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Union Bank and the Challenge of Corporate Governance

 Dr Fabian Ajogwu(SAN)

After years of being outside the loop, Nigeria has finally embraced good corporate governance. Seminars and workshops are held regularly in Lagos, Abuja and Port Harcourt on good corporate governance. Dr Fabian Ajogwu, a Senior Advocate of Nigeria (SAN) [image above], seems to have emerged the leading authority on good corporate governance in the country. 

He has just published an impressive book on this topic. And those who attend his classes and lectures at the prestigious Lagos Business School of Pan Atlantic University in Lagos testify that he is impressive and committed. The activism of shareholders associations on the one hand and more proactive regulators on the other hand has also in no small measure contributed to improve accountability in governance issues.

Yet, it is debatable that good corporate governance has taken roots in our beloved country. Stories which come out of corporate Nigeria are truly amazing. They involve well established, blue chip companies. Take the latest example making the rounds right now amongst Nigerian shareholders. It involves, on the one hand, Union Bank and one of its subsidiaries and, on the other, some minority investors in Union Bank Property Company Ltd led by one Marcel Eze who is reported to be a Lagos-based businessman. 

News reports quoted the highly respected Justice Mohammed Idris of the Federal High Court in Ikoyi, Lagos, as describing the behavior of Union Bank and Union Bank Property towards the petition filed by the said Mr Eze as an “act of gross indiscipline and crass irresponsibility”.

The judge was speaking on Thursday, June 10, 2015, when the bank and its property subsidiary finally decided to be represented in the court after months the petitioned was filed against them. Even after putting up an appearance, the duo chose to ask for time to enable them to study grounds of objection to the petition. A visibly angry Judge, reputed for a deep understanding of legal issues and personal calmness even in the face of provocation, was to declare: “If there had been an application for summary judgment before this court, I would have granted and granted it now! You can go upstairs. There are rules in this court, and they are meant to be obeyed by everybody. You must abide by court rules”.

At issue is hundreds of millions of naira invested by minority shareholders in UBN Property Company Ltd, promoted principally by Union Bank Plc and its subsidiaries like Union Homes Savings and Loans, Williams Trustees and Union Assurance. Mr Eze alone is believed to have invested over 400million naira in 2006 when the property firm, incorporated in 2003, was looking for investors who would provide funds to enable it to embark on strategic business development, acquisition of state of the art information technology (IT) facilities, upgrading and expansion of its human resource base “to reach strategic locations”, and thus compete effectively in Nigeria’s fast growing property market. About N3.6billion was required through private placement of 2.4billion units at N1.5 out of the authorized share capital of four billion shares.

On the whole, Union Bank and its affiliated companies took 30% of the UBN Property Company shares while the others were given 70%. The said Mr Eze became the highest individual l investor with the highest shares. One would expect that the investors outside the Union Bank group would be deeply involved in the management of the enterprise up to the board level. But that was not the case, according to the petition. 

The petition claims that since 2006, Eze and co have not been served notices of either general or extraordinary meetings, where they could participate or even vote or be voted for. It also alleges that all the top positions are unilaterally filled by staff of the UBN group, and they have bluntly refused to respond to queries about the conduct of the company’s affairs. It was only end of last year that the group replied to one of their letters through their solicitors when the petitioners threatened legal action. 

The petition alleges that the financial services group “illegally, fraudulently and surreptitiously” increased its share capital from 4billion to 6billion units without informing other stakeholders. Worse, it alleges nonpayment of money’s worth for the enhanced share capital by UBN. Ironically, the group compelled other investors to pay in advance for their own shares. 

According to the petition, the group was then to explain that provision for payment of the enhanced share capital was made ab initio based on expectations of proceeds to be realized from the sale of the group’s properties. This claim raises fundamental questions about whether anticipatory approval can be obtained in respect of proceeds from properties yet to be alienated and whether all parties in the deal were informed of the decision. What does the company law provide?

Mr Eze, leader of the minority shareowners, contests the claim that the contentious 3.2billion unit shares “have been issued and paid up” because there is no record of such transactions. He informed the court that there were no annual reports between 2006 and 2008, and that no such record exists with the Corporate Affairs Commission (CAC) to this day. He sarcastically described the creation and maintenance of furtive “inter-company accounts” by the Union Bank group for purposes of increasing its share capital in UBN Property Company as tantamount to “creative accounting”.

True, the contentious issues we have highlighted above are not of the making of the present management team at Union Bank which has been in existence for only three years. The issues have been there from the days of Bartholomew Ebong, who has been facing trial for his role in the near collapse of the bank in 2009 when Sanusi Lamido Sanusi became the Central Bank governor and dissolved its board and top management in a desperate effort to save distressed banks in the country. 

But Emeka Emuwa, the current chief executive, and his team should not have allowed such issues to linger to this day. These negative issues do tremendous damage to institutional reputations. Time was when Union Bank was in the league of Nigeria’s top four banks, alongside First Bank, United Bank of Africa and Afribank. But it is today a laggard. Even the three year interim management of Mrs Funke Osibodu which ended in 2012 was mired in controversy.

The truth is that in a more disciplined country, these issues would not have been allowed to escalate to the point of individual investors writing petitions to the courts for protection against a rampaging financial behemoth. In a country where the regulatory authorities are alive to their responsibilities, the Securities and Exchange Commission (SEC), for instance, would have nipped this controversy in the bud as early as 2006 when the investments were made, or latest by 2007 and 2008 when the property firm failed to hold AGMs. 

As someone has reminded me, if Bernard Madoff, the American billionaire investment tycoon now serving a whopping 150 year term in prison, had been operating in Nigeria, no one would have touched him. Ours is a nation governed by the rule of man, rather than rule of law. There are too many sacred cows, too many untouchables, too many people and institutions above the law. It is a culture of impunity.

Finally, it bears repeating that Nigerians and their leaders should take corporate governance seriously. Poor corporate governance which gave rise to creative accounting and other awful practices as well as poor oversight by regulatory authorities were responsible for the collapse of Enron, the American energy giant, in 2002. 

The imperative for good corporate governance became more dramatized worldwide in the wake of the 2008 global economic meltdown which saw Lehman Brothers and other firms considered “too big to fail” collapse like giants with feet of clay. The whole world now observes good corporate governance like an article of faith. Union Bank, for one, must get cracking immediately.

Osadolor is a Nigerian-born solicitor and author based in Manchester, England.

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