Opinion: SEC’s litany of corporate governance lapses – By TAYO OKE


The suspension of the Director-General of the Securities and Exchange Commission, Mr. Mounir H. Gwarzo, announced by the Minister of Finance, Mrs Kemi Adeosun, last week, might have been considered a routine exercise if not for the fact that the SEC is the ultimate regulator of Nigeria’s financial industry. In other words, it is the regulator’s regulator, hovering above the likes of the Nigerian Stock Exchange, Nigerian Deposit Insurance Corporation, even the Central Bank of Nigeria in these matters. It registers and regulates security exchanges, all offers of securities by public companies; registers and regulates individual and corporate capital markets operators; facilitates a nationwide system for securities trading; registers and regulates the workings of venture capital funds and collective investment schemes; facilitates the linking of all markets in securities with information and communication technology facilities; keeps and maintains a register of foreign portfolio investments; and protects the integrity of the securities market against all forms of abuses including insider dealing, etc. You got the gist. Who then regulates the regulator’s regulator when the person sitting at the very top of this strategically important organisation stands accused of the kind of market abuse and insider dealing it is empowered to detect, deter, and prevent? The allegations against Gwarzo (hailed by SEC as a man of “uncommon leadership”) are lengthy, and are not exactly new. They have been allowed to fester for several months. It is the first indication of a lamentable failure of corporate governance at SEC.

The former Director-General is alleged to have awarded himself a “severance payment” in excess of N100m following his appointment to his position, having moved from being a commissioner to the position of the DG. The glaring question is: How does a mere changing of roles within the same entity amount to “severance”? The package was passed through the Board; wait for it, on the recommendation of then newly promoted DG, Gwarzo, himself! Another indication of a deplorable failure of corporate governance at SEC. Furthermore, the former DG is alleged to have traded on his inside information to benefit six companies which he owns or have a substantial interest in. How come Gwarzo did not make clear his conflict of interests to the Commission when awarding the alleged contracts is something that baffles outside observers. It is a further indication of a dreadful failure of corporate governance at SEC. In addition to these, the Ministry of Finance had been aware of some, or all of these transgressions by the DG for several months and had commenced its own internal investigation into the affair. Why would such a highly sensitive matter affecting the integrity of the entire financial sector take several months, more than 10 months, we are told, to result in the suspension of the DG? This is the clearest indication yet of a woeful failure of corporate governance at SEC, for which the Ministry of Finance also has questions to answer. Is it any coincidence that the DG’s suspension kicked in just as it started its own investigation of the oil company, Oando, for a number of market infractions? Could the DG’s suspension be a pre-emptive strike by the powers-that-be to scupper any investigation of the oil company?

Legally speaking, the DG of the SEC is a semi-detached government apparatchik. In this case, he does not report directly to the Minister of Finance, but to the President of the Federal Republic of Nigeria, who alone has the power to appoint and remove him from office subject, of course, to the Senate’s approval. Mrs Kemi Adeosun was acting on delegated authority in the suspension of the DG. No one is quibbling about that, but what worries people is her department’s capacity to investigate the DG in this kind of situation. The Ministry of Finance is a member of the SEC board, which ought to have overseen the various infractions committed by the DG or anyone else on the board. An outside independent panel of enquiry should be constituted to conduct an in-depth examination of the whole affairs and report within weeks not months. The integrity of Nigeria’s capital markets and the finance industry is in jeopardy for as long as this lingers. The DG chairs the Africa Middle East Regional Committee of the International Organisation of Securities Commissions. The stakes could not be higher in an industry where credibility is everything. If the Ministry of Finance is unable to do this, then, the burden falls on the Senate to institute its own hearing/investigation into this as swiftly as possible. One fears, though, that political intrigue may get in the way as it usually does with such a high-profile enquiry.

The greater issue to tackle is the inadequacy of SEC corporate governance procedure within the body itself. After all, this is the body that sets limits of corporate governance measures for others in the financial sector. The SEC Board as presently constituted, which includes a representative of the Ministry of Finance on it, is demonstrably flawed. First, how did the Board exercise its oversight function when confronted with the remuneration package pushed through by the DG, authorising the payment of over N100m to himself? As a member of the Board and its Accounting Officer; Investment and Securities Act 2007 (3) (1) (b), the DG is the same person who recommends approval of his own remuneration to the Board. Where does this rank in any measure of corporate governance? And on the question of SEC and its dealings with several companies in which the DG has direct pecuniary interests, section (11) (1) of the ISA Act is pretty clear on this. “A member of the Board of the Commission who is directly or indirectly interested in (a) the affairs of any company or enterprise being deliberated upon by the Board of the Commission; or (b) any contract made or proposed to be made by the Board of the Commission shall, as soon as possible after relevant facts have come to his knowledge, disclose the nature of his interest to the Commission at the meeting of the Board of the Commission. We must presume at this point that the DG made all the relevant disclosures as it concerned the six companies with which the SEC is alleged to have contracted.

If, after making the disclosures, the ex-DG was, thereafter, not supposed to ‘participate or continue to participate in any deliberation or decision of the Board of the Commission with regard to the subject-matter in respect of which his interest is so-disclosed’, Section (11) (2) (a). At this point, we must also assume that the DG duly complied with this provision of the law, and did not participate. If the Board, of its own volition made the decision to award contracts to companies properly declared by the DG, then, it would have acted against international best practice to not only avoid actual bias in its deliberations, but also, crucially, to avoid giving the appearance of bias in the discharge of its duties. The Ministry of Finance that has now suspended the DG would have been an active participant in the Board’s deliberations on the award of the contracts in issue here. Has the ministry come to equity with clean hands in this case? These are issues of great public interest, the resolution of which cannot come soon enough.Punch


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