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Bonus sharing: How NSE may have defied corporate governance

By Peter Egwuatu
The report by Akintolla Williams Deloitte on the four year financial statement of the Nigerian Stock Exchange (NSE), has revealed how the former management of the Exchange may have defied the tenet of good corporate governance.

The intervention of the Securities and Exchange Commission (SEC) over the crisis that rocked the NSE,  in recent time, stakeholders said, though belated could go a long way in bringing  back confidence in the stock market. The illegal sharing of the bonuses  meant to develop the stock market has been criticised by some operators and stakeholders.

The stakeholders are asking the place of governance in the stock market, if a self regulatory body like the NSE could defy the practice of good corporate governance.
Mr. Seye Adetunmbi, an operator in the market has said, “ NSE is a big institution that thrives on public trust, investors confidence and good will of the national economy.

This makes the institution to be bigger than individuals. The Nigerian stock market  has benefited tremendously from the integrated goodwill of the public  and government in the past 60 years, its present size is therefore not  an overnight matter.

Consequently, activities of NSE, charged with the coordination of the stock market operations over the years is prone to public scrutiny and  unbiased public court. In essence, NSE operations can’t be shrouded in  secrecy.

Arunma Oteh, SEC DG and Emmanuel Ikazoboh, NSE DG

Transparency, discipline and professionalism are the virtues that can keep the house together on an enduring note.

“Thus, if the President of NSE raises issues on the state of affairs  in the institution, it should give every well meaning stakeholder  concern. The honourable way out for the management is to state their case and submit themselves to an independent audit.

If in the due process,  any recklessness is established, then all ranks of culprits must be  penalized appropriately. If big institutions in the organized private  sector can not get it right, how are we going to call the public sector to order with the way national affairs are managed.

One thing that is intriguely disturbing is how NSE could still retain the top management till date when the market suffered colossal loss  due to systemic failure of the self regulatory body to live up to  basic expectation while the banking sector and SEC had witnessed   restructuring and fundamental changes.

This to me is the crux of the  matter and the challenge of the market which hopefully the recent petition of Dangote should address conclusively”.

Having looked at  the detailed analysis of the productivity and surplus sharing paid to the council members of the Nigerian Stock Exchange (NSE) between 2005 and 2008; it begins to figure how the auditor has gone and the trend of disclosures yet to come.

The forensic audit carried out by Akintola Williams Deloitte under the direction of the SEC  has shown that the NSE, being a company limited by guarantee is not expected/allowed to declare surpluses as bonuses to its council members.

According to the statement released by the SEC recently , “At a meeting held on 28 September 2010, the Council of the Nigerian Stock Exchange (NSE) approved the audited accounts of the NSE for 2009. As mandated by the Investment and Securities Act, the Interim Administrator of the NSE, Mr. Emmanuel Ikazoboh submitted the approved accounts to the Securities and Exchange Commission (SEC) on 30 September 2008.

The 2009 accounts were audited by the NSE’s External Auditors, Messrs Akintola Williams Deloitte, who have been able to sign off an un_qualified set of accounts.  One of the basis for the Auditors’ qualification of the accounts was that, according to them, the:
“one of the basis for the Auditors’ qualification of the accounts was that the accrued sum of N1.2 billion was distributed to employees and Council members as bonuses and share of surpluses respectively in the current year.

This is contrary to section 26(3) of Companies and Allied Matters Act, Cap C20 LFN and section 26(3) of Companies and Allied Matters Act, Cap C20 LFN 2004 and section 6 of the Memorandum and Articles of Association of the Exchange which stipulated that the income and property of the Exchange shall be applied solely towards the promotion of the objects of the Exchange and no portion thereof shall be paid or transferred directly or indirectly by way of dividend, bonus or otherwise.”

The statement signed by the spoke person of the SEC, Mr. Lanre Oloyi also noted that similar payments had been also made since 2006 through to 2008. The Commission said the interim administrator should take reasonable steps to recover all such shared ‘bonuses’ from the Council members. It said: “For the sake of completion, it is worth mentioning that only Alhaji Dangote has so far returned the full N40 million, being what was his own share.”

The summary of the illegally shared money showed as follows: In 2006 N160,800 million, in 2007 N710 million; in 2008 N480 million and in 2009 N1.2 billion respectively. However, the report did not state how such sums should however be treated or whether the council had any leeway to exercise discretion on such matters.

It will be recalled that the erstwhile Director General of the NSE, Onyiuke was sacked following alleged mismanagement of the NSE by its former President, Dangote.

In order to salvage the capital market  SEC,  recently, intervened and sacked the Director General and all the council members for lack of corporate governance, among others.

Okereke-Onyiuke, who has been Director-General and Chief Executive Officer of the Exchange since 2000, has been embroiled in a accusations and counter_accusations with Aliko Dangote, President of the Exchange until his sack by a Federal High Court in Lagos.

Dangote had accused the NSE of mismanagement about N11 billion, resulting in the NSE becoming insolvent, a sign of which is the about N900 million debt owed to the Central Securities Clearing System Limited, its subsidiary.

The decision by the SEC according to a statement by Lanre Oloyi, was in the interest of the public and necessary to protect the investors.

Pending the selection of a new DG for the NSE, an interim administrator, led by Ikazoboh has been managing the affairs of the Exchange.

SEC had directed the interim administer to carry out forensic auditing of the NSE following the alleged mismanagement of funds. It also directed the interim administrator to conduct transparent recruitment exercise that will usher in a substantive Director General.

SEC had directed Dangote and all those elected to the NSE council in defiance of the court order to cease acting as such, pending the outcome of the ongoing litigation.

These actions by the Commission, according to Oloyi, “ reinforce the integrity of our markets and demonstrate commitment to accountability, particularly given the importance of ensuring adequate oversight at all times and demonstrating that when there are shortcomings, as the apex regulator, the Securities and Exchange Commission will step in decisively to address these issues in the public interest and to protect the investors,”

Giving a background to the crisis, the Commission said the Investment and Securities Act 2007 vests the unalloyed responsibility for safeguarding the interest of the public and protecting the investor on it, following which it has closely followed the developments in the NSE.

The statement by the Commission added, “ particularly with respect to inadequate oversight of the Exchange, ongoing litigation, allegations of financial mismanagement, governance challenges, and the inordinate delays in the implementation of the succession plan for the Exchange.

In following the developments, the Commission has at all times carefully deliberated on the implications and ramifications of a direct intervention in the affairs of the Exchange.
“In this deliberation, the Commission weighed the consequences on the market of a direct intervention set against the broader goal of safeguarding the interest of the public and protecting the investor.”


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