Nigeria’s central bank on Friday, February 24, 2023, issued revised regulatory requirements for the tenure limit of Executive and Non-Executive Directors of Deposit Money Banks and Financial Holding Companies.
The CBN stated that the policy was part of measures aimed at strengthening governance practices in the banking industry and is coming 13 years after the Apex Bank limited the tenure of Chief Executive Officers of banks to 10 years.
Since the announcement, we have received messages from our readers requesting an explainer of the tenure limit. This article is therefore aimed at explaining the tenure limit regulations issued by the central bank.
Before we start, let us state clearly that this tenure limit applied mostly to banks and not their HoldCos. For example, it will apply to First Bank but not to directors in FBN Holdings which is the Hold-Co.
1. In the circular, CBN said that the tenure of Executive Directors (EDs), Deputy Managing Directors (DMD), and Managing Directors (MDs) shall not exceed 10 years.
Annotation: This means once you are appointed an ED or MD for a period of 10 years you will have to exit the bank irrespective of the terms of your appointment. So if you are appointed an executive director in 2023, you are expected to exit the bank in 2033.
2. It also said in a situation where an Executive who is a DMD becomes the MD/CEO of a bank or any other DMB before the end of his/her maximum tenure; the cumulative tenure of such Executive shall not exceed twelve (12) years.
Annotation: What this suggests is that a person can be an ED for 10 years but can only remain in the bank for another 2 years if promoted to an MD/CEO directly (not a DMD). But if you are a DMD for a maximum of 10 years then you only have two more years to be an MD/CEO. So essentially the formula here is a Maximum of 12 years (M) less number of years as DMD (D) equals the balance left to remain as MD/CEO of the bank (Y). M-D=Y.
For example, if you are appointed DMD in 2014 you have served 9 years already. Thus 12 minus 9 leaves you with 3 years left to exit (in 2026).
3. For an Executive (ED) who becomes a DMD of a bank or any other DMB, his/her cumulative tenure as ED and DMD shall not exceed 10 years.
Annotation: This means if an ED of a bank is made DMD of the bank or any other bank, the tenure of the person will be the number of years they served as an ED (E) plus the number of years as DMD(D) must not exceed 10 years. Thus E+D<=12 years. For example, if you were an ED for 7 years and you are now made DMD this year, you have to leave the bank in 2028 (7 plus 5 years).
4. Non-Executive Directors (NEDs), with the exception of Independent Non-Executive Directors (INEDs), shall serve for a maximum period of twelve (12) years in a bank, broken into three terms of four years each.
Annotation: This means any person who is a NED of a bank can only serve for a maximum period of 12 years in a bank.
5. EDs, DMDs, and MDs who exit from the Board of a bank either upon or prior to the expiration of his/her maximum tenure shall serve out a cooling-off period of 1 year before being eligible for appointment as a NED to the Board of Directors.
Annotation: This means former EDs, DMDs, and MDs must wait for a total of one year or 12 months before they are appointed into any bank as a NED. For example, a bank MD, that leaves a bank after their tenure will have to wait a year outside the banking sector before they are made a non-executive director.
6. NEDs who exit from the Board of a bank either upon or prior to the expiration of his/her maximum tenure of 12 years (3 terms of 4 years each), shall serve out a cooling-off period of 1 year before being eligible for appointment to the Board of Directors of any other DMB.
Annotation: This means a NED who exits a bank before the 12 years tenure can rejoin a bank as a director only after they must have served one year outside the banking sector.
7. The cumulative tenure limit of Executive Directors (EDs), Deputy Managing Directors (DMDs), Managing Directors (MDs), and Non-Executive Directors (NEDs) across the banking Industry is 20 years.
Annotation: This suggests the total period any banker can serve on the board of any bank either as an ED, DMD, MD, or NEDs cannot exceed 20 years. Thus, if you serve a maximum of 10 years in one above or 12 years in 2 or 3 above, have 10 and 8 years left respectively. This of course is after serving the cooling period of one year outside of the banking sector.
While we understand the generation provisions in 7 above could apply to directors at the bank level, we are also made to understand that it applies to any director who has been in banking for over 20 years. It is important to note that the CBN is the ultimate regulator of all bank Holding Companies, by virtue of the licenses issued to them.
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