By Segun Caulcrick
The dust is yet to settle over the recent announcement of the takeover of Skye Bank by Polaris Bank, a new bridge bank that was set up by the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).
The stories of insider non-performing loans bring to focus again the urgent need to address the ethical squalor at the highest level of most of our banking institutions before it compromises the financial system with the reverberating consequence for the economy.
It would seem that there was a widespread violation of director’s ethical code of conduct if ever there was any at the defunct Skye Bank.
Information being unveiled paint a picture of a revolving table of unsecured Non -Performing Loans (NPL) dished out to directors and related companies. Such shady practices have come to light before – remember the defunct Oceanic Bank and Intercontinental Bank, among others. The outcome as on previous occasions was a massive loss of shareholder investment, diminution brand value, tarnished image of the directors and ruined careers.
The debts were taken over at a high cost to the nation. The Asset Management Corporation of Nigeria (AMCON) is yet to fully recover the NPLs it took onboard from the previous round of rescued banks.
Among the core values of Skye Bank were ‘Integrity and Trust.’ These obviously did not apply to the board. This attitude is typical of the mindset of people on most boards – the issue of organisation culture belongs to HR or at best management and definitely not a board concern.
Perhaps the integration of Skye’s corporate values ethics into the board’s activities and decisions could have helped. It might have awakened the conscience of the directors against their subconscious avaricious instincts.
Many high profile corporate failures and reputation damage across the world have often been traced to unhealthy corporate cultures. The failure of Enron and Oceanic Bank; the reputation damage of Cadbury Nigeria and recent Volkswagen, Uber, OXFAM and KPMG (South Africa) scandals could be traced to the culture of the organisations.
The outcome was often substantial loss of shareholder value, brand value depletion, reputation loss, regulatory sanctions and prosecution of individual directors. Pervasive toxic cultures don’t happen overnight, they start out small. An unhealthy culture, left unchecked, will fail at some point.
The UK Corporate Governance Code ascribes to boards, the responsibility for setting the company’s values and standards. The preface to the Code states:
“One of the key roles for the board includes establishing the culture, values and ethics of the company. It is important that the board sets the correct “tone from the top”. The directors should lead by example and ensure that good standards of behaviour permeate throughout all levels of the organisation. This will help prevent misconduct, unethical practices and support the delivery of long-term success.”
The Nigerian Code of Corporate Governance exposure draft expects Boards Charter of responsibilities to include “establishing and maintaining the company’s values and standards (including an ethical culture) as well as demonstrating the right tone at the top.
The Central Bank of Nigeria (CBN) new Code of Corporate Governance stipulates that bank directors with non–performing loans (NPLs) are to either quit or be sacked.
In the case of Skye Bank the Board did set a tone at the top but it was the wrong standard. With such example at the top, one wonders if the executive team was not involved in the saga of unsecured insider loans.
A change of mindset and capacity enhancement may be required for the boards of Nigerian owned financial institutions to adequately perform the expected culture oversight role within the emerging governance codes. Are the boards equipped to assess the culture, integrate values into their policies and practices and influence the right tone in the organisation through the CEO and the executive team?
How much of the lightly secured or unsecured facilities at our financial institutions are for directors, top executives and their associates. Are the regulators eagle eyed enough to fish out and report such facilities before they become toxic? Will the regulators be transparent enough to sanction, name and shame unethical directors so it becomes a deterrence?
A central bank recent report indicated that “the economic recession showed that the financial industry still harbors weaknesses in governance, as seen in insider non-performing loans, unreported losses, huge exit packages for directors, over-domineering executive management, contravention of regulatory/prudential guidelines and lending limits, poorly appraised credits,” Will our financial institutions stand up to rigorous stress test?
The tone of the exposure draft of the Nigerian Code of Corporate Governance does to deter boards from a regime of self-service of unethical facilities. The Code adopts a principle-based philosophy rather than a rigid rule-based approach. The principles are set as minimum standards to which companies are encouraged to comply. While this philosophy may be appropriate for a society with a culture of self-regulation, it would seem out of place in Nigeria where our individual conscience and ethical compass are weak. At our stage of consciousness as a people, we are probably better-off with a governance code that demands mandatory compliance with judicial consequences.
The effective execution of the boards mandate with respect to the profitability and sustainability of organisations is invariably impacted by the corporate culture. Beyond compliance with statutory codes, boards are expected to set the right tone at the top and perform an oversight function in ensuring the executive embeds a culture aligned with the mission and strategy of the organisation.
Building the board’s capacity to perform this culture oversight role coupled with regulatory deterrence for unethical conducts should help to stem the incidents of impunity of banks directors with respect to non-performing insider loans. This would go a long way in reducing the risk of the breakdown of the financial system.
Caulcrick, the co-founder and Executive Director of the Foundation for Value Transformation can be reached via firstname.lastname@example.org