MATTERS ARISING ON FIRST BANK BOARD SHAKE-UP

 
My earlier intervention on the First Bank matter which I titled “Why Elephants Don’t Do Breakdance” went viral for some reason, even though what I wrote was basically what was in the space. I also ensured that all my statements were prequalified with words like ‘alleged’, ‘seeming’ etc, to protect oneself in such a touchy situation where money is involved. What is most important is that the CBN stepped forward to ensure the bank does not have permanent issues, which may cause problems for other sectors of the economy, and other banks as well. Some of the issues still remain though, and that is the focus of this article, from an industry-wide perspective too.

We have heard a bit more informally about what the bank is going through since the CBN hammer was wielded. There is a statement out by Central Bank Governor Emefiele on how he struggled to salvage the situation by reaching out personally to the man at the center of the brouhaha, Oba Otudeko.

According to him, he called Otudeko a few times, getting rebuffed or ignored. He also reached out through other directors. It is very interesting to note that Otudeko and other directors took CBN warnings for granted. Who does that? A regulator can make or mar you. In fact, the profitability, stability, and protection that banks enjoy everywhere is a result of regulation. Regulation, therefore, pays and one will be remiss to dismiss the words and overtures of a powerful regulator.

Maybe Otudeko will be able to upturn his ouster but chances are slim. Other odds are stacked against his case as well. The simple questions will be: are you owing? Have you been servicing the loan? Is the loan well collateralized?  Why should you get a loan from a bank that you chair and not service the same loan?  Why did you ignore earlier warning letters about the loan and your relationship with the bank?  I cannot see how he can extricate himself from these weighty allegations, or wash clean of them in the court of public opinion. I know the gentleman to be a fierce fighter and tough nut though and so anything can happen in the next few weeks.
 
Like in every board meeting, there is that agenda called Matters Arising, after the core businesses of the day have been taken care of. In that same spirit I wish to consider some other matters connected with this board upheaval of one of Nigeria’s biggest companies:
 
1.      It looks very much like our understanding of corporate governance is still deficient in Nigeria. I have read some statements from the former Chairperson of the bank, Mrs. Ibukun Awosika. She has not addressed the very principal fact concerning the indebtedness of the Holdco chairman but she talks of corporate and operational governance that she instituted. The very first thing about corporate governance is for directors to know just how liable they are in the running of organizations.

The Chairman is especially liable and culpable for the performance of a company and that is why the first item in every published account is the Chairman’s Statement. If the public believes they have been deceived about the real status of a quoted company, the Chairman is principally liable. Mrs. Awosika has shown some level of naivety in allowing Otudeko to allegedly ride roughshod over that organization. She should be the one reporting him at CBN, not Odukale. From my little experience sitting on company boards, it looks like there is a need for constant training for directors, as reminders of their functions.

The Institute of Directors has some courses in that area but is not very aggressive. The IFRS, Companies Act, SEC, and other corporate governance codes are clear about the directors’ responsibilities which are only increasing as transactions get more complex today. Being a director is not all about collecting sitting allowances and conspiring to make yourself comfortable. This needs to be sounded to others – especially in banks and in quoted companies.

2.      Organizational culture – Something seemed to have broken in First Bank if the stories we hear are anything to go by. Some of the more acerbic writeups say that even Awosika got involved in who got what loan and sometimes interfered in daily operational issues, that Adeduntan also approved his own loan, that Onasanya was very central to the troubles the bank found itself in pre-2016, and that Otudeko determined people’s fates in the bank based on their disposition to his loans and transactions. They say there is the Arisekola Group somewhere in there. It is unclear if any of these allegations are true but like is said, no smoke without fire. 

Well, the organizational culture must have precipitated a free-for-all where everyone who can grab something simply does. We have seen this kind of problem in many banks in the past. It’s a kind of madness, such that the time and sacrifice that should be used in salvaging the organization is rather used to run it finally into the grave. They say culture eats strategy for breakfast. No matter how smart those who run a  company are, the moment the culture becomes toxic – where the undeserving get rewarded, where executives become undisciplined, where no one wants to make the sacrifice to stabilize the organization, where personal benefits are prioritized and maxed out, where powerless people are bullied, or where tribalism and nepotism become factors that propel the institution – it is downhill from there. ENRON, a popular case study from America, was run by Kenneth Lay and Jeff Skilling, super-smart people. Culture killed Enron.

3.      First Bank is the one we know, but this kind of scenario we have seen is almost the default practice in most of our banks. AMCON sits on many loans repackaged by them. Otudeko is not the only billionaire with the kind of tendencies of which he has been accused. As a fact, a good number of today’s whizkids are in the same bracket. They belong to the Gordon Gecko school of thought; Greed is Good, and they took huge risks, many times bending and breaking rules to achieve their ambition. It comes with the package.  The issue then becomes whether the CBN moved quickly enough and whether the regulator is telling the public about the state of other banks.

Many people say Emefiele has discharged himself well by taking this recent decision, but there are others who say he ought to have out of the bank a long time ago. At least Emefiele can take a breather from the usual lampooning that comes his way – for a spell. However, the CBN needs to develop a way of helping to really clean up the industry rather than waiting to fight fires like is presently the case. Are there other directors and chairmen sitting on banks and borrowing far beyond their stakes in them? Are there chairmen preventing management to do their work properly?

4.      The state of human capital in the banks is a key area that the CBN should grapple with. It looks upfront like a lost battle but the regulator should still step up. Granted that technology has rendered 90% of people who used to work in banks years ago redundant, the few that are left have also been casualized. Most people we see in the bank today are without hope. They have no career and are easily laid off while the Directors and Shareholders are getting exceedingly richer. Every ‘right-sizing exercise now translates to the mass ‘wastage’ of junior officers while the big guns are protected. Inequality rises in society.

Bank frauds spike. Crime in the streets becomes rife.  Also, the few who are employed as full staff come in because of their connections only. Promotion and career development are other thorny issues. Back in the early 90s when many of the bank MDs of today were growing, promotions came quickly (say every 18 months). Today, I know many people who work in banks but have been on the same level for 6 to 8 years, just praying daily that they aren’t sacked. When the industry as a whole is like this – hopeless, oppressive, exploitative, desperate – what do we expect? Fraud, distrust, disloyalty, bad corporate cultures everywhere. The CBN must not give up on protecting the small people.

5.      Perhaps more importantly is the issue of disclosures. Some of the writeups I have read have accused Ibukun Awosika of withholding information from the public. But it is not only Awosika. And it is not only the board she chaired but the ones before. The true position of the bank has been shrouded in secrecy for some while now. Loans have been repackaged and rearranged that should have been flagged, provisioned, disclosed to the public and to shareholders, and written off. The profits that have been shared among shareholders have been overloaded and overloaded, therefore. People who should have been sanctioned for wrong decisions and deliberate fraud got promoted and exalted to high positions. The idea behind the positions put out officially especially by a public institution not only speaks to shareholders, but to members of the public who stake their money on the shares of such a company. Whereas First Bank reverted to being a private company a while ago, its holding company is still a PLC and so the holding company status should not serve as a shield to anyone who wants to see true positions.

6.      Last item on my matters arising, the need for CBN to generally prevent the onset of a banking crisis. We all should be careful how we comment on the matter, and the allegations we make because a banking crisis will affect everyone if it happens. If someone does not have their monies stuck in some bank waiting for resolution by NDIC, you will at least have your money devalued in your pocket when the CBN has to bail out banks en masse. Banking crises sometimes occur in cycles. Some economists are known as ‘boom and bust’ chasers because of the time they spend calculating when busts happen after a period of boom. Whereas the world is waiting for a period of economic boom as covid-19 gradually fades away, Nigerian banks and the economy have always followed a different timing.

This morning, the newspaper carried the news that Nigerian banks have increased their reliance on CBN overdrafts by 174% while their deposits with the regulator decreased by about 35%. Now, this is cause for concern. Covid-19 could have been a trigger because all the lockdowns and dislocations must absolutely have an effect on the economy and the banks. It is however not enough to sit back and relax and blame an impending crisis on an Act of God. Now is the time for the banks to apply breaks on very risky ventures, reduce insider exposures, play by the book, and help drive the countercyclical economic measures that will help the economy to bounce back. In fact, we need to grow the Nigerian economy in double digits. It will not be a bad idea to piggyback on the return of economic activities post-covid. Everyone has been primed. Nigeria must not be an exception.  Hopefully, the other banks now know that CBN is not joking and that Nigerians can ill-afford another round of socialization of bank losses.