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CBN and the debate on CEO duality



CEO duality is a situation in which the Chief Executive Officer is simultaneously the Chairman of the Board of Directors. This is the current position in the Central Bank of Nigeria where Section 6 (2) of the CBN Act 2007 provides that the Governor of the Bank should also chair the Board of Directors.

Sadly, this position may change soon if a recent Bill before the Senate seeking for the appointment of a person other than the CBN Governor as the chairman of the Board gets passed.

It will be recalled that sometime in 2012, a similar Bill was laid before the lower House which sought to amend Section 6 (2) of the Act relating to the composition of the Board of Directors by not only separating the roles of the Governor and the Chairman but also excluding the Deputy Governors and other Directors of CBN from membership of the Board.


It is often argued that a unified role does not encourage appropriate internal checks and balances and leads to a lack of oversight.

Moreover, the argument goes, it is not in sync with the principles of corporate governance which advocates the separation of the roles of the CEO and the Board chairman.

Much as this stands to reason in respect of several other establishments, the unique nature and roles of central banks project them as exceptions to this particular corporate governance rule. Just like many other Central Banks in the world, the CBN has the core mandate of maintaining price stability and ensuring a sound and stable financial system.

The effective discharge of this responsibility demands that the CBN is shielded from undue influences. Another argument against the autonomy of central banks is that monetary policy cannot be synchronized with fiscal policy if their governing Boards are not under the control of the government.

In other words, autonomous central banks undermine the co-ordination and effectiveness of economic policy. This submission sounds more academic than factual as there is hardly any concrete evidence directly associating failure of monetary policies with CEO duality in central banks.

Indeed, it is not for nothing that CEO duality is the norm in Central banks of most countries of the world including Australia, Belgium, Canada, Germany, Japan, Netherlands and India. In Africa, it is the case in Gambia, Ghana, Egypt, Botswana, Zambia, Kenya, South Africa to name just a few.

In a Survey of Boards and Management of 101 central banks (published as IMF Working Paper on Central Bank Governance) in 2004, Tony Lybek and JoAnne Morris disclosed that in 74 per cent of the cases, the Governor was also the chairman of the Board.

In the opinion of the Researchers, ‘’ there should be consistency between the functions of the Governor as chief executive officer and the necessary authority to ensure that realistic targets be set’’.

That ‘consistency’ is only guaranteed by CEO duality. Undeniably, the Governor as the CEO of the Bank has superior knowledge of the intricate operations of the apex regulator more than any outsider which enhances the information available to the Board. An external chairman is not involved in the day-to-day running of the Bank.

He has less access to prevailing facts in the financial system thus whittling down the ability to provide effective feedback and oversight.

It goes without saying that appointing a person other than the Governor as Chairman of the Board will diminish the independence of the CBN and negatively impact the economy.

Studies have shown that there is an inverse relationship between central bank independence and long-term inflation.

By implication, a low and stable inflation rate is more likely to be seen in countries with independent central banks than in those lacking independence.

Empirical evidence equally suggests that countries with independent central banks tend to have smaller budget deficits compared to those without independence.

Quite often, central banks are under strong political pressure to adopt lax monetary policies due to budgetary considerations.

An elected government worried about its performance at the polls might succumb to the temptation of reducing policy rates ahead of elections at the risk of higher inflation due to the short term nature of its tenure in office.

For sure, an independent CBN will be less prone to short-term political influences and is therefore in a stronger position to commit to long-term policies for promoting price stability.

Furthermore, greater susceptibility to political influences from separation of the roles will prevent the CBN from acting promptly to prevent or resolve a financial crisis.

CEO duality made possible the very decisive step taken by the CBN in 2009 to protect depositors and safeguard the integrity of the banking industry when the then Governor, Lamido Sanusi, removed the Chief Executives/Executive Directors of Deposit Money Banks identified as great risks to the stability of the sector.

Had the CBN not acted as promptly as it did, there would have been systemic crisis with disastrous consequences for the entire economy.

It is pertinent to note that the situation where the Governor acts as Chairman of the Board is consistent with global best practice and is primarily designed to promote the independence of the CBN. Such independence implies that the apex bank is able to resist undue influences from the government and other interest groups.

The proposed amendment, if successful, will certainly send a negative signal to the international community and could adversely affect the country’s Sovereign ratings. Therefore, it bears repeating that the structure of the CBN Board should help depoliticize the decision making process in the apex regulatory institution.

Reports say the Senate Leadership has referred the Bill to the committee on Banking, Insurance and other Financial Institutions.

Gladly, this committee is made up of experienced and well-informed members who know full well that what is required now is not an erosion of the governance autonomy of the CBN but rather a strengthening of relationships that would ensure accountability.

To this end, it should expunge from the Bill all matters that undermine the autonomy of the CBN before being presented for third and final reading.

Since the CBN is required under the law to transmit reports on its operations to the National Assembly, this is one way the bank can be held accountable to the representatives of the people.

By way of reinforcement, the aspect of the Bill that provides for ‘’the presentation to the National Assembly by the CBN Governor on the state of economy and what monetary policy measures are being pursued by the bank’’ should be retained as it will no doubt enhance accountability.

The Committee may equally consider including the Director General of the Securities and Exchange Commission as a member of the CBN Board as is the practice in other jurisdictions. In Egypt for example, the Chairman of the Capital Market Authority serves on the Board of the Central Bank of Egypt.

The reason is obvious: many of the DMBs are quoted companies on the Stock Exchange and therefore are affected by SEC rules.

Indeed, the arguments for CEO Duality as it affects the Central Bank are strong and persuasive. Without any doubt, a truly autonomous CBN is imperative for the achievement of the goals of the federal government Economic Recovery and Growth Plan.

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