On Board and On purpose

On Board and On Purpose

Before registering as a limited liability company in Nigeria, the law (Companies And Allied Matters Act 1990) provides that the company have a minimum of two (2) directors. Limited liability companies (private, LTD or public, PLC) unlike their sole ownership or partnership counterparts have their management separate from their ownership. This is provided for by law and is achieved through the issuing of shares. Shareholders (owners of shares) of a company are the owners of the company. Shareholders, for LTDs are between two and fifty in number and for PLCs, between twenty and infinity.

Due to the possibility of large number of people owning a single company, the owners elect a smaller number amongst themselves to run the company. This small group is the “BOARD OF DIRECTORS”. It is the board of directors that will employ the management who see to the day to day running of the company. The Board of Directors is the highest decision making body in the organization, they take decisions on behalf of the company owners. It is presided over by the Chairman.

Coming to banks, and in the same vein, the Nigerian Deposit Insurance Commission (NDIC) report for 2003 has it in chapter 13 that, “the responsibility for ensuring that the business of a bank is conducted prudently rests on the management of the bank and ultimately on the Board of Directors which appoints the management. The board constitutes the highest policy making organ of a bank and what happens at the Board of Directors’ level impacts fundamentally on the management of the banking institution. Experience has also shown that no matter how effective regulation is, it does not substitute for the role of active and efficient Board of Directors in banks”.

The function and duties of a bank board does not seem in doubt. In fact, one important way of ensuring the survival of banks is for the boards of directors to show the highest sense of discipline, integrity, steadfastness and tenacity of purpose – NDIC, 2003. The case of the number of persons on a bank’s board may then not be an issue; but on another hand, it could be an issue since directors have to be paid for carrying out their duties. The company owners or shareholders have the responsibility to provide a conducive environment for the board to optimally operate – this is of course for their own good.

It is worthy to note however that a popular argument and debate is whether the directors act in the best interest of shareholders. This argument is usually prompted when fat remuneration for directors does not translate into dividends for shareholders.

But coming back to the number issue, we might like to ask: what number is good for a banks’ board? I would say clarity of purpose would do. Take for example, in 2002, 90 banks in Nigeria had a total of 762 directors (making an average of 8.5 per bank). In December 2003, 89 banks had a total board strength of 745 directors (makes 8.3 on the average). Of the 2003/4 figure, African International Bank and Regent Bank had just 4 directors; 7 other banks had five directors each while on another hand, United Bank for Africa, Union Bank and First Bank had 19, 15 and 15 directors respectively.

Or does size and/or bank age have something to do with board size numerically? This seems so in the 2003/4 banks’ boards; smaller banks appear to have a small board size and larger and older banks have better numeric strength.

Now let’s come to the more recent 2009 where we now have 24 banks. The 24 banks have a total board number of 300 persons (averaging 12.5 on each board). This represents a dramatic increase when compared to the 2003/4 figures. Also, United Bank for Africa has the largest representation with 21 board members while Fidelity Bank and Sterling Bank have just five (5) persons each. Except for Wema Bank and Standard Chartered Bank that have six (6) persons each on board, no other bank has less than nine (9) persons on their Board of Directors. 50% of banks with less than nine (9) members of board have a form of internal wrangling which has a direct effect on their ability to constitute a proper Board of Directors.

Testing if the ‘size-age-board number’ hypothesis still stands, it still does, but partially. Why this is should be obvious – more money needs more people to manage, and of course, needs more people to spend too. The only exceptions when compared to their board size in 2003/4 are Afribank and Fidelity bank whose boards have dipped by 4 persons each. Wema bank board has reduced by 5 compared to 2003/4.

The success of a bank would definitely depend on the number of good heads it has on board. These heads also have to, more importantly, know why they are on board because when purpose is not defined, abuse is inevitable. So if he/she has no purpose on board then just boot him out.

Asking again; what number is right for a banks board? Now I’d say, “On board, on purpose”