Introduction

The corporate governance framework for financial institutions has significantly evolved over the past two decades, emphasising on well-governed, accountable, and independent boards. Central to the complexity of corporate governance is the transition from executive to non-executive roles within the governance structures of banks and their financial holding companies. Such transformations are critical to ensuring strong governance, driving innovation, and creating sustainable value for shareholders, stakeholders, and the business as a whole.

The role of an Executive Director is quite different from that of a Non-Executive Director, and transitioning from one to the other within the same institution or another institution within the same group structure is not always seamless. An Executive Director is typically responsible for overseeing the company’s day-to-day operations and strategy as needed. Conversely, a Non-Executive Director has the primary role of ensuring oversight and governance while not engaging in the institution’s day-to-day activities. This shift in roles, is driven by strategic, regulatory, and individual career considerations which must be managed proactively to ensure that the functioning board remains accountable, transparent, effective, and compliant with the laws and regulations in place.

The Central Bank of Nigeria (CBN) has, over time, reviewed its Corporate Governance Codes and has given particular attention to the evolving nature of the composition of boards of commercial banks, merchant banks, non-interest banks, and financial holding companies. These reviews encourage and protects institutional integrity and mitigate conflicts of interest.

This article explores the intricacies of transitioning from a non-executive role to an executive role on the board of the same bank or another institution within a group structure. It will examine the CBN’s Corporate Governance Guidelines, which provide the guide for these transitions. Furthermore, it will discuss best practices associated with such transitions, emphasising the significance of strategic alignment and governance excellence.

Overview of Corporate Governance in Nigerian Financial Institutions: Post the 2008-2009 Banking Crisis.

The Nigerian banking sector has faced significant challenges in the past, with issues relating to poor corporate governance practices being a primary concern. A combination of factors, including excessive risk-taking, weak internal controls, poor corporate governance, and inadequate supervision by regulatory authorities precipitated the 2008-2009 banking crisis in Nigeria. This prompted the Central Bank of Nigeria (CBN) to intervene by taking control of the distressed banks, dismissing the managing directors and executive directors of the affected banks, and appointing directorate management staff from the CBN to replace them. This highlighted the urgent need for a comprehensive overhaul of corporate governance frameworks in the country’s financial institutions.

The introduction of the Exposure Draft Code of Corporate Governance for Banks and Discount Houses in Nigeria by the Central Bank of Nigeria (‘Exposure Draft’) on July 31, 2012, was a response to these concerns, aiming to establish a robust framework for ensuring sound corporate governance in the industry. Upon receipt of stakeholders’ comments on the Exposure Draft, the CBN on May 16, 2014, issued a Corporate Governance guideline for Banks and Discount Houses in Nigeria aimed at eliminating perceived ambiguities and strengthening governance practices.

In 2019, the Financial Reporting Council of Nigeria (FRCN) implemented significant reforms in corporate governance by introducing the Nigerian Code of Corporate Governance 2018 (NCCG 2018). This code serves as Nigeria’s comprehensive Corporate Governance Code for Nigeria, superseding all previous sectoral codes, including the Central Bank of Nigeria’s Code of Corporate Governance for Banks and Discount Houses issued in 2014.

Following the FRCN’s announcement permitting sector regulators to establish sector-specific corporate governance guidelines, the Central Bank of Nigeria (CBN) adopted the principles and recommended practices from the NCCG 2018, along with global best practices and previous codes, circulars, and directives issued by the CBN. On July 13, 2023, the CBN issued a circular that repealed all previous corporate governance codes and introduced the CBN Corporate Governance Guidelines for Commercial, Merchant, Non-interest, and Payment Service Banks, as well as Financial Holding Companies, collectively referred to as the (“CBN Corporate Governance Guidelines, 2023”).

The CBN Corporate Governance Guidelines, 2023, outlines three primary objectives:

1. Provide additional guidance on the corporate governance Principles, Recommended Practices and Responsibilities contained in NCCG 2018;
2. Outline industry-specific corporate governance standards for banks; and
3. Promote high ethical standards amongst operators whilst enhancing public confidence.