By Cudjoe Kpor
Shareholders have turned their searchlights on Federal government’s regulatory agencies of the industries in which they own shares. The sudden, exponential increases in sanctions imposed on corporate organisations for violations of regulations triggered the backlash.
Certainly, all are agreed that fines must be imposed as the last resort for sanctions for corporate violations of rules and regulations. Previously, majority of shareholders never bothered about chicken change fines, provided good profits and dividends were declared and paid as and when due.
In fact, previously, the chicken change fines were often written off as bad debt among the miscellaneous expenses. That way, the public would not know the company was ever sanctioned by a regulator. The shareholders are paid their dividends and share prices continue on their upward trajectory at The Exchange. Very few persons would know inevitably about the fine. But their professional ethics would not allow them to talk to rock the boat: That is, the external auditors practically sworn to professional secrecy.
But now, the multi-billion naira fines being imposed on the corporates have woken up their equity holders. The hackneyed slap-on-the-wrist fines have disappeared. The penalties for corporate violations have suddenly jumped inversely proportionally to the plummeting crude oil export prices on the international market. Whether the need for more internally-generated revenue to make up for the oil export revenues’ depletion is the trigger, or is the cause of it, or both, is unclear. But the fact remains that regulators have descended heavily on corporates since President Muhammadu Buhari’s government came to power seven months ago and complained about inheriting an empty treasury from his predecessor.
Central Bank of Nigeria (CBN), with Governor Godwin Emefiele at the helms, the apex regulator of the money market, had set the pace. Suddenly the too-big-to-fail banks like United Bank for Africa (UBA), FirstBank, among others, came under its hammer for Treasury Single Account (TSA) violations. And the penalties were hefty. The banks’ shareholders hardly complained publicly, perhaps because they felt it was chicken change for multi-billion naira profit banks. Never mind that some of the profits are only paper profits.
For instance, for various infractions, CBN imposed a penalty of N1.877 billion on FirstBank. UBA was fined N2.942 billion. Skye Bank got the highest fine of N4.0 billion. Comparatively, last year, fines were still in millions: Four banks paid N241.5 million — FCMB Group Plc, Sterling Bank Plc, Access Bank Plc and Bank for Africa (UBA) for flouting the Central Bank of Nigeria (CBN) directives in 2014 financial year.
Similarly, Nigerian Stock Exchange (NSE) fined 33 quoted companies N63.8 million for flouting their post-listing rules for timely submission of yearly and quarterly statements.
Star performance
But the credit for star performance, which reinforces the truism that only strong men build strong institutions, goes to Nigerian Communications Commission (NCC) headed by Professor Umar Dambatta as its Executive Vice Chairman (EVC). The N1.04 trillion ($5.2 billion) colossal fine imposed on MTN Nigeria is not only the unprecedented penalty imposed on any corporate body for any infraction; it also wiped out the South Africa-based MTN subsidiary’s profit for the past two years.
Prof Dambatta, former Vice Chancellor of Kano State University, therefore, became the quintessential regulator who sanctioned the erring corporate body and enforced it to the letter too. The fine was imposed on MTN for its wilful refusal to disconnect 5.1 million subscribers on its network in August and September, this year, despite several reminders to the contrary. Each subscriber illegally connected attracted N200,000 fine, a fact known to all.
Mr Adebayo Shittu, Minister for Communication Technology, who supervises NCC, had made the mistake of commenting factually and favourably on the corporate violator: “MTN has made very great strides. It has virtually or literally opened our eyes to telecommunication benefits. And so, we love MTN because MTN is part and parcel of the Nigerian dream,” Shittu had told a Reuters interviewer. “And, also there are thousands of Nigerians who earn their daily livelihoods. More importantly, I am a subscriber of MTN from day one that MTN came to Nigeria and I don’t want to dispense of it. So, we don’t want MTN to die.” Shittu hardly realised the mistake he made saying the fine was “too large.”
Incidentally, Senator Ben Murray-Bruce also made a similar comment, that the fine was too high and would scare away potential foreign investors. But obviously, because the lawmaker was not in a position to wield power over NCC as Shittu does, and he is known to be very rich, too, hardly did the poor commentators bother to take him on.
But when the minister repeated the need for its reduction, all the inter-ethnic stereotypes, prejudices and suspicions in Nigeria followed suit on social media. Suddenly, the “corrupt minister” in an anti-corruption administration was accused of either selling out or preparing the grounds to sell Nigeria down the tube: He was bribed N100 million so that he would “negotiate” the fine down to no more than 20% (or N200 billion payment to Nigeria). A “corrupt, Yoruba magomago minister” was accused of deciding to finish Nigeria off to enrich his own pocket. Of course, the allegations were false. But social media freedom of speech in anonymity coupled with the authoritative ignorance of its purveyors make even the caricatural assume reality in a country with a collapsed education system.
A timely information made available by NCC that the fine was not being negotiated with MTN to be reduced by even one kobo saved the day for the minister in the anti-corruption combat administration of President Muhammadu Buhari. Its critics were busy looking for the least infraction to detract from its anti-corruption credentials.
So, all were waiting for anything but the negotiation of a phased payment of the whole fine by MTN to believe that the government’s clean hands posturing was credible. The fact that the forum of the 36 state governors, Nigeria Governors Forum (NGF) has endorsed the penalty imposed on the corporate giant only ossified it beyond reduction.
So, when in a confused typo error reduction of 25 percent, initially reported as 35 per cent, was announced with December 31 deadline to pay and no justifiable reason was given, some concerned Nigerian lawyers went to an Abuja High Court to sue NCC to collect all the 100 percent fine – without any reduction. As at Tuesday, the House of Representatives also began probing the process leading to the reduction.
The real heavyweight fight, however, was fought over the reckless, incompetent N1 billion penalty imposed on StanbicIBTC Bank Plc (SIBTC) by Financial Reporting Council (FRC) of Nigeria. From all appearances, FRC did not do its homework before imposing its sanctions aggravated with suspending some of the directors indefinitely. Beyond that FRC invited CBN and the anti-corruption agency, Economic and Financial Crimes Commission (EFCC) to scrutinise the statements by the bank. It misfired. CBN scrutinised the books and pronounced all the statements of account of StanbicIBTC to be as clean as they were up-to-date.
The apex regulator dismissed all the accusations FRC made against the bank. Some triumphant shareholders even suggested that FRC’s commissioners must be prosecuted for misleading the capital market. Mr Boniface Okezie, President of Progressive Shareholders Association of Nigeria (PSAN), took the commission on frontally. Shareholders were shocked and disappointed that a government regulatory agency would be so reckless and tactless in its dealings with a respected corporate bank in an unsophisticated capital market where defective proclamations could affect share price movements and cause investors unwarranted losses, the PSAN president blasted.
“We have recorded losses in our share price over the last two days on account of the misguided actions of the FRC,” Okezie said.
In his full blast, he advised FRC to take StanbicIBTC to court if the bank wilfully refused to follow its recommended corrections. But that within the few days that its reckless information was in the public domain, he lost as high as N4.00 per share on his StanbicIBTC shares which he did not find funny at all. Matters were made worse for FRC when Central Bank cleared the bank of all the accusations. CBN was emphatic that the N275 million donation which the regulator claimed was hidden in StanbicIBTC’s books was actually a voluntary contribution which the reputable bank made to internally displaced persons (IDPs) in Boko Haram insurgent’s camps in the North-East, as recommended by the Bankers Committee. Every informed person turned on FRC for its lack of seriousness, thoroughness and going off at the proverbial half-cock.
Nevertheless, the shareholders are equally cautious about their blast of the regulators. Professor Dambatta and his commissioners shine exceptionally brilliantly because of the sheer size of the penalty, the transparency of the process which led to it from August 8 till the heavy hammer descended on October 22, and MTN’s “no contest” admission of its error with a plea for leniency.
Of course a venal weakling at the head of NCC would have done precisely what grist the rumour mills were fed with about the CommTech minister having sold out and got bribed to “negotiate” it down to only 20%. When leadership experts talk about strong institutions, they can only be built by strong men. Umar Dambatta stands out head and shoulder above the crowd. The fine was heavy enough to have corrupted the entire federal government. Never mind one technical standards commission with one EVC, two other executive commissioners and the Board if they were venal….
Therefore, the message from the shareholders is clear: The corporates’ fines come from their gross profits. Much as the shareholders do not endorse infractions and blatant abuse of rules and regulations by managements and boards in the companies they hold shares, the incompetent regulators should not wake up on the wrong side of their beds and impose sanctions arbitrarily on corporates.
Or for that matter as FRC did, impose reckless sanctions on their executives to spread panic in the capital market about their shares whose values dipped in barely two days. What comes to shareholders as owners who took the risk of investing in the corporates, as portfolio investors, they want clear rules and guidelines, transparent processes and competent regulators to provide a level playing field for all competitors alike. Complementarily, the fines and other sanctions must be as clear as sunshiny day.
For the communications industry, not only are all these criteria met with hi-tech precision. In addition, NCC also has strong, well-enlightened leaders who made their sanctions stick without any criticisms of its own infractions in the process of imposing the sanctions to date. I doff my hat to the EVC and his entire team.
Needed: Strong, independent institution-builders
At the risk of repetition, the reckless suspension of corporate directors and imposition of a fine on StanbicIBTC without doing its homework left FRC of Nigeria at the mercy of irate shareholders when in two days, the latter lost as high as N4.00 on their share values at The Exchange. And matters were not helped when the industry regulator, CBN, gave Stanbic IBTC a clean bill of health for obeying all the rules governing corporate audit report preparations and reporting.
Shareholders therefore had good reason to blast FRC, telling the council to go to court if StanbicIBTC or any other company refused to follow its corrective guidelines. It should not resort to self-help in a democracy, arrogating to itself coercive powers the enabling Act did not confer on it.
Needless to compare, NCC followed its enabling act, provided full transparency before hammering the highest corporate fine in history on MTN communication giant. The N1 trillion fine is so staggering, only politicians could wade in to say it was too high. MTN has no room to manoeuvre. And of course whatever strings the Jo’burg-based corporate heavyweight could pull to hope to get it reduced, it is not a question of reckless corporate rights’ violation which deters other investors.
In fact, such strict adherence to rule of law rather encourages other investors to invest in any economy because every investor believes that he would get adequate compensation in court in the event of tort. What investors look for are adequately protective guarantees of property rights and the sanctity of contracts to ensure adequate compensation in case of tort.
It is ideal to have strong institutions. But it takes strong, independent-minded men to build the strong institutions. Hypothetically, Professor Dambatta and the entire NCC could have been bought over for, say, N100 billion or 10 percent of the fine – or less, if they were weak, and venal. They would have smiled into TV news cameras, changed their verdicts and lied that all the 5.1 million badly-registered SIM cards were promptly disconnected. The commission had a technical glitch. All the commissioners, if they were corrupt, would have been richer by some ten billion naira each. Only strong men can resist corruption at that high cost.
So, the regulators are on the prowl. It is not enough that they find faults and impose heavy fines. In fact, the fines should be the last straw. First, the regulators should apply their query formula as NCC did. The regulated corporates comply with, correct the shortcomings and learn from it. It would not be repeated, not because of any fear of the regulatory agency, but because it is the right thing to do whether or not it was deliberately cutting corners – or defaulted out of ignorance or both.