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Banks with weak corporate governance will lose customers – CBN

By Babajide Komolafe

Banks that have weak corporate governance will lose patronage and customers, says Mallam Lamido Sanusi, Governor Central Bank of Nigeria (CBN).

He spoke at 2012 edition of the CBN-FITC Continuous Education Programme for directors of banks and financial institutions  in Lagos.

“Many investors and consumers of financial services in Nigeria are becoming increasingly discerning and sophisticated in the choice of banks they have a relationship with. They desire strong institutions that offer premium quality and cutting-edge services. Banks that are perceived to be weak or not properly run will lose patronage and customers, for it is a natural and rational human instinct to avoid or jump off a sinking or rudderless ship.

“The stark message here is that to remain competitive in Nigeria s changing banking landscape, banks and financial institutions must innovate and adapt their corporate governance practices so that they can meet the demands of their stakeholders and grasp new opportunities. In other words, corporate governance is not a matter for mere regulatory compliance but one of survival and enlightened self-interest”, he said.

Speaking on Advancing Corporate Governance from Compliance to Competitive Advantage, Sanusi, who was represented by the Deputy Governor, Financial Sector Survellance (FSS), Dr. Kingsley Moghalu, said further, “The existence of policies and regulations on corporate governance at financial institutions is not enough without an effective mechanism to ensure their compliance.

“Yet, while mandatory compliance with and enforcement of rules are absolutely important, they do not contain in themselves the final emotional power of commitment. Views of corporate governance are shifting from mere obligation and compliance with laws and codes of best practice, to a strategic business imperative.

“There is need therefore to interrogate the effectiveness and impact of the current approach that emphasize compliance and complement these with other effective and sustainable strategies that appeal to the moral conscience and competitive spirit of corporate organizations and motivate them to self-regulate, do good and avoid evil. For, in the final analysis, we cannot regulate bad behavior.

“From a fundamental level, the key issues of corporate governance revolve around integrity, transparency, accountability, ethics and building trust. With effective corporate governance anchored on core values of ethics, integrity, professionalism and trust, institutions will have competitive advantage in attracting business and generating positive reactions in the marketplace.

“Institutions that have a reputation for ethical behavior in today s marketplace engender not only customer loyalty but employee loyalty. A great deal depends upon fairness, honesty, integrity and the manner in which institutions conduct their affairs.

“For example, before the collapse of Enron in 2001, the company and its associated traders were believed to have artificially inflated the price of energy in certain US states, thus increasing their profit margins, which also impacted the price of its stocks.

It was discovered, however, that management was keeping two sets of books, hiding billions of dollars worth of debt.

Arthur Andersen, a major accounting firm, had been complicit in this deception and went down with Enron to business infamy. The scandal exposed the weaknesses in corporate governance in the company and raised a big ethical question on the oversight role of the board over management.

The point being made here is that ethics, trust and integrity are essential ingredients for business success. It therefore behooves banks to develop and institutionalize a culture of values for professional and ethical behaviour on which their long-term success depends.”


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