FRC’s Jim Obazee sack: Matters arising

Two weeks ago, the federal government sacked the Executive Secretary of Financial Reporting Council of Nigeria, FRC, Mr. Jim Obazee, and the entire Council’s Board over issues associated with the FRC’s new Code of Corporate Governance, now suspended. Though the recent action was believed to be triggered by tenure of religious leaders, pegged at 20 years, which saw the retirement of a Pastor, Enoch Adeboye, the General Overseer of the Redeemed Christian Church of God, the Code had, long before this religious dimension, generated a lot of controversy in the financial sector, leading to call by major shareholder groups for Obazee’s sack. For many, some provisions of the Code were in direct conflict with existing laws governing some sectors. For the minority shareholders, FRC led by Obazee was not just highhanded and undemocratic in its approach to regulatory issues, but had previously enacted laws that were anti-business and unfriendly to investors. The Council under Obazee was also accused of going outside its mandate of just setting accounting standards in Nigeria to enacting and imposing laws as well as instilling fears into managers of businesses. Obazee and Adeboye For those who have been calling for his removal and reconstitution of the Board, Obazee had set himself as ‘super regulator’ over other regulatory bodies charged with even superior mandate. Previous fights A case at hand was the problem with Stanbic IBTC Holdings Plc over its 2013/2014 audited financial reports and accounts which caused a delay in release of the bank’s 2015 reports and accounts as well as the quarterly reports for 2016. The FRC had said that discrepancies in figures and disclosure inadequacies were discovered in the bank’s 2013 and 2014 financial result and had suspended three directors, including the chairman and external auditor of the bank after it ordered for withdrawal of the results in question. An additional rule by the Council barred from signing financial statements, thereby inhibiting the Board of Stanbic IBTC Holdings from signing their 2015 financial reports up to the end of last year. Another instance was the position and qualification of audit committee chairman, which excluded most shareholders from that position. While Obazee had insisted that audit committee chair must be a recognized professional accountant in Nigeria, shareholders on their part had maintained that such qualification was not needed. Section 359(3) and (6) of Companies and Allied Matters Act, CAMA Act, establishing the office of audit committee only specified that such person should be able to read and understand financial figures. Identified loopholes in the new Code Some critics see as steep, the provision of the Code that insists companies must have not less than five directors in their Board. Critics also see a loophole in the provision that allows executive directors to be appointed board members of other companies, which may lead to conflict of interest. Other provisions stakeholders considered unacceptable include the 10 years ‘cool off period’ before a former executive director could be appointed chairman of same company he served and the engagement of two auditing firms among others. Sack well deserved Consequently, shareholders who spoke to Vanguard on the development, said Obazee’s sack was well deserved, saying that he called for it for daring to argue with his supervisory minister (Minister of Industry, Trade and Investment) on the implementation of the Code. “It was very strange and it will continue to be strange for a unit of a ministry to open up argument with its minister openly and on the pages of newspapers,” said Sir Sunny Nwosu, former National Coordinator, Independent Shareholders Association of Nigeria, ISAN. Moreover, he said that Obazee was too hard, arguing that many professional businessmen were removed because of his rules. He also called for reconstitution of the Board of FRC to include private sector operators and shareholders. He stated: “The function of FRC should start and stop at verifying accounts; corporate governance is an oversight issue. There should be additional executive directors in FRC so as to help to bring back confidence. The amount that is being contributed by the private sector to run the Council is huge. For that reason, more of private sector operators should be in the Board of FRC, including shareholders because when there is a default, it is the shareholders money that is being used.” Agreeing with Nwosu, Amb. Olufemi Timothy, President, Renaissance Shareholders’ Association, said that Obazee over stepped his bounds, arguing that the Council had no business introducing a Code of Conduct. He added that the major mandate of FRC was to switch Nigeria’s financial reporting standard to International Financial Reporting Standard, IFRS. For him, it was wrong for FRC under Obazee to have assumed so much powers and turned itself into a super regulator, saying: “As a body established to change your standard, you should not turn yourself to super regulator. The day Jim Obazee turned himself into super regulator, he missed it all.”