The NCM – The Week After!

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The NCM – The Week After!

"Make us to choose the harder right instead of the easier wrong, and never to be content with
a half truth when the whole truth can be won. Endow us with the courage that is born of
loyalty to all that is noble and worthy, that scorns to compromise with vice and injustice and
knows no fear when truth and right are in jeopardy." - The "Cadet Prayer" that is repeated during
chapel services at the U.S. Military Academy.

Prelude
Doing what we know is right - regardless of the risks and potential consequences, is
what we do best. Yet, last week, we found ourselves in an unusual situation that
challenged our core values and helped us reaffirm the reason for our being.

The actions taken by SEC last week was a bitter sweet climax to many months (and
years) of expectation that the capital market reforms worked for would take place
along with the anticipated retirement of the DG/CEO of the Nigerian Stock Exchange.
We all seem to know about the change, expected it and yet when it came, it’s
interpretation divided us in ways than we were prepared for.

This was no tsunami yet it had more attributes of a potential trouble, the type that
comes with lightning during thunder storms. As SEC announced the changes, the
fear of a new order, an order unknown – an order that might have shadowy figures
yet lurking in the background as we all so often do in Nigeria – helped raised the
ante.

The investment community went along various paths - some cross carpeting took
place to align themselves to the new order, some took a stance to defend the old
order with such words as injustice, usurping of roles, change of cabal etc. to some,
they remained detached and uninterested in the game of musical chairs taking place
while a distinct group of people took a more principled position that compelled them
to speak to constituencies they hitherto held allegiance to, taking a stance that
sacrificed personal gains for the benefit of others.

It is to this latter group that we salute today, one week after. It is our hope that
their efforts in helping the market understand why challenging status quo was and is
still necessary. They showed that this lies at the very heart of the change we all
seek. These groups include professionals in private and public sectors,
administrators, editors, financial journalists, analysts and discerning investors.

For if we are to have a market where people seek to do what they know is right,
reasonable and responsible - regardless of the risks and potential consequences; we
would not have been in the situation we were faced with on August 5, 2010.

What happened?
The biggest story this year, in the financial market, must be the fundamental
corporate governance challenges that confronted the Nigerian Stock Exchange
(NSE).

Rather than deploying capacity to rapidly build-up on the expected recovery from a
landmark market downturn, the NSE was beset with a number of personality induced
squabbles which was, over time, elevated to a corporate integrity crisis in words and
deed – gaining daily the appearance of a political-arena type chaos. It had as its lead
characters - principal players from the ranks of operators, regulators, investors,
shareholder associations, governing council members, listed companies and their
directors.

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It was a nightmare scenario played out through litigations, squabbles within the
governing council and management, the growing influence of ‘conflicted’ interest
groups and professionals, publication of allegations and petitions with material
ramifications for the integrity of the financial reports of the organisations involved,
real and imagined conspiracy and corruption theories – all sustained by a cycle of
negative expose and self interest commentaries.

Enter the SEC with changes that challenged tradition, but which had at the heart of
it, the soul of the market.

The morning After

The verdict was clear – the entire Nigerian capital market community is culpable!

We recall that this market – once ranked the best, delivered the worst YoY return
post the market downturn and such reflective behaviours created tensions requiring
an un-conflicted governance framework and strong leadership to resolve. This was
evidently not the case and a cul-de-sac scenario emerged.

For long periods during the NSE crisis and somewhere along the way, we simply
forgot about the investor, about the market and about why the consequences that
the communications that emerged will have on the psyche of the market long after
the knives have retreated.

This fight was never about the soul of the market, its growth and future development
– it was a case of over-massaged egos gone awry?

As we entered the silly season, it appears that some elements angling for relevance
and a share of the post-clash spoils by ensuring that ‘victory’ is achieved at all cost,
whatever that means. Screaming headlines continue to churn the stomach during
early morning meals with such a sustained cycle of negativity. It is no wonder that
the market has gone on a southward journey again. Yet, hope remains that this will
be a blip as a re-ordering of priorities and values sets in.

To whose benefit is the continued cycle of negativity

There are more issues-led arguments to be made and should be made to explain the
intervention by SEC. We have had access to the leadership of SEC and the NSE on
the developments and identified more areas of agreement than differences on the
developments so far that encourages us to believe that contrary to the reports in the
media, this sad episode will cease to define us as a people and our market.

Recent news indicate that Ndi Okereke has gone to the law courts to enforce her
rights and she is entitled to do that; just as the SEC is entitled to invoke the ‘public
interest’ rule to justify its actions. Yet, beneath it all and away from the glare of the
public – everyone involved in the decision process for the market remain convinced
that what is best for the nation, the market and most importantly for investors will
emerge.

Not too much meaning should therefore be read to disclosures that only seek to
inflame rather than douse the situation. We have entered a new day and we must
now turn our attention to looking at the legacy we seek to establish, not our troubled
and challenging past.

We have lost a whole lot more than money, we have lost our values along the way
and it will take more than exposes in the press to get it back. It will take a focus on
the reform and a shift in the debate towards issues relating to the future we seek
being placed on the front burner.

We cannot afford to embark on this journey by driving with our eyes permanently
fixed on the rear view mirror.

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We must never confuse the need for action with the means with which it was
achieved and sustained. Most importantly, we must stay focussed on steps to be
taken to address the gaps that allowed it to happen in the first place, and less on the
destruction of the old order – an unproductive and self-serving activity that only
distracts and alienates rather than focus and involve.

One thing we must all bear in mind as stakeholders; is the need to avoid ‘emotional
trips’ in providing the justification and need for action. For the intelligent, discerning
and responsible, this should not be a difficult task.

Heard on the Streets – What is being said

The following represent a typical ‘morning after’ review of the developments so far.

1. it was very appropriate for the SEC to intervene and initiate an independent
inquiry into allegations
a. against the NSE and its management;
b. against Alh Aliko Dangote/Nova for the price manipulation allegations
made by the shareholders of AP Plc;
c. against Femi Otedola and the Board of AP Plc – made by AP Plc’s Finance
Director.
2. the SEC, for the sake of precedence setting implication must review its
application of the ISA to effect a ‘removal, not suspension before a fair hearing ’;
a trap situation that challenges the principle of natural justice and fairness;
3. a review of the SRO status of the NSE along with the gaps identified in its
Memart vis-à-vis the ISA Act to address the situation the council of the stock
exchange found itself.
4. for SEC to allow the owners of the NSE put in place a transition council to work
with its interim administrator to quickly deliver the succession desired; and
5. to comment on the plans for change at both the SEC and NSE.

Closing thoughts
Make no mistake about it, we believe and support the need for action and a far
reaching one beyond cosmetic platitudes at that. A complete clearout is within our
minimum expectations. The NSE, it appears will benefit from a new direction and a
change in leadership. Proshare’s NCM 2009 issued in February 2009 calling for
changes at the CBN, SEC and NSE was very clear on this point.

We however demand from regulators and stakeholders to raise the level of

engagement and discourse away from the ‘crab paradigm’ to one that understands
the place of the law, its deficiencies and the precedent-setting nature of the action
taken. We have a need to help the process by looking at our laws - identifying the
gaps that allowed for such hostage situations we found ourselves after the court
judgement that fore-shadowed a sole administrator-type situation.

In this process, we would expect that members of the capital market reform
committee that delivered the template for change will and should step forward to
share with us their vision of tomorrow.

Such conversations and debate will be more productive and enlightening than the
barrage of negativity and headlines, which is best left for the evening soaps on cable
TV.

The unanticipated corporate leadership and integrity failure of the council/board for
the NSE as we witnessed must never happen again. Though this development
appears to have been exacerbated by the court decision, buried at its very root, is a
series of personal failings which conflicted and compromised corporate
responsibilities and public interest. Though a private sector establishment, unlike

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others the NSE has a huge public interest responsibility that should never be treated
with levity.

We are better than this as a people, even better as men and women of pedigree. Has
it gotten so bad that we choose to dance naked in the streets, yet tell our kids not to
watch or repeat same? We can deal with this matter decisively in less than a week if
we are truly change-led.

The market is out of this crisis if we all allow it. The lessons and imperatives from the
events over the past week are as follows:

1. That change will never be easy and that benefit of hindsight also brings about a
revisionist approach to history from even the most value driven professionals:
2. That when we choose to act as a people we are capable of achieving impossible
and have demonstrated that we have the intellectual capacity to identify issues in
our capital market and the courage to take far reaching actions that are usually
held back due to political meddling;
3. That the NSE, now willing to take complete responsibility for their actions...and
mistakes; should be encouraged to see themselves as part of the new phase , if
only from a shared learning perspective;
4. That the SEC under Arumah Oteh now deserves our support without the
abdication of responsible accountability and watchdog roles that is a critical
component of the ‘confidence tripod’;
5. The reform process must proceed unimpeded, challenging the status quo in
search of better ways to deliver on strategy, processes and people; at both the
regulator and the SRO/CMO ends; and
6. Finally, this market will come out stronger and better from the experience as it
moves away from the cycle of negativity and siege mentality to one assured of its
platforms and change program.

Olufemi AWOYEMI, FCA

CEO Proshare Limited

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