Driving corporate governance excellence, sustainable investment in Nigeria’s pension industry

Indeed, the Nigerian pension industry, having been nurtured from its foundation in 2004 to its present standing, should be focused on consolidating towards a promising and more predictable future. The choice of sustainable investment and excellence in Corporate Governance practices as the vehicles of that consolidation is by no means fortuitous.

Sustainable investments have become steady vehicles for channelling long-term patient capital, such as pension funds, to projects that would develop nations and guarantee healthy living in the environment. While the inefficiencies of the pre-pension reform period could be traced to a large extent on poor governance, albeit mostly in a public sector, the adoption of good Corporate Governance as a hallmark of its existence has assured the stability of the Nigerian pension industry.

The significance of corporate governance is perhaps the most pertinent environmental, social, governance (ESG) element in sustainability cannot be overemphasized. This is due to the fact that a strong corporate governance system of principles, policies and procedures is necessary in order to resolve potential conflicts and risks inherent in a company, thus, increasing sustainability within organizations.

Realizing the novelty of the Contributory Pension Scheme, against the backdrop of pre-pension reform experiences, the Nigerian Pension Industry adopted a culture that strives to attain excellence in corporate governance.

Indeed, the fiduciary duties of pension operators in managing and securing pension fund assets could not have been achieved with a weak governance structure. It was, therefore, appropriate that the National Pension Commission instituted some measures that facilitated sound corporate governance including, stringent licensing requirements for pension operators, strict process of screening Board Directors as well as the fit and proper persons test for top management to determine suitability on critical roles. The issuance of the Code of Corporate Governance and the Code of Ethics and Business Practices for Licensed Pension Operators in 2008 further underscores this commitment.

The adherence of the industry to these measures has resulted in the near absence of corporate governance deficits in the industry. The resultant effect has been largely positive when compared with other institutions in the financial sector. It is instructive that the financial crisis of 2008 – 2009, which resulted in a regulatory intervention covering eight banks, had several corporate governance imprints. On the other hand, since inception of the pension industry, it recorded only one regulatory intervention, in 2011, occasioned largely by corporate governance breaches. It is noteworthy that this isolated incidence had no negative impact on the safety of pension fund assets under management. This was assured by the sound structures, inherent in the Scheme, which segregated pension fund assets from that of pension operators in addition to segregation of administration from custody of the assets.

It is also noteworthy that the Corporate Governance in the pension industry transcends pension operators and extends to entities in which pension funds are invested. The Investment Regulations have stringent prescriptions for entities that are eligible for pension fund investments. For instance, companies that qualify for equity investments by pension funds must maintain high standards of transparency and governance. Pension Fund Managers are, therefore, required to adequately take cognizance of sound corporate governance practices in their decisions to invest in entities or specialist investment funds. The consistent growth in pension fund assets from N1.1 trillion in 2008 when the Code of Corporate Governance for Licensed Operators was issued to N8.23 trillion as at June 2018, indicate the ever rising stake of the pension industry in the governance of the financial markets.

Accordingly, efforts must therefore be channeled towards establishing a more structured process of ensuring that the pension industry collectively protects its interest in some major companies in which it invests through securing adequate board representations and ensuring they maintain excellent standards of corporate governance. It is also worthy of consideration that Pension Fund Custodians ensure the exercise of voting rights in a cohesive manner to enable the attainment of sustainable positive returns on investment. The imperative of doing this is evident considering the value of N710 billion in equity investments of blue chip companies quoted on the Nigerian Stock Exchange as at June, 2018.

The pursuit of excellence in Corporate Governance by the pension industry underscores the imperative of seeking continuous improvement in all aspects of regulation and management. Consequently, the pension industry should consider the following measures:

*Adequacy of Board Size: Pension Fund Operators should ensure that their Boards comprise of adequate number of directors with diverse qualifications and experiences. The inadequacy of directors often results in recycling of members on various board sub-committees, thus, limiting the quality of deliberations. It was understood at the formative stages that operators were constrained by cost due to low volume of business. However, the consistent accumulation of pension assets has reversed that trend with at least 12 out of the 21 Pension Fund Administrators each currently managing pension assets in excess of N100 billion.

*Independent Directors: The appointment of independent directors enriches the company’s policy decision making process. Pension Fund Operators should ensure their appointment as provided in the Code of Corporate Governance for Licensed Pension Fund Operators. This also contributes to the much needed diversity of the Boards.

* Board Evaluation: Attaining a culture of excellent corporate governance also entails instituting a reliable process of Board evaluation, which could be internal or external. Whatever option selected, it is important to highlight areas of deficiencies with a view to remedying same. The evaluation report should also be made available to the shareholders at the Annual General Meeting as a feedback on the performance of the directors.

* Disclosure: Ensure greater disclosure to the shareholders, regulatory body and the funds members. The information should contain both financial and non-financial item to engender greater confidence.

* Implement comprehensive industry policy on information/data protection.

* Implement targeted capacity building for stakeholders in the industry.

* Sustain stakeholders’ engagement, documentations of feedbacks and implementation of recommendations.

In conclusion, Pension Operators must operate with high Corporate Governance standards due to the pension industry’s stringent rules and regulations that stem from the sacrosanct nature of the funds. Meaning that the funds must be available as and when due for payment of retirement benefits. It is our hope that this conference will provide a springboard for achieving the desired Pension Industry for Nigeria through sustainable investment and excellence in corporate governance.

Source: Being part of the presentation by Mohammad Ahmad, former director general of PenCom at the 2018 edition of the Conference for Directors of Pension Operators in Nigeria organized by the Commission with the theme: ‘Consolidating the Nigerian Pension Industry through Sustainable Investment and Excellence in Corporate Governance’.