Key Factors in Independent Director's Appointment
Professor Chukwuma Soludo, governor of Central Bank of Nigeria (CBN) has listed two key factors that must be considered in the appointment of independent directors in banks to include "good reputation and integrity".He said the appointment of independent director in banks is important to the regulator and that the survival of banks during post consolidation depends on effective supervision,good self regulation by the operators.Adding that the effectiveness of independent director in monitoring and guiding the operation of banks' management is crucial.
The importance of independent directors in effective supervision of banks is to achieve good corporate governance in the system. The integrity of a person to be appointed a independent director is very important and the reputation of such a person. These two factors are very important in the appointment of independent directors.CBN has released the guidelines for the appointment of independent directors in banks following the introduction of the code of corporate governance to banks operating in Nigeria.
The new guidelines enable banks to comply with Section 5.3.6 of the code which states that at least two non-executive board members should be independent directors and they should be appointed on merit. Such persons, the guideline said, should not represent any particular shareholder interest or hold special business interest in the bank.In fact, the CBN's guideline defines an independent bank director as a member of the board of directors who has no direct material relationship with the bank or any of its officers, major shareholders, subsidiaries and affiliates; a relationship which may impair the director's ability to make independent judgments or compromise the director's objectivity in line with corporate governance best practices.
An independent director should not: provide financial, legal or consulting services to the bank or its subsidiaries or affiliates or had done so in the past five years; be a current or former employee who had served in the bank in the past and none of his immediate family members should be an employee or former staff of the bank at the top management level in the preceding five years; borrow funds from the bank, its officers, subsidiaries and affiliates; be part of management, executive committee or board of trustees of an institution, charitable or otherwise, supported by the bank; or serve on the Board of a subsidiary of the bank.
Furthermore, CBN said he or she should have sound knowledge of the operations of listed companies, the relevant laws and regulations guiding the industry, a minimum academic qualification of first degree or its equivalent with not less than 10 years of relevant working experience. It also states that such candidates should have proven skills and competencies in their fields.The responsibilities of independent directors include to: employ neutral, specialized or expert skills towards achieving a balance of knowledge, skills, judgment and other directional resources bearing in mind that neutrality of views and quality of debate are very crucial in enthroning good corporate governance practices; serve as a check on the management of banks by providing unbiased and independent views to boards of banks and represent minority shareholder's interests; and help the boards of banks to get the most out of its businesses by providing objective inputs to strategic thinking and decision making, while ensuring full compliance with statutory rules and regulations.
The term of office of an independent director shall be four years for a single term and a maximum of eight years of two consecutive terms if reelected upon the expiration of the first term. However, the independent director may resign before the expiration of his or her term. In this circumstance, the independent director shall submit a written letter of resignation spelling out the circumstances leading or surrounding the resignation, a copy of which should be sent to the CBN.
The importance of independent directors in effective supervision of banks is to achieve good corporate governance in the system. The integrity of a person to be appointed a independent director is very important and the reputation of such a person. These two factors are very important in the appointment of independent directors.CBN has released the guidelines for the appointment of independent directors in banks following the introduction of the code of corporate governance to banks operating in Nigeria.
The new guidelines enable banks to comply with Section 5.3.6 of the code which states that at least two non-executive board members should be independent directors and they should be appointed on merit. Such persons, the guideline said, should not represent any particular shareholder interest or hold special business interest in the bank.In fact, the CBN's guideline defines an independent bank director as a member of the board of directors who has no direct material relationship with the bank or any of its officers, major shareholders, subsidiaries and affiliates; a relationship which may impair the director's ability to make independent judgments or compromise the director's objectivity in line with corporate governance best practices.
An independent director should not: provide financial, legal or consulting services to the bank or its subsidiaries or affiliates or had done so in the past five years; be a current or former employee who had served in the bank in the past and none of his immediate family members should be an employee or former staff of the bank at the top management level in the preceding five years; borrow funds from the bank, its officers, subsidiaries and affiliates; be part of management, executive committee or board of trustees of an institution, charitable or otherwise, supported by the bank; or serve on the Board of a subsidiary of the bank.
Furthermore, CBN said he or she should have sound knowledge of the operations of listed companies, the relevant laws and regulations guiding the industry, a minimum academic qualification of first degree or its equivalent with not less than 10 years of relevant working experience. It also states that such candidates should have proven skills and competencies in their fields.The responsibilities of independent directors include to: employ neutral, specialized or expert skills towards achieving a balance of knowledge, skills, judgment and other directional resources bearing in mind that neutrality of views and quality of debate are very crucial in enthroning good corporate governance practices; serve as a check on the management of banks by providing unbiased and independent views to boards of banks and represent minority shareholder's interests; and help the boards of banks to get the most out of its businesses by providing objective inputs to strategic thinking and decision making, while ensuring full compliance with statutory rules and regulations.
The term of office of an independent director shall be four years for a single term and a maximum of eight years of two consecutive terms if reelected upon the expiration of the first term. However, the independent director may resign before the expiration of his or her term. In this circumstance, the independent director shall submit a written letter of resignation spelling out the circumstances leading or surrounding the resignation, a copy of which should be sent to the CBN.
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