publicly traded companies. The problem was that most
Nigerians even the very educated and well informed believed that some of
these CEOs’ owned their respective banks, and the CEOs’ believe the myth.
However, If Mr. Ovia and Mr. Elumelu have committed some infractions, it
would have been better to expose them and force their BODs’ to do their jobs,
rather than replace them clandestinely through tenure limits. At this point it is
water under the bridge”.
- Dr. Chukwuma Biosah.

The Tripod Stand of CBN’s and
Banking Sector Success
• Extensive monitoring of banks compliance
with full disclosure requirements;
• Freedom of information;
• Efficient justice system starting with the
CBN’s clear system of rewards and sanctions

Change of Ceo in Nigerian Banking System

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February 09, 2010

Nigerian Bank CEO Tenure Limits:

42 Olowu street, Ikeja Lagos – Nigeria

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- Opeyemi Agbaje (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-

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- Olusoji Salako (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-year-

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Sense of ownership is a strong entrepreneurial incentive. It makes the CEO to

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“succession planning is part of the attributes of a well organized and governed

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- The Fronteira Post article by Dr Onyeka Osuji, University of Exeter

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- Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism

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- Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism in

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- Martin Oluba, The Fronteira Post

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Martin Oluba, The Fronteira Post

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- Olufemi Awoyemi, MD/CEO Proshare Nigeria Limited. www.proshareng.com

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Kwame Pianim, Chairman of UBA Plc Ghana,

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- Hermalin (2004). Trends in Corporate Governance. The Journal of Finance. P. 2.