Despite the existence of a 10-year tenure limit for managing directors and chief executive officers (CEO) of banks and insurance companies in the country, some CEOs seem to have devised means around the policy through the Holding Company (HoldCo) structure to remain in control, LEADERSHIP can exclusively reveal.
Initially, it was banks that started it but, currently, pockets of insurance firms have either adopted the same or are mooting the idea.
In this instance, findings revealed that mostly founding managing directors are transiting to head the HoldCos after the expiration of the 10-year tenure limit, which gives them more control of their investments.
While some market observers see this as retaining the experience of these CEOs within the group, others feel this is about taking advantage of loopholes in the law that was not envisaged at the point of formulation.
The Central Bank of Nigeria (CBN) introduced the Holding Company model in December 2011 via a circular to all banks. The model allows banks to retain non-core banking businesses by evolving into a non-operating Holding Company (HoldCo) structure
Similarly, the apex bank had put a limit on the tenure of banks’ managing directors, capping it at two terms of five years. This puts the maximum number of years that banks’ MDs can serve at 10 years.
The CBN’s guideline defines a HoldCo as a company whose principal object includes the business of a holding company set up for the purpose of making and managing equity investments in two or more companies, being its subsidiaries engaged in the provision of financial services, one of which must be a bank.
In the same vein, the insurance industry regulator, the National Insurance Commission (NAICOM) commenced implementation of the same policy in the insurance industry earlier in the year.
Following the introduction in the banking sector, FBN Holdings, Stanbic IBTC Holdings, and FCMB Group became the first three banks to transition to the HoldCo structure, until in 2021 and 2022 when Guaranty Trust Bank and Access Bank Plc joined the HoldCo structure respectively. Also, in 2023, Sterling Financial Holdings Company and Consolidated Hallmark Holding Company joined the model.
However, some bank MDs, having almost served out their tenures or served out their tenures, had converted the banks into a holding company structure, keeping them at the helm of affairs for another 10 years as they transitioned to head the new structure.
Whilst some had adopted the HoldCo structure to enable them keep their non-banking operations, some banks which had earlier sold off or divested their non-banking operations had begun to reabsorb such entities.
It has been suggested by some analysts that adopting the HoldCo structure allows long-standing bank and insurance company MDs/CEOs to remain in power even after exceeding their tenure limits.
In insurance industry, Custodian and Allied Insurance, Leadway Assurance Company, and Consolidated Hallmark, among others, have embraced either a group or HoldCo structure as the former CEOs of these insurance firms have transited to become the group CEOs, while insider sources revealed that few insurers are also mooting this model, to keep their best professionals in-house and, in most cases, for the affected founding MDs to monitor their investments in these institutions.
In the case of NEM Insurance Plc, the former GMD becomes the chairman of the underwriting firm.
According to analysts at Proshare Nigeria, “HoldCos are not banks but constellations of different financial and technology-related businesses.
To analysts at Agusto & Co, “Some big banks’ restructuring to a Holding Company structure (HoldCo) allows traditional financial services organisations to participate more freely in the industry, contributing their expertise and knowledge while competing with other Industry players.”
Reacting to this development to LEADERSHIP yesterday, the managing director/CEO, Lancelot Group, Adebayo Adeleke, said the reasons for HoldCo adoption is to expand the scope of operation and diversify revenue streams.
However, he said, financial institutions use the loopholes inherent in the HoldCo structure to retain executives whose normal tenures had expired, which is detrimental to the long term sustainability of the institution.
“It frustrates the career growth of the human capital of the organisations. It’s a clear manifestation that we are building supermen and not super institutions. Sadly, such moves have weakened the trust level in corporate governance of such institutions,” he pointed out.
Speaking on behalf of public shareholders in an interview with LEADERSHIP yesterday, the chairman, Progressive Shareholders Association of Nigeria (PSAN), Mr. Boniface Okezie, stated that the trend had a diluted effect which comprises positive and negative impacts.
On the positives, while he believes this model allows the adopting companies to retain its best professionals within the group, especially, in banks. He expects such MDs who transit to the group CEO of the HoldCo to stay for a short while, stabilise the new company and hand over to a successor.
On the negatives, he said, this development is breeding sit-tight MDs to continue in office, urging the regulators to do their due diligence before granting such approval.
“There is no doubt that some of them may want to continue in office through this means but it doesn’t give room for a succession plan. I believe that when the tenure of an MD expires, he should go for at least three to four years and could later come back in a non-executive role.
“But what I have seen currently playing out is that these companies are exploring the loopholes of the law to keep their stronghold in the companies they represent. A CEO should do his or her best and when it is time to leave, he or she should go and allow others to manage the company, not coming back through the back door. The regulators which are NAICOM, CBN, SEC, and so on must be firm in granting such an offer, or else it will make a mockery of the law and the financial service system,” he said.
Giving reasons for adopting the HoldCo structure, the managing director and chief executive of Sterling Bank, Mr. Abubakar Suleiman, said it was driven by its plan to spin off its non-interest banking (NIB) window, which became operational in January 2014, into an autonomous entity.
The group chief executive officer (GCEO) of Consolidated Hallmark Holding Company, Mr. Eddie Efekoha, said the plan to operate a holding structure precedes the 10-year tenure limit policy of the insurance industry, adding that he had nothing against the tenure limit.
“It allows a succession plan for the industry, such that there is no vacuum whenever a managing director or an executive director leaves office,” he said.
According to him, Consolidated Hallmark had been planning its succession plan by becoming a HoldCo with four subsidiaries, long before the regulator came up with the tenure limit policy.
