The Bank with a Board That Never Says No
Sunrise Microfinance Bank Plc operates in Lagos with N35 billion in deposits and a capital base of N6 billion. Its 11-member board comprises the chairman, the managing director, three executive directors and six non-executive directors. Four of the non-executives are childhood friends of the chairman and attend meetings by video from abroad; the audit committee has no member with accounting or financial expertise; the risk committee is chaired by a property developer who owes the bank N420 million. Board papers are circulated 24 hours before meetings and no board evaluation has been done in four years. A CBN examination found N1.8 billion of insider loans, equal to 30% of capital, some approved by the MD alone. The chairman proposes a board resolution to 'regularise' the loans after the fact. A development finance institution is conducting due diligence and may invest. CBN has given 30 days to respond.
1. Assess the board and committee failures and rank the three most urgent fixes.
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Diagnosis: The board has size but not effectiveness. Four non-executives who are close to the chairman and remote from the business cannot provide independent challenge; the audit committee lacks financial expertise; the risk committee chair has a N420 million conflict; papers arrive too late for meaningful scrutiny; and the absence of evaluation has allowed these weaknesses to persist.
Ranking the urgent fixes: (1) Stop further insider lending and commission an independent forensic review of the N1.8 billion, including approval trails and recoverability. (2) Reconstitute the risk and audit committees with financially literate, non-conflicted members and an independent chair; the property developer must leave the risk committee until the loan is resolved. (3) Fix board information and decision rights: seven days for papers, a related-party protocol, and clear delegation limits so the MD cannot approve insider loans alone.
Reasoning: Structure matters, but behaviour and information flow determine whether the structure works. A board that meets only to endorse management cannot satisfy its oversight duty. The CBN will look for evidence that the board has taken control, not just renumbered committees. The DFI will look for the same. A board evaluation should follow once the emergency is stabilised, not before.
2. Draft a 30-day remediation plan for the CBN and the DFI, stating what cannot be fixed retrospectively.
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30-day plan: Day 1-5: board special meeting; establish a special committee of non-conflicted directors; suspend insider lending; appoint independent counsel and forensic accountants; preserve records. Day 6-15: review all related-party loans, security and approvals; classify each as recoverable, restructureable or loss; begin recovery and disciplinary action; report preliminary findings to CBN. Day 16-25: adopt interim related-party, credit and whistleblowing policies; reconstitute committees; set delegation limits; agree a board refresh and evaluation timetable. Day 26-30: submit a candid remediation report to CBN and a governance roadmap to the DFI.
What cannot be fixed retrospectively: A board resolution cannot cure a breach of directors' duties, a breach of lending limits or a failure to obtain required approvals. The company should not describe the loans as 'regularised' if they were not properly approved when made. It can disclose, remediate, recover and discipline.
Tone: The report should admit the findings, explain root causes and show accountable owners and dates. Defensiveness will damage both relationships.
3. What is the proper role of board ratification, shareholders and the regulator here?
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Ratification: Board ratification is a decision that the company adopts a transaction; it is not a legal cure for a director's conflict, a breach of duty or a regulatory contravention. Directors who approved the loans may still face liability under CAMA 2020 and regulatory action. Ratification by disinterested directors can be relevant to the company's internal position, but it must be documented, informed and free of conflict.
Shareholders: If the articles, listing rules or the size of the transactions require shareholder approval, the board must convene a meeting with full disclosure. Shareholders cannot be asked to approve a sanitised description.
Regulator: The CBN's approval or no-objection may be required for the remediation, recapitalisation or change of control. The board should engage early and avoid presenting a fait accompli. The DFI will also need comfort that the governance defects are being fixed. The company secretary's role is to keep the decision trail clean: who knew what, when, what was disclosed and what was done.