KEYNOTE ADDRESS DELIVERED BY MR. OBA OTUDEKO, OFR
AT THE 33RD ANNUAL CONFERENCE OF THE INSTITUTE OF CHARTERED SECRETARIES & ADMINISTRATORS OF NIGERIA AT SHERATON HOTEL & TOWERS, ABUJA
ON 21ST OCTOBER, 2009
MAIN THEME: “REGULATORY CHALLENGES IN AN ECONOMIC RECESSION”.
- President and Chairman of Council, Deacon Bamidele Adeisa, FCIS.
- Other Eminent Members of Council
. Past Presidents
. The Registrar/CEO of the Institute, Mr. Dele Togunde, FCIS
. Other Principal Officers of the Institute
. Institute Members
. Invited Guests
. Distinguished Ladies and Gentlemen

I am very delighted for the honour and privilege to be here this morning to deliver the Keynote Address at the 33rd Annual Conference of the Institute of Chartered Secretaries & Administrators of Nigeria. As I welcome you all to this event, please join me in appreciating the efforts and dedication of the Organising Committee, corporate sponsors, and all those who have contributed in bringing this event to life.

The theme of this year’s conference: “Regulatory Challenges in an Economic Recession” is highly pertinent in light of the current global economic meltdown, the beginning of which can be traced to late 2007 in the United States of America. Analysts are quick to point out that lax regulation of the US housing market, and investment banks on Wall Street, precipitated the worst economic crisis in living memory. This recession has been the most severe and debilitating since the GREAT DEPRESSION of the 1930s which, incidentally, also had its roots in the US.

Students of economic history would recall that the GREAT DEPRESSION was preceded by an unrestrained boom, not dissimilar to what we witnessed in this past decade. From 2001 till date, arguably late 2007, the global economy experienced a boom characterised by low interest rates, low inflation, cheaper goods, easy credit, growth of financial institutions and rising stock markets. Even in our country, the NSE All-Share Index soared, reaching its peak in March 2008, only to decline by as much as 60% as we headed into 2009. The bullish exuberance that had pervaded the economy was suddenly replaced by extreme pessimism and loss of confidence in the markets.

Mr. Alan Greenspan, the former Chairman of the US Federal Reserve Bank (Central Bank), had described the capital market boom as an era of “irrational exuberance”. Everyone was making money hand-over-fist and the global economy was inexorably growing. At such times, businesses and entrepreneurs everywhere want nothing more than to be allowed by governments to get on with what they do best – making money. And so, we were all caught up in the frenzy. No one wanted to believe that something could go wrong. Caution receded in the firmament. It was gone with the winds. In fact, some analysts were rash enough to suggest that economic recessions and the business cycle had become outdated.

Meanwhile, as would later be revealed, the US Securities and Exchange Commission and other regulatory bodies had apparently taken their eyes off the ball and had failed to keep pace with complex financial innovations on Wall Street that had simply run out of control. Mathematicians had a field day with menu over menu of complex financial market instruments. Domestically too, events of recent weeks in our financial services sector have shown that we are not after all immune, neither are we an island in today’s globalised world economy.

However, it is obvious that financial regulation and contemporary global issues such as these will shape the debate and direction of business regulation in the near future. Unsurprisingly, calls for tighter regulation tend to follow in the wake of an economic recession or significant business scandals. But, to my mind, when it comes to finance and money, it seems as though human beings repeatedly display short memories. History has this unique way of repeating itself, for there is nothing new under the Sun.

The truth is, whatever the circumstances, periods of economic boom and economic gloom are as old as history itself. In his captivating new book, The Ascent of Money, renowned historian Niall Ferguson perhaps captures it best when he stated that:

“If the financial system has a defect, it is that it reflects
and magnifies what we human beings are like. Money amplifies
our tendency to overreact, to swing from exuberance when
things are going well to deep depression when they go wrong.
Booms and busts are products, at root, of our emotional volatility.”

Why we have always allowed this boom and bust cycle should therefore be a source of worry. I expect that a rigorous assessment of the predominant global economic system in the aftermath of the Cold War may provide significant insights for the current economic recession.

I believe we all agree that underlying the capitalist economic system, which we also operate in Nigeria, are the fundamental principles of property rights and private ownership. The classic definition of a property right is “the exclusive authority to determine how a resource is used, whether that resource is owned by government or by an individual.” For governments everywhere, the regulation, allocation and protection of property rights represent a key economic challenge that often determines the future prosperity or otherwise of their people.

In Nigeria, like most other liberal democracies, the Constitution guarantees property rights as a way of encouraging property holders to innovate and use their assets as collateral to secure finance, create wealth, and allocate resources as efficiently as possible in a competitive marketplace. It is widely believed that the cumulative goal of all these activities is to create jobs, improve companies’ profitability, stimulate economic growth, and ultimately raise the standard of living of citizens and sustaining peace in the society.

However, while on the one hand, globalisation has led to the growth of business activities across the world, on the other, it has equally led to common cross-border awareness of the safety, health, environmental, financial and other risks associated with business activities, particularly those involving international and multinational corporations.

It is generally acknowledged that government oversight is the most effective way of safeguarding societies against these risks. However, from the perspective of the private sector, businesses have consistently complained about the high costs of regulatory compliance, much of which is eventually transferred to consumers of goods and services. Similarly, regulation is also considered an impediment to foreign direct investments (FDIs). And, in many countries, especially in developing economies, business regulation sometimes equates to red tape or, worse, a means of assisting official corruption.

Therefore, a major challenge confronting most governments, including ours, is how to balance public versus private ownership; that is, how to encourage entrepreneurship, financial liberalisation and private-property rights without stifling private enterprise with excessive government regulations. Although, it would seem that in the last decade governments across the world tilted the balance in favour of entrepreneurship, financial liberalisation and private-property rights. Now that we have had our fingers burnt by tilting the balance against regulation, what should we be doing to redress the situation?

Substantively, regulators should view economic downturns as an opportunity for reform of the economy, as well as their respective internal policies, processes and procedures. Crucially, it is helpful if the nation, led by the executive arm of government, has a clear and coherent economic vision. As partners in progress, regulators’ oversight role should not be projected as an adversary or antagonist.

In the event, key reform responses should include:

1. Better Corporate Governance

The overall corporate governance framework must be strengthened to facilitate efficient and transparent markets. The framework must also be consistent with the rule of law, and should clearly delineate responsibilities amongst various regulatory, supervisory and enforcement agencies. In seeking improvement, the regulatory authorities must act without any conflict of interest and must be conscious of the impact of their actions on the overall economic performance, incentives for market participants, and adherence to the rule of law in serving the general and public interest.

2. Improved Transparency

The underlying corporate governance framework should ensure that accurate, transparent, and timely disclosure of information pertaining to the financial position, performance, ownership and governance of companies are provided. Such information should be prepared and disclosed in line with the highest accounting standards while independent, competent, and qualified auditors must conduct annual audits. Company boards must be monitored to ensure that they act in good faith, ethically, and diligently in the best interest of the company and stakeholders.

3. A Level Playing Field

All company shareholders, including minority and foreign investors, must be treated equitably such that their rights are facilitated and protected. As much as possible, insider and illegal self-dealing must be condemned and prohibited. Through an effective legal system, stakeholders should be empowered to seek redress against violation of their rights. Our increasingly vibrant, strong and vigilant official response is a sure guarantor of stable economic development. Furthermore, an effective insolvency and efficient enforcement framework must be available to protect creditors’ rights.

CONCLUSION

While there can be little doubt that the global economic meltdown is not yet over, there are very encouraging signs that the worst is actually behind us. Green shoots are all over the place; what with an ascendant Dow Industrial Average Index. However, this does not mean that we can go back to business as usual. Despite the trauma experienced in the financial and capital markets in Nigeria, investors and regulators alike must take to heart the lessons learnt during this rather drawn-out year. At least so it seems with players in the business world out there. We need tighter regulation but definitely not to the detriment of growth of businesses and economic development. Businesses need to take smarter decisions, better manage risks, and eschew rabid greed. Moderation is the name of the game.

Regulatory reform should focus on making it easier to start and operate businesses, enforce property rights, reduce corruption levels, improve security, and bolster commercial dispute resolution and bankruptcy policies. Indeed, the overall business and regulatory environment must be significantly strengthened through concerted public-private reforms. At the same time, protection of shareholder minority rights, often recklessly abused by the majority with management control, should be further reinforced in our law books howbeit as a response to increasing waves of global cross-border investments.

In closing, let me state that I believe that as international confidence in the recovery of the global economy gradually returns, Nigeria could well take advantage of its abundant resources, including radical improvement in its regulatory framework, to improve its attractiveness as a destination for high-quality investment capital.

For the Vision 20-20-20 planning initiative to give the economy the projected traction, the way we do business must respect the lessons of recent exuberance and consequent crash.

I thank you once again for inviting me to be part of this event. I wish members of our worthy institute and all participants fruitful deliberations and hope that you enjoy the rest of the conference.

Thank you for listening.

Oba Otudeko, OFR
21st October, 2009