On January 09, 2014, the Securities and Exchange Commission (SEC) released its “Investigation Report of ETI’s Corporate Governance Practices” and made a number of recommendations and advise for ETI to deal with. 

On the surface, a discerning professional would have reached a conclusion that the regulator acted in the best interest of the shareholders (as intended) until a cursory review of process, practices and precedence begins to unravel the approach deployed in reaching such a decision. 

From an investor perspective, the SEC approach would appear to have been a let-down of sorts; considering the severity and impact of the decision(s) reached. In the main, the best practice rules for discharging such a role has not only been compromised but tainted by the action of the SEC in its rush to judgment and the question must remain why and to what purpose? 

Beyond a cursory review, an information service like Proshare was bound to ask questions in order to fulfill its mandate and when enquiries were made, the outcomes not only scared the analyst but raised our collective angst about the process that in the main suggests that the regulator might have acted out a bias which remains unexplained.

The submissions by SEC in its release yesterday stated that:

1. “Sequel to the findings of the audit, SEC held a meeting with members of the Board of ETI on Monday, 16th December, 2013 during which the results of the exercise were presented in order to elicit feedback from them. It was agreed at the meeting that such feedback should be made available to the regulator on or before Friday, 3rd January, 2014 ahead of the audit results being forwarded to ETI for dissemination to the bank’s shareholders.”
2. “The SEC has now advised ETI that the findings constitute an important basis for convening an Extra – Ordinary General Meeting (EGM) of shareholders to deliberate and pass resolutions on the critical findings and recommendations of the corporate governance audit.  The SEC further advises that the EGM should be held before the end of February 2014.”
3. “The SEC expects ETI to develop a one year remedial plan with specific measures to address the specific governance gaps observed.  In the public interest, it will also expect a quarterly report from ETI on progress being made.”
4. “The Commission believes that ETI will need to appoint a substantive Board Chairman who will lead the effort to attain an improved governance climate.  It will be important that such an appointment is the result of a credible selection process.  Such a Chairman also needs to have the relevant experience and skills to guide this remedial plan.  The Chairman should have integrity, independence and should not have the potential for conflict of interest in the discharge of the role.  Steps should also commence to ensure that ETI has Board members and a Management team that have the requisite skills and experience to oversee or manage the affairs of ETI at this time.”
5. “The SEC is certain that the implementation of the recommended remedial plan will eliminate the governance lapses and will further strengthen ETI. The Commission also reiterates its commitment to ensuring the integrity of the market and the protection of the investing public”.
6. “It is important to emphasize that the Corporate Governance Audit is being done at the level of the ETI Holding Company and does not reflect governance at any of ETI’s banking subsidiaries that are responsible to the banking and market regulators in the countries in which they operate.”
    

On the surface, the above 6 points would appear as a well informed position arrived at based on an exhausted “draft” that ultimately led to a decision further to a response to the received from the entity under investigation. While not holding brief to an organisation that has been embroiled in a needless controversy, best practice would imagine that a fair hearing and due process will have been the basis for such a SEC conclusion. This however would appear not to have been the case.

If anything raised the red flag for us, it was the non-disclosed Vol.2 of the report which we earnestly looked forward to as it would premise the further investigation into activities related to a leading capital market operator, a former executive of the firm and a re-opening of the last public offer of the entity, market watchers always believed the SEC overlooked. 

Fact of the matter is that the SEC Nigeria has not conducted itself above board on this exercise and has created in the minds of analyst and stakeholders – a platform for executing a pre-conceived and pre-meditated conclusion. The question remains for what purpose? 

Suffice to say, the concerns about the request for an EGM by the SEC led to further enquiries which revealed the following:

1. That on Monday, December 16, 2013 – the SEC met with ten (10) out of seventeen (17) members of the board of directors of ETI (where all the executive directors were present) to make a slide presentation of the 156 page document provided to each member;
2. That during the presentation which was an executive summary tagged as Vol. 1; a general corporate governance climate was presented which tallied with what KPMG (the SEC auditors) had signed on as a draft report;
3. At the end of the presentation, SEC had requested that the Board of ETI submits a response to it not later than January 02, 2014;
4. SEC Nigeria briefed the present directors that the report presented was a Vol 1. And that the Vol. 2 covered the specific issues raised by Laurence Do Rogo (a whistleblower), Thierry Tanoh’s responses and the allegations related to the Board of the Bank;
5. The Board of ETI at that session responded with a request for the Vol. 2 which was not presented and more time to respond to the general and specific issues raised  – citing a January 31, 2014 date;
6. The meeting closed on that note and on Monday, December 30, 2013, the ETI board formally wrote a letter signed by André Siaka (Ag. Chairman and defacto Vice Chairman) asking for a January 31, 2014 date for a response as most directors were on holidays and could not be respond to the voluminous documents handed to them as well as the Vol. 2 documents not provided/received for which the entire board remained in the dark about;
7. It is instructive to note that this was after the bank had passed a corporate governance resolution setting out a path way for ensuring adequate corporate governance backed and the chairman had stepped down;
8. On Monday, December 31, 2013, the ETI board got a response from the SEC (signed by a director, Edward Okolo) stating that the regulator was unable/unwilling to change the date of ‘expected response’ and insisting on a January 02, 2014 deadline date for submission of a response;
9. On Thursday, January 02, 2014 the Board of ETI, signed by André Siaka caused to be issued a plea to the SEC for more time to properly review the documents, seek consensus of response and in the absence of a Vol. 2 report which had not been received were handicapped to provide a wholesome response on the presentation received;

10. On Tuesday, January 07, 2014 the ETI board sent a holding response (awaiting the Vol. 2 of the SEC/KPMG report) to the SEC office only to receive in the evening a DIRECTIVE from the SEC demanding for an EGM be held by February 2014;

11. On Wednesday, January 08, 2014, the management of ETI issued a statement confirming that Laurence Do Rogo was no longer an employee of the institution;

12. On Thursday, January 09, 2014, the SEC issued a public statement on its decision on the ETI Investigations as a summary report on its findings. 

We have since understood that the board of ETI wrote to the SEC challenging its process and approach to the only opportunity the board had to responding to the ‘draft’ of the report FOR WHICH IT IS YET TO HAVE A COPY OF and more importantly, its decision which would appear not to have given careful and deliberate considerations to the reply from the board even as it responded inspite of an the incomplete information available to it.
 

• Why the SEC hurry to judgment? 
• Why the SEC demand for an EGM for which the Vol 2. That dealt with the specific questions related to matters for shareholders was withheld by the SEC? 
• Why does the action of the SEC appear pre-meditated and pre-conceived at the detriment of the bank and shareholders for which it was meant to protect? 
• Why did the SEC take pains to explain the jurisdiction challenges when in actual fact, it is an indictment fo its report that the KPMG report presented did not address jurisdictional issues? 
• What is the SEC position on the various listing rules applicable to ETI as an African brand with multi-country jurisdictions for which such a rush to judgment can be challenged?
   

The above do not form a new or unusual concern(s) about the regulatory framework but it raises real and genuine issues about the SEC’s motives in this case. For one, the EGM will / may not take place and it will be left to be seen what the SEC recourse will be in the aftermath. 

Why would a regulator interject itself into a major take-over bid and internal politics as it would appear? The international media that spearheaded this umbrage must now step up to convince Nigerians that it can see through a crisis it created by looking into the allegations made here and more to come in order to ensure that its intervention motives is not represented as a contrived expose. 

More discerning analysts, some of whom made contributions to this piece, retain a watching brief around this gateway to an African banking franchise that must be of concern to every African and investors in our market(s). 

Watch out for a developing story on this subject on Monday. It gets more greasier. 

Source: Proshare