Corporate Governance

1. Introduction

The Central Bank of Nigeria's (CBN) special examination, the result of the first phase of which was announced on 14 August 2009, underscored the centrality of good corporate governance practice to the proper management of firms in the financial services industry. Apparently, governance failures were at the heart of the processes that led to the industry loss of liquidity, and the diminution of its capital adequacy ratios.

This result lends credence to our insistence on the need for strong corporate governance measures as a critical part of the process of facilitating the domestic industry's integration with the global financial marketplace. This led in the 2002/2003 financial year to the unprecedented inclusion of a corporate governance section in our Annual Report and Accounts. Furthermore, the subsequent attempts by the Central Bank to correct the governance lapses observed during its special audit, especially the directive issued during the review period, on term limits for banks' chief executives reinforces policies that have been in place at FirstBank for some time now.

Recognising that ultimately, corporate governance is as much about how well the Bank is run, as it is about the ease with which our esteemed shareholders are able to access and assess our operations, our succession planning has been designed to ensure the availability of suitable personnel in vital positions across the Bank. Because we believe that the process of finding and developing internal personnel with the potential to fill key or critical organisational positions goes beyond the office of the managing director/chief executive officer, we have been able to create a proven leadership model in Nigeria's financial services industry.

What this has meant, is that even over a business cycle, when we saw two chief executive officers resign – one at the end of his term of office, and the other to resume office as the nation's Central Bank governor – the transition at the helm of the Bank was so smooth as not to have had any effect on our business continuity, nor on staff morale. However, we believe that recent developments in the industry and the challenge of aligning the industry's goals with national development objectives require that we move the corporate governance framework across the country up several notches.

Because stiffer corporate governance requirements will increase directors' liabilities both in terms of the new responsibilities they assume under broader corporate governance provisions, and in terms of the time that they will be expected to spend on these responsibilities, if they are not to face negligence claims, smaller companies may well see compliance costs accounting for an increasing share of their corporate governance obligations. The corporate governance reform horizon must therefore contemplate a review of the framework in such a way that differently sized establishments face a graduated compliance burden.

In addition, in order to be more effective, the corporate governance focus must transcend maintenance of a proper balance between companies, their directors and auditors. Two concerns are paramount in this respect. First is the requirement that effective governance frameworks should seek to strengthen the relationship between shareholders, especially institutional investors, and the companies they invest in. Second is the need to ensure that properly implemented corporate governance frameworks increase the efficiency with which the marketplace works, and help build the markets' confidence in compliant companies.

As part of the process of strengthening our corporate governance framework, Alhaji Mahey R Rasheed was appointed an independent director in the period under review. Independence in this sense is consistent with the spirit and letter of the CBN's 3 April 2006 Code of Corporate Governance for Banks in Nigeria Post-Consolidation. Additionally, during the review period, we changed the name of our Board Nomination & Remuneration Committee to Board Governance Committee, to fully reflect this committee's responsibility in relation to articulating and overseeing corporate governance practices within the FirstBank Group.

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2. Shareholding

With a base in excess of 1.3 million, FirstBank has arguably the largest number of shareholders of companies quoted on the Nigerian Stock Exchange. And with no single shareholder owning up to 5% of the issued ordinary shares of the Bank, it has a much diversified ownership structure.

Our diversified shareholding base guarantees our access to a broad and rich vein of talent available for service on our Board, and allied board committees.

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3. Governance Structure

3.1 The Board

The Board comprises seventeen (17) directors, made up of nine (9) non-executive directors and eight (8) executive directors. However the resignation of Alhaji (dr.) U A Mutallab CON on 14 December 2009 and the demise of Alhaji Aliyu Alkali, MNI on 25 September 2009 reduced the number of non-executive directors to seven (7).

One of the seven non-executive directors (none of whom exercises executive powers) chairs the Board.

In line with the Central Bank's requirement for directors "who do not represent any particular shareholder interest and hold no special business interest with the bank", Alhaji Mahey R Rasheed was appointed an independent director in the review period.

3.1.1 The Roles of the Board

The Board is responsible to shareholders for creating and delivering sustainable value through its general supervision of the Bank's business. In furtherance of this, the roles of "Chairman" and "Managing Director/Chief Executive (MD/CE)" in the Bank remain different and separate. The Chairman leads and manages the Board, ensuring that it operates effectively, while fully discharging its legal and regulatory obligations. Non-executive directors, appointed in the understanding that they will serve in the best interests of the Bank and its shareholders, are able to consider, challenge, monitor, and approve strategies and policies recommended by management.

The Board, representing shareholders, delegates responsibility for the day-to-day management of the Bank to the MD/CE, who is supported in this task by the Executive Committee, which he chairs.

Specifically, the roles of FirstBank's Board of Directors are:

• determining the Bank's objectives and strategies as well as plans to achieve them;
• determining the terms of reference and procedures of the Board committees, including reviewing and approving the reports of such committees where appropriate;
• maximising shareholder value through the setting of objectives, goals and strategic direction for management;
• considering and approving annual budgets, monitoring performance and ensuring that the Bank is a going concern;
• ensuring that an adequate budgetary and planning process exists, such that performance is measured against budget and plans;
• approving, amongst others, acquisition, mergers, business combinations, equity investments and new strategic alliances by the Bank and its subsidiaries;
• ensuring that an effective risk management process exists and is maintained;
• ensuring balanced and understandable reporting to shareholders; and
• retaining ultimate responsibility for systems of financial, operational and internal control and regulatory compliance, as well as ensuring that statutory reporting of these is adequate.

3.2 Standing Committees

The Board discharges its responsibilities through a number of standing committees whose charters are reviewed regularly. These charters define the purpose of the committees, their composition and structures, frequency of meetings, responsibilities and duties, and reporting lines to the Board. In addition to the two (2) Executive Committees (General and Credit), the Board oversees the affairs of the Bank through five (5) standing committees as shown in the table opposite. The additional standing committee, the Audit Committee, is created by statute and is not answerable to the Board.

3.2.1 Executive Committee (EXCO General)

The Executive Committee, chaired by the Managing Director/Chief Executive Officer, is a first line referral point for issues to be discussed at the Board. Meeting fortnightly, it deliberates and decides on policies for the effective and efficient management of the Bank. EXCO's primary responsibility is to ensure implementation of strategies approved by the Board, provide leadership to the management team, and ensure efficient deployment and management of the Bank's resources. Its Chairman is responsible for the day-to-day running of the Bank.

3.2.2 Executive Committee, Credit (EXCO Credit)

This committee considers loan applications above specified limits, which have been reviewed and endorsed by the Risk & Management Control Directorate. It also considers loan requests above certain limits, which need to be referred to the Board, as well as agreeing changes to the Bank's credit policy.

3.2.3 Board Credit Committee

This committee considers loan applications above specified limits and which have been approved by EXCO Credit. It also serves as a catalyst for credit policy changes going from EXCO Credit to the Board for consideration/approval.

3.2.4 Board Tenders Committee

The Board Tenders Committee considers all capital projects beyond the approval limit of the Executive Committee (General) and makes recommendations for the consideration of the Board.

3.2.5 Board Establishment, Disciplinary & Promotions Committee

This committee considers staff matters in respect of senior officers on principal manager grade and above.

3.2.6 Board Governance Committee

This committee considers and periodically reviews the composition of the Board and recommends the appropriate mix, in terms of personal qualities, expertise, ability to exercise independent judgement and diversity required to discharge the Board's duties. It also determines and executes processes for Board appointments, removal of non-performing members of the Board, and recommends appropriate remuneration for directors.

3.2.7 Board Audit & Risk Assessment Committee

The Board Audit & Risk Assessment Committee has oversight responsibility for the internal audit and control, and risk assessment and compliance functions of the Bank. The Chief Internal Auditor and Chief Compliance Officer have access to this committee and make quarterly presentations for the consideration of its members.

3.2.8 Audit Committee

Established in compliance with section 359 (6) of the Companies and Allied Matters Act, 1990, the committee has oversight responsibility for the Bank's accounts.

	Committee	Members
1.	Board of Directors	Alhaji (Dr) U A Mutallab, CON (Chairman) – Resigned 14/12/09 Mr Oba Otudeko, OFR (Chairman) – Appointed 14/12/09 Mr Bisi Onasanya (Group Managing Director/Chief Executive) Executive Directors (7) Non-Executive Directors (6) (Alhaji Aliyu Alkali – Deceased 25/09/09)
2.	Executive Committee (General)	Group Managing Director/Chief Executive (Chairman) Executive Directors (7)
3.	Executive Committee (Credit)	Group Managing Director/Chief Executive (Chairman) Executive Directors (7)
4.	Board Credit Committee	Mr Oye Hassan-Odukale, MFR (Chairman) Group Managing Director/Chief Executive Executive Directors (7) Mallam Abdullahi Mahmoud Prince Ajibola A Afonja Alhaji Mahey R Rasheed, OFR
5.	Board Tenders Committee	Lt Gen Garba Duba (rtd) (Chairman) Group Managing Director/Chief Executive ED (Banking Operations & Services) Chief Risk Officer ED (Lagos)
6.	Board Establishment, Disciplinary & Promotions Committee	Mallam Abdullahi Mahmoud (Chairman) Group Managing Director/Chief Executive ED (Banking Operations & Services) ED (West) Prince Ajibola A. Afonja Ms Ibiai Ajumogobia
7.	Board Governance Committee	Dr Oba Otudeko, OFR (Acting Chairman) Group Managing Director/Chief Executive Lt Gen Garba Duba (rtd)
8.	Board Audit & Risk Assessment Committee	Alhaji Mahey R Rasheed, OFR (Chairman) ED (Banking Operations & Services) Chief Risk Officer (Ex Officio) Mr. Oye Hassan-Odukale, MFR ED (North) ED (South)
9.	Audit Committee	Lt Gen Garba Duba (rtd) Mr Oye Hassan-Odakale, MFR Three (3) representatives of shareholders elected annually at the Bank's AGM, one of whom is the Chairman (Alhaji Bashir Mohammed – Chairman, Chief Timothy Adesiyan, & Mr Chinwendu Achara)

The roles and responsibilities of these committees are discussed hereafter.

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4. Board Meetings

The above structures notwithstanding, committee meetings may be called on a "need-to-meet" basis. Meetings of the statutory Audit Committee are called only to consider audit reports and are not scheduled as others are.

Support Committees

The Executive Committee is supported in its work by five (5) standing committees. These provide strategic backing for the long-term professional management of the Bank. Some of the standing committees are first-line decision-making bodies in a chain that reaches all the way to the Board of Directors through the Executive Committee. The committees and their membership are listed below:

Assets and Liabilities Management Committee

• Group Managing Director/Chief Executive
• All Executive Directors
• Chief Strategy Officer
• Head, Financial Control
• Head, Treasury
• Head, Business Performance Monitoring
• Head, Market & Liquidity Risk Management
• Representatives of Regional Directives

Information Technology Steering Committee

• GMD/CE Chairman
• ED Banking Operations and Services Member
• Executive Director, Lagos Member
• Executive Director, South Member
• Chief Financial Control Member
• Group Head, Information Technology Member
• Group Head, General Services Member
• Group Head, Operations Member
• Group Head, Products and Channels Member
• Chief Internal Auditor Member
• Head, Information Security Management Member
• Chief Compliance Officer Member
• Head, Internal Control Member
• Head, Corporate Transformation Member
• Chief Strategy Officer Member
• Head, Business Improvement Secretary

Finance & Operations Committee

• Chief Strategy Officer Chairman
• Representative of Corporate Banking SBU Member
• Head, Credit Risk Management Member
• Head, Consumer Banking Products Member
• Head, Domestic Operations Member
• Representatives of Regional Directorates Members
• Chief Internal Auditor Member
• Head, Treasury Member
• Head, Foreign Operations Member
• Head, Financial Control Member
• Chief Compliance Officer Member

Group Management Committee

• Group Managing Director/Chief Executive Chairman
• All Executive Directors Members
• Managing Directors of all the Subsidiaries Members
• Chief Strategy Officer Member
• Head, Financial Control Member
• Head, Business Performance Monitoring Member
• Company Secretary Member

Shareholder participation and activism

We have always been aware of the need to promote and defend the disclosure and transparency levels necessary for shareholders to discharge their responsibilities. We strongly believe that shareholder engagement will be the new corporate governance frontier going forward. Accordingly, through our Investor Relations department, we have begun the process of building the institutions that will engender higher levels of shareholder engagement with the Bank.

In line with the provisions of sections 5.4.5, 5.4.6, and 5.4.7 of the CBN's Code of Corporate Governance for Banks, KPMG Professional Services conducted an appraisal of the Board of Directors for the year ended December 2009. Their report is reproduced in the following section.

Responsibility for Annual Financial Statements

The Companies and Allied Matters Act and the Banks and Other Financial Institutions Act, require the directors to prepare financial statements for each financial year that gives a true and fair view of the state of financial affairs of the Bank at the end of the year and of its profit or loss. The responsibilities include ensuring that the Bank:

1. keeps proper accounting records that disclose, with reasonable accuracy, the financial position of the bank and comply with the requirements of the Companies and Allied Matters Act and the Banks and Other Financial Institutions Act;
2. establishes adequate internal controls to safeguard its assets and to prevent and detect fraud and other irregularities; and
3. prepares its financial statements using suitable accounting policies supported by reasonable and prudent judgements and estimates, that are consistently applied.

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with:

• Nigerian Accounting Standards;
• Prudential Guidelines for Licensed Banks;
• relevant circulars issued by the Central Bank of Nigeria;
• the requirements of the Banks and Other Financial Institutions Act; and
• the requirements of the Companies and Allied Matters Act.

The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Bank and Group and of the profit for the year. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern for at least 12 months from the date of this statement.

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