By Olu Akanmu
Recent economic events call for deep national introspection on our economic management. These include the recent release on national economic performance by the National Bureau of Statistics (NBS), in between two MPC meetings; the push by government to withdraw so called “oil subsidy” and the attendant resistance by the population to this government move. It also includes the admission by the Finance Minister that she could only deliver a paltry 5% reduction in national recurrent expenditure from 74% to 69% over four years. According to the NBS, headline inflation rose to 10.5% in October. This is despite the policy activism of the monetary authorities to keep inflation at bay. Over the last one year in particular, the monetary authority has launched a series of liquidity contractionary moves that has seen MPR jump from 6.25% in January to 12% in October, and the Cash Reserve Ratio for banks doubling from 4% to 8%. Credit growth especially to the real sector and to consumers which had shrunk as a result of the loan default crisis of 2008/2009 has not also been significant as to impact seriously on investment and consumer expenditure. Banks are still not seriously lending despite the off-loading of their bad loans to AMCON and the stabilization of the financial system through the injection of capital into distressed banks. Bankers are not confident to lend. Business is not confident to invest. Consumers are not confident to spend.
While our GDP continues to grow at above 7%, we see the first signs that national economic growth rate might be tapering off, as growth rate year on year actually declined from 7.8% to 7.4%. Our economic managers have traditionally undeservedly thumped their chest that they are responsible for our economic growth. The fact is that as a nation, Nigeria has been very lucky. Global geo-politics, the war in Iraq and the possibilities of another in Iran, coupled with rise of China has meant that global demand for oil was increasing at a rate faster than it could be supplied. This has led to the rise in global oil prices, a windfall for oil producing nations with such natural factor endowments like Nigeria. The impact on growth rates on economies like Nigeria where oil accounts for 14% of our GDP has been huge. Nigeria has also been lucky by another natural factor, sheer good weather in the last decade which has helped our agricultural output. This along with the increase in cultivation of our huge mass of previously uncultivated arable land has seen agriculture output and contribution to GDP growing to more than 40%, outstripping even the oil sector. The increase in cultivation of previously uncultivated land however has little to do with government policy. It is an un-intended consequence of our poor economic management that has seen unemployment standing at more than 23%, with many school leavers driven to subsistence agriculture just to make ends meet. According the National Bureau of Statistics, another 1.8 million joined the unemployment queue in the last six months bringing the total number of unemployed in Nigeria to 15 million by June this year.
Nothing illustrates our poor economic management than the mass of unemployed youth, massive misery and poverty in a country who people otherwise should be living with basic comfort. Our GDP growth numbers averaging 7% annually over the last ten years have not translated to jobs and economic prosperity for our young people. The social consequences are becoming manifest even beyond crime. There is now a clear correlation between terrorism and unemployment. Yobe and Borno states, the capital base of Boko Haram have the highest unemployment rates in Nigeria at about 60%. Social conflicts and skirmishes are clearly highly correlated to social pressure to survive and the frustrations of young energetic people to get a decent living.
Despite aggressive monetary tightening, inflationary pressure has not abated, with core inflation remaining firmly above 11% last quarter. The naira is under pressure. A potential global economic contraction driven by crisis in the Eurozone could depress oil demand and oil prices, putting further pressure on the naira with attendant imported inflationary pressure. The fact is that we are seeing the limits of monetary activism especially when it is not complemented by sound fiscal economic management. Our monetary authorities might have attempted to be too heroic perhaps out of patriotic passion. Unfortunately, they may be judged by the promises which their grand heroic postures have engendered as those who have the tool box and the tools to fix our economic ailments. Until recently, we virtually forgot that we had a Finance Ministry (and even a Presidential Economic team) as our Reserve bank became a combined fisco-monetary authority.
Is there however any hope that the fiscal side of our economic management will wake up and become more potent? The admission by the Finance Minister that the current economic management team can only reduce recurrent expenditure by 5% from 74% to 69% over 4 years leaves much to be desired. Essentially, the Federal and state governments will continue to consume virtually all the money they make leaving very little for investments in infrastructure, power, roads and education that will drive long term economic growth. Government spending priority continues to be misplaced. The revelation that government intends to build a new house for the Vice President at a cost of N7b is unfortunate. The N7b at non-inflated cost, could probably fix tens of kilometers on the dreaded Ore-Benin Expressway with huge impact on our economic life. Such symbolic gestures are important. It will show that the government recognizes the need for sacrifice, for prudence in economic management and it is willing to start with itself. President Jonathan lost a huge symbolic opportunity to communicate commitment to economic prudence by continuing with our traditional bloated ministerial cabinet and huge retinue of Special Assistants. The fact is that the structure of government and its civil service are too large for prudent economic management, especially at this time. The National Assembly has further compounded the problem with its own huge cost as one of the most expensive but unproductive parliaments in the world. These are the root of the “Collect and Consume” mantra of the governments at all levels that have seen our recurrent expenditure growing to nearly 75% of national budget. A wise Joseph advised the biblical Pharaoh that the nation should save in its season of fat cows for the coming season of lean cows. Even the ancients understand the principles of economic cycles, of building strong national reserves to absorb economic shocks and uncertainties. In Nigeria however, we are not only consuming everything in our season of fat cows, of high oil prices, we are even borrowing after depleting our national reserves.
The Federal government has not been able to win the debate on the removal of so called “oil subsidy” because the people believe that it has no moral basis to ask them to make sacrifice. The people believe that oil subsidy is a corrupt artificial creation of our governments driven by a perverse incentive not to make our refineries work. The people do not trust that the state will spend wisely and honestly the subsidy when withdrawn for infrastructure development. If people must make economic sacrifice in form of taxes (which is what the oil subsidy withdrawal is), the government must have the moral credibility to ask them to do so. This seems to be the greatest challenge of government and its attempt at fiscal reforms. Reprioritizing national economic spend will be painful in the short term. Rationalizing the bureaucracy at federal and state levels , cutting excess fat in government including the national assembly, fighting corruption and entrenched interests such that improves the quality of government spend call for a courageous leadership that is credible, that will lead a national painful structural economic and political adjustment. The government unfortunately, seems to have spent a lot of its political capital and goodwill in the brief period after the election. As we write this essay, the government has just completed its first six months in office with very little to show in fiscal policy development and achievement. It can use the remaining forty-two months to make a difference. It can however only do so if it stays committed to the values of good governance, zero tolerance for corruption and executive prudence such that gives it the moral credibility to ask the people to make the desired economic sacrifice.
Olu Akanmu is an executive in the financial service industry. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com
Wednesday, November 30, 2011
Monday, July 18, 2011
Murdochs, Market Power and Society
By Olu Akanmu
There has been widespread condemnation of the phone hacking scandal of News of the World, one of the papers in the stable of Rupert Murdoch, the world’s biggest media mogul who controls leading newspaper titles in the UK such as the Times, the Sun and Sky news and significant interest in the BSkyB cable network. It is a clear breach of professional journalistic ethics to hack into the phones of private citizens, corrupt police officers to get privilege information about private citizens, some of whom were grieving their lost ones in murder cases. If these allegations are true, News of the World brand of journalism crossed the boundary of investigative journalism to criminal behavior. The International Press Institute (IPI) and the Newspaper Proprietors Association of Nigeria (NPAN) have condemned the journalistic practice of News of the World calling it a failure of law enforcement and not a failure of press freedom. While endorsing the British government judicial inquiries into the affair, they caution that it should not be used for revenge and the undermining of the long robust British tradition of press freedom which could cause a ripple effect globally as many countries hold Britain and its democratic institution of free press as a standard for their own society.
We agree with IPI and NPAN. We however wish to state that this Murdoch saga as it is unfolding is wider than the subject of press freedom. It also bothers on the subject of how public good and the efficient functioning of markets to deliver such public goods such the free flow of information, can be potentially compromised by special commercial interest when they wield significant market power. As all democracies join the British to debate the lessons of the unfolding Murdoch/ News of the World saga, it is critical that we situate the lessons within such broader context. The British with their eyes open, watched Murdoch’s News Corporation over years build a media empire that ended up controlling about 30% of the British Media Market. Rupert Murdoch became the media Capone courted by the right and left of the British political establishment from Margaret Thatcher to Tony Blair and David Cameron. They had no choice. Such was the combined market power of his newspapers that any politician will ignore him and his interest at their peril. Alastair Campbell, Tony Blair’s celebrated Director of Communication reflecting on this saga wrote in the Financial Times “that for all of us, at times, media support was something we courted at the expense of positions of principle on media issues”. He could just have added that they, the political establishment on the right and left compromised public good on the altar of political expediency. So powerful was the combined market power of Mr. Murdoch’s media titles that they could seemingly get away with anything, with such impunity because the institutions of society such as the parliament and the police could not discipline them. What now seemingly look like a political backlash on Mr. Murdoch is actually an attempt by the politicians to free themselves of the subservience they have subjugated themselves to for many years.
We do not care about the politicians, their subservience and their political games. We however do care, when the institution of free press, a key pillar of society’s democratic tradition becomes captured by private commercial interest, wielding its power to determine the information that society knows and how it should know it. This private commercial interest in the media, with significant market power can even determine what the truth for society should be, which is usually is own selfish version of truth. The institution of free press must remain unfettered if democracy is to function properly. The press as an institution must be protected from being captured by the government in the liberal traditions of great democracies. The press is the modern day equivalent of the public square, the “forum” in Rome where plebeians, who may not sit in the Senate, can hold their own discussions, express their feelings and pass their own resolutions which the nobles in the Senate must note, if they would avoid strife in society. To this end, press freedom is written into liberal democratic constitutions to provide another check and balance on the powers of the executive, the legislature and the judiciary. Hence, the press is called the fourth estate of the realm. What the founders and philosophers of liberal democracy might not have however envisaged is the evolution of capitalism and the media as a special industry, where private commercial interests could become so powerful as to capture the press and makes it un-free. In essence, while they were trying to protect the institution of free press from being captured by government from the front-door, what we have today in Britain is the capture of the press by private commercial interest from the back door, a la Mr. Murdoch’s Newscorporation.
What is the solution to this problem? How do we protect the market economy and at the same time protect the press from being captured by governments and private commercial interests? We do not support the current under-current in Britain to introduce stronger legislations to regulate the press. We support free and self regulation of the press. The British politicians must not use the current phone-hacking scandal to reverse the gains of the centuries of tradition of free press in the United Kingdom and gag press freedom. The press must however recognize that freedom is a privilege that comes with an obligation to be more responsible, to practice ethically and uphold highest tenets of professional behaviour. The press both in Britain and Nigeria must therefore do a new soul searching with a view to raising its ethical and moral standards, to win stronger public confidence as the true public square for the free expression of all opinions in a democratic society.
To prevent the press from being captured by private commercial interest with a significant market power, as we have in Britain today, Competition Policy laws and regulations will need to be strengthened. It is the weakness of the British Competition Policy and regulations that have led to a situation where one private commercial interest (Mr. Murdoch’s Newscorporation) controls about 30 percent of the British media market. It should be noted that we do not even have a Competition Policy in Nigeria. If a United Kingdom, with a Competition Policy and regulation could end up with a Mr. Murdoch phenomenon, there is probably a long-term risk to press freedom in Nigeria from private commercial interests when the media industry gets consolidated in the future due to the imperative of scale and size efficiencies.
Nigeria needs to enact a Competition Policy that will ensure that key industry markets such as media, telecommunications, financial services and power function well guarding against the emergence of players with significant market power who could use such powers to stifle competition and the efficient functioning of markets. The only exception to such Competition policy and regulation would be when national companies need to build scale and size from home to compete abroad. We will like to state that the concept of significant market power should not necessarily be about whether market players can influence prices by stifling competition. As in the case of the British media market, the concept of significant market power should also be about whether market players are powerful enough to thwart or stifle the delivery of public good, in their own interest, which in this case is the free flow of information in a democratic society. The unfolding events in the British media hold important lessons for our own democracy and our market economy. We should all watch it closely.
There has been widespread condemnation of the phone hacking scandal of News of the World, one of the papers in the stable of Rupert Murdoch, the world’s biggest media mogul who controls leading newspaper titles in the UK such as the Times, the Sun and Sky news and significant interest in the BSkyB cable network. It is a clear breach of professional journalistic ethics to hack into the phones of private citizens, corrupt police officers to get privilege information about private citizens, some of whom were grieving their lost ones in murder cases. If these allegations are true, News of the World brand of journalism crossed the boundary of investigative journalism to criminal behavior. The International Press Institute (IPI) and the Newspaper Proprietors Association of Nigeria (NPAN) have condemned the journalistic practice of News of the World calling it a failure of law enforcement and not a failure of press freedom. While endorsing the British government judicial inquiries into the affair, they caution that it should not be used for revenge and the undermining of the long robust British tradition of press freedom which could cause a ripple effect globally as many countries hold Britain and its democratic institution of free press as a standard for their own society.
We agree with IPI and NPAN. We however wish to state that this Murdoch saga as it is unfolding is wider than the subject of press freedom. It also bothers on the subject of how public good and the efficient functioning of markets to deliver such public goods such the free flow of information, can be potentially compromised by special commercial interest when they wield significant market power. As all democracies join the British to debate the lessons of the unfolding Murdoch/ News of the World saga, it is critical that we situate the lessons within such broader context. The British with their eyes open, watched Murdoch’s News Corporation over years build a media empire that ended up controlling about 30% of the British Media Market. Rupert Murdoch became the media Capone courted by the right and left of the British political establishment from Margaret Thatcher to Tony Blair and David Cameron. They had no choice. Such was the combined market power of his newspapers that any politician will ignore him and his interest at their peril. Alastair Campbell, Tony Blair’s celebrated Director of Communication reflecting on this saga wrote in the Financial Times “that for all of us, at times, media support was something we courted at the expense of positions of principle on media issues”. He could just have added that they, the political establishment on the right and left compromised public good on the altar of political expediency. So powerful was the combined market power of Mr. Murdoch’s media titles that they could seemingly get away with anything, with such impunity because the institutions of society such as the parliament and the police could not discipline them. What now seemingly look like a political backlash on Mr. Murdoch is actually an attempt by the politicians to free themselves of the subservience they have subjugated themselves to for many years.
We do not care about the politicians, their subservience and their political games. We however do care, when the institution of free press, a key pillar of society’s democratic tradition becomes captured by private commercial interest, wielding its power to determine the information that society knows and how it should know it. This private commercial interest in the media, with significant market power can even determine what the truth for society should be, which is usually is own selfish version of truth. The institution of free press must remain unfettered if democracy is to function properly. The press as an institution must be protected from being captured by the government in the liberal traditions of great democracies. The press is the modern day equivalent of the public square, the “forum” in Rome where plebeians, who may not sit in the Senate, can hold their own discussions, express their feelings and pass their own resolutions which the nobles in the Senate must note, if they would avoid strife in society. To this end, press freedom is written into liberal democratic constitutions to provide another check and balance on the powers of the executive, the legislature and the judiciary. Hence, the press is called the fourth estate of the realm. What the founders and philosophers of liberal democracy might not have however envisaged is the evolution of capitalism and the media as a special industry, where private commercial interests could become so powerful as to capture the press and makes it un-free. In essence, while they were trying to protect the institution of free press from being captured by government from the front-door, what we have today in Britain is the capture of the press by private commercial interest from the back door, a la Mr. Murdoch’s Newscorporation.
What is the solution to this problem? How do we protect the market economy and at the same time protect the press from being captured by governments and private commercial interests? We do not support the current under-current in Britain to introduce stronger legislations to regulate the press. We support free and self regulation of the press. The British politicians must not use the current phone-hacking scandal to reverse the gains of the centuries of tradition of free press in the United Kingdom and gag press freedom. The press must however recognize that freedom is a privilege that comes with an obligation to be more responsible, to practice ethically and uphold highest tenets of professional behaviour. The press both in Britain and Nigeria must therefore do a new soul searching with a view to raising its ethical and moral standards, to win stronger public confidence as the true public square for the free expression of all opinions in a democratic society.
To prevent the press from being captured by private commercial interest with a significant market power, as we have in Britain today, Competition Policy laws and regulations will need to be strengthened. It is the weakness of the British Competition Policy and regulations that have led to a situation where one private commercial interest (Mr. Murdoch’s Newscorporation) controls about 30 percent of the British media market. It should be noted that we do not even have a Competition Policy in Nigeria. If a United Kingdom, with a Competition Policy and regulation could end up with a Mr. Murdoch phenomenon, there is probably a long-term risk to press freedom in Nigeria from private commercial interests when the media industry gets consolidated in the future due to the imperative of scale and size efficiencies.
Nigeria needs to enact a Competition Policy that will ensure that key industry markets such as media, telecommunications, financial services and power function well guarding against the emergence of players with significant market power who could use such powers to stifle competition and the efficient functioning of markets. The only exception to such Competition policy and regulation would be when national companies need to build scale and size from home to compete abroad. We will like to state that the concept of significant market power should not necessarily be about whether market players can influence prices by stifling competition. As in the case of the British media market, the concept of significant market power should also be about whether market players are powerful enough to thwart or stifle the delivery of public good, in their own interest, which in this case is the free flow of information in a democratic society. The unfolding events in the British media hold important lessons for our own democracy and our market economy. We should all watch it closely.
Wednesday, June 22, 2011
Reflections on Corporate Governance
By Olu Akanmu
Usually, discussions on corporate governance can become too abstract and technical beyond the reach of the ordinary investor and the larger society. It is critical that the language of corporate governance be understood by the ordinary investor who may not necessarily have a finance degree. In this essay, we identify eleven simple issues that determine the quality of corporate governance of a company. We define corporate governance as activities and organization processes that ensure that the organization is governed, directed and managed in the larger interest of shareholders as owners of the company, who have delegated the governance of their investments, in trust to corporation managers and board directors as their agents. Below, in our view are the eleven issues that determine to what extent an organization is governed well.
1. A functioning board that represents or reflects the interests of shareholders in truth and in spirit. A board may exist. It does not however mean that it functions. Functioning of a board goes beyond its periodical sittings. A functioning board will be such that sets policies and defines the larger purpose of the business, approves strategic directions and hold executives accountable for performance. Board members must not own their seats to the benevolence of the executives they are meant to govern, if they would exercise objective judgments in the discharge of their fiduciary duties.
2. The Board must represent real shareholders. Subject to independent directors who will bring other kind of values to the board, the board should consist of individuals who have something fundamental to lose if the company does not do well. In fact, board members should have a bigger stake in the success of the firm than an ordinary investor because of the quantum of their personal investments or that of the institution that they represent.
3. There should be on the board independent directors who have no filial, business or other types of relationships with executives of the firm, that could compromise their judgment or the objective discharge of their fiduciary responsibility. Independent directors must be truly independent. They must not have any pecuniary interest directly or indirectly in their relation to the corporation beyond their sitting allowances, which must be reasonable so as not to compromise the objective discharge of their duties.
4. The degree of transparency in the organization, in its day to day governance, its systems and decision making processes. A culture of organization transparency is critical to sound ethical practice and corporate governance. Low level of organization transparency is usually the umbrella that hides abuse of power and unethical managerial behavior.
5. The degree of candour between the executives of a firm and its staff is usually a good signal of quality of corporate governance. Where staff as internal stakeholders cannot express themselves with candour, it might signal excessive power concentration at the top of the organization which can be potentially abused by leaders of the organization. It leads to the next point. Candour between staff and executives of firms is also a critical ingredient that builds an internal culture of organization transparency. Because, people can ask and feel free to ask, nothing un-towards can be hidden in the organization, ensuring a high degree of corporate governance.
6. Power Concentration and Imperialness. Absolute power corrupts absolutely. It is not for nothing that great democracies have a system of checks and balances. The organization should have a system of check and balances that ensures that power is not concentrated in few people. While a firm should not be run like a democracy, it should also not be run like an imperial kingdom. Imperialness of power leads to abuse of power. So many good men with good intentions have found themselves corrupted by power and end up abusing their office because the organization is not run by a system of checks and balances against excessive power concentration.
7. Is there an open and well implemented conflict of interest policy that ensures that interests of managers, executives and directors are disclosed where they enter into relationships with the company? This will be to ascertain that such business is fair to the firm, the larger shareholders and that such business interests are not in conflict with the fiduciary responsibilities of directors and in the case of mangers, that such interest are not in conflict with their duty as agents of shareholders.
8. Open disclosure of compensation policies and practices. Is the compensation of managers and executives of the firm in tandem with the short and long term value they have created for the company? An important development today is the need to ensure that a significant portion of executive compensation is deferred relative to maturity of their risk decisions especially in financial services. The quality of a loan decision cannot be ascertained fully in its early years. Managers should not be fully paid bonuses on profitability on loans created in early years because the quality of their risk decisions on such business assets may not be fully known until later years.
9. Does the organization have a whistle-blowing policy that encourages the confidential reporting of unethical practice or misconduct among employees, suppliers and customers in their business dealings with the company? Are there clear hierarchies of whistle blowing up to the board level, usually an independent board ethics or audit committee to report such malpractices or misconduct? Are there sufficient safeguard to protect whistleblowers from victimization? The perceived integrity, objectivity ad independence of the reporting hierarchy for whistle-blowing up to the board level is critical for whistle-blowing to work.
10. Activist external regulation and monitoring. It is true that businesses should not be over-regulated. It is also true, especially given recent experiences that without an activist regulator that monitors compliance of business to specified rules of engagement by society, business may not always behave responsibly. While the organization deploys its governance process as described above, an activist regulatory environment can further compel companies to stick to high levels of corporate governance. An activist regulatory environment may also be important where extant laws are lagging behind ethical or governance challenges of corporations, or the institutions to enforce such extant laws are weak leading to potential impunity behavior by companies.
11. Strong market institutions that protect shareholder democracy and reward good corporate governance. It is critical that we build strong market institutions that will reward companies that are governed well through a lower investment risk rating, lower cost of capital and higher valuation. The trend is already emerging on the Nigeria stock exchange. For this trend to become consolidated, we must ensure that we reduce information asymmetries in financial markets, get information that is true and factual to flow more freely among companies, shareholders and potential investors. Improvement in standards of financial reporting through the adoption of the IFRS system will go a long way in correcting information asymmetries in our financial markets.
Olu Akanmu is an executive in the financial service industry and an active public speaker. He has a unique diversity of experience at senior levels in the consumer goods, manufacturing, health-care, social development, telecommunications and financial service industries. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com . He can be reached on olu.akanmu@yahoo.com
Usually, discussions on corporate governance can become too abstract and technical beyond the reach of the ordinary investor and the larger society. It is critical that the language of corporate governance be understood by the ordinary investor who may not necessarily have a finance degree. In this essay, we identify eleven simple issues that determine the quality of corporate governance of a company. We define corporate governance as activities and organization processes that ensure that the organization is governed, directed and managed in the larger interest of shareholders as owners of the company, who have delegated the governance of their investments, in trust to corporation managers and board directors as their agents. Below, in our view are the eleven issues that determine to what extent an organization is governed well.
1. A functioning board that represents or reflects the interests of shareholders in truth and in spirit. A board may exist. It does not however mean that it functions. Functioning of a board goes beyond its periodical sittings. A functioning board will be such that sets policies and defines the larger purpose of the business, approves strategic directions and hold executives accountable for performance. Board members must not own their seats to the benevolence of the executives they are meant to govern, if they would exercise objective judgments in the discharge of their fiduciary duties.
2. The Board must represent real shareholders. Subject to independent directors who will bring other kind of values to the board, the board should consist of individuals who have something fundamental to lose if the company does not do well. In fact, board members should have a bigger stake in the success of the firm than an ordinary investor because of the quantum of their personal investments or that of the institution that they represent.
3. There should be on the board independent directors who have no filial, business or other types of relationships with executives of the firm, that could compromise their judgment or the objective discharge of their fiduciary responsibility. Independent directors must be truly independent. They must not have any pecuniary interest directly or indirectly in their relation to the corporation beyond their sitting allowances, which must be reasonable so as not to compromise the objective discharge of their duties.
4. The degree of transparency in the organization, in its day to day governance, its systems and decision making processes. A culture of organization transparency is critical to sound ethical practice and corporate governance. Low level of organization transparency is usually the umbrella that hides abuse of power and unethical managerial behavior.
5. The degree of candour between the executives of a firm and its staff is usually a good signal of quality of corporate governance. Where staff as internal stakeholders cannot express themselves with candour, it might signal excessive power concentration at the top of the organization which can be potentially abused by leaders of the organization. It leads to the next point. Candour between staff and executives of firms is also a critical ingredient that builds an internal culture of organization transparency. Because, people can ask and feel free to ask, nothing un-towards can be hidden in the organization, ensuring a high degree of corporate governance.
6. Power Concentration and Imperialness. Absolute power corrupts absolutely. It is not for nothing that great democracies have a system of checks and balances. The organization should have a system of check and balances that ensures that power is not concentrated in few people. While a firm should not be run like a democracy, it should also not be run like an imperial kingdom. Imperialness of power leads to abuse of power. So many good men with good intentions have found themselves corrupted by power and end up abusing their office because the organization is not run by a system of checks and balances against excessive power concentration.
7. Is there an open and well implemented conflict of interest policy that ensures that interests of managers, executives and directors are disclosed where they enter into relationships with the company? This will be to ascertain that such business is fair to the firm, the larger shareholders and that such business interests are not in conflict with the fiduciary responsibilities of directors and in the case of mangers, that such interest are not in conflict with their duty as agents of shareholders.
8. Open disclosure of compensation policies and practices. Is the compensation of managers and executives of the firm in tandem with the short and long term value they have created for the company? An important development today is the need to ensure that a significant portion of executive compensation is deferred relative to maturity of their risk decisions especially in financial services. The quality of a loan decision cannot be ascertained fully in its early years. Managers should not be fully paid bonuses on profitability on loans created in early years because the quality of their risk decisions on such business assets may not be fully known until later years.
9. Does the organization have a whistle-blowing policy that encourages the confidential reporting of unethical practice or misconduct among employees, suppliers and customers in their business dealings with the company? Are there clear hierarchies of whistle blowing up to the board level, usually an independent board ethics or audit committee to report such malpractices or misconduct? Are there sufficient safeguard to protect whistleblowers from victimization? The perceived integrity, objectivity ad independence of the reporting hierarchy for whistle-blowing up to the board level is critical for whistle-blowing to work.
10. Activist external regulation and monitoring. It is true that businesses should not be over-regulated. It is also true, especially given recent experiences that without an activist regulator that monitors compliance of business to specified rules of engagement by society, business may not always behave responsibly. While the organization deploys its governance process as described above, an activist regulatory environment can further compel companies to stick to high levels of corporate governance. An activist regulatory environment may also be important where extant laws are lagging behind ethical or governance challenges of corporations, or the institutions to enforce such extant laws are weak leading to potential impunity behavior by companies.
11. Strong market institutions that protect shareholder democracy and reward good corporate governance. It is critical that we build strong market institutions that will reward companies that are governed well through a lower investment risk rating, lower cost of capital and higher valuation. The trend is already emerging on the Nigeria stock exchange. For this trend to become consolidated, we must ensure that we reduce information asymmetries in financial markets, get information that is true and factual to flow more freely among companies, shareholders and potential investors. Improvement in standards of financial reporting through the adoption of the IFRS system will go a long way in correcting information asymmetries in our financial markets.
Olu Akanmu is an executive in the financial service industry and an active public speaker. He has a unique diversity of experience at senior levels in the consumer goods, manufacturing, health-care, social development, telecommunications and financial service industries. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com . He can be reached on olu.akanmu@yahoo.com
Monday, May 16, 2011
Leadership, Social Transformation and Institutions
Speech delivered by Olu Akanmu, as Chair’s Opening Remarks at the Second Graduation Ceremony of African Centre for Leadership, Strategy & Development (Centre LSD), Abuja on 14th May 2011
The Honourable Minister of Information and Communication, the Special Assistant to the President on Millennium Development Goal, key note Speaker and Chairman of the Nigeria Electricity Regulatory Commission, the Executive Director and Board Members of Centre LSD, distinguished ladies and gentlemen.
I congratulate the African Centre for Leadership, Strategy & Development on the second graduation ceremony of its leadership program. I also congratulate graduates of the program. I have been privileged to see the curriculum and content of the course you have done. I make bold to say that it compares well with the best of leadership courses in civil society and in business anywhere in the world. While I congratulate you, I will like you to note that leaders are not made in the classroom. Leaders are made in the real world of action. Leaders are made in the world of life challenges and battles. Leaders are made in the world of conflicts and consensus. Leaders are made in the world of visions and divisions; the world in which you will have to apply the theory that you have learnt to make a difference in society. While an Engineering student could attend an engineering course, and conclude on graduation, that I am now an Engineer, a leadership student cannot on graduation say that I am now a leader. The best he or she could say is that I am now prepared for leadership. Leadership is “lifelong learning in action”. I repeat leadership is “lifelong learning in action”. It is a discipline that educators call “Action learning” or learning in practice. We however, know that there is no great practice without great theory. By participating in this program, you now have the theory to practice leadership, to accelerate your leadership learning on the journey of life.
Yet, you will not all lead the same way in spite of the fact that you have been on the same program. Each one of you must evolve his or her own authentic leadership style, which is a function of your leadership theory, your unique personality trait and your personal moral and value system. In your quest to lead, you will, in your life journey have to discover yourself. You will have to discover your greater life purpose for which you have been endowed with, your personality traits and unique natural gifts. You will be confronted with making tough leadership choices based on your moral and value system. In Nigeria, the crisis of leadership is the absence of sound moral and value system at the individual level of leadership which makes leaders in public and private sector make wrong leadership choices. I am sure that the distinguished key note speaker today, Dr Sam Amadi, will do justice to this subject.
Leadership is all about making a positive difference for the greater good of all, for our family, our community and our country. This is my very simple definition of leadership. If we apply this definition to Nigeria, we will conclude that we have had a “serial failure of leadership” since independence. Yes, we have had occasional successes, but those successes have been small oasis in an expansive desert of leadership failure.
We see a country so blessed in natural resources that cannot translate its blessings to prosperity for its people. We see a country so blessed in human talents yet cannot educate its children to liberate the fullest of their potential to contribute to their society. We see a country that produces oil, yet does not have oil to fuel its cars. We see a country with abundant sunshine that yet remains in darkness. The imperative of national transformation or transformational leadership which is the theme of this program cannot be over-emphasized.
Leadership in Nigeria in public and private sector has lost public trust. In our polity, the electorate believes largely that the elected largely act for themselves, in their own self interest. Our politicians are not statesmen. In the private sector, we see the betrayal of public trust by business leaders when they cook the books and produce accounting reports that do not reflect the true health of their business, making the gullible public invest in their corporations, only for those shares to be worthless in the shortest possible time. Personal and corporate integrity in leadership is low. Trust in leadership is little. How then can a leadership that is not trusted galvanize the people and mobilize them to use their entire GOD–given potential for the progress and transformation of their society? I am sure that our key note speaker will address this subject.
Finally, distinguished ladies and gentlemen; great societies cannot exist without strong institutions that ensure that individual rational economic agents have the incentives to do the right thing and act in the right way. In politics for example, a strong electoral institution, free and fair participatory democracy ensures that politicians who have acted only in their self-interest are voted out in the next electoral cycle. The judicial and law enforcement institutions also ensure that those who commit crime or steal public funds gets caught, prosecuted and punished, as an incentive or deterrent against corruption. In the private sector, our regulatory and market institutions would also ensure that our corporations are governed well for the greater good of shareholders who owned the companies and the larger society. This is unlike our recent experience where corporations have been largely governed for the good of corporation managers alone. In Nigeria, one would have to ponder “why is it that our institutions have not worked?” Why have our institutions remained perpetually weak and allow our economic players to consistently do the wrong things and keep acting with impunity? Could it be that our leaders deliberately create or weaken our institutions to allow their continuous impunity? If that’s what our leaders want, what must we as followers do to frustrate their attempt to weaken our institutions? What must we collectively do to build strong social, political and economic institutions? I believe these are the challenges of transformational leadership for Nigeria, which our distinguished key note speaker will address.
Ladies and gentlemen, I congratulate African Centre for Leadership, Strategy & Development, the graduating students and all of us who have come to rejoice with them.
Thank you.
The Honourable Minister of Information and Communication, the Special Assistant to the President on Millennium Development Goal, key note Speaker and Chairman of the Nigeria Electricity Regulatory Commission, the Executive Director and Board Members of Centre LSD, distinguished ladies and gentlemen.
I congratulate the African Centre for Leadership, Strategy & Development on the second graduation ceremony of its leadership program. I also congratulate graduates of the program. I have been privileged to see the curriculum and content of the course you have done. I make bold to say that it compares well with the best of leadership courses in civil society and in business anywhere in the world. While I congratulate you, I will like you to note that leaders are not made in the classroom. Leaders are made in the real world of action. Leaders are made in the world of life challenges and battles. Leaders are made in the world of conflicts and consensus. Leaders are made in the world of visions and divisions; the world in which you will have to apply the theory that you have learnt to make a difference in society. While an Engineering student could attend an engineering course, and conclude on graduation, that I am now an Engineer, a leadership student cannot on graduation say that I am now a leader. The best he or she could say is that I am now prepared for leadership. Leadership is “lifelong learning in action”. I repeat leadership is “lifelong learning in action”. It is a discipline that educators call “Action learning” or learning in practice. We however, know that there is no great practice without great theory. By participating in this program, you now have the theory to practice leadership, to accelerate your leadership learning on the journey of life.
Yet, you will not all lead the same way in spite of the fact that you have been on the same program. Each one of you must evolve his or her own authentic leadership style, which is a function of your leadership theory, your unique personality trait and your personal moral and value system. In your quest to lead, you will, in your life journey have to discover yourself. You will have to discover your greater life purpose for which you have been endowed with, your personality traits and unique natural gifts. You will be confronted with making tough leadership choices based on your moral and value system. In Nigeria, the crisis of leadership is the absence of sound moral and value system at the individual level of leadership which makes leaders in public and private sector make wrong leadership choices. I am sure that the distinguished key note speaker today, Dr Sam Amadi, will do justice to this subject.
Leadership is all about making a positive difference for the greater good of all, for our family, our community and our country. This is my very simple definition of leadership. If we apply this definition to Nigeria, we will conclude that we have had a “serial failure of leadership” since independence. Yes, we have had occasional successes, but those successes have been small oasis in an expansive desert of leadership failure.
We see a country so blessed in natural resources that cannot translate its blessings to prosperity for its people. We see a country so blessed in human talents yet cannot educate its children to liberate the fullest of their potential to contribute to their society. We see a country that produces oil, yet does not have oil to fuel its cars. We see a country with abundant sunshine that yet remains in darkness. The imperative of national transformation or transformational leadership which is the theme of this program cannot be over-emphasized.
Leadership in Nigeria in public and private sector has lost public trust. In our polity, the electorate believes largely that the elected largely act for themselves, in their own self interest. Our politicians are not statesmen. In the private sector, we see the betrayal of public trust by business leaders when they cook the books and produce accounting reports that do not reflect the true health of their business, making the gullible public invest in their corporations, only for those shares to be worthless in the shortest possible time. Personal and corporate integrity in leadership is low. Trust in leadership is little. How then can a leadership that is not trusted galvanize the people and mobilize them to use their entire GOD–given potential for the progress and transformation of their society? I am sure that our key note speaker will address this subject.
Finally, distinguished ladies and gentlemen; great societies cannot exist without strong institutions that ensure that individual rational economic agents have the incentives to do the right thing and act in the right way. In politics for example, a strong electoral institution, free and fair participatory democracy ensures that politicians who have acted only in their self-interest are voted out in the next electoral cycle. The judicial and law enforcement institutions also ensure that those who commit crime or steal public funds gets caught, prosecuted and punished, as an incentive or deterrent against corruption. In the private sector, our regulatory and market institutions would also ensure that our corporations are governed well for the greater good of shareholders who owned the companies and the larger society. This is unlike our recent experience where corporations have been largely governed for the good of corporation managers alone. In Nigeria, one would have to ponder “why is it that our institutions have not worked?” Why have our institutions remained perpetually weak and allow our economic players to consistently do the wrong things and keep acting with impunity? Could it be that our leaders deliberately create or weaken our institutions to allow their continuous impunity? If that’s what our leaders want, what must we as followers do to frustrate their attempt to weaken our institutions? What must we collectively do to build strong social, political and economic institutions? I believe these are the challenges of transformational leadership for Nigeria, which our distinguished key note speaker will address.
Ladies and gentlemen, I congratulate African Centre for Leadership, Strategy & Development, the graduating students and all of us who have come to rejoice with them.
Thank you.
Wednesday, January 19, 2011
Graduate Employment and Employability Challenges in Nigeria
By Olu Akanmu
Being Abridged Text of Presentation Given at the Association of Commonwealth Universities/ British Council Regional Policy Dialogue on Graduate Employability in Africa in Accra, Ghana on the 18th of January, 2011. This paper was also presented at the British Council Global Higher Education Conference in Hong- Kong, on the 12th of March, 2011.
Nigeria has a serious challenge. Many graduates of its higher institutions cannot find work. Despite an average economic growth rate of about seven percent per annum over the last seven years, a good performance by global standards, wage employment is estimated to have declined by about thirty percent according to a recent World Bank Publication titled Putting Nigeria to Work. Nigeria has a serious jobless growth problem. Its strong economic performance over the last decade has not translated to jobs and real life opportunities for its many of its youths. Three out of ten graduates of higher education cannot find work. Being highly educated does not increase the chance of finding a job. Many graduates of higher education who find work are not usually gainfully employed. They are forced to accept marginal jobs that do not use their qualification in sales, agriculture and manual labour according to the British Council sponsored Nigeria-Next Generation Report. For those who are lucky to find jobs, employers are concerned about their skills and fit with their job requirements. Standards have fallen in higher education due to years of poor funding, leading to a growing preference for overseas university education. Nigeria is one of the biggest markets for British Higher Education because many upper- middle class families see it as a way to give their children a head-start in life. This however has serious social equity implications as not more than ten percent of Nigerian families can afford to send their children abroad. There is an increasing correlation between employability of graduates and their social class. If education is bridge to liberating the potential of young people and bridging the social divide by offering everyone a chance to climb the social ladder, higher education in Nigeria may be failing.
Employers want their graduate recruits to be competent technically in their chosen field. They also want them to come of school well equipped with complementary life skills such as problem solving, reflective and critical thinking, interpersonal and teaming skills, effective communication, character, integrity and high level of personal ethics, self esteem, self –discipline, organizing skills and abilities to translate ideas to action. The problem, typical of higher education in many countries is that these life skills are rarely thought as part of higher education curriculum. Yet as soft as they are, they are no less important in making a success out of school as the specific technical skills in a graduate’s chosen field.
There are two critical policy issues to address in putting the Nigerian graduate to work. The first is how to increase the employment generation capacity of the economy, create jobs that will absorb thousands of higher education graduates and reverse the current pattern of Nigeria’s jobless economic growth. It is estimated that Nigeria needs to create twenty-four million jobs over the next ten years to half current unemployment level of thirty percent. The second policy issue to address is how higher education institutions will produce graduates that are employable for the jobs created. How would Nigeria’s higher education institutions improve standards to produce graduates with the minimum sufficient technical skills in their chosen field? This is critical given the historical underfunding of higher education in Nigeria in the last two decades. Nigeria in the 1990s spent significantly more of its resources in the regional peace keeping mission in West Africa known as ECOMOG than on its Universities. Her national spending priorities will need to be re-ordered to allocate more resources to human capacity development which has a high leverage on its social and economic development. In addition, Nigeria’s higher education policy must also address how its institutions will develop the complementary curriculum that addresses the life skill requirements its graduates and prepare them better for their post-graduate life journey? The disconnect between post graduate employment reality and higher education curriculum in specific field and general terms will need to be addressed.
A three way cooperation of the Nigerian government, business and higher education institutions is required to solve these policy issues and put the Nigerian graduate to work. The Nigeria government should adopt a new economic and industrial policy that promotes employment intensive industries with strong potential national competitiveness. Nigeria is typically known for its oil. The oil industry is however more capital intensive than employment intensive. It contributes 40% of Nigeria’s GDP but employs less than 5% of the Nigeria’s population. Industries such as light manufacturing, construction, ICT, wholesale and retail, meat and poultry, oil palm and cocoa along with their value chains have very high employment potential. They need to become the focus of Nigeria’s industrial policy to ensure that its economic growth numbers have real meaning in jobs and life opportunities for Nigeria youths and higher education graduates. The constraints which has held these industries at its infancy such as physical infrastructure particularly power and transport, access to finance, bureaucratic investment environment and dearth of technical skills and manpower to operate these industries on the desired scale will need to be removed. Nigeria needs to develop a more formal technical and vocational education system that will produce graduates with the technical and vocational skills needed to operate the employment intensive industries and its value chains and thereby put more of its graduates and youths to gainful work. Anyone who has ever set up a factory or a construction project in Nigeria knows that they have to import a platoon of Indian, Israeli, Chinese or German technicians to run the project. We are producing too many liberal arts, science and theoretical engineering graduates in our universities whose employability potential is very limited. Technical and vocational education must be given its own prestige and made attractive to young people. Polytechnic higher education must be re-sharpened rather than blur the difference with Universities. We must establish more standardized technical colleges that will produce competent technicians that will work the factories of the new focused employment intensive industries and the small businesses that support them. Business must play a complementary role to government to achieve this. The new Dangote Technical Academy from one of Nigeria’s industrial conglomerate is a shining example.
The historical underfunding which has led to a crisis of standards in higher education must be reversed. Nigeria will be spending about twelve billion dollars to bail out its banks and the financial system, five times the size of the federal budget on education. The government correctly recognizes that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of its banks’ shareholders. The government needs to apply the same the public good concept to its higher education sector and its funding crisis because there are significant externalities in social benefits in the well-being of the education sector beyond the private interest of individual students and their families.
Putting the Nigerian graduate to gainful work also implies that its higher education institutions should partner with business to develop employability content in higher education curriculum and provide formal life skills training for students. They should use more life case analysis in teaching that brings the real work problems to life. Entrepreneurial studies should be made compulsory because many may find themselves self-employed after school. Formal careers services and employability performance tracking working through a formal Alumni network will also be critical along with the exchange of best practices locally and internationally.
With a declining birth-rate and a relatively young population, Nigeria can potentially reap bountiful demographic dividend through its young people if it educates them and put them to gainful work. Doing otherwise with a mass army of educated, unemployed and unemployable youth population would engender high levels crime and threaten social cohesion. As we approach the elections, the shallowness of economic debate among our political parties on how to tackle our onerous problem of jobless economic growth is lamentable. Civil society must put this issue back in the centre of our polity. Putting the Nigerian graduate and its army of young people to gainful work is a task that must be done.
Olu Akanmu
January, 2010
Being Abridged Text of Presentation Given at the Association of Commonwealth Universities/ British Council Regional Policy Dialogue on Graduate Employability in Africa in Accra, Ghana on the 18th of January, 2011. This paper was also presented at the British Council Global Higher Education Conference in Hong- Kong, on the 12th of March, 2011.
Nigeria has a serious challenge. Many graduates of its higher institutions cannot find work. Despite an average economic growth rate of about seven percent per annum over the last seven years, a good performance by global standards, wage employment is estimated to have declined by about thirty percent according to a recent World Bank Publication titled Putting Nigeria to Work. Nigeria has a serious jobless growth problem. Its strong economic performance over the last decade has not translated to jobs and real life opportunities for its many of its youths. Three out of ten graduates of higher education cannot find work. Being highly educated does not increase the chance of finding a job. Many graduates of higher education who find work are not usually gainfully employed. They are forced to accept marginal jobs that do not use their qualification in sales, agriculture and manual labour according to the British Council sponsored Nigeria-Next Generation Report. For those who are lucky to find jobs, employers are concerned about their skills and fit with their job requirements. Standards have fallen in higher education due to years of poor funding, leading to a growing preference for overseas university education. Nigeria is one of the biggest markets for British Higher Education because many upper- middle class families see it as a way to give their children a head-start in life. This however has serious social equity implications as not more than ten percent of Nigerian families can afford to send their children abroad. There is an increasing correlation between employability of graduates and their social class. If education is bridge to liberating the potential of young people and bridging the social divide by offering everyone a chance to climb the social ladder, higher education in Nigeria may be failing.
Employers want their graduate recruits to be competent technically in their chosen field. They also want them to come of school well equipped with complementary life skills such as problem solving, reflective and critical thinking, interpersonal and teaming skills, effective communication, character, integrity and high level of personal ethics, self esteem, self –discipline, organizing skills and abilities to translate ideas to action. The problem, typical of higher education in many countries is that these life skills are rarely thought as part of higher education curriculum. Yet as soft as they are, they are no less important in making a success out of school as the specific technical skills in a graduate’s chosen field.
There are two critical policy issues to address in putting the Nigerian graduate to work. The first is how to increase the employment generation capacity of the economy, create jobs that will absorb thousands of higher education graduates and reverse the current pattern of Nigeria’s jobless economic growth. It is estimated that Nigeria needs to create twenty-four million jobs over the next ten years to half current unemployment level of thirty percent. The second policy issue to address is how higher education institutions will produce graduates that are employable for the jobs created. How would Nigeria’s higher education institutions improve standards to produce graduates with the minimum sufficient technical skills in their chosen field? This is critical given the historical underfunding of higher education in Nigeria in the last two decades. Nigeria in the 1990s spent significantly more of its resources in the regional peace keeping mission in West Africa known as ECOMOG than on its Universities. Her national spending priorities will need to be re-ordered to allocate more resources to human capacity development which has a high leverage on its social and economic development. In addition, Nigeria’s higher education policy must also address how its institutions will develop the complementary curriculum that addresses the life skill requirements its graduates and prepare them better for their post-graduate life journey? The disconnect between post graduate employment reality and higher education curriculum in specific field and general terms will need to be addressed.
A three way cooperation of the Nigerian government, business and higher education institutions is required to solve these policy issues and put the Nigerian graduate to work. The Nigeria government should adopt a new economic and industrial policy that promotes employment intensive industries with strong potential national competitiveness. Nigeria is typically known for its oil. The oil industry is however more capital intensive than employment intensive. It contributes 40% of Nigeria’s GDP but employs less than 5% of the Nigeria’s population. Industries such as light manufacturing, construction, ICT, wholesale and retail, meat and poultry, oil palm and cocoa along with their value chains have very high employment potential. They need to become the focus of Nigeria’s industrial policy to ensure that its economic growth numbers have real meaning in jobs and life opportunities for Nigeria youths and higher education graduates. The constraints which has held these industries at its infancy such as physical infrastructure particularly power and transport, access to finance, bureaucratic investment environment and dearth of technical skills and manpower to operate these industries on the desired scale will need to be removed. Nigeria needs to develop a more formal technical and vocational education system that will produce graduates with the technical and vocational skills needed to operate the employment intensive industries and its value chains and thereby put more of its graduates and youths to gainful work. Anyone who has ever set up a factory or a construction project in Nigeria knows that they have to import a platoon of Indian, Israeli, Chinese or German technicians to run the project. We are producing too many liberal arts, science and theoretical engineering graduates in our universities whose employability potential is very limited. Technical and vocational education must be given its own prestige and made attractive to young people. Polytechnic higher education must be re-sharpened rather than blur the difference with Universities. We must establish more standardized technical colleges that will produce competent technicians that will work the factories of the new focused employment intensive industries and the small businesses that support them. Business must play a complementary role to government to achieve this. The new Dangote Technical Academy from one of Nigeria’s industrial conglomerate is a shining example.
The historical underfunding which has led to a crisis of standards in higher education must be reversed. Nigeria will be spending about twelve billion dollars to bail out its banks and the financial system, five times the size of the federal budget on education. The government correctly recognizes that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of its banks’ shareholders. The government needs to apply the same the public good concept to its higher education sector and its funding crisis because there are significant externalities in social benefits in the well-being of the education sector beyond the private interest of individual students and their families.
Putting the Nigerian graduate to gainful work also implies that its higher education institutions should partner with business to develop employability content in higher education curriculum and provide formal life skills training for students. They should use more life case analysis in teaching that brings the real work problems to life. Entrepreneurial studies should be made compulsory because many may find themselves self-employed after school. Formal careers services and employability performance tracking working through a formal Alumni network will also be critical along with the exchange of best practices locally and internationally.
With a declining birth-rate and a relatively young population, Nigeria can potentially reap bountiful demographic dividend through its young people if it educates them and put them to gainful work. Doing otherwise with a mass army of educated, unemployed and unemployable youth population would engender high levels crime and threaten social cohesion. As we approach the elections, the shallowness of economic debate among our political parties on how to tackle our onerous problem of jobless economic growth is lamentable. Civil society must put this issue back in the centre of our polity. Putting the Nigerian graduate and its army of young people to gainful work is a task that must be done.
Olu Akanmu
January, 2010
Subscribe to:
Posts (Atom)