NAVIGATING CRISES: THE ROLE OF THE CENTRAL BANK OF NIGERIA IN BOARDROOM DISPUTES
A. INTRODUCTION
Corporate governance is the life-wire of any banking institution, ensuring accountability, transparency, and effective decision-making. However, Nigerian banks have historically faced significant corporate governance challenges, often stemming from weak institutional frameworks, lack of adherence to governance codes, and internal frictions within boardrooms. Boardroom disputes, when left unchecked, can destabilize not just individual banks but also the financial ecosystem at large, given the importance of the banking sector to Nigeria’s economy.
The Central Bank of Nigeria (CBN), as the primary regulator of the banking industry, plays an essential role in not only enforcing corporate governance standards but also resolving disputes that arise within boardrooms. Its interventions are critical to maintaining stability and restoring investor confidence in the banking system.
This article examines how the CBN intervenes in boardroom crises in Nigerian banks, the legal frameworks that empower it, the challenges it faces, and the impact of its actions on corporate governance in the country.
B. BOARDROOM DISPUTES IN NIGERIAN BANKS
Boardroom disputes refer to conflicts that arise within the leadership structure of the bank. These conflicts may arise between the board and its shareholders or between directors and executive management. They may also involve issues among the directors themselves or between the board and other stakeholders. The list of possible sources of boardroom disputes is endless and includes disagreements over strategic direction of the bank, allegations of misconduct, or power struggles, appointment of new directors, defining board agenda, succession planning, and personality clash of directors. Regardless of its source or nature, a board dispute implicates the board in one way or another as a party or as an active participant, and resolving the conflict requires the directors’ concurrence.
Common Causes of Boardroom Disputes
Boardroom disputes in Nigerian banks are often triggered by the following factors:
1. Power Struggles: This involves conflicts over leadership and control between directors or among major shareholders, appointment of new directors and succession planning of the Board.
2. Shareholder Activism: This refers to shareholders’ efforts to impact a company’s business activities using their ownership rights. In most cases, shareholder activism entails shareholders voting against the Board at the general meeting or threatening to vote against the Board, or by challenging board decisions or calling for leadership changes in the bank.
3. Financial Mismanagement or Fraud Allegations: Accusations of embezzlement, poor financial oversight, or fraudulent practices can lead to boardroom disputes. In 2009, Cecilia Ibru, former CEO/ Managing Director of Oceanic Bank was arrested for fraud and mismanagement of the bank’s funds.
4. Lack of Transparency or Accountability: Board Disputes occurs when management or the board fails to disclose critical information to stakeholders.
C. LEGAL AND REGULATORY FRAMEWORK GOVERNING BOARDROOM DISPUTES IN NIGERIAN BANKS
Key Regulatory Instruments
The framework that governs boardroom disputes in Nigerian banks is anchored on several key laws and regulations, including:
1. Banks and Other Financial Institutions Act (BOFIA 2020): BOFIA regulates the operations of financial institutions in Nigeria. It grants the CBN powers to supervise banks and intervene in governance matters to ensure stability in the financial sector. Sections 33–36 of BOFIA empower the CBN to take corrective actions, including dissolving boards or appointing interim management.
2. Companies and Allied Matters Act (CAMA): CAMA establishes the legal framework for corporate governance in Nigeria. It provides for certain corporate governance principles that are generally applicable to public companies including banks. For instance, CAMA 2020 requires that every public company shall have at least three independent directors. Accordingly, all Nigerian banks that are public companies are required to have at least three independent directors appointed to their respective boards.
3. Code of Corporate Governance for Banks and Discount Houses: This Code provides clear guidelines on all aspects of governance and was enacted to enhance corporate governance practices for banks in Nigeria. The provisions of this Code represent the minimum standard which banks shall adhere to.
4. Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Services Bank in Nigeria: On 13th July 2023, the Central Bank of Nigeria issued the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Services Banks in Nigeria (“CGGCMNIBs”) by virtue of its powers provided under the CBN Act and BOFIA.
Certain provisions in the above regulations empower the Central Bank of Nigeria to intervene in the corporate governance of the Banks in Nigeria, they include:
a) Appointment of the Board: Members of the Board shall be appointed by the shareholders of the bank and approved by the CBN. Prospective and current directors on the Board of a bank are required to disclose potential and existing board memberships on boards of other organisations, as applicable, subject to CBN’s approval.
b) Approval of Board Charter: All Board Committees must have a charter which must be submitted to the CBN for approval. These Charters shall be reviewed at least once every three years and upon any such review, the copies approved by the Board shall be submitted to the CBN for its “No Objection” within thirty (30) days of approval by the Board and prior to its implementation.
c) Appointment of MD/CEO: The Board has the power to appoint the MD/CEO, Executive Directors as well as senior management staff of the Bank, but these appointments are subject to the approval of CBN.
d) Appointment of Company Secretary: The appointment and removal of the Company Secretary shall be a matter for the Board, subject to CBN’s ratification. The role of the Company Secretary in a Bank, shall not be combined with that of the Head Legal/Legal Adviser, without the approval of the CBN
e) Board Evaluation/ Appraisal: There shall be an annual appraisal of the Board, its Committees, Chairman and individual directors covering all aspects of the Board’s structure, composition, responsibilities, processes and relationships, as may be prescribed by the CBN from time to time
f) Equity Ownership in the Bank: An equity holding of 5% and above by any investor in a Bank shall be subject to CBN’s prior approval. Where such shares are acquired through the capital market, the bank shall apply for a no objection letter from the CBN immediately after the acquisition. Except where prior approval of the CBN is granted, no individual, group of individuals, their proxies or corporate entities shall own controlling interest in more than one bank.
g) Appointment of Chief Compliance Officer/Head of Internal Audit: The Board has the power to appoint and remove the Chief Compliance Officer/ Head of Internal Audit, such appointment shall be subject to CBN’s approval.
h) Appointment of external auditors: Appointment of external auditors in a Bank shall be approved by the CBN. The external auditors shall render reports to the CBN on the banks’ risk management practices, internal controls and level of compliance with regulatory directives. Where the CBN is satisfied that an external auditor of a bank has engaged in any unethical practice or illegal activity, the CBN shall request the Board of the bank to remove the external auditors, or it may impose any other sanction on the bank in line with the provisions of extant laws and regulations.
Limitations of the CBN’s Authority
Despite the extensive powers provided by the extant regulations on corporate governance practice, the CBN faces certain limitations, including:
• Independence of Boards: Excessive regulatory interference may undermine the autonomy of bank boards, reducing their ability to make independent decisions. Non-independence of the Board can lead to investors losing confidence in the Board.
• Insufficient resources: The CBN may lack the resources to effectively monitor all banks in real-time.
• Judicial Challenges: Aggrieved directors or shareholders often challenge CBN’s interventions in court, delaying resolution.
D. THE CENTRAL BANK OF NIGERIA’S ROLE IN BOARDROOM CRISES
The CBN adopts a multi-faceted approach towards mitigating boardroom disputes in Nigerian banks. Its roles include:
Proactive Monitoring and Oversight: The CBN monitors banks’ financial health and corporate governance structures through periodic audit reports, board appraisals and supervisory visits. Early warning signals, such as declining financial performance or whistleblower reports, enable the regulator to detect potential boardroom disputes before they escalate.
Mediation and Dispute Resolution: The CBN often acts as a mediator in boardroom conflicts in the Bank. The Steps taken by CBN include facilitating dialogue between disputing parties, recommending governance reforms to address underlying issues and/or appointing interim boards or administrators when disputes threaten the bank’s stability.
Regulatory Actions: In extreme board disputes in a bank, the CBN enforces its authority by;
a. Dissolving or Reconstituting Boards: One of the ways the CBN exercises its supervisory powers over the Banks, is to dissolve boards that fraudulently mismanage the business of the Bank, and does not comply with the extant code of corporate governance practice.
A notable case was when the Central Bank of Nigeria dissolved the boards and managements of certain banks in 2024 over alleged corporate governance infractions and non-compliance with regulatory requirements. This action was necessary due to the non-compliance of these banks and their respective boards with the provisions of Section 12(c), (f), (g), (h) of Banks and Other Financial Institutions Act, 2020. The banks’ infractions vary from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licences were granted, and involvement in activities that pose a threat to financial stability, among others.
b. Imposing Penalties: Banks that fail to comply with governance codes face fines or other sanctions. Paragraph 28.0 of the Corporate Governance Guidelines for Commercial, Merchant, Non-Interest and Payment Services Bank in Nigeria provides that, failure of a bank to comply with any of the requirements under this Guidelines constitutes a regulatory breach and shall attract a penalty as may be prescribed by the CBN.
E. BALANCING INTERVENTION AND AUTONOMY
The CBN traverses a complex and sensitive role in addressing boardroom disputes within the banking sector. This position requires maintaining a nuanced equilibrium between exercising necessary regulatory oversight to safeguard the stability and integrity of the financial system and upholding the autonomy of bank boards so as to foster innovation, independence, and efficient decision-making.
Challenges in Maintaining Balance: The mandate of the CBN encompasses ensuring the stability of the financial system while fostering good corporate governance. Albeit, the process of achieving this dual mandate is often fraught with challenges, particularly in the context of boardroom disputes. Some of these challenges include:
a. There exists an intricate relationship between directors, shareholders, and management which creates a delicate power balance. Intervening in such power dynamics without exacerbating tensions requires a highly strategic approach.
b. Banks may resist regulatory oversight with the perceived notion that it forms a threat to their autonomy. Such resistance can hinder the CBN’s ability to implement necessary government reforms.
c. Effective monitoring and intervention demand significant resources, including A skilled personnel and advanced tools for detecting governance lapses. Limited resources will affect the CBN’s ability to act swiftly and decisively.
d. Differing priorities among stakeholders, such as maximizing profits versus ensuring compliance, often complicate governance issues, which requires the CBN to mediate conflicting interests.
Risks of Overreach: Extensive regulatory intervention by the CBN poses certain risks that can impair its effectiveness and the broader stability of the banking sector. These risks include:
a. Aggressive actions may create a conception of authoritarian control which significantly discourages foreign investments.
b. Frequent interference in board matters can stifle the decision-making independence of directors which discourages innovative thinking and strategic agility within banks.
c. Overreach by the CBN may trigger market reactions such as panic among shareholders or depositors which undermines confidence in the sector’s governance and operational stability.
d. Excessive intervention could also harm our country’s reputation as a potential destination for financial investments which reduces her attractiveness to global banking and investment institutions.
Benefits of Regulatory Intervention: In spite of these challenges, the intervention of the CBN remains vital for preserving the health of Nigeria’s banking sector. Proactive monitoring, mediation, and regulatory actions have consistently played a role in ensuring financial stability, protecting stakeholders, and fostering adherence to good governance practices. With the CBN appropriately gauging its interventions, it can navigate the delicate balance between oversight and autonomy, which will ensure not only a robust but also a resilient banking system.
F. LESSONS LEARNED FROM PAST INTERVENTIONS
The CBN, on the 10th of January 2024, announced that it had dissolved the boards and management teams of certain banks. In the circular, the CBN indicated that this action had become necessary due to the non-compliance of these banks and their respective board with Section 12 (c), (f), (g), and (h) of BOFIA 2020. According to the CBN, the violations of these boards differed from regulatory non-compliance, corporate governance failure, disregarding the conditions under which their licenses were granted, and involvement in activities that posed a threat to financial stability, amongst others. This move from the CBN demonstrated its resolve to prioritize the stability and integrity of the banking system over preserving the status quo.
A key positive outcome of this intervention is that the actions of the CBN helped quell market uncertainties and reassured depositors, shareholders, and the general public about the CBN’s commitment to financial stability. Also, by constituting interim boards and management, the CBN sent a clear message that governance lapses would not be entertained. This prompt replacement of leadership also ensured that the banks continued their operations without a glitch, avoiding disruptions to customer services and any systemic risk. Lastly, the intervention also opened up an avenue to address deep-seated governance issues and implement reforms.
While the actions of the CBN did yield some positive outcomes, it was also accompanied by negative concerns. For example, in that the CBN’s actions were targeted at restoring trust, some stakeholders-particularly foreign investors-construed such action as excessive. Such perception concerns regulatory unpredictability.
G. RECOMMENDATIONS FOR PREVENTING AND MANAGING BOARDROOM DISPUTES
Effective governance and proactive dispute management play crucial roles in sustaining the stability and resilience of the Nigerian banking sector. The below-provided address key areas for improvement in corporate governance frameworks and offer practical suggestions for enhancing the CBN’s capacity to mediate disputes effectively.
a. Proposals for Improving Corporate Governance Frameworks in Nigerian Banks
i. Stricter criteria for the appointment of independent directors should be enforced to ensure objectivity and accountability in decision-making.
ii. Mandate regular training and certification programs for board members to improve their understanding of governance principles, financial oversight, and regulatory requirements.
iii. Structured platforms that promote shareholder participation in governance matters should be developed. Also, there should be mechanisms to balance the influence of majority shareholders with the interest of minority shareholders, thereby fostering equity in the decision-making process.
iv. There should be introduction of periodic governance audits conducted by external experts to evaluate compliance with codes of corporate governance and identify areas where improvement is needed.
v. Banks must establish robust risk management frameworks that include clear protocols for identifying, assessing, and mitigating governance-related risks.
vi. There should be the adoption of governance-focused technology solutions, such as board management software, to streamline decision-making processes and improve record-keeping.
b. Suggestions for Enhancing the CBN’s Capacity to Mediate
i. A specialized mediation unit within the CBN should be created which will be tasked with mediating boardroom disputes. This said unit will be staffed by experts in corporate law, financial management, and governance.
ii. A standardized mediation protocol should be developed to ensure consistency and transparency in handling disputes.
iii. There should be regular training programs organized for CBN officials with the aim of enhancing their dispute resolution, negotiation, and governance oversight skillset.
iv. Implementation of advanced monitoring tools to detect early signs of governance issues, such as frequent board resignations, governance issues, or shareholder grievances.
v. Foster stronger partnerships with industry stakeholders, including banking associations. This will help promote collective responsibility in governance.
vi. It should be ensured that the CBN’s interventions are accompanied by clear and timely communication with stakeholders, with a clear divulgence of the reasons, processes, and expected outcomes.
E. CONCLUSION
A key component of preserving stability and building confidence in the Nigerian banking industry is the Central Bank of Nigeria’s (CBN) role in mediating boardroom conflicts. Although difficult, the CBN’s actions have been essential in protecting the financial system, strengthening corporate governance, and regaining the trust of the public and investors, as this article has abundantly shown.
Collaboration among the CBN, banks, and stakeholders is critical to ensuring the sector’s long-term growth and sustainability. A collaborative strategy reduces the likelihood of governance failures while promoting accountability, transparency, and innovation. The CBN and the industry can work together to create a strong banking environment that strikes a balance between operational autonomy and regulatory scrutiny by adopting proactive engagement, utilizing cutting-edge monitoring tools, and institutionalizing governance best practices.
Nigeria’s banking sector will continue to be a crucial pillar of the economy thanks to the long-lasting partnership between the CBN and stakeholders, which will continue to be a beacon of stability and progress as the industry develops. The lessons learnt from previous interventions and ongoing reforms highlight a clear path forward: a commitment to sound governance, adherence to regulatory frameworks, and a united effort to address challenges as they arise.
