The Central Bank of Nigeria (CBN) had recently released a revised regulation on tenures for executives of banks and financial holding companies in the country, limiting the industry wide tenure of executives to 20 years.
Whilst the policy had been overlooked for most part as it was overshadowed by the 2023 presidential elections which held the day after the circular was released, it has already begun making waves in the banking industry.
Last week, the deputy managing director of First Bank of Nigeria, Gbenga Shobo, has stepped down from the board of the bank with immediate effect.
Shobo, who served as the MD designate in the bank during a boardroom crisis in 2021 had been on the board of the bank since 2012 has been an executive director in the bank for 11 years.
According to the circular, no bank executive, is expected to have surpassed 20 years across the banking industry from the time of appointment as executive or non-executive director to deputy managing director and managing director.
“Where an Executive who is a DMD becomes the MD/CEO of a bank or any other DMB before the end of his/her maximum tenure, the cumulative tenure of such Executive shall not exceed 12 years. However, 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 10 years.
“Non-Executive Directors (NEDs), with the exception of Independent Non-Executive Director (INED), shall serve for a maximum period of 12 years in a bank, broken into three terms of four years each. EDs, DMDs and MDs who exit from the Board of a bank either upon or prior to the expiration of his/her maximum tenure, shall serve out a cooling-off period of one year before being eligible for appointment as a NED to the Board of Directors.
“NEDs who exit from the Board of a bank either upon or prior to the expiration of his/her maximum tenure of 12 years (three terms of four years each), shall serve out a cooling-off period of one year before being eligible for appointment to the Board of Directors of any other DMB. The cumulative tenure limit of EDs/DMDs, MDs and NEDs across the banking industry is 20 years.”
The CBN noted that the revised 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 is part of measures aimed at strengthening governance practices in the banking industry.
In 2010, the apex bank had issued the first guideline on tenures for bank executives, limiting tenures of chief executives of banks to 10 years, effectively sacking bank MDs whose tenure elapsed the 10 year stipulation as at July 31, 2010.
Thirteen years after, the apex bank is extending the tenure to executive directors, non-executive directors as well as deputy managing directors. The latest circular stipulates that the tenure of Eds, DMDs and MDs “shall be in accordance with the terms of their engagement approved by the Board of Directors of banks, subject to a maximum tenure of 10 years.
However, the move by the apex bank has continued to generate opposing comments from industry watchers with some applauding the policy while some say it is an overstep of the regulatory boundary of the CBN.
Analysts at Proshare Nigeria, whilst arguing against including financial holding companies in the tenure limit said, “Holdcos are not banks but constellations of different financial and technology-related businesses. The different lines of Holdco businesses have separate regulators, meaning that the CBN cannot unilaterally impose tenure limits on their executives.”
Noting that the policy “represents a ham-fisted overreach of power and responsibility” by the apex bank, Proshare analysts maintained that shareholders should be allowed to fix the tenures of bank executives.
“In the case of the banking business, the CBN should set the rules for bank operations, monitor compliance and apply sanctions where necessary. Caps on executive tenure achieve very little to improve governance quality. The CBN’s desire to see upward mobility amongst Nigeria’s banking rank and file is admirable but is not a requirement for good corporate governance.
“The CBN’s new tenure rules may create a blistering Cobra effect where the desire for upward professional mobility destroys the retention of critical experience, thereby worsening operational effectiveness and efficiency, credit capacity and human capital dexterity in frontline banks.”
On the other hand, head of financial institutions ratings at Agusto&Co, Ayokunle Olubunmi, while commending the policy 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.
“I think it is a good idea, it will actually encourage succession planning which is something that is very crucial in the industry. It will endear succession planning and even bring in fresh ideas because any new MD or new executive will have one or two new things to bring forward on how to make the bank move ahead. It is positive and would encourage more corporate governance in the banking industry. Most importantly, it will lead to the grooming of new leaders.
“What we have noticed among some bankers is that it seems the top is crowded and those at the top are not leaving thus some of them don’t see any hope of growing to those executive positions. So the policy is actually good for the industry.”
