By Atedo N. A. Peterside
â€œCorporate Governanceâ€ is one of the most abused terms in contemporary business language in Nigeria today. Most do not understand it, others pay lip_service to it and the more cynical ones use it as the perfect cover to â€œsmuggle inâ€ their own personal biases or as the perfect foil for pursuing a personal or sometimes vindictive agenda that centres around â€œclipping the wingsâ€ of any person or persons whom they do not like or are simply envious of.
The most compelling â€œdefinitionâ€ or â€œguiding philosophyâ€ of Corporate Governance which I know is the one found in the Holy Bible. In Matthew Chapter 22 Verse 21 Jesus Christ said as follows:-
â€œRender therefore unto Caesar the things which are Caesarâ€™s; and unto God the things that are Godâ€™sâ€
Correctly put and sincerely pursued, corporate governance should never seek to violate this cardinal principle because it should be about preserving and balancing the interests of various stakeholders. In a bank, the stakeholders would include the shareholders/owners, depositors and other clients, staff, the communities in which the bank operates and the Government.
Corporate Governance should therefore be about adopting clever and sincere policy choices and carefully tailored â€œseamless working arrangementsâ€ which take cognisance ofÂ a particular companyâ€™s strengths and weaknesses and therefore increase the probability that the genuine interests of multiple stakeholders will be safeguarded having regard to their various rights, risks and obligations which are often divergent and which are sometimes in conflict. Thus, in a bank, these â€œworking arrangementsâ€ should naturally be designed to ensure that depositors enjoy unfettered access to their principal and interest, in an environment that is devoid of anxiety, fear or uncertainty. â€œCaesarâ€ in this context is the depositor and the arrangements I refer to should be about ensuring that what is â€œhisâ€ (unfettered access to principal deposit and principal) is rendered unto him effortlessly.
Corporate Governance is not about Law. Complying with the laws of the land is not voluntary. It is compulsory. Rather, corporate governance is about instituting working arrangements which increase the probability that a company will â€œnaturallyâ€ comply with the Law. â€œCaesarâ€ in this context is the Law as laid down by the Government and what to â€œrenderâ€ unto the Government is compliance with its dictates and statutes, including prompt payment of taxes and levies which are due to the Government. A good corporate citizen is therefore expected to comply promptly with even a bad law.
Incidentally, there are many â€œbadâ€ laws that adversely affect Corporate Nigeria. A good corporate citizen is required to comply with the dictates of these bad laws, while smultaneously helping to intiate gentle pressure on the National Assembly with a view to getting the Assemly to agree to amend or repeal the bad laws. The latter is of course only a moral obligation.
Astute Regulators understand therefore that when they enter into the abyss of issuing detailed corporate governance guidelines to companies, they should only be making prescriptions that clearly enhance the probability of a favourable outcome. Ideally, there should be credible empirical research which suggests that companies adopting the practices being recommended tend to â€œoutperformâ€ those who do not.
Unfortunately the history of regulatory intervention in the setting of corporate governance standards globally has been very much a â€œmixed bagâ€. Some regulators have made helpful prescriptions, but some over-zealous regulators have sought to over-ride individually tailored governance practices by advocating â€œOne Size Fits All Industry Standardsâ€.
The problem with the â€œOne Size Fits Allâ€ approach is that if it is too detailed/ambitious and seeks to micro-manage, it can easily become counter-productive.
Take the Nigerian banking industry as an example. There are only 24 banks in Nigeria and yet in terms of ownership/management/board composition dynamics there were at least 6 different types of banks in existence before the recent Central Bank of Nigeria (CBN) intervention in the management of 8 banks. These were banks in which:- Owner/CEO is the dominant influence; Owner/Chairman is the dominant influence & CEO is a pure employee; Owner/Non_Executive Director is the dominant influence & CEO is a pure employee; Severely fragmented shareholding â€” no dominant ownership influence. â€œOwnership rightsâ€ have been effectively â€œusurpedâ€ by employee managers; 100% foreign bank subsidiary â€” operating in Nigeria essentially as a â€œbranchâ€ of an Overseas bank;Â Â Â Â Â Majority control by overseas bank, but in a joint venture with significant Nigerian shareholders that also have significant board representation;
Note from the above therefore that the â€œkey manâ€ could be a CEO, Chairman or even a Non-Executive Director. There are also significant differences in the motivation and capacities of all these â€œkey menâ€. A â€œOne Size Fits Allâ€ approach to Corporate Governance generally pretends that these significant differences do not exist or that they do not matter. But common sense dictates otherwise, in the same way as it would not make sense to prescribe the same diet for both under-weight and over-weight people. As an example, take the simple CBN stipulation in 2006 that the Chairman of a bank should not serve on any Board Committee. If the Chairman was the primary restraining influence on a â€œdare-devilâ€ CEO then this directive could leave him (the Chairman) â€œhandicappedâ€.
Indeed, to the extent that other Non-Executive Directors serve on various board committees, they might even have a better inkling as to what is really going on than the â€œhandicappedâ€ Chairman. Indeed, under this 2006 CBN-imposed arrangement there is a real danger that the Chairman progressively becomes the least informed director in the bank and yet he is the one that is summoned to a meeting by the same CBN and rebuked when things go seriously wrong and he explains that he did not know what was going on. Is this not akin to tying a manâ€™s hands behind his back and asking him why he did not win a 100 metre sprint against others whose hands were free?
Indeed, even amongst Bank Chairmen there are vast differences in terms of their familiarity with the business, the clientele, the industry, the staff etc. A bank chairman who is new to the company, the business and even the industry probably needs plenty of â€œquality timeâ€ to enable him familiarise himself with the buisness. I still do not understand how barring him from Board Committee meetings accelerates his learning. This latter directive will probably not be a problem for a bank chairman who has spent the bulk of his adult life in that same bank. Interestingly, the National Pension Commissionâ€™s Corporate Governance Guidelines do not bar Chairmen from serving on board committees.
The recent â€œbrou hahaâ€ about the appointment of Independent Directors is also amusing. Does anyone seriously believe that an â€œImperialâ€ Bank CEO will have a poblem in handpicking 2 graduates from his church or mosque or indeed a second cousin who will do his bidding? The only â€œdelayâ€ in the appointment of Independent Directors arose because of initial â€œfuzzyâ€ definitions and lack of clarity as to who met the definition and who did not.
Warren Buffet who has served on the Boards of 19 major global publicly quoted companies during a glorious career argues that the â€œidealâ€ non-executive director should: â€œbesides thinking and speaking independently, be business savvy, interested and shareholder-orientedâ€.
Buffett then goes on to say that he has worked with perhaps 250 directors over the course of his career, â€œmost of whom would be defined as independent, but who lacked one of these characteristics. As a result, their contribution was minimal at best and, too often, negative in spite of their being decent and intelligent peopleâ€
This is a very sobering observation. So, even â€œdecent and intelligentâ€ people may fail to contribute meaningfully? What then are the chances of a board that is deliberately or accidentally populated by â€œindecent and/or unintelligent peopleâ€? The purpose of giving these few examples is to stimulate a healthy discussion this morning. I could go on and on with endless examples from the Nigerian banking and financial sector as I was encouraged to do by the Organisers of this event, but I wonâ€™t because people get less â€œdefensiveâ€ when one is talking in the abstract.
Instead, I have opted to simply close with a check list of ten general principles which, in my opinion,Â are often overlooked and/or misunderstood and which I believe an Astute Regulator in Nigeria should be mindful of and which I think we should discuss further this morning:-
Astute Regulators should not get into the business of prescribing business models in the name of Corporate Governance. Recent failings in major global banking institutions shows that some of the biggest winners (Banco Santander and J.P. Morgan) had â€œImperialâ€ CEOs that loomed large. Meanwhile some of the biggest losers (Lehman Brothers and Royal Bank of Scotland) also had â€œImperialâ€ CEOs. It is naÃ¯ve to think that there is a single successful business model that is a panacea for all ills;
A â€œOne Size Fits Allâ€ approach to Corporate Governance is often counter-productive because it attempts to â€œforceâ€ people in dissimilar situations to carry out the same set of actions. Such an approach lacks humility, isÂ logically flawed in theory and generally leads to sub-optimal outcomes in practise;
Painting every director (executive and non-executive) with the same brush where there is evidence of criminality by a few is not an effective deterrent. It only provers that the Regulator might be weak and/or inept. Corporate America learnt more from the prosecution of the specific individuals who perpetrated fraud and criminality in Enron and Worldcom than they did from voluminous Corporate Governace Codes that were addrressed to entire Boards;
The endorsement of false accounting per se does not make an external auditor culpable. He could simply have been misled or outsmarted by a corrupt manager. Criminal neglect or negligence and/or deliberate falsification must be proven _Â in which case the auditor should be prosecuted. Note that Arthur Andersen got into trouble as the external auditors of Enron because, amongst other actions, they hurriedly deleted computer files when investigators were closing in, thereby deliberately obstructing investigations. Again, U.S. Auditing firms probably learnt more from the Arthur Andersen/Enron debacle than from â€œlameâ€ pronouncements by weak regulators which require everyone to change their auditors (good or bad) at set intervals.
Astute Regulators should seek out rather than ignore international research findings on how companies pursuing various corporate governance prescriptions perform vis a vis their peers who behave differently.
â€¢Atedo N A Peterside oon, Chairman, Stanbic IBTC Bank Plc, writes from Lagos.