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.
Monday, July 18, 2011
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
Sunday, December 19, 2010
Funding Higher Education
By Olu Akanmu
There has been very significant outrage at the announcement by the Federal government that six additional federal universities will take off from next academic session. The paltry N10billion naira voted for their take off raises fundamental question about the quality of education that these universities will deliver. If the federal government has not been able to fund existing twenty-five universities properly, why should it start an additional six universities? It does not suggest that quality and standard are important to government. Patriotic concerns have been expressed that it is time to recognize that the current fee regime of the universities is too small to complement the paltry funding that they receive from the government. That the Nigeria state should not own a Nigerian youth, university education but a good secondary foundation education. That university fees need to be significantly higher perhaps at near commercial level for sustainability and standard of the university system. This may be complemented by endowment from rich and charitable individuals and a student loan program where students could borrow to pay the near-commercial high school fees. We respond to this school of thought in this essay.
The problem of our higher education and its larger social impact are complex hence the solution to the problem will be non-linear. Education is a public good whose larger social and economic benefits are bigger than what can be typically harnessed by private capital in investment returns. This creates a pricing problem in that prices may be either too high as to serve only the markets where capital can get its return, leaving a large section of society un-served with dire social consequences; or too low as to serve everyone but priced below the optimal level for private capital returns, which implies there will be little or no investment. This is the market failure problem that recognizes that while the markets may be best in allocating society’s resources efficiently, it has significant limitations in the case of public goods like education, national security and public health. When the state is endowed with abundant resources, it could intervene to correct the limitations of markets by providing public goods exclusively for society as we have tried to do in Nigeria. Given however, the current resource limitations of the Nigeria state, what we need is a structured, tiered and segmented partnership with private capital in the provision of our public goods such as our university education.
Firstly, we need to license more private universities and create structures that allow them to charge market prices for the market segments that can afford to pay such commercial prices. We should create incentives for the acceleration of private investments including tax incentives that will encourage the provision of world class infrastructures and standards in our private universities. There is a significant middle-class market that educates their wards in private secondary schools at costs that are fifty times higher than the highest fees in our public universities. That market should be served by the private universities and should free the public universities to serve the market segments that cannot afford to pay commercial prices. The public universities will serve as a social safety net for the larger section of the population that cannot afford commercial prices for education. It will provide for them university education as a public good whose opportunity cost would have been a half-educated population that could contribute very little to the well-being of the modern society. Then, we should have very tough regulation of standards by the National University Commission on curriculum, teaching qualification, facilities and minimum pass requirements including the unapologetic closure of departments that fall below such prescribed standards.
How would the public universities charging non-market prices be funded? We should re-set our national priorities to fund programs that have deep and spiral impact on society. The billions of dollars we have spent on ECOMOG operations since our first intervention in Liberia could have made a difference in the standard of our university education. Incidentally, there is a correlation between the decline of our university standards from the 1990s and our first ECOMOG adventure. We should also rationalize the structure of our governments at federal and state level and rationalize our executive and legislative bureaucracy with their bloated recurrent expenditures. We must also tackle corruption more vigorously. A key reason why society is unable to fund the provision of public goods is that society’s resources are looted heavily by the corruption menace. We can increase the efficiency of expenditure on public goods by at least thirty percent if we eliminate wastages and over-invoicing due to corruption in government. A student loan program learning from the American system could be useful but may be constrained by the limitation of our financial system with its very low financial inclusion where less than ten percent of our population has access to serious credit. We can also impose a one percent tax on foreign education remittances to support university education in Nigeria. A parent remitting USD20, 000 for her ward’s school fees will contribute a token USD200 to our university system and its public good. Because, many of us middle class people have been privileged by society, we should have such moral and legal responsibility to contribute to public good. Educational endowment from the rich could also be a good funding source as we have in the US, but this is a function of the depth of the moral fiber of the rich and their sense of duty to society. This is an area where our rich and those of the advanced societies are different. In a society where the rich do not even pay their legitimate taxes, it is not clear how much could be mobilized from them in serious charitable endowment to fund public goods like education. Rather we should strengthen our tax and tax collection systems to ensure that wealthy individuals fulfill their legitimate tax obligations ensuring that we spend a good portion of the increased tax revenue to fund our education sector.
In the last one year, we have spent a good part of state resources to bail-out our banks and the larger financial system. This is because our government is correctly operating with a paradigm that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of our banks’ shareholders. We should also apply the same the public good concept to our higher education sector and its crisis. That there are significant externalities in social benefits in the well-being of our education sector beyond the private interest of individual students and their families. We must however do this within the context of good fiscal discipline; rationalize government fats and wastages ensuring that we do not create a ballooning public debt in the process.
There has been very significant outrage at the announcement by the Federal government that six additional federal universities will take off from next academic session. The paltry N10billion naira voted for their take off raises fundamental question about the quality of education that these universities will deliver. If the federal government has not been able to fund existing twenty-five universities properly, why should it start an additional six universities? It does not suggest that quality and standard are important to government. Patriotic concerns have been expressed that it is time to recognize that the current fee regime of the universities is too small to complement the paltry funding that they receive from the government. That the Nigeria state should not own a Nigerian youth, university education but a good secondary foundation education. That university fees need to be significantly higher perhaps at near commercial level for sustainability and standard of the university system. This may be complemented by endowment from rich and charitable individuals and a student loan program where students could borrow to pay the near-commercial high school fees. We respond to this school of thought in this essay.
The problem of our higher education and its larger social impact are complex hence the solution to the problem will be non-linear. Education is a public good whose larger social and economic benefits are bigger than what can be typically harnessed by private capital in investment returns. This creates a pricing problem in that prices may be either too high as to serve only the markets where capital can get its return, leaving a large section of society un-served with dire social consequences; or too low as to serve everyone but priced below the optimal level for private capital returns, which implies there will be little or no investment. This is the market failure problem that recognizes that while the markets may be best in allocating society’s resources efficiently, it has significant limitations in the case of public goods like education, national security and public health. When the state is endowed with abundant resources, it could intervene to correct the limitations of markets by providing public goods exclusively for society as we have tried to do in Nigeria. Given however, the current resource limitations of the Nigeria state, what we need is a structured, tiered and segmented partnership with private capital in the provision of our public goods such as our university education.
Firstly, we need to license more private universities and create structures that allow them to charge market prices for the market segments that can afford to pay such commercial prices. We should create incentives for the acceleration of private investments including tax incentives that will encourage the provision of world class infrastructures and standards in our private universities. There is a significant middle-class market that educates their wards in private secondary schools at costs that are fifty times higher than the highest fees in our public universities. That market should be served by the private universities and should free the public universities to serve the market segments that cannot afford to pay commercial prices. The public universities will serve as a social safety net for the larger section of the population that cannot afford commercial prices for education. It will provide for them university education as a public good whose opportunity cost would have been a half-educated population that could contribute very little to the well-being of the modern society. Then, we should have very tough regulation of standards by the National University Commission on curriculum, teaching qualification, facilities and minimum pass requirements including the unapologetic closure of departments that fall below such prescribed standards.
How would the public universities charging non-market prices be funded? We should re-set our national priorities to fund programs that have deep and spiral impact on society. The billions of dollars we have spent on ECOMOG operations since our first intervention in Liberia could have made a difference in the standard of our university education. Incidentally, there is a correlation between the decline of our university standards from the 1990s and our first ECOMOG adventure. We should also rationalize the structure of our governments at federal and state level and rationalize our executive and legislative bureaucracy with their bloated recurrent expenditures. We must also tackle corruption more vigorously. A key reason why society is unable to fund the provision of public goods is that society’s resources are looted heavily by the corruption menace. We can increase the efficiency of expenditure on public goods by at least thirty percent if we eliminate wastages and over-invoicing due to corruption in government. A student loan program learning from the American system could be useful but may be constrained by the limitation of our financial system with its very low financial inclusion where less than ten percent of our population has access to serious credit. We can also impose a one percent tax on foreign education remittances to support university education in Nigeria. A parent remitting USD20, 000 for her ward’s school fees will contribute a token USD200 to our university system and its public good. Because, many of us middle class people have been privileged by society, we should have such moral and legal responsibility to contribute to public good. Educational endowment from the rich could also be a good funding source as we have in the US, but this is a function of the depth of the moral fiber of the rich and their sense of duty to society. This is an area where our rich and those of the advanced societies are different. In a society where the rich do not even pay their legitimate taxes, it is not clear how much could be mobilized from them in serious charitable endowment to fund public goods like education. Rather we should strengthen our tax and tax collection systems to ensure that wealthy individuals fulfill their legitimate tax obligations ensuring that we spend a good portion of the increased tax revenue to fund our education sector.
In the last one year, we have spent a good part of state resources to bail-out our banks and the larger financial system. This is because our government is correctly operating with a paradigm that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of our banks’ shareholders. We should also apply the same the public good concept to our higher education sector and its crisis. That there are significant externalities in social benefits in the well-being of our education sector beyond the private interest of individual students and their families. We must however do this within the context of good fiscal discipline; rationalize government fats and wastages ensuring that we do not create a ballooning public debt in the process.
Let’s Rebuild the Fallen Walls - Reflections on the Decay of Public Secondary School Education in Nigeria
By Olu Akanmu
Keynote Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008
Brothers, Seniors and Contemporaries. We have come to celebrate the 50th anniversary of our institution, our secondary school on whose foundations we have built what have made us to be called success. While it is on one hand a celebration, it also represents the highlighting of the decay of our institution, a metaphor for the decay of our nation and its institutional fabrics.
Lagelu Grammar School, with its serene academic environment, its beautiful and tall Casuarina trees, that made the sky felt so near. Those Casuarina trees that constantly told us as students; that the sky could be reached and not an impossible summit. Lagelu was the hallowed temple for the moulding of leaders of tomorrow, whose catchments area was largely among the indigenes of Ibadan; who were its founding fathers.
Today, the walls of the hallowed temple of our institution, nay our nation is fallen. The Casuarina trees are gone. The environment is no longer serene. The glasses of the windows of the beautiful hall, a rock solid architectural masterpiece, are now made of wooden planks. There are neither more encyclopedia in the library nor chemicals in the laboratory. Lagelu, that was the pride of the nation in French subject in the late 70s, winning prizes even in West Africa, no longer offer French to its students. The wide expanse of school land of a thousand acres is gone. They have been taken over by the police barracks and several schools claiming to be offsprings of the Lagelu mother school, but who are nothing but pretenders to the heritage. The boarding house where we learnt discipline and toughness is also gone. It was the place where we were toughened by cutting the stubborn grass of our slanting football field.
As we have said, the institutional decay of our school, is a metaphor for the decay of our nation and its institutional fabrics. It represents the decay of our communities, of our government, and the ethical values that should have made us a strong nation. The nature of our societal institutions today is the outcome of our collective efforts as leaders and followers.
Our institutions have decayed, not because we lack resources, for we are a blessed nation. Our institutions have decayed because we have enthroned the values of graft over service. Our institutions have decayed because we have worshiped material over knowledge. Our institutions have decayed because we have let enlightened self-interest entrenched itself over the interest of the larger community.
Our school took its name from Lagelu, the founder of the ancient city of Ibadan. Ibadan the ancient city of our birth, that is rich in history of the triumph of community values over enlightened self interest. We remember the famous story of Efunsetan Aniwura, the Iyalode of Ibadan, her wickedness, her oppression of the citizenry; and her eventual defeat by the collective will of the people.
Brothers, Seniors and Contemporaries. The fact is that if Efunsetan were to be alive today in many parts of our nation, she would be a political party Chairman or member of board of trustee of the political party of her choice. Such is the decadence of our political institution today.
Yet, we must not loose hope, for we can see some silver lining in the dark clouds. Our leaders and their stewardship are being questioned for the first time in the law courts. Enlightened self interest may push back but the larger community interest is resisting well through the institution of our vibrant press, a real blessing of our democratic experiment.
Enlightened self interest perpetuates itself over our larger community interest when the institutions for expression of our community interest are either weak or non-existent. We see this in our democracy and its faulty electoral process. Even the President acknowledged that what we had in April was not an election to be proud of and has set up a committee on electoral reforms. While we re-build the political process and its institutional framework to which our political parties are core; it is critical that we strengthen alternative social institutions outside the political process. These social institutions provide alternative platforms for the expression of our larger community interests. These alternative social institutions include our NGOs, our town unions and Parapos and our old boys associations such as that of Lagelu Grammar School. They must however not just be elitist groups that flaunt the success of its members and promote only their self-interest. If they do so, they will be guilty of the sins of the politicians. They must be associations that are truly non-partisan, associations that champion our larger community interest; who put pressure on the political process to reform it, to be truly democratic.
And back to matters of our beloveth school. Our different generations, who have passed through Lagelu Grammar School, have been very privileged. We have had the privilege of sound education of the highest academic and moral standards. To this privilege that we had, comes an obligation to give back to the institution that has shaped our lives. We must rebuild the fallen walls of the hallowed temple of our beloveth school. Albert Einstein said and I quote
“Everyday, I remind myself that my inner and outer life are based on the labours of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving”.
A generation had the vision and founded the school and gave us a privilege education. We who have received from the school must give back as much as we have received. Our generation must ensure that the baton does not fall from our hands. That even if the baton has fallen, it must be picked up again and we must begin a new race to connect the school back to the glory of the past.
There are several programs and endowments that have been proposed by the national body. Lets us give generously to support them. Let’s also ensure that as we build new infrastructure in the school, that those infrastructures are maintained and sustained. Let’s have a tripartite governance structure for the school of those who have genuine vested interest in its highest standards. These are the teachers, the parents and the old boys association. As we rebuild our old school and improve its standards, we are in our little, but no small way building back the nation and its standards. It is therefore a privilege and sacred duty for which we must be proud, proud to serve and proud to give.
Brothers, Seniors and Contemporaries. Thank you for listening.
Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008
Keynote Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008
Brothers, Seniors and Contemporaries. We have come to celebrate the 50th anniversary of our institution, our secondary school on whose foundations we have built what have made us to be called success. While it is on one hand a celebration, it also represents the highlighting of the decay of our institution, a metaphor for the decay of our nation and its institutional fabrics.
Lagelu Grammar School, with its serene academic environment, its beautiful and tall Casuarina trees, that made the sky felt so near. Those Casuarina trees that constantly told us as students; that the sky could be reached and not an impossible summit. Lagelu was the hallowed temple for the moulding of leaders of tomorrow, whose catchments area was largely among the indigenes of Ibadan; who were its founding fathers.
Today, the walls of the hallowed temple of our institution, nay our nation is fallen. The Casuarina trees are gone. The environment is no longer serene. The glasses of the windows of the beautiful hall, a rock solid architectural masterpiece, are now made of wooden planks. There are neither more encyclopedia in the library nor chemicals in the laboratory. Lagelu, that was the pride of the nation in French subject in the late 70s, winning prizes even in West Africa, no longer offer French to its students. The wide expanse of school land of a thousand acres is gone. They have been taken over by the police barracks and several schools claiming to be offsprings of the Lagelu mother school, but who are nothing but pretenders to the heritage. The boarding house where we learnt discipline and toughness is also gone. It was the place where we were toughened by cutting the stubborn grass of our slanting football field.
As we have said, the institutional decay of our school, is a metaphor for the decay of our nation and its institutional fabrics. It represents the decay of our communities, of our government, and the ethical values that should have made us a strong nation. The nature of our societal institutions today is the outcome of our collective efforts as leaders and followers.
Our institutions have decayed, not because we lack resources, for we are a blessed nation. Our institutions have decayed because we have enthroned the values of graft over service. Our institutions have decayed because we have worshiped material over knowledge. Our institutions have decayed because we have let enlightened self-interest entrenched itself over the interest of the larger community.
Our school took its name from Lagelu, the founder of the ancient city of Ibadan. Ibadan the ancient city of our birth, that is rich in history of the triumph of community values over enlightened self interest. We remember the famous story of Efunsetan Aniwura, the Iyalode of Ibadan, her wickedness, her oppression of the citizenry; and her eventual defeat by the collective will of the people.
Brothers, Seniors and Contemporaries. The fact is that if Efunsetan were to be alive today in many parts of our nation, she would be a political party Chairman or member of board of trustee of the political party of her choice. Such is the decadence of our political institution today.
Yet, we must not loose hope, for we can see some silver lining in the dark clouds. Our leaders and their stewardship are being questioned for the first time in the law courts. Enlightened self interest may push back but the larger community interest is resisting well through the institution of our vibrant press, a real blessing of our democratic experiment.
Enlightened self interest perpetuates itself over our larger community interest when the institutions for expression of our community interest are either weak or non-existent. We see this in our democracy and its faulty electoral process. Even the President acknowledged that what we had in April was not an election to be proud of and has set up a committee on electoral reforms. While we re-build the political process and its institutional framework to which our political parties are core; it is critical that we strengthen alternative social institutions outside the political process. These social institutions provide alternative platforms for the expression of our larger community interests. These alternative social institutions include our NGOs, our town unions and Parapos and our old boys associations such as that of Lagelu Grammar School. They must however not just be elitist groups that flaunt the success of its members and promote only their self-interest. If they do so, they will be guilty of the sins of the politicians. They must be associations that are truly non-partisan, associations that champion our larger community interest; who put pressure on the political process to reform it, to be truly democratic.
And back to matters of our beloveth school. Our different generations, who have passed through Lagelu Grammar School, have been very privileged. We have had the privilege of sound education of the highest academic and moral standards. To this privilege that we had, comes an obligation to give back to the institution that has shaped our lives. We must rebuild the fallen walls of the hallowed temple of our beloveth school. Albert Einstein said and I quote
“Everyday, I remind myself that my inner and outer life are based on the labours of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving”.
A generation had the vision and founded the school and gave us a privilege education. We who have received from the school must give back as much as we have received. Our generation must ensure that the baton does not fall from our hands. That even if the baton has fallen, it must be picked up again and we must begin a new race to connect the school back to the glory of the past.
There are several programs and endowments that have been proposed by the national body. Lets us give generously to support them. Let’s also ensure that as we build new infrastructure in the school, that those infrastructures are maintained and sustained. Let’s have a tripartite governance structure for the school of those who have genuine vested interest in its highest standards. These are the teachers, the parents and the old boys association. As we rebuild our old school and improve its standards, we are in our little, but no small way building back the nation and its standards. It is therefore a privilege and sacred duty for which we must be proud, proud to serve and proud to give.
Brothers, Seniors and Contemporaries. Thank you for listening.
Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008
Friday, November 26, 2010
Managerial Compensation and Risk Incentives in the Financial System
By Olu Akanmu
Given our recent experience and the need to rebuild public trust in the financial system, we will need to reshape the values of managers of businesses in public corporations to which we have endowed our privileged trust, as customers, shareholders, government and the larger public. One of the most important lessons that managers need to re-learn is that an organization does not just exist to make profit for its shareholders alone. That a good company is that which has a social purpose for which making profit is the by-product of fulfilling that larger social purpose. Therefore, a good company is not that which posts bumper profits that managers celebrate but harms the larger interest of other stakeholders such as customers, the government and general public welfare. A good company is that which is able to optimize the interest of all its stake-holding groups of customers, shareholders, the state and the larger public. It provides great products and services that improve the quality of life of Nigerians, return good profit to shareholders while contributing to national economic development. A good company will not significantly externalize the cost of its business. When a company makes huge profit by destroying the environment, and gets away with it, because social institutions are weak to make it pay for it, it is externalizing its cost and betraying public trust. As we have seen all across the world, when managers of financial institutions take excessive risks, which endanger the financial system and have to be bailed out by their governments and state resources, they are externalizing the cost of their firm’s profit. In Nigeria for example, the opportunity cost of the money used to bail out our banks are the roads, schools, hospitals, power and public infrastructure that have to be forgone because public resources had to be diverted to save the financial system. Society has trusted too much. The fact is that firms will most always externalize their cost unless there are social institutions such as regulations and the tax system that prevent them from externalizing their cost or make them pay for it, when they do so. That is why we support the policy of the European Union that banks need to be taxed specially to build a pool of funds which shall fund the cost of future bail-out of the financial system when the need arises again.
The argument above however presupposes that if the interest of managers and the larger public interest are not always fully aligned, that at least managers are acting as true agents of their principal (their shareholders) and their interests are both aligned. This is not always so. Our compensation policy especially the big annual profit bonuses, tend to reward managers excessively for the short term over the long term. This tend to create a classic moral-hazard problem where managers take investment decisions with excessive long term risk, which may not crystallize in the early years when they cash in on their short term profit and profit bonuses. When these risks eventually crystallize in the future, the managers have moved on, leaving the firm, its shareholders and future managers to manage the consequences of fallen profit and collapsed share prices. This phenomenon has new lingo and acronym in behavioural finance called IBGYBG meaning I’ll Be Gone, You ‘ll Be Gone. Essentially, our compensation policy creates a perverse incentive that encourages a risk behavior that transfers the negative consequence of managerial risk decisions to someone else in the future while the manager appropriates the reward in the short term. When the reward of a risk could be appropriated by the risk taker, and the consequence of the risk is for someone else, there is a tendency by the risk taker to take excessive and sometimes unreasonable risk. This is the moral hazard problem in risk management. It plays heavily in the nature of our managerial compensation where rewards are heavily weighed in favour of annual profit bonuses and virtually nothing in long term share prices of corporations. With the benefit of hindsight, looking back at the downstream oil and gas businesses and the margin loans transactions of our banks in the period of financial industry exuberance, we could see clearly the IBGYBG syndrome manifesting strongly among our managers. We could see the way the perverse incentive and compensation of the industry for short term rewards, immediate profits and annual bonuses made our managers underplay or even ignore the long term consequences of their transaction risks. This will need to change to align managerial interest better with that of shareholders and strengthen public trust in corporations. Compensation of managers must carry a significant long term portion related to the future share prices and values of their firms, as a function of the long term impact of their managerial decisions.
We like to say however that we have no issue with size of the compensation of the manager as long as it is a function of the shareholder value created and it contains a significant long term portion that ties the compensation to the long term consequence of managerial risk decision. We recognize that there are short term pressures for talents in organizations that tend to encourage short term managerial rewards such as strong annual bonuses to keep valuable staff from competition. Given our recent experience and the need to rebuild trust in financial system, ensuring a better alignment of managerial interest with shareholders, our compensation policy must balance the need to keep our talents and the need to ensure that those talents kept and their executives are actually working for their shareholders in the long term.
Olu Akanmu
Novermber 2010
Given our recent experience and the need to rebuild public trust in the financial system, we will need to reshape the values of managers of businesses in public corporations to which we have endowed our privileged trust, as customers, shareholders, government and the larger public. One of the most important lessons that managers need to re-learn is that an organization does not just exist to make profit for its shareholders alone. That a good company is that which has a social purpose for which making profit is the by-product of fulfilling that larger social purpose. Therefore, a good company is not that which posts bumper profits that managers celebrate but harms the larger interest of other stakeholders such as customers, the government and general public welfare. A good company is that which is able to optimize the interest of all its stake-holding groups of customers, shareholders, the state and the larger public. It provides great products and services that improve the quality of life of Nigerians, return good profit to shareholders while contributing to national economic development. A good company will not significantly externalize the cost of its business. When a company makes huge profit by destroying the environment, and gets away with it, because social institutions are weak to make it pay for it, it is externalizing its cost and betraying public trust. As we have seen all across the world, when managers of financial institutions take excessive risks, which endanger the financial system and have to be bailed out by their governments and state resources, they are externalizing the cost of their firm’s profit. In Nigeria for example, the opportunity cost of the money used to bail out our banks are the roads, schools, hospitals, power and public infrastructure that have to be forgone because public resources had to be diverted to save the financial system. Society has trusted too much. The fact is that firms will most always externalize their cost unless there are social institutions such as regulations and the tax system that prevent them from externalizing their cost or make them pay for it, when they do so. That is why we support the policy of the European Union that banks need to be taxed specially to build a pool of funds which shall fund the cost of future bail-out of the financial system when the need arises again.
The argument above however presupposes that if the interest of managers and the larger public interest are not always fully aligned, that at least managers are acting as true agents of their principal (their shareholders) and their interests are both aligned. This is not always so. Our compensation policy especially the big annual profit bonuses, tend to reward managers excessively for the short term over the long term. This tend to create a classic moral-hazard problem where managers take investment decisions with excessive long term risk, which may not crystallize in the early years when they cash in on their short term profit and profit bonuses. When these risks eventually crystallize in the future, the managers have moved on, leaving the firm, its shareholders and future managers to manage the consequences of fallen profit and collapsed share prices. This phenomenon has new lingo and acronym in behavioural finance called IBGYBG meaning I’ll Be Gone, You ‘ll Be Gone. Essentially, our compensation policy creates a perverse incentive that encourages a risk behavior that transfers the negative consequence of managerial risk decisions to someone else in the future while the manager appropriates the reward in the short term. When the reward of a risk could be appropriated by the risk taker, and the consequence of the risk is for someone else, there is a tendency by the risk taker to take excessive and sometimes unreasonable risk. This is the moral hazard problem in risk management. It plays heavily in the nature of our managerial compensation where rewards are heavily weighed in favour of annual profit bonuses and virtually nothing in long term share prices of corporations. With the benefit of hindsight, looking back at the downstream oil and gas businesses and the margin loans transactions of our banks in the period of financial industry exuberance, we could see clearly the IBGYBG syndrome manifesting strongly among our managers. We could see the way the perverse incentive and compensation of the industry for short term rewards, immediate profits and annual bonuses made our managers underplay or even ignore the long term consequences of their transaction risks. This will need to change to align managerial interest better with that of shareholders and strengthen public trust in corporations. Compensation of managers must carry a significant long term portion related to the future share prices and values of their firms, as a function of the long term impact of their managerial decisions.
We like to say however that we have no issue with size of the compensation of the manager as long as it is a function of the shareholder value created and it contains a significant long term portion that ties the compensation to the long term consequence of managerial risk decision. We recognize that there are short term pressures for talents in organizations that tend to encourage short term managerial rewards such as strong annual bonuses to keep valuable staff from competition. Given our recent experience and the need to rebuild trust in financial system, ensuring a better alignment of managerial interest with shareholders, our compensation policy must balance the need to keep our talents and the need to ensure that those talents kept and their executives are actually working for their shareholders in the long term.
Olu Akanmu
Novermber 2010
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