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Financial Literacy

Company Indoor Management: What CEO, MD and Chairman of a company actually means

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Jim Ovia, Chairman of Zenith Bank Plc

It’s no news that the average Nigerian enjoys title more than anything else. Some see it as a form of identity and failure to stroke their ego proves very fatal in the circumstances.
It’s not uncommon to see titles like Chairman/CEO or MD/CEO being the title addressed to someone and while some people use it indiscriminately, it may be proper in the circumstances depending on the company. By the Companies and Allied Matters Act 1990, companies in Nigeria can either be public or private whether limited by shares or by guarantee. A private company is a company with members(owners) are not more than 20 while a public company typically has an unlimited number of members. These members are also known as the owners of the company.

For every company, a set of people are employed by the company owners to be the directing mind of the company who are in charge of the day to day running of the company. They are known as directors. There is a clear distinction between the owners or members and the directors. The owners are the people who pull their resources together to form a company while the directors are employees of the owners of the company employed to manage the day to day affairs of the company. Typically, a company must by law have more than one director: a minimum of two. These directors form a board known as the board of directors or management board as the case may be. They as directors carry out the executive functions of the company by making policy decisions, conducting other staff and ensuring the profitability of the company. The head of the board is usually the most senior director and the position is usually addressed as a managing director. He is for all intents and purposes the Chief Executive Officer(CEO).

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For private companies, especially companies with small and medium capital base, it is not uncommon to find the owners also being the directing minds if the company. So if Mr David owns a company that fabricates metal scaffolds with a relatively small base of N2,000,000.00, Mr David will most likely be a director and being the owner of the company, he will typically be the most senior director who manages the affairs of the company thereby making him the Managing Director and being the most senior executive, the Chief Executive Officer. So, Mr David who owns the company and takes on the role of personally managing the affairs of his company is the Managing Director and Chief Executive Officer. It is not entirely strange to see a private company owned privately by a few people and ran by another set of people. A typical example would be Uber. Uber was founded by Travis Kalanick and Gareth Camp who are the owners while the day to day running is done by Dara Khosrowshahi who is the CEO.

It’s a different thing entirely for public companies. Due to the participation of ownership by members of the general public, there are strict rules of indoor management so as to ensure accountability to all members who are not directly involved in the running of the company. Typically, the management board of a public company consists of both executive and non-executive directors. While the executive directors carry out executive functions of the day to day running of the company, the non-executive directors are independent people appointed by the owners to assist the executive directors in policy formulation. The non-executive directors are in no way connected in the day to day running of the company as that is reserved for the executive directors. Remember that the most senior executive director is known as the Chief Executive Officer. Now in the case of a public company where there are both executive and non-executive directors, will there be a change in the nomenclature of the most senior director? It doesn’t change at all. There will only be an addition of Chairman for a member of the non-executive directors.

So in essence, for a public company, the directors are divided into executive and non-executive. Both the executive and non-executive form a board of directors headed by a Chairman who by law must be one of the non-executive directors within the board. The Chairman is not in any way connected with the day to day running of the company. The day to day running will be the function of the Managing Director/Chief Executive Officer who is also a member of the board. Drawing an analogy in Nigeria, Zenith Bank is a public company whose chairman is Jim Ovia but the MD/CEO of Zenith Bank is Peter Amangbo. While Jim Ovia presides over the board and assists in policy formulation, Peter Amangbo is directly responsible for the day to day running of Zenith Bank.

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Patricia

Nairametrics is Nigeria's top business news and financial analysis website. We focus on providing resources that help small businesses and retail investors make better investing decisions. Nairametrics is updated daily by a team of professionals. Post updated as "Nairametrics" are published by our Editorial Board.

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Investment Tips

What bad stocks have in common with bitter relationships 

The feeling you get from marrying the wrong partner is similar to that felt after buying the wrong stocks.

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I have always argued that stocks cannot be summarised into one statement for a newbie, until recently when a friend told me that it could.  

“Simply put, buying stocks can be likened to relationships, he said.  

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did not immediately agreebut over the next few minutes, he explained to me what he meant, and drew several analogies to back his claims.  

While he is no expert, I understand that he has drawn his conclusion from his experience buying stocks for himself over the past 5 years, so I took his points seriously. These points have been summarised in this article. 

READ MORE: Cocoa prices melt lower as COVID-19 weakens demand 

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When it crashes, there is no telling how far it can go  

My friend mentioned of some company’s stock he bought in 2016 in the hope of selling short-term. At the time he bought, there was a dip and he expected things to pick up within some months so he could sell-off.  

Two years later, the stock price had plummeted 50% down from the price at which he bought. Without saying, he became a long-term investor because he was not ready to sell off at a loss.  

 

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How does this liken to being in a bad relationship?

As the value plummets, you keep hoping it will rise again and then before you know it you are stuck for the long haul. Same thing can happen with a wrong partner. You remain there hoping things will be better but it gets worse. 

It could happen sometimes that a company’s stock market price comes crashing and it never goes back to where it was againThe factors which triggered its fall, may not even be able to return it to its starting price.  

 

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The stock price is not indicative of the company’s profitability 

For some reason, there are company stocks market prices that remain low year after year despite the billions declared in profits, and the dividends paid out to shareholders.  

Sometimes, the stock market price could still slump even when the company has positive records in its financials. Market experts are not always able to explain this, but it remains true. Some of the most profitable stocks are undervalued.  

 

You can never take stocks at face value

That a stock has been on an upward trend in the last few months does not mean it will remain so. One must always consider several other factors before purchasing a stock.  

While it is important to look at past performance, there are other things that could point to the likely future of such stocks. 

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Say, for instance, the company has just announced a new board chairman who was implicated in some fraud cases in the past. It doesn’t matter how well the stocks have performed in the last 365 days, or the chairman’s competence, the stock prices are most likely to slump due to loss of investor confidence.  

There was a recent case where the CEO of an internet service provider company was alleged to have been involved in sexual harassment, and was eventually pressured by shareholders to resign. The pressure came not necessarily because they thought he was guilty, but because of the implications on the company.  

You have to probe to discover the real qualities.  

 

The most expensive stocks are not necessarily the best. 

If you ever heard a stock described as under-priced or over-valued, then you should understand that the price you pay is not necessarily suggestive of the value.  

Some great stocks, with good potentials, high liquidity, good company profile and adherence to corporate governance ethics, are not as expensive as they should be. While some other stocks are ridiculously overpriced, even when they do not have as much promise. Some of these overpriced stocks could still be basking in past glory or just positive media hype.  

This explains why investors must conduct due diligence before putting in their hard-earned money. Sometimes the media hype around a company’s stock might not be giving you all the information you need to make a decision, so you necessarily have to go the extra mile.  

Subscribe to newsletters from financial news websites if you need to, take courses if you have to, but ensure to learn all you can.  

Remember price is what you pay for the stock, but value is what it is really worth, and there is no law stating that one must justify the other.  

READ MORE: Global stocks records astronomical gains in Q2 2020

When you get the wrong stocks, you get stuck! 

You know that feeling when you are sure that you have made the wrong choice, but also know that there is no way out? That’s the feeling you get when you marry the wrong partner, as my friend said. And that’s the same feeling you get when you get the wrong stocks.  

You simply get stuck.  

No returns. No dividends. Probably, no way to sell either because no one else is interested in buying from you. And if you do succeed in selling off at this point, you would most likely be doing so at a loss.  

If you study trends in the stock market, you will see some dormant stocks that have remained stagnant for long periods of time. No rise in share price, no fall in share price, and no share is being traded either.  

READ ALSO: Best time to make money trading BTCs

It is not a nice position to be in, and that is why you want to be sure of the company, its management, and board members who take the decisions before you decide to buy or not, even more so when you are a long-term investor.  

And even then, with the wrong stocks, you could suddenly find that your proposed short term investment of 6 months will run into years because you keep waiting for things to pick up before you sell.  

Patricia
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MSME

130 farmers to receive seed funding of N100,000 each

The target of the programme is to adopt farmers in 774 LGAs across the country.

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The National Information Technology Development Agency has kick-started a job and wealth creation programme where 130 farmers will each receiv, e seed funding of N100,000Border Closure: Nigerian rice farmers are struggling to feed a rice-hungry nation. CBN to give Niger Delta rice farmers single-digit loan 

The National Information Technology Development Agency has kick-started a job and wealth creation programme where 130 farmers will each receive seed funding of N100,000. The programme will be supervised by the Federal Ministry of Communication and Digital Economy.

According to a statement from the agency, the National Adopted Village for Smart Agriculture (NAVSA) programme is in line with the government’s drive to lift 100 million Nigerians out of poverty, and it will start with 130 farmers in Jigawa state.

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The target of the programme is to adopt farmers in 774 LGAs across the country, open the platform to all agriculture ecosystem players with access to information, facilitate and improve productivity, reduce the cost of production, and facilitate access to local and international markets.

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READ MORE: President Buhari directs Ministries of Power, Finance, BPE to seal Siemens deal

With all of this in place, it is expected that the farmers will be able to build sustainable business models and digital business opportunities that will create not less than 6 million well-paying jobs in the next 10 years.

“NAVSA Platform is aimed at digitalising agriculture to drive Digital Economy, as part of President Buhari’s agenda to leverage on technology and innovation to revolutionise the agriculture value chain,” the statement read.

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Among other things, the farmers will be empowered with a digital platform, smart devices (tablets), connectivity for data and calls, Digital agripreneurship skills, and enrolment with telecom operators and the National Identity Management Commission (NIMC) for identification.

All of these will be given to them at the end of the programme, which will last from July 1 to July 13, 2020.

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Patricia
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MSME

Business owners will now get CAC certificate with TIN

This will also allow them to easily request loans and credit facilities from financial institutions.

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PwC's MSME Survey 2020

As part of the Ease Of Doing Business Initiative, the Corporate Affairs Commission (CAC) will now work with the Federal Inland Revenue Service (FIRS) to issue Tax Identification Numbers (TIN) along with the Certificate of Incorporation.

This will save companies and small business owners the troubles of applying separately to the FIRS for their Tax Identification Numbers.

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This was contained in a statement signed by the Corporate Affairs Commission (CAC) on Monday, June 29, and seen by Nairametrics.

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The statement reads in part “Certificates of Incorporation of companies registered under part A of the CAMA will henceforth carry Tax Identification Numbers (TIN) issued by the FIRS”.

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With this development, companies and business owners can now proceed to open a corporate account upon receiving their Certificate of Incorporation, rather than waiting another week or more for the issuance of Tax Identification Numbers.

READ MORE: How FG plans to support Women-owned MSMEs to recover from the pandemic

This also allows them to easily request loans and credit facilities from financial institutions and dispenses the need to visit the FIRS office.

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For the revenue collection agency, the development is set to improve the accuracy of its database of registered businesses operating in the country and can aid it to widen its revenue net.

 

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Patricia
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