DETERMINED to set fresh rules and processes for financial institutions other than banks, the Central Bank of Nigeria (CBN) has put in place a distinct Code of Corporate Governance for Other Financial Institutions (OFIs) under its supervision. These institutions include Primary Mortgage Institutions, microfinance banks, mortgage refinance companies, development finance institutions, Bureaux De Change (BDC) and other finance institutions.
In the draft guidelines, the CBN said it had become crucial to institute the code to ensure high ethical conduct and provide minimum acceptable governance standards. Such effective corporate governance practices, the CBN added, will provide an effective and efficient structure that works for the benefit of stakeholders by ensuring that the financial institutions adhere strictly to accepted standards and best practices, as well as the laws guiding their operations.
Although the final guidelines have not been approved, the importance of a code of corporate governance for OFIs cannot be overemphasised. It has our full support. Indeed, the high incidence of misconduct and scandals in the banking and other financial services sector, underscores the need for this code. It will encourage employees and other stakeholders to bring infractions of this code to the attention of the relevant authorities. This will minimise the damage such misconduct could cause different stakeholders and the economy in general.
Every economy, including Nigeria’s, depends to a large extent on the safety and soundness of its financial institutions and how they comply with the laws and codes guiding their operations.
In that regard, adherence of the boards of these institutions to these codes is important. It will go a long way in determining Nigeria’s competitive position on the global stage. But, for this code to yield the required results, its guidelines must drive the institutions forward.
However, our advice is that the exercise of such freedom should be within the framework of transparency and accountability. That should be the essence of the code when it is finally approved and implemented. The regulatory authorities should speed up the completion of the guidelines. The revised code should align with contemporary developments and international best practices. The code is coming at a time when high-profile scandals are emanating from some financial institutions.
We recall that the need for a comprehensive code of corporate governance resonated in the aftermath of the banking consolidation programme in 2005 when it was discovered that the governance mechanism in the banks was weak and many board members were reportedly unaware of their statutory and fiduciary responsibilities, and merely rubberstamped the proposals of their executive managements, regardless of their implications for the financial institutions. The code became effective in 2006. A decade has gone since that corporate governance code came into being, and therefore, an update has become expedient.
From the much we have seen, it is heartening that the code provides clear guidelines on virtually all aspects of governance. If well enforced and monitored, it will enhance corporate governance practices in the OFIs.
The provisions of the code represent the minimum standard which the financial institutions should comply with. These include the responsibilities of external auditors who “shall report annually to the CBN”, the duties of the boards and managements, their size and composition, separation of power, appointment and tenure of board committees, board appraisal, rights and functions of shareholders, equity ownership and protection of shareholders’ rights, disclosure and transparency, and risk assets. Others are risk management, bookkeeping, ethics, professionalism, conflict of interest and sanctions for failure to comply with the provisions contained in the code.
Altogether, the Code of Corporate Governance is necessary. However, rules and laws are meaningless if they are not complied with or enforced. The steps that will lead to the approval of the code should be expedited, and its sanctions enforced when finally approved. Nothing short of the highest standards of transparency, accountability and good governance are required in our financial services sector. All stakeholders and the economy will be better for it.