sec, udo udoma & corporate governance - fact file 1802

8/14/2019 SEC, Udo Udoma & Corporate Governance - Fact File 1802

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SEC,UDO UDOMA &CORPORATEGOVERNANCE

The Fact Files:

The case for executing a higher standard of Corporate Governance in the NigerianCapital Market.

.taking a defining stand in the pursuit of a more focused attention toInvestor Protection and Advocacy; and the merit of Persistence in thePursuit of a Paradigm Shift in our regulatory environment post 14/08.

ISSN 1597 - 8842 Vol. 1 No. 26

www.proshareng.com

February 18, 2010, Lagos, Nigeria


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SEC, Udo Udoma & The Corporate Governance Challenge Fact File 2010

ISSN 1597 - 8842 Vol. 1 No. 26 www.proshareng.com 2

Regulators, Reporting and ResolutionsJanuary 06, 2010; 0558 hrs, Omole, Lagos, Nigeria

There are very few men and they are the exceptions who are able tothink and feel beyond the present moment" - Carl von Clausewitz, 1780-1831

The New Year started on a rather negative note for the country and the financialservices sector regrettably. Just as we were coming to terms and preparingourselves for the Mutallab effect, the screaming headlines was all about last yearsevents in and about the banking sector a well worn news cycle that does nothingmore than irritate the senses.

The epistle of negativity went one notch up with recycled facts nothing toinspire hope and expectation thus forcing us at Proshare to take a decision, nayresolution, on how we will approach the subject of negative news in the jubileeyear as part of the market recovery strategy.

Balancing facts, fiction and outright negativity should not be such a difficult or

delicate task. It has to do with motives and ethics. For us therefore, it was aneasy decision. We had resolved not to fall into the news cycle trap by refrainingfrom going along with the FSF rule Frauds, Scandals and financial mishaps news cycles that appeal to the human nature but leaves it unable to moveforward; drowned in a an air of fear, suspicion and hopelessness.

Our resolve this year is to focus on developmental issues and an articulation ofthe way out of the quagmire we dug for ourselves. It is not about blames but acritical affront on the logic that those in leadership are always right. Well, theyare not and they continue to re-enforce this notion with the conduct thus far.

Yet, we remain respectful to constituted authority and systems with an eye on

providing the feedback needed for their review. This we hope to do throughformal channels and not necessarily on the web; where we have the opportunityto do so. Today offers us an opportunity to define that agenda and approach.

CBN and Mass Sack in Banks Myths and Realities

It's probably a serious reporting error that has been committed here by all newsmedia (including this site) on the reporting of the memo from the CBN on thereduction in staff costs and other matters.

We however take solace in our position as espoused in The Nightmare before

Christmas Blog post (http://proshareng.com/blog/?p=112) where we stated that for the entire furore about the sack of bank workers, and for all the headlinegrabbing threat about what such an action will create; it has now becomeapparent to the market that not taking these actions represents a much biggerthreat to banks and bankers. The evidence just does not support a retentionof the status-quo; period.

Yet, the press release yesterday from the CBN Head of Corporate Affairs (note not communications) does not extend this argument but raises issues requiringfurther clarification.

The press release stated that The Central Bank of Nigeria has noted withdismay, several untrue reports in the media alleging that the Central Bank ofNigeria ordered the mass sack of Deposit Money Banks staff and rationalizationof their branches. We wish to reiterate categorically that the Central Bank ofNigeria has never directed commercial banks to sack staff or rationalize


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branches as reported. Banks are private enterprises and the decision to engageor disengage staff is best left to the management and boards of theinstitution. These decisions are taken on the basis of business imperatives.

On the face of it, this looks like a strongly worded statement but it only reveals alack of understanding of the communications imperative needed during a changemanagement program as the CBN has embarked upon; one that should showempathy and resolution rather than authority and power.

M.M. Abdullahi appears to mean well in his actions but he needs to take a leaffrom global examples on how to handle a difficult subject such as he sought to do his role goes beyond issuing rebuttals and must actually be involved in sellingthe facts and raison detre. This he can do by providing clarity to the market anddefending the actions of the banks under its supervision for taking an inevitablecourse of action arising from the consequence of regulation.

Let us state the facts as known before attempting to deconstruct the statementsmade above by the CBN.

According to sources, the CBN had written a memo to Intercontinental Bank Plc inOctober 2009 based on the review of returns and commentaries received on thebanks operations, through the supervisory officer on the need for the bank to dosomething about its huge outflows in the light of its realities. For all intent, thismay or may not have had to pass through the CBN leadership as it ought to be aroutine response to a single bank (though the language suggested a plural focus).

This memo, for some reason, found its way into the media who reported it onFriday November 27, 2009 thus A memo from the CBN to the banks lastmonth, obtained by our correspondent on Thursday, said the banksshould immediately submit action plans for branch and staffrationalisation in order to utilise some hidden economies of scale in

their operations. This is not the only directive contained in thepublication; The CBN also directed them (the banks) to comply with itsdirective in the special examination report by increasing total provisionfor loans and other known losses by the end of September 2009 and

publish the full result not later than October 31. Punchhttp://www.proshareng.com/news/singleNews.php?id=8107

Interestingly, it was M.M. Abdullahi that had done the right thing to immediatelymove to douse the linkage of such an action to the CBN, albeit; without providinga response to the alleged memo. This was reported in the Compass newspaper(http://www.compassnews.net/Ng/index.php?option=com_content&view=article&id=35678:banking-sector-crisis-the-purge-begins&catid=113:money-

market&Itemid=711) thus Though the apex bank argued that it did not ask thebanks to retrench their staff, it did not state what should constitute theoperational costs to be cut. According to CBN spokesman, Mr. Muhammed

Abdullahi, CBN will not dabble into the running any bank. The issue of the staff isa management issue and it is the duty o the managements of the banks to knowwhat formed the unnecessary expenses they are incurring that make their

operational costs go up. They are the one that determine what forms theiroperational costs. The expenses such as the private jets and keeping andtravelling with retinue of aides should be scaled down, not totally eradicated.These are type of operational costs that the CBN is asking them to cut. Such

funds, could be channelled to the growth o the banks as well as the economy as awhole. The banks will have enough funds to lend to the private sector of the

economy, especially the manufacturing sector that can develop the nationseconomy.

The key issues therefore are, and relating this to the press release yesterday:


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1. The CBN did not and should not be blamed for the actions taken by the banksas it was an inevitable response to the situation the management of this banksfound itself;2. The action to shed off staff and other costs by the banks was an across theboard response by most of the banks (cleared and the Lamido Eight) and was nottherefore an indicator of a peculiar situation but a response to a glaring reality onsustainability of operations;3. The CBN however, as the supervisory authority over this banks, and theinstitution overseeing the management of this banks cannot claim that it was notaware of such a decision before it was taken and should in fact defend the actionsof the banks for what it was without any responsibility (perhaps only as aconsequence of the on-the-ground realities the banks were confronted with);4. The mass purge was regrettable but inevitability.

The CBN Governor understood these feelings when he stated that Let me make afew clarifications, the Central Bank did not direct banks to sack workers, theallegation is false. Banks are private companies; they take their decisions onengagement and disengagement of workers based on businessimperatives. If a bank has built up a high cost base because it thought it was

making money, then it discovers that it is not making as much money as itthought it was making because the loans are bad, it has to reduce its cost base.Now those banks took those steps themselves, some of those banks dealt withtheir unions and got their signatures and signed as appropriately, I am awarethat others are still engaging the unions. I do not think it is the place of theregulator or the government to tell the private sector banker how manystaff it requires. A bank like Oceanic Bank was spending about N4 billion amonth on salaries; Intercontinental Bank was spending over N4 billion a monthon salaries. There are non-performing loans, the banks are paying huge interestson Inter-Bank Lines, paying interests on depositors funds and they have costs ofrunning their branches. They have to survive.

If anyone is in doubt, a request for a copy of the memo from CBN would suffice.

However, and for the avoidance of doubt, the CBN did not formally ask the banksto lay off workers it was an inevitable response to the realities they faced. Thememo might not have been worded properly but the obvious action was apparentas with any other business faced with the same issues.

Let us therefore put this matter to rest once and for all and move on to otherserious issues beyond the cycle of controversies and negative reporting.

We can start by evaluating the MPC decisions and its implications on the marketand individuals; take a serious look at the AMC issue, review and question the

CBN on its plans to sell the banks at some point; assess the success of thetransformation plans of the banks new managements and not lose focus on theexisting banks and goings-on in respect of credits to the businesses, resolution ofthe letters of credit position, and other matters that indicate hope rather thandespair.

The New Year must be approached from a very different engagement point andwe intend to seriously focus on that in our due-to-be-released NCM 2010 report.

Lance Elakamah continues serving as the ADG

The news of the imminent disengagement of Musa lance Elakamah, the AssistantDirector General of the Nigerian Stock Exchange made the rounds in the secondhalf of 2009 just as the NSE was gearing up to introduce its new directorates andthe plans for a post-Ndi Okereke NSE in 2010.


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The thinking then was that the NSE would proceed with its demutualization plans,first mooted by the Abdul Razaq-led NSE in 2002 and efforts were made toprepare the grounds for this. In pursuing that objective, reservations abouttiming aside, the NSE made a couple of management changes meant to positionit to transit from an SRO to a plc; leading to staff exits and movements and anon-going staff audit of its operational personnel.

The planned exit of the ADG was the highlight of the changes which would haveleft the NSE operating on a different outlook, even as concerns were raised in themarket as to the merit of asking the obviously qualified Elakamah to proceed onretirement before his retirement age two years away. We observed that theADG is still in office and unconfirmed sources indicate that the NSE has extendedhis tenure for or/and up to the time certain issues are resolved.

What we find curious in this development is the non-communication of this withthe market. The news media has not picked on this curiously and this begs thequestion what could be a bigger news coming from the NSE in the early days ofthe year than this obvious shift from expectation. For the avoidance of doubt, we

welcome the retention of the ADG principally because we believe that the NSEneeds some stability at this time while it resolves the plans for the significantchanges that are to come.

It is hoped that this issue and others related to the demutualization of the NSE,dematerialisation project by the CSCS and the change in ownership of the CSCS,the plans for the recovery of the market, the private placement program beingundertaken by the NSE, our role and plans for the ASEA presidency, thesuccession program in place for the NSE and the general deliverables of thecouncil and management of the NSE in 2010 will be addressed by the DG, NSE atits planned New Year briefing scheduled for tomorrow.

Further, it would be nice if the NSE can comment on the implications of the dualchairmanship of the SEC and UACN plc by Senator Udo Udoma. The internalcohesion of the exchange and the resolution of its leadership issues areconsidered critical to our recovery plans in 2010.

UACN Names Udo Udoma, SEC Chairman as its Board Chairman

Thisday Newspapers Davidson Iriekpen reported this story in todays edition anda cursory look at the news revealed that at no point was reference made to thefact that the seasoned lawyer and administrator, Senator Udoma Udo Udomaserved or remains the CHAIRMAN of the SECURITIES & EXCHANGE COMMISSION.

According to the reports, Senator Udoma Udo Udoma assumed the office of thechairman of the Board of Directors of UAC of Nigeria Plc on January 2, replacingLt. Gen. Mohammed Inuwa Wushishi (rtd), who retired from office on January 1having attained the age of 70.

The countrys largest conglomerate also announced the elevation of ManagingDirectors of two of its subsidiaries Abdul Akhor Bello of UACN PropertyDevelopment Company (UPDC) Plc and Joseph Ibrahim Dada of the GrandCereals and Oil Mills Limited (GCOML) to its Board as Executive Directors, whileformer Director-General of the Securities and Exchange Commission (SEC), Dr.Suleyman Abdu Ndanusa, comes on board as non-executive director.

In describing the profile of the new chairman, the news information convenientlyleft out the biggest office ever occupied by the respected senator, perhaps onaccount of the realisation that it appears curious for a man to be a chairman of


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the board of a company and also retains the chairmanship of the regulatory bodysupervising its conduct.

Recall that we raised the need for the office of the Chairman of SEC to beunfettered and unencumbered from any relationship that would tie it to any of thecompanies he is expected to regulate upon on page 59, 62 and 63 of the report

The BULL in The CHINA SHOP http://www.proshareng.com/reports/view.php?id=2016.

In that review, we stated that the chairman ought to have recognised that hiscurrent directorship of UACN Plc raises serious issues that could compromise theperception of impartiality. It is simply not right and there must be a cogentexplanation for this, giving what we know of the man and his pedigree. We do nothave any case of wrongdoing alleged against the Chairman but we believe thatthe elimination of the room for unregulated relationships is critical to anyperception of integrity or the ability of the regulator to take actions without fearor favour of powerful forces that loom large over the SEC. It must be noted thatSEC has operated under excruciating circumstance that have seemingly drownedout the considerable amount of good work done.

Is this therefore a step forward or backwards for the organisation? The answer tothis lies in the decision/reaction expected from the Governing Board of theSecurities and Exchange Commission on this announcement by UACN Plc. This isa direct conflict of interest/role issue we must address.

The New Year Resolution

Events in the last few months leading up to the new year have raised the ante onthe question who guards the guardian(s)?

Even though the tiny glimmer of recovery expected appears dimmer at the start

of the year, we remain hopeful that a confluence of events will create amomentum that should help us stop the bleeding and provide a platform to buildupon. Yet, until we stop running the economy through the media; agree aconsensus-led intervention by the regulatory agencies and operators, we feel thisexpectation may be a rogue illusion, since it is skewed by a slightly odd bounce inthe heightened political risk now associated with the country.

My take on what's happening goes like this: the political risk we have broughtupon ourselves is needless and creates a gap in the execution of developmentalpolicies and stable management of the economy, the general living conditions ofthe people are worsening and the confidence levels continue to wane both locallyand internationally, businesses are choosing to save rather than spend; banks are

refusing or unable to provide new finance to businesses: and the very weakestbanks and businesses are being kept on life support the consequence of whichdoes not suggest we have a financial-economic tie-in on the recovery plans.

I would like to be wrong on this point. It would benefit the economy if I am.

My plea is that the news media can and should play a role by stopping the cycleof negativity from all sectors through a conscious acknowledgement of the effectit is having on our lives and psyche. Making the institutions more accountableshould be the focus in 2010 - our year of the jubilee. We can do better than bringout the dirty linens in the public. Happy New Year!

Olufemi Awoyemi, FCAMD/CEO Proshare Nigeria Limited


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Udo Udoma & SEC Legality, Perceptions and SacrificeJanuary 12, 2010; 0627 hrs, Omole, Lagos, Nigeria

A man does what he must.. in spite of personal consequences, in spiteof obstacles and dangers, and pressures.. and that is the basis of allhuman morality. - John F. Kennedy

Often, we find ourselves in a situation where factors, other than logic influencethe decisions we take, and this grey area of human decision making can goeither way often if it works out well, one is praised and celebrated, but like inmost life situations, when it turns out otherwise, we are left to rue thealternatives open to us which we ignored/rejected at the time of making such adecision.

I have found this to be true and I face one here as I seek to draw the marketsattention to why it is hugely important to dimension the issues arising from the

conflicting status of holding the responsibility of a director of a quoted companyand serving as the chairman of the Securities and Exchange Commission (SEC)

a position in which the revered Senator Udo Udoma finds himself.

Senator Udo Udoma, Chairman of SEC, Nigeria, is a well accomplished man whomI, like so many others, hold in esteem. I have met the Senator and know anumber of people who have had dealings with him in the past; the generalconsensus is that he is quite straight forward and principled, one of the bestprofessionals around in terms of integrity and discipline he represents a forcefor good. That is not surprising giving the antecedents that precede him andindeed the family tradition of excellence and ethical public service.

For all this and more, I find myself in a situation where the press release by UACNPlc published in most national newspapers on January 06, 2010 and his follow up

clarification of January 11, 2010 in the BusinessDay newspaper (reproduced -http://www.proshareng.com/news/singleNews.php?id=8671 presented me withquite a difficult challenge, one I am unable to ignore.

This development and the questions it raised, continued to agitate my mind as Imade to review relevant literature on the subject of his compliance with theprovisions of s11 of the ISA 1999, vis--vis the obvious corporate governanceimperatives required in a clime like ours, given our history of subservientstewardship, public perception defined by our recent history of an incestuousrelationship-biased regulatory environment, and the steps needed to restoreconfidence in the financial market system, nay the capital market.

These considerations proved quite unsettling when juxtaposed against theSenators well-intentioned interview/response which sought to address theconcerns raised in our January 06, 2010 blog post Regulators, Reporting andResolutions (http://proshareng.com/blog/?p=121) where we highlighted whatappears to be the existence or implied infusion of a real or perceived conflict ofinterest situation.

The import of this article/presentation therefore is to articulate the salient pointsto guide an understanding of why a decision is needed in respect of the dualpositions, one that separates the two as a matter of precedence and necessaryestablishment of corporate governance rules.

When it comes to how the Senator should choose or behave on this matter,sovereignty over decision-making does not rest with citizens capital marketstakeholders and independent analysts like me; they rarely do. It will be one in


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which the Senator will have to make in the best interest of the market asacrifice or sentence?

The Original SinThe corporate communications unit of UACN Plc did a good job in making surethat the media gave the announcement of Senator Udo Udoma an extensivecoverage.

The job was so good we could not have failed to read all the reports where wenoticed a consistent omission across the board - the senators chairmanship ofSEC had been conspicuously left out of the newspaper reports. A cursory checkrevealed that the omission was from the press release.

One is left, therefore, to infer from this that those at UACN Plc knew or hadreasons to be concerned about the possible implications of such a disclosure totake the measured step of excluding such a high profile post from the chairmansprofile.

In our previous publication on the possible conflict of interest situation in the

SEC Chairmans office placed us on enquiry and prompted an immediate alert onthe issue (see The BULL in The CHINA SHOP pages 62 to 65, August 22,2009; http://www.proshareng.com/reports/view.php?id=2016). In this report wehad laid out issues we felt ought to be considered with regards to the Chairmansoffice at the time, viz:

1. The need to expunge the recommendation for the post of an executiveChairman for SEC from the Adedotun Sulaiman led Committee on theCapital Market Reforms;

2. The conflicting status apparent in the office of the SEC chairman who wasa director in UACN Plc at the time (subsequently he has confirmed that heis equally a Director at Unilever PlcandVice Chairman of the boardof Linkage Assurance Plc) all quoted firms listed on the floors of the

Nigerian Stock Exchange; and3. The irrelevance of the belated query of August 19, 2009 from SEC to the

DG of the NSE over the Transcorp Plc debt issue which they got wrongboth in context and timing.

The issues therefore was how to determine the possible areas of the anticipatedconflict of interest scenarios and what if any, could make the declaration ofinterest as done by the SEC Chairman (in compliance with the disclosure rulesand proper code of conduct best practice for boards) irrelevant because of otherfactors that affect the accomplishment of the objectives of the governmentagency SEC.

A review of this possible scenarios and live cases in our recent past helped usreach a position: the general consensus was that this was a bad precedence andone that we needed to think in terms of institution building to resolve.

The fact must be stated though that we found nothing to suggest that SenatorUdo Udoma had anything to do with the management of information by UACNPlc; it however raises the question of just how the dual positions begin to createand establish a pattern of behaviour that goes to the very heart of the concerns.

Legality and the Capital Market Reforms

A visit to the United States Securities & Exchange Commission will find you face-to-face with a very large, framed quote prominently displayed outside the

Chairman's Office. It's a 1937 quote from a former Chairman (and later SupremeCourt Justice) William O. Douglas and it is headlined - "We are the investor'sadvocate."


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World over, the SEC (and varying forms of it) remains the only federalgovernment agency dedicated to looking out for investors. The role of thisinstitution has over the years become more pronounced for its failings rather thanits successes. When things go on well enough, we take it for granted. Whenmarkets go into a tailspin as we have it, the role of SEC as the investors advocatecomes into question.

Indeed, there has been no time in history that investors have been more in needof an advocate than today. Such an advocate therefore must not just bescrupulously clean, but be seen to be indeed independent and devoid of any realor perceived doubts on his/her standing.

Nigerians have risen up and humiliated their political class over its handling of thefinancial crisis, and particularly of the level of impairment evident in theregulators ability to rise above the numerous incestuous relationships theycluttered themselves with (one in which Sanusi Lamido Sanusi, the Central Bankof Nigeria governor alluded to and which encouraged him to take steps toseparate himself from ownership/directorship situations that could present a realor perceived conflicting status for him in the discharge of his function).

Having said that, Nigerians have come to accept and see nothing terribly unusualabout their sense of powerlessness and alienation from the responsibilityimperative of regulators, which it has been proven brought us to this rot.

Moving on from here would require more than compliance with existing rules itrequires setting new standards beyond rules to help us untangle roles andrelationships.

Senator Udo Udoma is correct in his submission that Section 11 of theInvestment and Security Act (ISA) requires members of the board of SEC, wholargely hold down part-time roles, and who have direct and indirect interest in the

affairs of any quoted companies, to declare such interest and to excusethemselves when the board is deliberating on matters affecting such companies. Idisclosed all my interests before I was appointed as chairman of SEC and askedthe authorities if this posed a problem and they said no.

By way of background, Senator Udo Udoma had been on the board of UACN for10 years before he was approached to chair the SEC. He has also explained thatsince becoming chairman of SEC, he has turned down invitations to the board ofmany publicly quoted companies.

This is good but not sufficient to resolve the larger issue facing the sovereign andwe will explore this in greater detail.

Conflict of Interest Laying out the Arguments

Conflict of interest is difficult to define, yet it often appears obvious to manypeople who think they know it when they see it. If ever there is an issue thatcaptures this sentiment, this one scenario with the Senator does.

The legal definition of conflict of interest, usually set out in state laws governingnon-profit corporations, is very specific and covers relatively few situations. Mostconflicts fall into a grey area where ethics and public perception are morerelevant than statutes or precedents.

For our purpose, conflict of interest will be placed in the background to raise themuch informed argument about the conflict of roles (explained in detail later inthe article) which arises whenever the personal or professional responsibilities of


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a quoted company board member are or appear to be potentially at odds withthe best interests and objectives of the Securities and Exchange Commission.

We looked at such possible areas of conflict (in roles/interest) and narrowed itdown to the following cultural issues, viz:

CONFLICT BY ASSOCIATION: The SEC Chairman is not involved in day-to-day enforcement and oversight issues and need not be present or involved indisciplinary review sessions but the mere fact the those who are in chargeare aware of his involvement in those firms where he has declared interest,places them in a difficult position. Experience has shown that when placed insuch positions, the tendency is to be influenced by that consideration inarriving at a conclusion.CONFLICT ARISING FROM RELATIONSHIP WITH BOARD MEMBERS:The likelihood of possible issues in business, commerce and politics, fromeither the SEC board or any of the companies for which the Chairman isserving as a director, may impact on perception of his role, person andindeed the SEC as an institution, even if the matter does not come to theboard of SEC for discussions. The public and individuals involved will bring

into the equation his elevated position as the SEC Chairman.CONFLICT ARISING FROM PROFESSIONAL RESPONSIBILITY: ShouldUACN, Unilever or Linkage Assurance Plc be involved in a Cadbury Plc typesituation, or on matters related to the (mis)conduct of one or several officersof the company, the SEC chairman becomes vulnerable to legal challengesand public misunderstanding.CONFLICT ARISING FROM PRECEDENCE: SEC has had its fair share ofcriticism ranging from the role of NSE and CBN in its affairs up till andincluding the tenure of Senator Udo Udoma, and this continues and does notlook to abate any time soon giving what transpired during the confirmationhearings for Ms. Aruma Oteh, where a goodwill deficit perception defines themarket. Under this scenario, recovery will be relative to the risk identified or

involved.

The Public PerceptionImportantly, and in an ideal world, Senator Udo Udoma should not have anyeyebrows raised concerning this responsibility. This however is Nigeria wherescepticism and distrust of constituted authority and government agencies isheightened by glimpses of possible conflicting circumstances which continues towiden the gap in public confidence in the regulators, and by extension themarket.

The loss of public confidence is not strengthened simply by the honourable act ofdeclaring ones interests upfront, as required by law.

This is necessary but not sufficient under this circumstance. Stakeholders in themarket will see the evidence ofmultiple interests in these dual positions asone of which could possibly corrupt the motivation for an act in the other, mainlythrough a perception it does not have to be real.

This has much more credence given the powers available to the office of theChairman, SEC the investors advocate. The SEC chairman is thus entrustedwith some impartiality for which a modicum of unencumbered relationships isessential.

Just as the esteemed SEC Chairman explained in his clarification comment, the

existence of or the possibility of such scenarios of a conflict of interest/rolecircumstance may not, in and of itself, be evidence of wrongdoing.


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In fact, for many professionals, it is virtually impossible to avoid having conflictsof interest from time to time. A conflict of interest can, however, become anethical matter, for example when looked at as a conflict of role. I would assumethat the legal ramifications of this would provide sufficient grounds for action andredress.

Indeed, and with all apologies for any insinuation made in our earlier post, it is soeasy to accuse anyone ofa conflict of interest in this country even wherehe/she has not acted improperly. That is unfortunate but remains a recurringattribute of our make-up the burden public officers have to carry.

On this matter however and based on the scenarios created above, we believethat we can easily establish a "conflict of roles" situation, i.e. where a personwith two rolesan individual who owns stock and is also a government official;may experience situations where those two roles conflict.

The conflict can be mitigated but it does not ignore the existence. This isthe litmus test for any argument on this matter.

I cannot re-iterate enough the need to distinguish between simply having tworoles at a time which is not illegal and having to recognise the differing rolesthat will certainly provide an incentive for improper acts in some circumstances.This is what the public will and have often used as a yardstick to determine aconflicting status.

The SacrificeOfficers of SEC surely understand sacrifice. The business of being the peoplesadvocate, requires a willingness to subjugate, at least temporarily, their ownpriorities, beliefs, and comforts to those of another (the objective of theorganisation creating a credible marketplace for all stakeholders).

Today, that willingness is being put to test, and a demand made for anunprecedented step one not driven through any measure of force or coercion.

In nearly every capital market, especially ours, heightened challenges in theregulatory environment have tipped the balance of power towards a commitmentto investors needs, and the regulators need to understand its time to surrendermore of their time and ego.

ConclusionThe natural approach would have been to insist on the notion that persistence willovercome resistance on matters such as this; believing that the force of theargument or platforms deployed will compel action. This is an uninformed

approach which is not required and considered unconstructive.

We believe that Senator Udo Udoma is a qualified, competent and reasonableindividual to hold any of the positions described on either side of the aisle; andpossesses a superior insight into the issues raised above to inform a decision thatwould shape/address our submissions. We, like others, are prepared to learn fromthe choice/decision made.

While we are waiting on this, I might as well bring to your attention the growingdisquiet about stock market analysts' growing conflict of interest situations theroles and prominence of equity analysts (especially during the boom period) whomake buy and sell recommendations on company stocks which they trade on; as

well as investment bankers, who help provide companies loans or handle privateplacements and public offers (including mergers and acquisitions), whosedischarge of responsibilities create opportunities for conflicts of interests androles.


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These are issues which we expect an untangled SEC Chairman to be able to dealwith and help accelerate the rate of recovery of our markets by tackling head-onthe negative perception and low level of confidence in the government institution.

The legality of this office does not and should not override the larger interest ofthe sovereign even if it does not create a de facto conflict of interest situationbut has the appearance of a conflict of roles situation.

Whichever decision Senator Udo Udoma takes here should not impair my regardand esteem for him even as I recognise the enormity of what is before him yethe must know that we place no burden upon him on this matter - Legacy shallspeak!

Olufemi Awoyemi, FCAMD/CEO Proshare Nigeria [email protected]

Profile: Senator Udoma Udo Udoma

Mr. Udoma attended St. Catherines College, Oxford University, where he obtained aBachelors of Arts Degree (Jurisprudence) in 1976, a Bachelor of Civil Laws Degree (Law) in1977 and a Master of Arts (Honoris Causa) in 1981.

He attended the Nigerian Law School and was called to the Nigerian Bar in 1978 as aBarrister and solicitor of the Supreme Court of Nigeria. He was a two-time member of theNigerian Senate from 1999 to 2003.

Mr. Udoma had his working experience in the under listed places to mention but a few:-Lecturer in Law University of LagosInvestment Analyst Chase Merchant BankConsultant to the Nigerian Liquefied Natural Gas(LNG) ProjectFounding Partner Udo Udoma & Belo Osagie (Barristers & Solicitors)Appointed a member of the team set up in 1984 by The Nigerian Government toimplement the LNG Project.Consultant Retained on a part time basis as a consultant by Sherman and sterling.Member of the team set up by The Federal Government to carry out a review of theLegal Aspects of the Nigerian Privatisation and commercialization Programme in 1991.Member of the committee set up by the Federal Government to review existing policyon Solid minerals in 1996.Appointed Member of the Vision 2010 Committee that was set up the Federal

Government in 1996 to articulate a national vision.Member, Nigeria Economic Summit Group.Member, National Senate, Federal Republic of Nigeria 1999 2007.Chairman of the Senate Appropriations Committee, 2001 -2003.Chairman of the Senate Committee n National Planning.Chairman, Revenue Mobilisation and Poverty Alleviation, 2003-2005.Appointed Chief Whip of the Nigerian Senate, 2005-2007.Chairman, Securities & Exchange Commission, 2007 to date.

Mr. Udoma has attended and presented several Papers at local and international seminarsand workshops including papers on:

Nigerian trade and investment LawsThe Legal Aspects of Privatisation and commercializationThe Juridical Aspects of Private Sale and public Offering

Winding up and striking off of Companies: Problems of Implementation.Incentives for Gas Projects in Nigeria


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He specializes in advising on Nigerian investment laws and the investment environmentgenerally, particularly in the petroleum, energy and natural resources sectors; advisingNigerian and international companies on company law, corporate restructuring, mergersand acquisitions and the raising of financing in the capital and money markets, as well ason major construction and engineering contracts; supervising commercial litigation andinheritance planning services.

He is a member of The Nigerian Bar Association and International Bar Association.


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STREET TALKING:

Surf boards: Riding public and private sector waves

Obiora Onyeaso

January 21, 2010 11:22PMT

http://234next.com/csp/cms/sites/Next/Money/Business/5514861-183/story.csp?CSPCHD=00000001000044towksc000000pKlHt_3__waBIolfK7APiQ--

I have just finished reading a stimulating piece by Femi Awoyemi of ProShare on

the potential conflicts of interest that Senator Udo Udoma, the City grandee and

chairman of the Securities and Exchange Commission (SEC), will be exposed to in

his latest appointment as the chairman of UAC.

To calm public concerns over any ethical risks he may run, Senator Udoma, who

also sits on the boards of Nestl and Linkage Assurance, has issued a staunch

defence on the correctness of his appointment. The last time this subject

provoked a passionate debate was over the appointment of Professor Ndi

Okereke-Onyiuke, director-general of the Nigerian Stock Exchange, as chairman

of Transnational Corporation.

The topic of bipolar commitments by board members is one that should concern

companies. The full stature of a director with alternate roles, in the public and

private sectors, cannot be attained through a technical loophole in the statutes.Until now, the leading voices in the debate have been public interest advocates

who seek to ensure that the private interests of company directors who also

occupy positions of public or regulatory responsibility do not receive undue favour

nor interfere in the dispatch of their duties. In contrast, little is heard from the

company and shareholder perspective on the limits of partisan commentary and

regulatory participation by directors. It is high time public companies addressed

the high profile external interests of non-executive directors.

Directors, as prominent private citizens, wear several hats. The riddle lies in

disentangling their various civic and business identities from one another sinceactions taken in one sphere may reverberate in others. Meleveeti Damodaran, the

widely-respected former chairman of the Securities and Exchange Board of India

(SEBI), is one of those who feel that business leaders should not be inert to their

political environment. According to him, "the complete alienation of corporate

India from the political system has been unfavourable to either parties and going

forward corporate India should substantially augment its role in the Indian

political system." If the devil is in the details, then the demon is in telling political

involvement apart from interference.

Threats to government business

Only last week, Atedo Peterside, chairman of Stanbic IBTC and director on the

boards of Cadbury (Nigeria), Nigeria Breweries and Unilever, published an open


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letter to the Federal Executive Council (FEC) with recommendations for resolving

the logjam that has threatened government business since the departure of

President Yar'Adua for medical treatment in Saudi Arabia, (Open Letter to the

Federal Executive Council: How to Resolve this Political Impasse by Atedo

Peterside').

In the letter, the author who did not state under which identity his comments

were made was careful to absolve public officials of his acquaintance from any

foreknowledge. Remarkably, he did not dissociate fellow board members of the

public companies on whose boards he sits from its prior knowledge, neither did

he state explicitly that the views expressed do not represent those of the boards

on which he sits.

Atedo Peterside, who has a reputation for standing up for his principles when he

believes government policy is ill conceived or plain hazardous, was one of the few

senior bankers who had the courage to go public with dissenting opinion after the

Central Bank of Nigeria announced its N25 billion capitalisation agenda in 2004.At that time, he expressly wrote in his capacity as the chief executive of an

institution of interest.

Political pronouncement

When a personality of Peterside's eminence makes pronouncements of

unmistakably political colour, it brings to sharp relief, several questions over the

limits of expression on politically sensitive issues by public company directors.

Some may argue that Peterside's letter was timely, relevant and motivated by

noble patriotic sentiments. No quarrel there. But that would be missing the point.

The point is not the content or intention but the character of such

pronouncements, which are unambiguously political, by a public company

director. The issue properly shaped is not about whether a board director should

have political interests or lend support to political campaigns but how vocal he

can be in the proclamation of such inclinations.

If we accept Atedo Peterside's letter as being in order, then we must be equally

embracing the one from Oba Otudeko of First Bank, to the Independent National

Electoral Commission (INEC) on the primaries selection process in Ogun State,

and just as receptive to a missive from Aliko Dangote of the Dangote Group tothe Kano State chapter of the Peoples Democratic Party (PDP), campaigning for a

candidate as the party's gubernatorial flag-bearer.

Sooner or later, Nigerian companies must deal squarely with this subject.

Governance codes cannot remain silent on the activities of board members who

wear both public and private sector hats. The liberty of individual discretion has

proven a weak restraint.

The writer is the managing director of a full service investor relations firm based in Lagos.

Dear reader. While we value your feedback we have to moderate them, so your comments would appear in a maximum of one hour.Please feel free to return and read through again after another user may have replied to what you have said.Please note that 234NEXT.com bears no responsibility for what readers post, and is not liable for any form of impersonation.

Reader Comments (2)


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Udo Udoma, SEC and the Perception GapFebruary 02, 2010; 2130 hrs, Omole, Lagos, Nigeria

We must not allow ourselves to become like the system we oppose. Bishop Desmond Tutu

There can be few less likely heroes for Corporate Nigerias progressive class thanSenator Udo Udoma, Chairman of the Securities & Exchange Commission (SEC);who as at today, has stayed a full month unfortunately as a conflictedpersonality in the unfolding dynamics reverberating in the Nigerian Financialsystem. He was a friend to all, a man with pedigree and an ally to count on inCorporate Nigeria and the general public.

Yet, he choose to risk all for the sake of an office that needed a higher set ofstandards than the laws available and the guidelines covering its operations couldhave anticipated in the light of the growing challenges the market is beset with.

He did this, perhaps believing in the force of good he represents and the loyaltyshown him through the silence of the grave approach adopted by the media andoperators; than in his otherwise sound and informed judgment on most issues;before now.

When we responded to the January 04, 2010 press release by UACN Plc andhighlighted the deliberate and obvious omission of his current status as the SECChairman in their announcement of his chairmanship of UACN; his response was

to further draw attention to the fact that he was not only the chairman of UACNPlc, a quoted company under his supervision as the Chairman of the apex capitalmarket regulatory body of the land; but a Vice Chairman of linkage Assurance Plcand a director of Unilever Plc.

In his defense of the decision, he affirmed that he has met the criteria fordisclosure set out by the ISA and indeed had held those positions before he tookoffice as the SEC Chairman. If he thought that addressed the central issue of theday; he was soon to be gob-smacked by the pronouncements from CBN, daysafter.

Furthermore, the conflicted status of the SEC Chairman thus immediately placed

the newly appointed SEC Director General in a perception spot how can sheexercise the independence required where such a glaring conflict of interestor/and roles exist at it highest echelons?

The Perception Gap Hypothesis

The perception gap occurs when we begin to dig a bit deeper to understandwhat's actually happening with the regulatory bodies hitherto expected to operateabove board and conflict. These enquiries lead us to an obvious conclusion therot we currently find ourselves was a man-made creation driven by our inabilityto separate personal estate from the public responsibility matrix that is so crucialto defining, establishing and discharging a level playing field.

A culture of incestuous relationships between regulators and operators has, overthe years conspired to define access and interpretation of the market rules. Thesehas led to so many unintended consequences including but not limited to:


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1. Perception of injustice, no reprimand and no sanction for erring defaulters forserious and often times, criminal acts in the market against investors;

2. A weak regulatory regime driven by the knowledge that principal officers areconflicted or that they are unwilling to act within the best ideals of thecommission where the issues affect politically advantaged individuals; and

3. A deliberately weakened supervisory and enforcement function either due to a sycophantic work culture or due to a punitive and vindictive managementculture.

Needless to say, and prior to now; the joke in the market was on SEC aninstitution with quality workers who are unable to discharge their professionalduties on account of political posturing, structural inadequacies arising frominterference from the supervising ministry and the ruling class; and an inability toclaim the high moral ground on matters related to disputes and conflicts betweenoperators and investors on the one hand, and between regulators and operatorson the other hand.

It is common knowledge that the issue between Femi Otedola and Aliko Dangote

remains largely unresolved, - yet the market chooses to move on to what? Dittothe AP Plc public offer underwriting issues a subject of a sustained media battlewithout any resolution to serve as guidance for the market or comfort forinvestors in the offer.

There are a few cases known in the market that has been passed to the EFCC forwhich a holistic solution has arisen and even though it has its own APC system;

justice can take years in a market for which TIMELINESS ought to be a minimumguiding principle delayed decisions cost the prosecuting parties (investors)more and SEC is often credited with saying that it is structurally unable to enforce

judgment it passes.

There are brokers that have made away with depositors funds, who simply closedoperations and months and years after, investors still run from one lawenforcement agency to the other because there is no one to aid them. Further,there are brokers sanctioned by SEC who still engage in activities in the sectorbecause there is no system to check and enforce these decisions.

This credibility gap predates the current Chairman of SEC it must be said thatstrides have been made under his leadership to set a clear path for thecommission; especially the review conducted and delivered on time. Much morewas even done during the tenure of Daisy Ekineh, who held it together during adifficult time.

Our share support service helping investors resolve issues that should be takenfor granted - is however constantly inundated with complaints from investors andthe public over matters that should receive the attention of SEC. For how longmust we pretend that all is well with the regulatory commission?

The expectation of a change arising from the appointment of an outsider hasbeen dealt a blow with the insistence of the SEC Chairman to retain his dual roleas a chairman and director of a public quoted company subject to his decision(excusing himself from such discussions) this robs the SEC of the value it wasmeant to deliver.

The CBN Directives on Bank CEOs as an Informal Code for Regulators

When the CBN on January 19, 2010 released it directives to banks in respect ofthe tenure of CEOs and the qualification for appointment of ex-CBN and ex-NDICofficials into the boards of these publicly listed banks -


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http://www.proshareng.com/news/singleNews.php?id=8843 it created a far-reachingparadigm that Senator Udo Udoma must have missed.

The directive from CBN not only fixed a 10-year tenure for bank chief executiveofficers in the country, it laid out an exit date for those who would be affected, adisqualifying period for the CEOs, CBN, and NDIC officials, and made changes toboth engagement contracts and provisions of the Memart.

While it can be argued that the limits of this policy ends with banks licensed bythe CBN; the wider implications of the policy was the setting up of an informalcode for regulators.

For how can one rationalize the use of this code within a limited sense andexclude other regulators within the financial services sector when the problemwithin the sector was not confined to the banks. The problem, as defined by theapex regulator was that a culture of incestuous relationships had been establishedin fact and perception and if this was not addressed, existing rules cannot holdthose who abuse the system liable. Most importantly, the need to establish aconscious distance between OPERATORS and REGULATORS was imperative rather

than discretionary; existing laws notwithstanding.

The Senate Committee on Capital Markets

We have passed on to the Senate Committee all the correspondence and investorcomplaints on the subject of the conflicted position of the SEC Chairman; andthis has been virtually a daily affair since January 6, 2010.

So many wrote under a pseudo name for fear of reprisals which they collectivelyagree is very real on matters relating to expose of information on SEC. Not a feweven doubted our desire to furnish, publish or comment on same given thealmost media blackout that has occurred ever since. Further investigations

revealed more damning tales of institutional intimidation either directly orthrough actions taken on others with similar cases like theirs on otherwise

routine complaints on operator infractions.

Recall the SEC position on private placements, Transcorp issue, criminal actionsagainst brokers referred to EFCC after an investigation, unpaid refunds frompublic offers, unpaid dividends by quoted companies and the poor handling of thepost-public offer obligations of quoted companies.

It must be said that no direct accusation was made with regards to the person ofthe SEC Chairman, but the general impression was that no one would dare goagainst a matter they would rightly think he was interested in.

This and other fundamental issues must have therefore informed the GaniyuSolomon-led Senate Committee on Capital Markets to invite the SEC Chairman fora private audience to address this current and immediate perception gap arisingfrom his dual role in the market.

Our sources have confirmed that he did not attend the meeting with thecommittee, scheduled for today as earlier agreed.

A review by market analysts and legal practitioners of the ISA reveals that unlikeother governing boards, the SEC Boards role goes beyond advisory indeed, not in a few instances have we found the words decisions are subject

to the boardused literally and explicitly.

This action in itself lends credence to the fears expressed on having such a statusgo unchecked. It has nothing to do with the person or personality but the office


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and its imperative to not only be independent in fact but have the appearance ofindependence not one saddled with a perceived, potential or portent conflict ofinterest or/and role image.

The announcement therefore in January 2010 of a joint commitment of the CBN,SEC, NSE, NAICOM, PENCOM and NDIC to commit to a code of conduct forregulatory agencies officials.

The Fallacy of the SEC Chairmans Stand in the light of the Proposed Code

of Conduct for Regulatory Agencies Officials

Need we waste time on this subject?

Maybe not but it might just be well to re-iterate the unintelligent approach tomanaging the market by calling the proposed plan a sweeping reform in thenations financial sector through the creation of an umbrella code of conduct forthe financial industry regulatory agencies spearheaded by the Central Bank ofNigeria (CBN), Securities and Exchange Commission (SEC), Nigerian Deposit

Insurance Corporation (NDIC), the Nigerian Stock Exchange (NSE), and PensionCommission (PENCOM).

Under the planned approach, senior officials of the regulatory agencies areto be restrained from holding significant equities in companies under

their jurisdiction. According to analysts, this is a loose approach to the CBNmove to prevent such regulators from holding shares in companies supervised bythem.

The intendment of this new rule is that officials, mostly senior personnel in theregulatory agencies, will no longer have a free reign in terms of investment in

financial institutions, which they oversee. For instance, CBN and NDIC officials in

the Banking Supervision Department, whose duty is to monitor the health of thebanks, may cease to be shareholders in those banks.

Indeed, the quantum of credit facilities such officials can take from any bank willbe defined in the new rules. According to proponents of the new order, theprevailing regime, where some officials in the regulatory agencies were eitherformer employees or investors in the firms, raises moral and credibilityquestions.

According to The Guardian, who broke the news - an official of one the regulatoryagencies said that the essence of the code of conduct, is to avoid a conflict ofinterest between the regulators and the regulated, especially as regards

the level of shares senior officials can own in companies under them. Therules also touch on the level of funds a regulator can borrow from a bank,the terms and the disclosure requirements among other things.

So why limit it to financial institutions?

For hypothesis sake, let us assume that the Chairman of SEC was the Chairmanof Cadbury Nigeria Plc under Bunmi Oni, as the facts made available suggested;how would SEC have handled a situation where his chairman holding a dual role will sit in judgement to be removed from the board and retain his SECChairmanship without consequences on the moral fibre of the commission?

Posers:If the ethical code is considered of such paramount importance outside the disclosure of interest rule the Sec chairman has clung on to; why is it lessapplicable in his case.


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Further, if as we understand, the CBN has already co-opted other regulatoryagencies into a scheme that will enable them to operate as one entity (a brilliantdecision) in supervising all the financial institutions to avoid any loophole; whileallow the SEC situation to remain at status quo.

What if Musa El-Faki or Daisy Ekineh (recent past DG and Ag. DG of SECrespectively) decides to accept an offer of chairmanship of a quoted companytomorrow, would the SEC Chairman have the moral right to borrow a leaf fromthe CBN type directive to prevent him/her from doing so? Or would he start astaff management change (or cleansing) in the enforcement function thussubjecting the sitting Director-General to a lame-duck status

An Enlightened Approach/Example

According to Lamido Sanusi - "I do believe that the dividing line betweenthe regulator and the operator needs to be very clear and I need to be

clear about my role as a regulator, and that includes creating a levelplaying field." He stressed that this included avoiding questions of conflict of

interest. He continued: "I have just left First Bank and as an employee of FirstBank I had loans that were staff loans at concessionary rates. Usually, whathappens in institutions like that is when you have left; they leave your loans atthat concessionary rate. One of the things I did was to call the managing directorthat I wanted my loans converted to a commercial rate, precisely because I amthe governor of the Central Bank." Sanusi said he took the step to set a standardfor himself if he intended to hold other regulators to those standards.

He also pointed out that there are certain circumstances that could lead to conflictof interest, "and we need to be very explicit in our definition of thosecircumstances. You may not avoid everything; you may not stop people fromborrowing from banks or buying shares in banks, but then if you do, to what

extent? What are the terms? What are the disclosure requirements?"

Based on the foregoing, the CBN Governor said he would suggest that seniorregulators should not be shareholders in the institutions they regulate,adding that, "I personally would sell any shares in any bank as long as I was theGovernor." So what is the SEC considering?

SEC Considers Tenures for Quoted Firms Directors

Thisday published a story in January 2010, barely a week after the Central Bankof Nigeria (CBN) rolled out its policy fixing tenure for bank chief executives -

http://www.proshareng.com/news/singleNews.php?id=9001 where the Securities andExchange Commission (SEC) stated that it was considering enforcing the2009 Code of Corporate Governance which will limit the tenures of

directors of quoted companies. Under the proposal, directors of quotedcompanies must retire at the age of 70 years or after serving for a maximum of12 years - that is, three terms of four years on the board.

SEC, it was reported, was unhappy with a situation whereby older directors sit onthe board of quoted companies and deny younger hands the opportunity tocontribute to the development of quoted companies and institutions. This musthave informed the recommendations contained in the Report of National TechnicalCommittee on the review of the Code of Corporate Governance, which was

submitted to SEC in March 2009.

The committee, headed by Mr. Balarabe Mahmoud (SAN), was inaugurated onSeptember 15, 2008 by the SEC Chairman, Senator Udoma Udo Udoma to,


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among others, review the existing Code of Best Practices on CorporateGovernance in Nigeria, that of the 2003 Code as well as to examine andrecommend ways of effecting greater compliance with the 2003 Code by publiccompanies. According to the Code, such steps are designed to avoid conflict ofinterest, breach of confidentiality and misappropriation of corporateopportunities. The code also encourages the appointment of independentdirectors to boards of quoted companies.

While SEC is understood to be considering adopting the Committees report,which could become effective immediately thereafter; we await a revised copy ofthe recommendation to affirm whether it has any provision in it for the conflictedstatus of the SEC Chairman.

Conclusion

The real joke in all this is that SEC is actually considering penalizing companiesand individuals for violating the new code of Corporate Governance once itbecomes operational. Indeed the punishment ranges from a fine to a possibledelisting of an erring company.

According to Thisday, the enforcement of the 2009 Code of Corporate Governanceis said to be on top of the agenda of the new SEC Director-General, Ms. ArunmaOteh. How can she possibly hope to do this when she is unable to resolve the onecentral issue affecting her independence a SEC Chairman in direct contradictionwith the proposed code of Governance? The same report highlights the stackreality that outside Senator Udo Udoma, there are also over 25 companies whosedirectors are sitting as either multiple directors or interlocking directors in breachof Organisation for Economic Co-operation and Development (OECD)internationally accepted standards of best practice. Apart from the tenure andage limit, the new code also frowned on family and interlocking directorship aswell as multiple directorships where one board member sits on the board of

several companies in the same industry.

The problem is that the Nigerian SEC has never been officially given the free handto perform their role which is to "to protect investors, maintain fair, orderly,and efficient markets, and facilitate capital formation. There has alwaysbeen a power tussle between the NSE/SEC.

The current work being done in the banking sector by Sanusi will not correct mostof the problems at the NSE. There has to be a major shake up at the NSE, andthe SEC has to show that they have the guts to take on the culprits (i.e.,brokers/brokerage firms being on the buy/sell sides of a deal, lack oftransparency, etc) and this is not helped with a conflicted status of its chairman.

Reference: Udo Udoma & SEC Legality, Perceptions and Sacrificehttp://proshareng.com/blog/?p=131

Olufemi Awoyemi, FCAMD/CEO Proshare Nigeria Limited

All opinions on this page/site constitute our best estimate judgement as of this date and are subject to change

without notice. Investors should see the content of this page as one of the factors to consider in making theirinvestment decision. Proshare Limited, its employees and analysts accept no liability for any loss arising from the use

of this information. All enquiries should be directed to [email protected]


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Anxiety as Udo Udoma becomes UACchairmanBy Daniel Osunkoya, February 8, 2010 01:47AM

Some market analysts have raised concern over the appropriateness of appointing the chairman of the

Securities and Exchange Commission, Udoma Udo Udoma, as the new chairman for UAC Nigeria Plc'

s Board of Directors.

They said market regulators should not be dinning with the people they were supposed to police

because it affects investors' confidence in the market.

The UAC Nigeria, a publicly quoted company, last month, named Mr. Udoma, a former Chief Whip of

the Nigerian Senate, as its chairman. Mr. Udoma is also a Director at Unilever Nigeria Plc, anotherquoted company.

In the same vein, the Director General of the Nigerian Stock Exchange (NSE), Ndi Okereke-Onyuike,

also chairs the Board of Directors of Transnational Corporation of Nigeria Plc (Transcorp), a quoted

company.

No perceived doubts

Olufemi Awoyemi, Managing Director and Chief Executive Officer of Proshare Nigeria Limited, told

NEXT that issues related to "conflict of interest" or "conflict of role" may arise when senior officials inregulatory institutions, such as the exchange commission and the stock exchange, assume positions of

authority in quoted companies.

Mr. Awoyemi said this development and the questions it raised calls into question Mr. Udoma's

compliance with, "the obvious corporate governance imperatives required in a clime like ours given our

history of subservient stewardship, a public perception defined by our recent history of an incestuous

relationship-biased regulatory environment, and the steps needed to restore confidence in the financialmarket system, nay the capital market."

He said when it comes to how Mr. Udoma should choose or behave on administrative matters,

"sovereignty over decision does not rest with citizens -capital market operators and independent

analysts like me; they rarely do. It will be one in which the senator will have to make in the best

interest of the market - a sacrifice or sentence?"

The analyst said the exchange commission remains the only federal government agency dedicated to

looking out for investors' interest. "The role of this institution has over the years become more

pronounced for its failings rather than its successes. When things go on well enough, we take it for

granted. When markets go into a tailspin as we have it, the role of SEC as the investors advocate comes

into question," Mr. Awoyemi said.

He said there has been no time in history that investors have been more in need of an advocate than

today; "Such an advocate therefore must not just be scrupulously clean, but be seen to be indeed

independent and devoid of any real or perceived doubts on his/her standing."

Regulator as operator

In his own view, Ope Banwo, an analyst and legal practitioner at The Market Ombudsman, said Mr.

Udoma's appointment as UAC Nigeria's chairman "is one of the nonsense that is grinding Nigeria to a

halt." Mr. Banwo said, "How can there be transparency when a regulator is also an operator? It is only


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in Nigeria that I have seen that, and it will not change until the powers that be recognise the fact there is

no way you can be a judge in your own court and there will be a fair judge."

The lawyer said, "I don't care how much integrity Mr. Udoma (who is also a legal practitioner) has, it

will be very difficult for him to convince us (market operators) that he would be fair when it comes to

the affair of UAC Nigeria if brought to the SEC. What would stop the Senator from revealing the secret

of SEC to UAC if an investigation issue occurs?" Mr. Banwo said the Senator's acceptance of the offer

"is very wrong and it shows that the government has not learnt anything from the financial messNigeria is going through."

He said that the present financial crisis is a direct result of the "infectious relationship" that exists

between the regulators and the operators of the market. "Now we are laying the ground for another

hurricane some years down the road," Mr. Banwo added.

However, he said that there should be a law against such relationship since there is none presently. "It

is not like that anywhere else in the world. We are going to be pushing for that (the law) as market

ombudsman. If you are in a regulatory body, you should not serve in any capacity of publicly quoted

companies," Mr. Banwo said.

He has done no wrong

Supporting Mr. Udoma's action, Albert Edun, an executive member of the Nigerian ShareholdersSolidarity Association, said as long as the senator meets the requirement for the two posts and he is

proven to be competent to hold the posts "why don't we leave him there?" Mr. Edun said, "I believe

Mr. Udoma is an experienced man so I have no objection to his leadership abilities."

"The fact that he is SEC's chairman and at the same time UAC chairman does not matter once proper

requirements are met. What is necessary is that whenever issues occur in companies where he has

interest, he must leave the place for accurate debate to take place," Mr. Edun said.

This is not newExplaining why he accepted the new position, Mr. Udoma said he was on the board of UAC before he

was approached to accept the part-time chairmanship of SEC. "And I informed the authorities that I amon the board of UAC as well as other boards. These were relevant factors in making me suitable," he

said.

Mr. Udoma said, "Recently when the chairman of UAC retired, as the next most senior director, I

became the chairman. It's nothing new. I've been on the board of UAC before the appointment and it's

consistent with international practice. In countries such as Malaysia, Thailand, and other countrieswhere it is a part-time position, that is the practice and the procedure. If you were appointed a full-time

chairman, director general, or commissioner, then you resign.

"I am surprised about the reaction because I have been on the board of UAC before I was appointed. I

am surprised there was no issue raised since then. Now that I am the chairman which doesn't really

change anything either as a director or chairman, since the interest is the same, people are reacting."

The senator said what the Investment and Security Act (ISA) provides is that, "you declare upon

resumption of chairman your interest in the affairs of any quoted companies, and I did that in writing

about 20 months ago when I became the part-time chairman, and nothing has changed since. It's a four

year part-time chairmanship. I'm only part-time. I only go for maybe six meetings per year. I'm not

involved in the day to day management. I just go for board meetings."

Mr. Udoma said that the security act already anticipated that such an issue may occur and that was why

it says: "any matter that comes up involving any company which you have an interest, you excuse

yourself and you do not participate in the deliberation."

Unavoidable situation

However, as Mr. Udoma explained further, the issue of conflict of interest or role is completely

unavoidable.' "The truth is that you cannot get anybody who will meet the qualification of the SEC's

chairmanship and will not have a conflict by definition because the ISA requires that you must have 15

years experience in capital market. That means you must be an operator in the market -either a lawyer

handling market related cases like me, or you're on the board of a company quoted in the market, or astockbroker, etc. and being involved in the market creates a conflict, so it is impossible to find someone

who will not have a conflict," the senator said.


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Mr. Awoyemi agrees that the Senator's submission "is correct" and "good but not sufficient to resolve

the larger issue" facing his sovereignty.

"The legality of this (Mr. Udoma's) office does not and should not override the larger interest of the

sovereign - even if it does not create a de facto conflict of interest situation but has the appearance of a

conflict of roles situation," Mr. Awoyemi said.

Dear reader. While we value your feedback we have to moderate them, so your comments would

appear in a maximum of one hour. Please feel free to return and read through again after another user

may have replied to what you have said. Please note that 234NEXT.com bears no responsibility for

what readers post, and is not liable for any form of impersonation.

Reader Comments (4)

Posted by Deola on Feb 08 2010

This is why I will NEVER invest in the Nigerian Stock Exchange. And you are shocked to here about

insider trading. What is UAC does anything wrong, will the SEC have guts to do anything.

Posted by Trusted One on Feb 08 2010

The simple and sensible step is to ask whoever the new appointed individual is to relinquish all existingroles b4 assuming such an office. That way you will sift public servants who have a true desire to

service - versus those on a personal crusade. Whilst i take udoma's point on the 15years experience -

the step would be to quit all such boards on assumption of the post and 3 years post resignation from

said post! So simple!

Posted by Danladi Attahru on Feb 08 2010

Udo Udoma is a shame to the office he holds. As a lawyer and an oxford graduate, he appears to have

lost any sense of ethics which are the guiding pillars expected of a man of his stature and exposure. His

arrogance in the light of clear and obvious corporate governance challenges qualifies him to be the

single most important impediment to instilling corporate governance at SEC. Arumah Oteh cannotconvince anyone that she can add value to the commission under this cloud. What a shame.


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Udo Udoma: The Senate Committee on Capital Market Position

February 05, 2010

THE SENATEFEDERAL REPUBLIC OF NIGERIA

COMMITTEE ON CAPITAL MARKET

NATIONAL ASSEMBLY COMPLEXTHREE ARMS ZONEP.M.B. 141 GARKI

4th February, 2010 ABUJA, NIGERIA

Mr. Remi BabalolaThe Honourable Minister of State for FinanceMinister of FinanceCentral AreaAbuja

RE: SENATOR UDO UDOMA AND THE CHAIRMANSHIP OF UACN PLC AND

MEMBERSHIP OF BOARDS OF PUBLIC QUOTED COMPANIES.

Our attention has been drawn to the recent appointment of Senator Udo Udoma

as the Chairman of UACN a public quoted company in Nigeria. We are also aware

that he is currently the Vice Chairman of Linkage Assurance and a board memberof Unilever, both public quoted companies.

As the Minister overseeing the capital market and a seasoned banker you will

agree with me that section 4 (1) (a) of the ISA 2007 vests the board of the SEC

with enormous powers. For ease of reference Section 4 (1) a states that:

4. (1) The board shall be responsible for the general administration of

the Commission and in particular shall:

(a) Formulate general policies for the regulation and development of thecapital market and the achievement and exercise of the functions of the

Commission.

Hon. Minster, it is in pursuance of the fulfillment of the responsibilities of

regulating and developing the market that the act in section 13 makes elaborate

provisions for the functions and powers of the commission.

A cursory look at the functions and powers of the Commission under section 13 of

the ISA and the contemplation of the legislature when enacting the law seems to

clearly suggest that the office or the DG, any relationship that would tie them to

any of company that they (SEC) regulates.


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There is therefore definitely and clearly a conflict of interest situation in Senator

Udo Udoma chairing the board of SEC and UACN and being on the board of public

quoted companies. We are of the opinion that the elimination of room for

unregulated relationships is critical to any perception of integrity or the ability of

the regulator to take actions without fear or favour.

We believe it is for this reason that SEC last year queried the Director General of

the Nigerian Stock Exchange on her continued chairmanship of board of

Transcorp and at the same time occupying the position of Director General and

Chief Executive of the Nigeria Stock Exchange.

Hon. Minister, we feel the need for you to take immediate action on this matter

because of the recent recovery of the market and the need to sustain it through

tackling any issue which is capable of wearing down the confidence in the market.

As you are aware our economy depends on efficient, open markets safeguarded

by the rule of law and the market deserves and is yearning for an impartial SECthat safeguards the public interest. His membership of these boards is capable of

undermining this.

Hon. Minister, like all stakeholders we are in agreement that there exists a lacuna

and other several inconsistencies in the ISA 2007, it is for these reasons that the

committee is currently working on an amendment of the act to bring it in line with

realities and international best practices.

While this is being undertaken we wish to enjoin you to direct Senator Udo

Udoma to either step down as the chairman of the board of SEC or resign his

chairmanship and Vice Chairmanship of UACN and Linkage Assurance as well his

membership of the board of Unilever or any public quoted company.

Please accept the assurances of the committees highest regards,

Senator Ganiyu Olanrewaju Solomon

Chairman, Senate Committee on Capital Markets

cc:

Dr. Mansur Mukhtar

Hon. Minister of Finance

Ms. Aruma Oteh

Director General Securities and Exchange Commission

Senator udo Udoma

Chairman

Securities and Exchange Commission

Members of the Board

Securities and Exchange Commission


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The Press Release by the HMSF Feb 12, 2010:

Udo Udoma: Babalola Replies Senate Committees Enquiry

The Honourable Minister of State for Finance, Mr. Remi Babalola, has responded

to the enquiry from the Chairman of the Senate Committee on Capital Market,Senator Ganiyu Solomon, about the appropriateness of the board appointments

of Chairman of the Securities and Exchange Commission, Senator Udo Udoma.

Senator Solomon had in a letter to the minister dated February 4, 2010

demanded an explanation over the perceived conflict of interest situation arising

from the appointment of the SEC chairman by UAC of Nigeria and Linkage

Assurance Plc as Chairman and Vice Chairman, respectively.

In his letter to the Senate Committee chairman dated February 9, 2010, Babalola

promised to review the situation and revert promptly to the Committee.

Undoubtedly, the issues are quite critical and call for quick action especially on

the need to review the existing Investment and Securities Act (ISA) 2007 to

safeguard the integrity of SEC as a regulatory institution. Be rest assured that the

matter is being looked into and we will revert to you in due course, he said.

The minister reaffirmed his commitment to higher regulatory and supervisory

standards in all segments of the financial services industry.

All the regulators of the financial market are collaborating with a common code

of corporate governance most especially at this junction of the nation when we

are inculcating attitudinal change and character re-orientation for a better

Nigeria, he added.

Solomon had also in his letter noted that the functions and powers of the

Commission under Section 13 of the ISA indicated that the office of the director-

general, chairman, the commissioners and staff of SEC ought to be free from any

relationship that would tie them to any of the company that SEC regulates.

There is therefore definitely and clearly a conflict of interest situation in Senator

Udo Udoma chairing the board of SEC and UACN and being on the board of public

quoted companies.

We are of the opinion that the elimination of room for unregulated relationships

is critical to any perception of integrity or the ability of the regulator to take

actions without fear or favour, Solomon said.


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The Press Release by Senator Udo Udoma Feb 14, 2010:

Udo Udoma justifies his dual roles as UACN and SEC Chairman

By Lanre Oyetade, Group Business Editor, Tribune

Senator Udoma Udo Udoma, Chairman of UAC of Nigeria Plc, has described asbaseless the petition by Chairman of Senate Committee on Capital Market,

Senator Ganiyu Solomon asking the Minister of State for Finance, Mr Remi

Babalola, to compel Udoma to resign as Chairman of the Securities and Exchange

Commission (SEC) following his recent appointment as Chairman of UACN Plc.

In a statement yesterday, Udoma dismissed the allegation of conflict of interest

and disclosed that Senator Solomon was aware that he (Udoma) was serving on

the boards of UACN Plc, Linkage Assurance Plc and Unilever Nigeria Plc during his

screening by Senator Solomons Committee for SEC chairmanship.

Udoma disclosed: When I was initially informed that I was being considered forappointment as the part time chairman of the Securities and Exchange

Commission I asked for time to consult and think about it before accepting. One

of the things I needed time to examine was whether the appointment would be

consistent with my other commitments. Having carefully examined the provisions

of the Investment and Securities Act it was clear to me that the appointment was

not inconsistent with my existing board appointments. What Section 11 of the Act

required me to do was to declare them and not participate in any decision

involving any of them. My investigation also revealed that this was an established

practice. Indeed, my immediate predecessor as chairman of SEC and I served on

the same board whilst he was the chairman of SEC. Had it been otherwise I would

have declined the offer to be the chairman of SEC.

He further said: Having accepted the offer, my name was sent to the Senate and

I was screened, and cleared, by the Capital Market Committee, headed by the

same Senator Ganiyu Solomon. At my screening I presented to that Committee

my curriculum vitae clearly showing that I was serving on the boards of UAC of

Nigeria Plc, Linkage Assurance Plc. and Unilever Plc., as well as being a partner in

the commercial law firm of Udo Udoma & Belo-Osagie. Under the circumstances,

it

sec, udo udoma & corporate governance - fact file 1802

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