CBN Releases New Code of Corporate Governance

A new code of corporate governance and whistle-blowing guidelines for Deposit Money Banks and Discount houses was released by the Central Bank of Nigeria on Tuesday, May 20, 2014.

The code of corporate governance which would be effective from October 1, 2014, prohibits governments from investing more than 10% stake in any bank. It also prohibits investors from owning more than five stakes in any bank without prior approval from the CBN.

‘’An equity holding of 5% and above by any investor shall be subject to the CBN’s prior approval. Where shares are acquired through the capital market, the bank shall apply for a no objection letter from the CBN immediately after the acquisition. In order to discourage government(s) from having shareholding in banks, government(s) direct and indirect equity holding in any bank shall be limited to 10%’’ says CBN.

Also included in the code of corporate governance is the instruction from CBN for banks to reveal the salary package of their board members in their annual report.

The high-profile scandal involving abuse of corporate power as well as some of the criminal activities by corporate officers has increased the attention given to corporate governance, says the CBN.

The CBN also stated that it was necessary to update the code of corporate governance in order to align it with contemporary developments and international best practices.

‘’Disclosure in the annual report shall include, but not limited to, material information on major items that have been estimated in accordance with applicable accounting and auditing standards; rationale for all materials estimates; details on directors; the bank’s remuneration policy for members of the board and executive; total Non-EDs’ remuneration, including fees and allowances’’ says CBN.

In the new code of corporate governance, banks are also instructed to formulate whistle-blowing policy and it must be made known to employees and stakeholders. Banks are also directed to give quarterly reports on compliance with regards to whistle-blowing policies.
During the banking sector crisis of 2009, poor corporate governance practices in banks led to the removal of five chief executive officers of some banks, recalled the Central Bank.

The code of corporate governance which was posted on the CBN’S website also stated that ‘’ Banks shall have a whistle-blowing policy made known to employees and other stakeholders. The policy shall contain mechanism, including assurance of confidentiality that encourages all stakeholders to report any unethical activity to the bank and/or the CBN’’.

The last code of corporate governance was issued in March, 2006 shortly after the banking sector consolidation of 2005.