Yesterday, the Central Bank of Nigeria (CBN) gave its approval for a new code of corporate governance in the country’s financial sector. This move introduces significant changes, including a maximum tenure of 12 years for the Managing Director/CEO and Deputy Managing Directors/Executive Directors of banks. The implementation of the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest, and Payment Service Banks will begin on August 1, 2023.
Under the new guidelines, the tenure of the Managing Director/CEO and Deputy Managing Directors/Executive Directors will be limited to a cumulative maximum of 12 years. Additionally, the number of directors on the boards of Commercial, Merchant, and Non-Interest Banks (CMNIBs) should range from a minimum of seven to a maximum of 15. For Payment Service Banks (PSBs), the minimum and maximum number of directors will be seven and 13, respectively.
The revised policy also clarifies that when a Deputy Managing Director/Executive Director assumes the position of Managing Director/CEO within the same bank, their previous tenure as a Deputy Managing Director/Executive Director will not be counted towards their tenure as Managing Director/CEO. The remuneration of these positions will be linked to performance and structured to prevent excessive risk-taking.
The new code grants the board the authority, subject to CBN’s approval, to appoint the Managing Director/CEO, Executive Directors, and senior management staff. The board is also required to establish a succession plan for the Managing Director/CEO, other Executive Directors, and senior management staff, which should be reviewed at least once every two years.
In terms of board composition, the code stipulates that the board should consist of both Executive and Non-Executive Directors, with the number of Non-Executive Directors surpassing the number of Executive Directors on the board and its committees. Members of the board must possess proven integrity, be knowledgeable in business and financial matters, and meet the competency and fit and proper person requirements for the Nigerian banking industry.
Moreover, the new policy restricts the number of members from an extended family serving on a bank’s board to a maximum of two individuals. Only one member of an extended family can hold the positions of Managing Director/Chief Executive Officer (MD/CEO), Chairman, or Executive Director (ED) at any given time.
The code also addresses situations involving mergers, acquisitions, takeovers, or business combinations. In such cases, the length of service for a director appointed from the board of a legacy institution will include both the periods served before and after the combination.
The CBN stated that the policy is authorized by the Central Bank of Nigeria (CBN) Act 2007 and the Banks and Other Financial Institutions Act 2020. The guidelines were developed based on relevant principles and recommended practices from the Nigerian Code of Corporate Governance issued by the Financial Reporting Council in 2018, as well as global corporate governance practices and other related governance codes, circulars, and directives issued by the CBN.
