NGSE Demutualisation, Corporate Governance and The Imperatives Of Sustainability

The process of demutualising the Nigerian Stock Exchange NSE) finally gained traction last week with the release of the scheduled statutory meetings for members to approve the conversion of the bourse from a company limited by guaranty to public limited liability.
This is coming all of 19 years after the idea was first mooted in 2001, within which time peers, especially Nairobi and Johannesburg have started enjoying the fruits of such, chief of which is giving life to previously dead capital.
Two meetings will, therefore, hold on March 3, 2020, the first will consider and possibly approve an allotment of shares in the post-demutualised Nigerian Exchange Group Plc. While a total of 1,964,115,918 ordinary shares in the demutualised and re-registered will be allotted to the existing 255 dealing members (stockbroking firms), at 6,007,884 ordinary shares credited as fully paid, each ordinary member will get 2,441,274 units also credited as fully paid. The allotment is therefore on the basis of ratio 78:22 between the dealing and ordinary members and on an equal basis within each bloc.
Consequently, the re-registered company will have an authorized share capital of N1.25bn, divided into 2.5bn ordinary shares of 50 kobo each registered with the Corporate Affairs Commission.
It is also proposed that a total of 40.083m ordinary shares, representing 2% of the issued shares of the NEG, be set aside as claims review shares for allotment to parties who are adjudged as being entitled to shares in the demutualised exchange, pursuant to the provision of the Demutualisation Act 2018.
In line with the Demutualisation Act, 2018, any balance of the Claims Review Shares is to be distributed pro-rata among the shareholders of the Exchange as at the date of demutualization.
Also, the meeting will vote for an amendment to the Memorandum and Articles of Association of the re-registered exchange “to state the new name- Nigerian Exchange Group Plc; the share capital, and reflect all the requisite provisions required of a public company limited by shares.”
Another notice by the NSE, concerning the demutualization process on the same day, revealed that at the second meeting of the day, members will vote that by a single resolution the present council transforms into, and be appointed into the inaugural board of Nigerian Exchange Group Plc.
Members will, therefore, vote that post-demutualisation, Otunba Abimbola Ogunbanjo, becomes board chairman; Oscar Onyema, retains his seat as Chief Executive; while Dr. Umaru Kwairanga; Dr. Okechukwu Crescent Itanyi; Mrs. Nimi Akinkugbe; Mrs. Fatimah Bintah Bello-Ismail; and Oluwole Adeosun become non-executive directors of the NSE.
This also applies, according to the notice by Mojisola Adeola, council secretary, to Chidi Agbapu; Patrick Ajayi; Prof. Enase Okonedo; Ikpobe Apollos Oghooritsewarami; and Mrs. Ojinika Nkechinyelu Olaghere.
This has however betrayed the lack of corporate governance in the board composition. Investdata believes that a project such as Nigerian Exchange Group Plc is too big and economically strategic for poor corporate governance issues to be glossed over in this age.
We note that as part of the process, the NSE as currently composed will be split into two, with the SEC licence going to a newly established Nigerian Exchange Limited; while the regulatory functions of the pre-demutualised NSE, along with all assets, and existing contracts required to carry out the regulatory functions be transferred to NGX Regulations Limited, pursuant to the regulatory services agreement. NGX Regulations Limited will have as chief executive, Ms. Tinuade Awe.
Questions that urgent require answers at this time include: Why the demutualised NSE will be left with just one executive board member? It is not out of place that such practice goes against the grain of all corporate governance codes ever released in Nigeria, beginning with that by Dr. Sulleyman Ndanusa-led SEC in 2003, chaired by Atedo Peterside, founding chief executive and later chairman of today’s Stanbic IBTC Group. If companies on the same NSE are made to comply with good corporate governance codes reviewed regularly, even as banks have also to similarly comply with that of the Central Bank of Nigeria, one wonders why the NEG Plc, as proposed, could be creating a czar-like CEO
We wonder why the current council saw no need to replace Ade Bajomo and Haruna Waziri-Jallo, after they each exited the exchange in quick succession to Access Bank Plc and the Central Securities Clearing System Limited respectively. It is good that they elevated Ms. Tinuade Awe to the position of Executive Director, even as Investdata wonders why the replacements for Waziri-Jallo and Bajomo- Jude Chiemeka and Olumide Bolumole, have been left as heads of the NSE’s Listing and Trading Divisions respectively for the past 12 months, instead of being upgraded to the position of Executive Directors.
Curiously also, the council had in the scheme document, listed among benefits of demutualization, improved and high standards of corporate governance of the exchange and its subsidiaries as expected of public companies.
According to the scheme of arrangement of the NSE demutualization, corporate governance seems to have been limited to regulatory functions; the separation of ownership and trading rights. This is in addition to making the exchange globally competitive, just as it “affords all Nigerians and the foreign investors the opportunity to become shareholders and creates opportunities for strategic partnerships and inorganic growth. In addition, demutualisation will enhance our access to skills, knowledge and technical efficiencies from strategic shareholders.”
Another question that the NSE council should answer is whether the NSE CEO will combine his role as Group Chief Executive and being CEO of the newly established Nigerian Exchange Limited, a role for which no one has been appointed.
We also recall that according to the initial arrangement of the NSE, following the appointment of the incumbent CEO in 2011, there were supposed to be four executive directors as stated in a January 20, 2011 statement by the SEC.
Aside from Bajomo, who was appointed Executive Director, Market Operations and Information Technology (MOIT), the NSE council ought to fill vacancies for positions of EDs, Quotations & Listings; Strategy; and Business Development. The SEC had at the time, encouraged the exchange to conclude head-hunt at the time. The council however appointed Haruna Jalo-Waziri, ED, Capital Markets Division and never probably saw any need to fill the remaining vacancies till date.
It is, therefore, curious that nine years later and under the new group arrangement, there will be no single executive Director.
We believe stakeholders will be interested in knowing what becomes of the tenure of the incumbent chief executive of the NSE, when his second and final term expires on March 31, 2021. We note too that the NSE council has given an 18-month transition period for the new board to stabilize the operations. The question then becomes what the succession plan is in the absence of executive directors in the group.
We also expect that the Securities and Exchange Commission, and indeed, all stakeholders will look at these governance issues and resolve them, and in the process ensure that the shaky investor confidence in the market today is not further dampened by an irreversible failure and then begin to play the firefighter.