Subsidy: We are drinking away a quarter of our future – Ajogwu

By Abdulwahab Abdulah

Dr Fabian Ajogwu, SAN, is a Lagos based lawyer and educationist who has written several books and articles in journals  on the establishment of laws for corporate governance in Nigeria. In this interview, he spoke on how corporate organisations can work and excel in line with the international laws as well as compete favourably with their counterparts the world over. He also shed light on what to do about fuel subsidy in the country.

Excerpts:

WHAT is your view on the call for the removal of oil subsidy in the country?

The amount of money we spend trying to subsidize consumption is one of the biggest leakages in the system which ought to be blocked. Subsidized consumption, especially if it is of imported product, you are rarely creating jobs outside of your shores. My preference is that we do not subsidise consumptions of petroleum products.

Dr Fabian Ajogwu

When we spend about N1.2 trillion out of the budget of above N4trilion, it means that we are drinking away a quarter of our future. And in any case, if we continue to do that, we will not have refineries built. There are over 32 or more refining licenses issued now for more than six years or more, no one has built. Nigerians should ask why a capitalist firms such as Shell, Mobil and others are not building refineries.

Obviously, there is something wrong  in the system that makes it unattractive for business people to go into refinery construction. That huge drain needs to be dealt with. My worry is that the average Nigerian is made to pay this price because he doesn’t understand the mechanism.

Understandingthe mechanism

When there is attempt to deal with this problem, you can bet that it would be met with resistance. There will be some ill-informed resistance and some bandwagon resistance without really assessing whether these make someone better off or not.

What we are doing over the years is that we are graduating set of students who see the paper that students affairs gives them as not different from the papers that DPR gives them.

And in-between the subsidy, insane profits are made. Whenever insane profits are made, I am of the view that some people suffer insane losses to fund those insane profits. Until we come and build a nation where truth and justice reigns and not one where we live on falsehood of subsidy, we will be scratching the surface. My expectation is that finally, we may have the courage in this new administration to tackle this problem of subsidy because it is built on falsehood.

The current subsidy in Nigeria, subsidizes the richest man’s Porsche. Remember you can’t tell the fuel attendant that that man driving a Rolls Royce doesn’t need a subsidy. He gets subsidized whereas it is the ‘Danfo’ driver who is carrying 18 passengers inside a bus needs subsidy. It is a flawed process and I think that in our lives time, we would address it.

What does the society for corporate governance stand for?

The society for corporate governance of Nigeria is a non profit organization registered under the laws of this country and committed solely to the development of corporate governance. And this is an issue that has become prominent in how organisations are run, after the first and second waves of failures of companies in Nigeria. We have history of companies’ maladministration in Nigeria and elsewhere in the world; it is not peculiar to us.

But what is important is to draw lessons from each wave of company failures.“Again, it threw open issues of how far a person can be in control of much and what you should do when you have multiple stakeholders.  People lost several millions of dollars. All these led to Nigerian realizing that we have to sit down and define what corporate governance is for us and write a set of rules.

And that was the beginning of the idea for having a body dedicated to corporate governance. After working and drafting Nigeria’s pioneer code, which is the SEC corporate governance code, under the chairmanship of Atedo Peterside, much of that work was for me fulfilling, but yet, challenging to find a way to actually beyond making the code, to make people understand the code, comply with the code, challenge things when we feel they are not in compliance and help regulators to enforce the code. This is the reason for the birth of the Society for Corporate Governance.

What has been the experience after ten years?

The society has gone from its initial period of establishment to putting in place itself to observing corporate governance. The pioneer president and chairman of the board is the very respected Dr Christopher Kolade. It was a rich board of very experienced people and captains of industry. We have just to mention a few, Mr Pascal Dozie, the chairman of MTN, Mr, Olusegun Oshunkeye, who is the current president and chairman of the board of the society.

He was previously the chairman of Nestle, Larfage, Wemco, Glaxosmithklime, and a whole lot of those blue chips. We have the current chairman of Diamond Bank, Dr. Chris Ogbochie on the board. The current vice chairman of Exxon Mobil for Africa, Dr. Kachukwu and the executive director of Etisalat, Ibrahim Dikko on the board, Vice President in First Bank, Alhaji Tijani Borodo on the board and professor Pat Utomi is there as well. That is just to mention a few of them.

What we did was to establish a very sound society with broad based membership. We selected those who met the criteria. We have individual members, we have corporate members and we have fellows. Over this period of ten years, the society has first of all sought to observe the things that it preaches and has regular board meetings once every quarter. There is sound financial reporting. It is constantly audited by KPMG. It has succession planning.  The society embarks on research and publications.

It has a journal of corporate governance where ideas from the academia and practitioners are drawn. It also has observatory on corporate governance, which is like a 30,000 degrees view on corporate governance within corporate Nigerians.

Foreigninvestors

These are the things foreign investors look at. It is not just that there are returns on investment in our country, but that they can rely on whatever you pulled out and publish as your account. It is important to research and bring out critical data within the industry. It really does advocacy in that field by finding out what laws, bills are likely to affect businesses in Nigeria, especially governance and proactively follow through with it to either provide advice to the National Assembly or the investment community and we have several instances.

In any case, the primary responsibility of the welfare of the people of Nigeria is vested on the government. Companies may be kind, nice and sponsor things; we cannot outsource our welfare to those companies. These are a kind of quite advocacy which we do. If we don’t raise it and the laws are made, they bind everyone.

How do you react to the issue of missing public funds within these SOE’s?

As a human being and a Nigerian I feel a sense of purpose and seriousness when issues of financial accountability and maintenance of the public wealth is raised. Whenever there are those allegations, there is sequence. In my opinion, I think that those allegations should be investigated promptly, the outcome should be made known and the people who are suspected should be promptly prosecuted.

If those sequences are followed, what would happen is that, you would have sent a clear message to everyone that whenever this sort of thing happens, these are consequences? When the person goes through the process and there is conviction, for me I would not lose my energy on the quantum of penalty – whether the person is locked up for three years or two.

Clearmessage

What is by far most important is the conviction of the person and the regurgitation of ill-gotten wealth and return it to common purse and then, to make a statement that this is not allowed. In some of those institutions; the current one happening is the central bank, where some people were accused of mutilating currencies.

It is very important because it sends strong signals to non Nigerians that people can do whatever they like and take what is not supposed to be money in circulation. But whilst that happens, it then becomes important, like I said; in the next phase of what the society is embarking on is public sector financial management and accountability. That is the next focus.

We recognised it is going to be a more difficult terrain. But we will still send the same message, the same principles and same board enhancement. There is a board for the Nigerian Ports Authority; there is one for Nigerian Airspace Management Agency and so on. Most of those entities are supposed to function like companies because they have boards. Sometimes, the way they are structured, such that the chairman becomes the key personnel of everything. I think that most of those things emanated from the military era of command and control and ‘big man’ mentality.

So where the board chairman was a major general then, no one questions what he said. But today, we know that the board chairman is one of the directors that have been appointed to so act, that nothing in it gives him immunity from prosecution, from any wrongdoing. The absence of corporate governance took away our national pride – the Nigerian Airways.

And it just died a natural death. They sold a company like NITEL. So, these are SOE’s. You cannot divorce their performance from the quality of governance they receive. I must say that the fish gets rotten from the head and so it is with our own Public Enterprises here.  If you don’t have a good board, you will have problems or difficulties down the line and this is what we now want to do.

So these are the things we do for the past ten years. There’s every reason to celebrate the society in ten years, not because it has amassed surplus funds but because it has reached out to stakeholders to its desired impact focus and earned the respect of almost all the regulators they deal with.

Has there been any regulation developed by the society to allow shareholders fix remunerations of chief executives of companies?

The issue of executive compensation is an integral part of the corporate governance debate. The debate is essentially, should the executives not tie their fortunes to the fortunes of their companies such that they are not earning fat salaries whereas the company is going down. Those who argue this say well, if the company is doing well, let the executive do well. And if the company is not doing well, the executive shouldn’t.

The other debate is that they are not shareholders and they are not bearing the risk of failure or success, that an employee salary should not be dependent on whether the company make money or not. These are the two schools of thought. A few salient best practices are in place. No person should be allowed to fix his remuneration. That is a sound principle of corporate governance which the society advocates. When you fix your own remuneration, you are obviously in a conflict of interest.

It is not natural to not favour yourself. By the same token, the general meeting has been argued not to be a proper forum to discuss and fix the remuneration of the management or the board either. The argument is that the managing director does not want the whole world to sit down and discuss whether he is earning N20million or whatever figure for his own safety. We now have vices in our environment where some people think that you have the money to pay. So you are exposing him by so doing.

There are also those who bring in the decency argument. Discussing your wages in a general meeting, the decency of it, whether it is demeaning in labour and all that. So, what has come out is a midway to solve all those. The way to solve all of these is to have a board remuneration committee, which is not answerable to the management. To that extent, the executive should not be allowed to fix its own remunerations.

We saw that in the third wave of the banking collapse that they were fixing their own remunerations. Members of the society have their own code of conduct expected of them and the participating companies but not a code of corporate governance. The code of corporate governance has been issued by the regulating entities. The National Financial Reporting Council of Nigeria, (NFRCN) Act 2011 empowers the financial reporting council to issue a national code of corporate governance, which will capture all other persons to which no industry code is applicable to.

Is the code available?

I will answer to a degree! The code was prepared by a steering committee comprising the chairman, a representative of CBN, PENCOM, NSE, NAICOM and others. Different representatives were there. They worked for more than 18 years or so and came up with draft codes.

One for public companies, another for private sector and the third one for non profit sector including Churches and Mosques. The argument for including churches and mosques is that some churches own business centres and oil service companies by the side and took the non taxable general coverage. They came up with what they called an exposure draft code and published it for people to comment and give a timeline for people to start responding. Some people have started responding but others were aggrieved and went to court.

The court gave an order restraining the public hearing. I can tell you that the court has vary the order to allow the council to go ahead and have the public hearing but not to issue a code until the determination of that suit. I can’t comment further on it because I am counsel in that matter which is still before the court.