CORPORATE GOVERNANCE FOR BANKS

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Given the important role that banks and other financial institutions play in the economic and financial system of an economy, it is imperative that they embrace corporate governance.

Corporate governance can be defined as the establishment and acceptance of appropriate legal, economic, and institutional environments that allow institutions to thrive in their pursuit of long-term shareholder value and maximum human-centered development.

It can also be defined as the law, procedures, practices, and unwritten rules that determine a company's ability to make managerial decisions through its claimants, which include shareholders, creditors, consumers, the government, and employees.

It entails a company's commitment to run its operations in a legal, ethical, and transparent manner - a commitment that must start at the top and pervade throughout the entire organization.

Corporate governance entails five important things: namely; Transparency, Accountability, Control, Trusteeship and ethnics.

1. Transparency: banks should transact their business in a highly transparent manner and their books of account should reflect this.

2. Accountability: The boards of directors and other senior managers of banks should be accountable to various stakeholders within and outside the banks.

3. Control: To protect the interest of various stakeholders of the banks, supervisors of banks (in Nigeria, CBN, NDIC) should exercise control over the management of the bank through various regulations.

4. Trusteeship: The board of directors should, at all times and without exception, acts as the trustees of the stakeholders.

5. Ethnics: Good ethics is important for corporate governance. Therefore, good ethical practices should be imbibed by all employees of the bank.

Corporate governance is essentially about holding the balance between various stakeholders of the organization. The main goal is to align as nearly as possible, the interests of individuals, organizations, and society. 

The overall objective of corporate governance is to create added value for the stakeholders.

Codes Of Corporate Governance For Nigerian Banks 

In order to make the operations of Nigeria banks more efficiently and effectively by enhancing the management of banks, the Central Bank of Nigeria (CBN) issued codes of corporate governance to banks and it includes the following:

1. The positions of chairman and managing director/CEO is to be separated.. No one person shall combine the two positions in any bank at the same time. 

2. For the avoidance of doubt, no executive Vice Chairman shall be recognized in the Board structure

3. Furthermore, family members cannot occupy both the chairmanship and managing director positions. That is, No two members of the same extended family shall occupy the positions of Chairman and MD/CEO or Executive Director of the bank and Chairman or MD/CEO of a bank’s subsidiary at the same time. 

4. In order to discourage government(s) from having majority shareholding in banks, government(s) direct and indirect equity holding in any bank shall be limited to 10%. (above this is to be approved by the CBN)

5 The Board of directors shall define the bank’s strategic goals, approve its  long and short-term business strategies and monitor their implementation by management.

6. The board shall implement whistle-blowing policy for reporting any illegal or unethical behavior.

7.  The Board shall ensure that a succession plan is in place for the CEO, other executive Directors and top management staff.

8. Directors who are aware of a real, potential or perceived conflict of interest on the part of a fellow Director, have a responsibility to promptly raise the issue for clarification, either with the Director concerned or with the Chairman of the Board.

9.  Every bank shall have a risk management framework specifying the governance architecture, policies, procedures and processes for the identification, measurement, monitoring and control of the risks inherent in its operations.

10. The Board is responsible for the bank’s policies on risk oversight and management and shall satisfy itself that management has developed and implemented a sound system of risk management and internal control.

11. Banks shall demonstrate good sense of corporate social responsibility to their stakeholders such as customers, employees, host communities, and the general public.

12. The Board shall ensure that minority shareholders are adequately protected from overbearing influence of controlling shareholders.

13. An equity holding of 5% and above by any investor shall be subject to CBN’s prior approval. Where such shares are acquired through the capital market, the bank shall apply for a no objection letter from the CBN immediately after the acquisition

14. An equity holding of 5% and above by any investor shall be subject to CBN’s prior approval. Where such shares are acquired through the capital market, the bank shall apply for a no objection letter from the CBN immediately after the acquisition.

15. Every bank shall have a remuneration policy put in place by the Board of Directors, which shall be disclosed to the shareholders in the annual report. 

16. A Committee of Non-Executive Directors shall determine the remuneration of executive Directors

17. Banks shall align executive and Board remuneration with the long term interests of the bank and its shareholders

18. To effectively perform its oversight function and monitor management’s performance, the Board shall meet at least once a quarter

19. Procedure for appointment to the Board shall be formal, transparent and documented. Existing CBN guidelines on appointment to the Board of financial institutions shall continue to be applied.

20. Existing CBN guidelines on appointment to the Board of financial institutions shall continue to be applied.

21. To ensure continuity and injection of fresh ideas, Non-Executive Directors of banks shall serve for a maximum of three (3) terms of four (4) years each. I.e 12 years

22. The tenure of the CEO of a bank shall be in accordance with the terms of engagement with the bank but subject to a maximum period of ten (10) years. Such tenure may be broken down into periods not exceeding five (5) years at a time.

23. Such a CEO shall not be eligible for appointment in that capacity in the bank or its subsidiaries

24. The Board shall consist of Executive and Non-Executive Directors. The number of Non-Executive Directors shall be more than that of Executive Directors.

25.  Members of the Board shall be qualified persons of proven integrity and shall be knowledgeable in business and financial matters, in accordance with the extant CBN Guidelines on Fit and Proper Persons Regime.

26. The Board of banks shall have at least two (2) Non-Executive Directors as Independent Directors.

27. The size of the Board of any bank or shall be limited to a minimum of five (5) and a maximum of twenty (20).

26. The Board shall appoint the CEO as well as top management staff and establish a framework for the delegation of authority in the bank, which must comply with the provisions of the CBN’s Circular on Harmonization of Job Roles in the Banking Industry.

28. The Board shall ensure that a succession plan is in place for the CEO, other executive Directors and top management staff.

If the aforementioned codes of corporate governance are carefully followed, it is expected that Nigerian banks will remain strong and the incidence of bank distress will be significantly reduced.

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