To avoid disruptions and seamless transition in succession planning by banks, Central Bank of Nigeria (CBN) has directed all Domestic Systemically Important Banks (DSIBs) to publicly announce new Chief Executive Officers (CEOs), three months before the incumbent’s exit and obtain regulatory approval six months prior to the expiration of the incumbent’s tenure.
The new directive is contained in a circular to DSIBs and signed by Rita I. Sike Director, Financial Policy & Regulation Department of the apex bank.
Industry operators and sources familiar with happenings in the economy, who spoke with metrobusinessnews.com (MBN), under anonymity, said that while there may not be recent specific negative experiences, CBN’s directive suggests that past governance lapses and leadership transition challenges in the sector may have prompted the need for more stringent succession planning and approval processes.
While acknowledging potential rigidity as the six-month approval process may limit the flexibility of banks to respond to changing circumstances or unexpected leadership vacancies, some of them noted that CBN may be trying to reduce the risks associated with unplanned leadership transitions, with the attendant negative impact on bank operations, reputation, and overall financial stability.
Also, with the potential uncertainty attendant with the transition period among stakeholders, including investors and customers, potentially impacting bank performance, they were unanimous in their submissions that Poor succession planning can lead to leadership vacuums, undermining investor confidence and financial stability.
“Barring any human factors, the new directive ensures seamless leadership transitions, reducing potential disruptions in top management and maintaining stability in the financial sector. It allows incoming CEOs to prepare adequately for their roles, familiarizing themselves with the bank’s operations and challenges. Besides, some of us who are older in the industry, can attest to ‘overnight’ selections of children by the promoters of some of the institutions, particularly, family owned, as Chief Executives”, says a former risk manager of a bank.
“The consequences of the actions of super or owner-chairmen and promoters of the banks, either liquidated or still operating in different forms, are part of the challenges bedeviling the industry that CBN wants to tackle today”, says another source.
In the reckoning of CBN, the move was aimed at ensuring seamless leadership transitions and reducing potential disruptions in the top management of key financial institutions.
“This requirement is aimed at: minimising disruptions at the top management level. Enabling appointees to adequately prepare for their new roles, and mitigating risks associated with abrupt leadership changes”, the apex bank noted.
Specifically, the circular notes that section 2.14 of the CBN corporate governance guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks in Nigeria (2023) mandates the boards of such institutions to approve succession plans for their Managing Directors/Chief Executive Officers (MD/CEO), Executive Directors (EDs), and senior management staff.
Admonishing the banks to be diligent in the implementation of these directives, CBN, warns:
“In view of the critical role Domestic Systemically Important Banks (DSIBs) play in maintaining financial system stability, the CBN reiterates the importance of effective succession planning in these institutions.
“Accordingly, and in line with sound corporate governance practices, each DSIB is required to: obtain regulatory approval for the appointment of a successor MD/CEO not later than six months before the expiration of the incumbent’s tenure.
“Publicly announce the appointment of the successor MD/CEO not later than three months before the planned exit of the incumbent.
“You are hereby directed to ensure strict compliance with the above directives.”