Undercurrents of CBN’s Tenure Policy for Bank Chiefs

The latest tenure policy for chief executives of deposit money banks, rolled out by the Central Bank of Nigeria, will, among others, create room for a seamless succession in the banking industry. However, analysts argue that the adoption of the HoldCo structure by some banking institutions has conferred the right to determine directors’ tenure on  shareholders and not CBN, reports Festus Akanbi

But for the sustained media blitz of the on-going general elections, reports and analyses on the recent review of the tenure of bank directors by the Central Bank of Nigeria would have remained on the front pages of major newspapers today.

Nevertheless, analysts believe that discussions over the new policy would return to the centre stage after the second leg of the election this weekend and as policymakers shift attention to business and economic issues in the coming days.

The Policy

A fortnight ago, the apex bank issued a circular announcing a revision of the regulatory requirements for the tenure of executive management and non-executive directors of DMBs and financial holding companies in the Code of Corporate Governance for Banks and Discount Houses.

The rule says bank executive directors (EDs), deputy managing directors (DMDs), managing directors (MDs), and non-executive directors (NEDs) can only serve a cumulative tenure of 20 years across the banking industry.

CBN said the tenure review was part of measures aimed at strengthening governance practices in the banking industry.

According to the CBN, the tenure of Executive Directors (EDs), Deputy Managing Directors (DMD), and Managing Directors (MDs) shall be, by the terms of their engagement, approved by the board of directors of banks, subject to a maximum tenure of 10 years.

Furthermore, the banking sector regulator stated that when an executive, a DMD, becomes the MD/CEO of a bank or any other DMB before the end of their maximum tenure, the cumulative term of such Executive shall not exceed 12 years.

As Banks Begin Compliance with New Policy

While some banks are still studying the new policy, others have begun its implementation. Last week, Zenith Bank announced the retirement of its Deputy Managing Director, Dr. Adaora Umeoji, following the new tenure limits for bank executives.

According to the bank, her retirement became effective on February 24, 2023.

Zenith Bank disclosed this in a notification to the Nigerian Exchange Limited signed by its Company Secretary/General Counsel, Michael Otu.

The bank explained: “We write to notify the Nigerian Exchange Limited and the investing public of the retirement of Dame (Dr.) Adaora Umeoji from the board of Zenith Bank Plc with effect from February 24, 2023.

Another bank that complied with the new tenure policy last week was First Bank of Nigeria, a subsidiary of FBN Holdings Plc.

It immediately announced the retirement of the bank’s deputy managing director, Gbenga Shobo, from the bank’s board of directors.

Shobo, who served as the MD designate in the bank during a boardroom crisis in 2021, had been on the bank’s board since 2012 and has been an executive director for 11 years. The circular by the CBN stipulated that for “an Executive (ED), who becomes a DMD of a bank or any other DMB, his/her cumulative tenure as ED and DMD shall not exceed ten years.”

Also expected to retire is Ladi Balogun, Group CEO of FCMB Group Plc, who became CEO of First City Monument Bank Limited from 2007 to 2017.

 Implications of HoldCo Structure

Given analysts’ disagreement on the scope of the new policy, banking sector operators said there was a need for more clarifications from the apex bank.

While some believe that the tenure policy affects all the banks, others argue that executives of HoldCo arrangements are not necessarily impacted.

However, some banking industry watchers believe the decision of some banks to adopt a HoldCo structure may have insulated them from the latest tenure policy from the industry regulator.

As a result, analysts from Proshare, a research and information advisory firm, claimed that the CBN circular wrongly grouped the parent or holding companies of banks with their subsidiaries.

They described the introduction of the new policy as a bad move because local financial holding companies engage in businesses other than banking, according to observers.

 As a result, the research firm maintained that bank executives such as Tony Elumelu of United Bank for Africa Plc, Jim Ovia of Zenith Bank, Segun Agbaje of GTBank, and Herbert Wigwe of Access Bank are exempt from the new tenure policy due to the HoldCo structure under which their organisations operate.

The Grandmasters of Nigerian Banking Industry

The banking public believes the CBN would release more clarifications on the new policy in days ahead and that this will provide the needed information on the fate of some bank chairmen and group executive officers.

Some of these senior players in the banking sectors include Mr. Tony Elumelu of the UBA and Jim Ovia of Zenith Bank.

Others who were not bank chief executives at the time of the 2005 consolidation, but whose influence had contributed in one way or the other to the survival of their institutions include Segun Agbaje of GTBank and Herbert Wigwe of Access Bank Plc.

Tony Elumelu: Before his retirement as the CEO of UBA Plc in 2010 after 13 years in the saddle, when former CBN Governor Sanusi Lamido Sanusi introduced a 10-year tenure policy for bank chiefs, Tony Elumelu bestrode the banking industry with a remarkable performance, taking the bank to other parts of the African continent with unique branding. He came into the limelight after a superlative turnaround of the defunct Standard Trust Bank to the point of a merger with UBA Plc. Elumelu was appointed chairman of UBA in 2014, replacing Ambassador Joe Keshi.

Jim Ovia was the chief executive of  Zenith Bank, which he founded in 1990. He retired from the bank in 2010 following a similar policy of CBN, which limited the tenure of banks’ chief executive officers (CEOs) to a maximum of 10 years. However, the billionaire was later appointed as board chairman and non-executive director of the bank in 2014.

Segun Agbaje: He was a pioneer staff in 1991 and rose to become executive director in 2000 and deputy managing director in 2002. Agbaje became the substantial MD and CEO of GTBank in June 2011 when Tayo Aderinokun passed on. In 2021, Agbaje became the group chief executive officer of the bank.

Herbert Wigwe: After over 10 years of service, Wigwe left GTBank as an ED to co-lead the transformation of Access Bank Plc in March 2002 as DMD. He was appointed group managing director/CEO effective January 1, 2014, and served in that capacity till May 2022. Wigwe was subsequently appointed a non-executive director of the bank, effective May 2022. Following the completion of its scheme of arrangement with all approvals gotten for its holding company (HoldCo) structure, Mr. Herbert Wigwe, was yesterday announced as the Group Managing Director/Chief Executive Officer (GMD/CEO) of Access Holdings Plc in July 2022.

Lumping HoldCo with Banks

Meanwhile, analysts at Proshare argued that in the attempt to put limits on the tenure of bank executives, the CBN lumped the parent or holding companies of banks with their subsidiaries, describing it as a “flawed move as local financial holding companies engage in businesses well beyond banking note observers.”

Nigeria’s financial HoldCos run businesses ranging from banking and finance to trading in equities and fixed income assets and investments in fintech, agritech, insure tech, Information Communication Technology (ICT), and alternative asset finance.

According to Proshare, the regulatory oversight for a few of these activities come under the Securities and Exchange Commission (SEC), the National Communications Commission (NCC), and some Self-Regulatory Organisations (SROs) such as the Nigerian Exchange Group (NGX), FMDQ, AFEX, NASD, and the Lagos State Commodities and Futures Exchange (LCFE).

“Therefore, the CBN’s attempt at regulating the tenure of bank executives and that of their financial HoldCos without the agreement of other financial market and communication regulators, according to analysts, represents a ham-fisted overreach of power and responsibility,” the analysts said.

Commenting on the policy, the head of financial institutions ratings at Agusto&Co, Ayokunle Olubunmi, was quoted as saying that while the policy was a positive development, the apex bank could have given the financial institutions enough time to have ease of transition.

Noting that the policy was long overdue, Olubunmi said it would allow for easier implementation of succession as he said the top level of the banking industry is heavy with those who have been in the industry for a long time, thus, not giving room for younger talents to grow.

“We have noticed among some bankers that it seems the top is crowded, and those at the top are not leaving; thus, some don’t see any hope of growing to those executive positions. So the policy is good for the industry.

“If within 12 years, you can’t develop people who will take over from you that means you are not serious about succession planning. If, after being in an executive position for 12 years, you can’t identify two to four people that can take over from you, then you are not serious about succession.”