…As supervisory minister says guidelines not final
Credibility crisis is brewing over 2-week old corporate governance code introduced by the Financial Reporting Council of Nigeria (FRCN) as federal government said on Wednesday, 27 October that the guideline is far from being final for implementation despite the FRCN saying the codes took effect from 17 October.
Players in the corporate sector have also faulted the FRCN for issuing the new corporate governance code when its own governing board has not been reconstituted since it was dissolved last year July.
Okey Enelamah, the Minister of Trade and Investment, the supervisory ministry said yesterday that the new code by the FRCN, an agency under his ministry, is not the final document.
Enelamah, who spoke at the annual FBN Quest Capital market conference, in Lagos, while responding to a question about the code from the audience after delivering a speech urged players in the corporate sector to speak out when they have issues with government policies.
Enelamah’s position contradicts the FRCN, which in its release of the code said it has become effective from 17 October, the date of its release, while expecting all private companies in Nigeria to show compliance by the end of their financial year in 2017.
But Jim Obazee, executive secretary and chief executive officer of the FRCN told Business Day last night that the guidelines are operational issues that would not need the approval of the board as in the case of policy issues.
Obazee warned against politicking the issue as according to him, “We should be wary of subjecting the issue to political debate that could scare foreign investors.”
He added that they are other agencies like the Central Bank of Nigeria, (CBN), which does not have board but issues out monetary policy, adding, “then, the monetary policy should be shut down.”
According to Obazee, the guidelines had undergone series of scrutiny by the steering committee of the private sector and also subjected to court cases, before the agency came out with the document.
Besides, the agency’s action is in accordance with Section 50 of the Financial Reporting Council of Nigeria Act, 2011, which among other things requires the Directorate of Corporate Governance to develop the principles and practices of Corporate Governance applicable in Nigeria.
But some other analysts said last night that complying with the code will lead to a massive change in the composition of the boards of companies.
BusinessDay analysis show many boards will be forced to either downsize the number of executive directors, appoint new board members and also expand the number of independent directors on their boards.
A minimum of 13 CEOs of large insurance firms are also expected to vacate their seat within one year if the new code is implemented as the code bars in CEOs from staying in their positions for more than 10 years. Also about four CEOs of Pension Funds Administrators (PFAs) will be affected by the guidelines as they have currently exceeded the maximum 10 years stipulated by the code.
Also, the Insurance sector regulator, National Insurance Commission (NAICOM) is said to be waiting for the full implementation of the new code which is expected to trigger its own action of retiring some of the operators that have stayed more than ten years, having implemented for non executive directors last year.
The argument is that the new code will instil better corporate management practices and force corporations to build companies that will last into the future instead of corporations that massage their ego.
Richard Borokini, director general, Chartered Insurance Institute of Nigeria (CIIN) said “NAICOM delayed release of its own corporate governance code on chief executive officers of insurance companies for the FRCN own. “I see NAICOM toeing the same line and enforcing FRCN corporate governance code on insurance companies”
Borokini said the only challenge is whether insurance companies are prepared for the vacuum that the exercise will create when implemented because there may not have been proper succession plan in place for most of the institutions.
What I think is that because of the vacuum it is going to create, companies should be given little time to organise themselves and find possible replacements for the CEO’s in the new order, Borokini said.
But some players in the corporate sector have criticised the new corporate governance for discouraging entrepreneurship as it forces CEOs who have sweated to establish their companies to give it out perhaps at the point when the companies need their experience and knowledge the most.
It may also discourage some CEOs from building their enterprise if they know they are going to be taken out.
.Howver, Sunday Thomas, Director General, Nigerian Insurers Association (NIA) told BusinessDay last night that the guideline is not yet clear and needs some interpretations.
“The guideline is not specific on effective date for the position of the managing directors, unlike the insurance sector code of corporate governance that was specific on tenure and commencement date”
Thomas said “For some of us, you cannot say people should move on like that, most especially when a lot of them are owner managers who have laboured to build their companies. The guideline looks good, but you will need to give them time to put structures in place to hand over before leaving the system.”
He also argued that the seven years cool off period is too asking what would an owner manager come back to after such a long period of out of the company.
“Also this guideline is coming at a wrong time if enforced now because the insurance industry is in the process of raising fresh capital based on the new Risk based regulatory requirement. If the owner managers leave now, who will bring the money to recapitalize their companies?” Thomas queried.
Some of the affected CEO’s have expressed concern over the new governance code.