The Securities and Exchange Commission (SEC) has been in the news recently talking tough about internal controls and financial reporting. Just last week the SEC extended the deadline for listed businesses to comply with internal controls over financial reporting to December 31, 2023, from December 31, 2021.
The sanctity of financial reporting cannot be overemphasized especially for investors, shareholders, and regulators. Regulators like the Financial Reporting Council and the Securities and Exchange Commission understand the importance of effective, transparent, and reliable financial statements, particularly for publicly quoted companies. Well, at least on paper.
Some of us believe, if regulators are very serious about the integrity, sanctity and reliability of financial statements we may have avoided so many corporate catastrophes of the past.
For example, questions have been raised in the past about failed banks that a couple of years earlier had just been declared viable, as a going concern. Or a company that is embroiled in a corporate scandal related to financial fraud or misstatement of results, only just after declaring massive profits, dividends, and bonuses. But what is the point of talking the talk without walking the walk?
A case in point is the recent boardroom battle about who is the largest shareholder of FBN Holdings, one of Nigeria’s largest and most respected banks. Almost a month after shareholders of the bank jostled about who owned the most shares or not, the SEC is yet to issue a single statement about the matter.
Apart from information gathered from sources suggesting that SEC was indeed aware of the matter and investigating it, it is surprising to state that they have not issued a single press release.
Rather, they have kept mute creating a vacuum for the stakeholders of the bank to keep speculating about who owns the majority shareholding of the bank. This loud silence could be construed by foreign investors to mean that we have regulators that are slow to react when major players in the capital market are embroiled in internal conflicts.
It also suggests whenever there are issues with shareholdings and ascertaining ownership of businesses, the regulators have little to no say about what should be done.
There have been instances of SEC’s laxity when it comes to making a statement on corporate ownership of companies.
A case in point was the ownership tussle between the major shareholders of a leading retail pharmaceutical company in Nigeria. The matter dragged on across social media and other platforms denting trust between investors and investees’ exploring potential investment opportunities.
What about the way it handled the matter of a leading oil and gas firm that engulfed the former DG? It is at instances such as these that you need to see brinkmanship among regulators sworn to protect the sanctity of capital markets.
SEC also had the legal and regulatory oversight to weigh into issues bothering on shareholdings and corporate governance.
Publicly quoted companies and their directors are expected to comply with the corporate governance code of SEC and face consequences when they are found to be in breach of it.
Part VIII, Section 61 of the SEC Act speaks to this directly. In addition, Part C of SEC’s Corporate Governance code also gives it oversight to act and ask the following salient questions;
- Who is the largest shareholder in First Bank?
- Is the largest shareholder Mr Otedola or Mr Odukale or indeed anyone else?
- When and how did they become the largest shareholder?
- Which of their related entities can we legitimately include as part of their indirect shareholdings?
- Was there any breach of corporate governance by anyone related to this matter?
- Are the filings submitted to SEC consistent with what is being declared as majority ownership of the bank?
- And then, are the rights and investments of minority shareholders protected?
The Nigerian Exchange asked some of these questions when it issued a query to FBN Holdings. Even though the Exchange is yet to follow through with the query and its next line of actions, it was a step in the right direction.
Will the real SEC stand up?