Corporate Governance and Banking Dynamics

In recent times, corporate governance is one terminology that has continued to echo in the media; print, airwave, online. Its resounding nature has drawn so much attention to it, one is forced to pause and take a second look at it. The issue of corporate governance is a global one and the effects of inefficient corporate governance, if not properly managed could be very devastating because it affects every facet of socio-economic and political lives.
 
For starters, what is corporate governance? Although there are various definitions of corporate governance, but they all have the same core elements. Basically, corporate governance could be defined as a set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled. Corporate governance also covers the relationships amongst and between the many stakeholders involved in running a corporate organization and the goals for which the corporation is established. In corporate governance, the principal stakeholders are the shareholders, management, and the board of directors. Other stakeholders include employees, customers, creditors, suppliers, regulators, and the community at large.
 
From the above it is obvious that corporate governance covers a wide variety of inter-related components or stakes in corporate organizations. Since corporate governance deals with the issues of how companies are administered, let us therefore try to evaluate the banking industry in Nigeria through corporate governance in order to ascertain what went wrong.
 
One issue that readily comes to mind is the issue of transparency in the banks. Before Sanusi’s arrival as CBN boss, some of the banks had been declaring paper profits, thereby deceiving the public, while in reality they were in distress. On assumption of office, Lamido Sanusi, said that he would insist on the practice of transparency in banks’ accounting procedures while encouraging adequate disclosures of the bad loans in the industry. He said that “it is important to send clear signals to bank executives that it’s not a crime to make a loss, but it’s criminal to lie about it.” Towards this end, Sanusi instituted an audit process of the bad loans in banks’ balance sheets and we saw the results of this audit process; banks were borrowing from each other to cover their lapses, mismanagement of depositors’ funds, bank CEO’s granting unsecured loans to their friends and family leading to high levels of bad debt, loss of liquidity and the near collapse of five banks in Nigeria. This scenario shows irresponsibility in the corporate governance of the banks prior to Sanusi’s tenure. But what do we have today? Banks declare losses and depositors still take their monies to the banks, the fear that ‘if banks declare losses depositors will run away’ has been overcome. Transparency means that, there must be full and accurate disclosure of financial and non financial information no matter the situation.
 
Accountability on the part of bank leadership was one missing ingredient in the sector; we saw some bank MDs behaving like demigods, taking whatever decision that best suits their interests not minding the overall interest of the organization which they represent. In order to develop the culture of accountability in banks, the CBN came up with a code of conduct forms to bank directors with clauses that constitute pledges that the MD will not engage in conducts considered unethical during their tenure as  directors of banks. In Nigeria , we saw banks’ MDs with private jets, personal properties in choice locations in Nigeria and beyond, moving in convoy of over six cars and bullet-proof jeeps all these were bought and maintained with depositors’ fund.
 
It has been established from the definition of corporate governance that stakeholders have critical roles to play in the proper administration of organizations; the banking sector is not an exception. The role of all stakeholders; board, auditors and non-executive directors should be properly defined and they all must be up to their responsibilities. The ultimate role of board of directors in corporate governance is ensuring that the assets of the company are protected in the interests of the shareholders or stakeholders they represent. Failure to do so is the source of the scandals, lawsuits and criminal charges faced by the bank’s executives in Nigeria today. In other words, the board of banks has a greater share in the failure of bank; it means that the board has failed in its duties to protect the bank’s assets.
 
The roles of the banks’ auditors should be called to question. What were they doing while the banks were on downward progression? Or call it upward regression if you like. Were the auditor accomplices or were they completely deceived by the judgments of the board? Were the books too cumbersome for them to handle? There are so many questions with no answers coming forth. All the auditors could do was to deny responsibility for the ailments in the banks. The non-executive directors also failed in their duties to help cross check and ensure that the organizations were moving in the right direction.
 
In the bid for Sanusi to ensure proper corporate governance in the banking industry, he introduced the tenure system for banks’ CEO and Directors. In a statement released by the CBN, he said “in furtherance of the on-going banking reforms” the CBN has pegged the maximum tenure of banks’ CEOs at 10 years while that of the executive and non-executives directors are put at 2 years, which is subject to the apex bank’s approval and would be renewed based on performance. This obviously did not go well with those that have been benefitting from the system.
 
Right now, it does not matter whether such individuals or groups are happy or not, what matters is that proper corporate governance is put into practice. The lack of proper corporate governance has brought down a lot of giants in the past, some of such giants include; Baring Bank (1997), Worldcom (2002), Peregrine Systems Limited (2002), Adelphia Communication Company Limited (2002), Tyco International Limited (2002), Enron (2001), Lehman Brothers (2008) and Northern Rock (2008).
 
A similar example in Nigeria is the bank that prides itself as …big, strong and reliable. The only difference between the companies listed above and the Union bank is that the Nigeria ‘s apex bank came to its rescue by changing the corporate governance structure of the bank and injecting funds into it along with four others.

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