CHANGE OF CEO IN NIGERIAN BANKING SYSTEM

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    February 09, 2010

    :CBNs Shift from Laudable & Sustainable Corporate Governance Initiatives to Controversial Meddlesomeness

    Prepared By:

    Martin Oluba, PhD, DBAPresident/Chief Economist

    ValueFronteira Limited

    42 Olowu street, Ikeja Lagos Nigeria

    Web: www.valuefronteira.comEmail: [email protected]

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    The End of Long-Tenured CEO IIt may pay exorbitantly and provide the ultimate career challenge, but

    dont count on the CEO job lasting very long, says the first global studyever focused specifically on CEO tenure. Conducted by Drake Beam Morin(DBM), the worlds leading provider of human resource solutions, thestudy reveals that the long-tenured CEO will become increasingly rare,and fewer CEOs can expect to hold their jobs until retirement. Further, it

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    plans within tighter timeframes, reinforcing the current corporate focuson achieving short-term business results.- http://www.amgr.com/pdf/0200.pdf

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    The End of Long- Tenured CEOs II

    DBM studied 476 of the worlds largest private and public corporations,spanning 50 industries in 25 countries, to examine the impact of corporatechange on CEO careers and job security, and to determine how companieshandle these high level transitions. Nearly half of all current CEOs have held theirjob for less than three years. In just the past five years, close to two-thirds of allcompanies have installed a new CEO.

    In virtually every industry and country, CEO turnover is rising and leadership

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    , ,

    Messenger Associates, Inc., A Member of the Drake Beam Morin WorldwideNetwork. The impact of this high turnover is directly shaping todays definitionof corporate leadership. Faced with a merger-fueled economy, impatientshareholders and an uncertain future, CEOs cant help but adopt a short-term,high-payoff mindset when it comes to planning and pursuing desired business

    goals. Just as todays worker should expect multiple careers, so, too, shouldtodays CEO.- http://www.amgr.com/pdf/0200.pdf

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    It is important to note that these fascinating global trend in decline inCEO tenure is neither forced nor based on regulation but by voluntarydischarge of the legal trusts of the shareholders over their CEOs.

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    The Bank CEO Tenure Limit Policy

    All CEOs who would have served for 10 years by July 31, 2010, tocease to functioning in that capacity;

    The guidelines shall apply notwithstanding the terms of

    engagement or the provisions of the Memorandum and Articles ofAssociation of any bank;

    Banks to kick-start a succession programme that would besupervised by their respective boards and monitored by the CBN

    ere a an s a pro uc o a merger, acqu s on, a eover or anyother form of combination, the CBN said that the 10-year periodshall include the pre and post combination service years of theCEOs, provided that the bank in which he previously served as CEOwas part of the new bank that emerged after the combination.

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    Underlying Reasons

    The apex bank said that it took the decision in order toenthrone good corporate governance practices in Nigerian

    banks; institutionalize the arrangement of theappointments of bank CEOs; ensure that banks developedgood succession plans, and also ensure that bankinginstitutions were not personalized.

    -

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    http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-year-tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-considered-instead&catid=26:business&Itemid=153

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    In the Footpaths of Our Predecessor

    "All we are saying is that we will not approvethe appointment of a person as an MD formore than 10 years. What is the differencebetween that and saying you will not get abanking licence if you do not have N25billion?"

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    - CBN Governor

    It does not matter what you think or how superior your arguments

    arejust comply or else you lose your licence!!

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    The NumbersNigerian Banks Name of CEO CEO Tenure in office No of yearsAccess Bank Aigboje Imoukhuede 2002 - 2010 7

    Diamond Emeka Onwuka 2005 - 2010 4

    Ecobank Offong Ambah 2006 - 2010 3

    Fidelity Bank Reginald Ihejiahi 2004 - 2010 5

    First Bank Bisi Onasanya 2009 - 2010 1

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    FCMB Ladi Balogun 2005 - 2010 4GTB Plc Tayo Aderinokun 2002 - 2010 7

    Skye Bank Akinsola Akinfenwa 2000 - 2010 9

    Stanbic IBTC Chris Newson 2008 - 2010 2

    UBA Plc Tony Elumelu 1997 - 2010 12

    Wema Bank Segun Oloketuyi 2009 - 2010 - 1

    Zenith Bank Jim Ovia 1990 - 2010 19+

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    the FoundationsOn term limits, over 160 bank directors that attended a corporategovernance training seminar in Lagos in 2008 had recommended aterm limit of twelve years consisting of three terms of four years each

    for all directors of banks, as part of their communiqu. Thecommuniqu was widely circulated and published as a full-pageadvertorial in the Guardian Newspaper in the last quarter of that year.Thus, it would be wrong for anyone to see the new rule as an attempt

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    y e new governor o arge any one se o an s .

    - Dr. Oladimeji Alo* The New Tenure Rule and the Bank GovernanceDebate. 29 January, 2010. http://proshareng.com/blog/?p=174

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    It is debatable whether the communiqu empowered the CBN to regulate the limits. I am

    of the opinion that the communiqu asked banks to go back and institute appropriatesuccession arrangements. It is also debatable whether the CBN showed interest in

    knowing how the respective banks responded.

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    Policy Has Strong Support Base

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    Why?

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    Banks are DifferentBut I understand the fear of the CBN in this regard. Banks are differentfrom private business because they take depositors fund. The policy isin tune with corporate governance and risk management and in the

    interest of the public. The policy is good going by what has beenhappening in the nations banking sector

    - Opeyemi Agbaje (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-year-tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-considered-instead&catid=26:business&Itemid=153)

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    "What (Sanusi) is saying is that a bank is the custodian of public funds and theCBN regulates banks. As the governor of the CBN, he has the right to controlwhat happens in the banks. With what has happened since August 14, 2009, weknow that there is a problem. "The only challenge is professionalism. It is a threatto professionalism for those who choose banking as their career."

    - Chief Timothy Adesiyan, President of the Nigeria Shareholders SolidarityAssociation,

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    CBNs right to control the banks should be used within the bounds of common

    sense, the law and natural justice. It should not be abused.

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    Longer Tenure Kills New InitiativesDefinitely, if you stay too long in an office you run out of ideas and Ithink while there is rightsizing in the staff strength, there should be

    similar exercise in the management level

    - Olusoji Salako (http://news.dailytrust.com/index.php?option=com_content&view=article&id=13061:reactions-greet-10-year-tenure-for-bank-ceos-policy-shouldnt-be-retroactive--retirement-age-be-considered-instead&catid=26:business&Itemid=153)

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    n s a goo ea o a ow new nnova on. 10 years s ong enoug or

    any manager to contribute whatever good to an organization, anythingabove that, doesnt make sense. Again, the policy will stop the sit donsyndrome among the bank CEOs.

    - Alhaji Yussuff, chairman Association of Stockbrokerage Houses of Nigeria,

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    Longer tenure does not kill initiatives. Where lies the benefits of experience onthe job. Some CEOs learning and experience curves are amazing.I think

    Akinfenwa, Elumelu, Ovia have demonstrated that much in the industry.

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    Many CEOs Were Running the Banks as

    their Private Property

    It is good but it should not be retroactive. The CBN should give the existingbanks tenure because the transition would not be that easy.Even in small

    branches six months is not possible to raise a successor to a manager talk moreof large banks, so the decision is too sudden. Dont forget that most of thebanks MDs were running the banks as their property because of theirinvestment, some dont have other investments elsewhere and you are askingthem to retire all of a sudden. I think is it is too drastic. He said some of the

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    s ave no reac e re remen age ye ecause ey are ess an 0 years.- Abdulrasheed Abubakar, the managing director and chief executive officer, Fresh Field

    Asset Management Limited Abuja

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    Sense of ownership is a strong entrepreneurial incentive. It makes the CEO to

    work doubly hard. On the otherhand, pocketing what belongs to the bank as if

    it were the CEOs is criminal and should be dealt by the law on the

    promptings of the shareholders and the CBN

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    Ten Years is Enough for Entrenching

    Succession PlanThe policy is good because it would entrench good corporate governance, addingthat ten years is long enough for any CEO to institute a succession plan. He said itwould also discourage the run of banks like personal properties.

    - Mr. Joe Ameh, MD/CEO, Nigeria Reinsurance Corporation

    succession planning is part of the attributes of a well organized and governedentity. It builds confidence and ensures sustainability. Whilst a domineering loneCEO ma be a ro riate at certain hases of or anizational life rolon ed sta

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    may become counter-productive and create anxiety in the market. The measureconduces to good government and should have positive effect on themarketsThe term limit is one of the steps towards addressing the corporategovernance challenges in the banking sector as revealed by recent events. Oneother measure that can be helpful is the adoption of professional independentdirectorship as practiced in the UK and other climes. This will bridge the existing

    gap in corporate ownership and control, especially in sophisticated industries likebanking.

    - Ubong Awah, the Chief accounting Officer, XDS Credit Bureau

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    It will Tame the Excesses of CEOs

    the huge influence of CEOs on their banks would have been broken in the longrun. "It will guarantee the safety of depositors' fund,there would be transparency inthe disbursement of loans - as such loans would be given out to genuine borrowersand not to favour the CEOs' cronies, friends, relatives and lovers. "If loans are given

    genuinely, it would have effect on the economy,"- Mr. Ahmed Musa, International Bank Plc

    it was worthwhile to know if the apex bank was acting within the provisions ofCompanies and Allied Matters Act (CAMA)the fixing of tenure would help put acheck on the excesses of bank CEOs stressin that revelations from the recent audit

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    examinations into the banks had lent credence to tenure fixing. Staying longer inoffice made the CEOs act beyond their powers, thereby becoming difficult tocontrol"I quite agree with the CBN that most management failures result fromlong stay in office. Diminishing returns tend to set in. Fixed tenure will enhanceperformance and check their excesses. Two terms of five years is okay for theCEOs,

    - Mr. Wale Adeyemi, Former chairman, Chartered Institute of Bankers of Nigeria(CIBN), Lagos State Chapter

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    CEO excesses is never tamed by regulated tenure limits. On the contrary effective

    monitoring of compliance with full disclosure requirements is a good start.

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    Banks are Public Interest Institutions

    the new policy was a good guide since the banks were all quotedcompanies and were subject to good corporate governance. Banks are

    public interest institutions. They are all quoted companies and, therefore,subject to good corporate governance. A 10-year tenure is a good guide.- The Managing Director, Partnership Investments Limited, Mr. Victor Ogiemwonyi

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    Help Improve Corporate Governance

    Staying indefinitely in office makes the CEO become more powerful than theboard the same measures should be extended to the auditors in the variousbanks the longer they stayed in their respective banks, the more the opportunity

    they would have to commit corruption. He however advised the CBN to first of allseek for the amendment of CAMA before arbitrarily fixing the CEOs' tenure.

    - Former National President, Association of National Accountants of Nigeria (ANAN), Dr.Samuel Nzekwe

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    though the directives of the CBN governor was challengeable and debatable, hehad the right to lay down some policy directive that would enhance corporategovernance. The policy is a welcome development because it will help improvecorporate governance badly needed in the country. It is a policy that you cannot

    stay in office forever,"- Former President of the Nigerian Bar Association (NBA), Mr. Olisa Agbakoba (SAN)

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    Why Stay More Years in Office than

    the President?

    Mr. Tayo Oyetibo (SAN) welcomed the policy and wondered why a

    man would remain in office for more than 10 years. He argued thatif the president of the country would occupy office for a maximumof eight years, why would any other person stay in office beyondthat? Staying in office for long as chief executive could lead to

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    , .

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    Ridiculous!!

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    Long Tenures Strengthen Personality

    Cults in the IndustryIt is in that context that one must see the imposition of tenure on bank CEOs.Whilst long tenure may not necessarily lead to abuse of office

    or mismanagement it can create a personality cult that stifles good and optimalmanagement and decision making. Indeed Shareholders Associations have forcedsome banks to have limited tenure of two terms of four years in recenttimes and the CBN governor's decision on the matter is nothing new inthe industry.

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    What is instructive is that some banks CEOs have bought the Shareholders associations over completely such that nobody dare limit their tenure.This is what this CBN governor has done and we think it is a step inthe right direction.

    - CBN and Bank CEOs Tenure; 01.31.2010. http://www.thisdayonline.com/nview.php?id=165474

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    Nigerian Bankers Need to be Saved

    from their GreedAlso we know that power corrupts and absolute power corrupts absolutely. Nigerianbankers, like their overseas counterparts, should be saved from their greed as wellas themselves. They should leave office early so that taxpayers money will not be

    used to bail them out of the mess they create from indeterminate and long tenure.An actor quits whilst the ovation is loudest and bank CEOsshould learn this early enough.

    Indeed it is a measure of the indiscipline in the banking industry that immediately the CBN

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    made the tenure announcement some banks announced the appointments of CEO-designates which is a clear breach of protocol and practice. As a rulesuch appointments have to be cleared and approvedby the CBN which has correctly called the errant banks to order. Such violations of simpleprocedures and laid down rules by those who should know better and who have been inthe saddle for over a decade highlight again the dangers of long tenure in

    banking where depositors funds are at stake.- CBN and Bank CEOs Tenure; 01.31.2010. http://www.thisdayonline.com/nview.php?id=165474

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    and Even More Justifications

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    CEOs Do Not Own the BanksThe Royal Bank of Canada (RBC) and the Bank of Nova Scotia (BNS)are individually bigger than half of Nigerian banks put together and yetthey have no corporate jet, so why should neophytes and struggling

    pretenders to great banking be spending depositors' funds inprocuring corporate jets? Most of these executives think the banksbelonged to them. Putting one hundred million naira into a bank at itsinception does not make you the owner of the bank. What percentage

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    o e an s equ y rec y e on s o e se -a ver se owners

    How about the shares these executives allotted to themselves andtheir families without paying for the shares, are they exempted frompaying for shares they subscribed for?

    - Babs Ajayi (August 19, 2009) - Five Failed Banks: A Tale of Greed, Ego and

    Deception. NigeriaWorld.

    http://nigeriaworld.com/feature/publication/babsajayi/082109.html

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    Banking is a Highly Regulated Business

    All over the world, banking is a highly regulated business. When a companyapplies for a banking license, it voluntarily signs up to be bound by the rulesand regulations guiding that business issued by the relevant authorities. The

    banking license itself confers on the holders certain rights, powers andprivileges. Those who grant the license have a duty to ensure that thosepowers are exercised in a manner that balances the interests of allstakeholders in the business. When a bank goes bust, what is at stake is farmore than the investment of the shareholders. There is thus a need, which is

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    un versa y recogn ze , o pro ec e n eres s o ese o er s a e o ers .

    - Dr. Oladimeji Alo* The New Tenure Rule and the Bank Governance Debate. 29January, 2010. http://proshareng.com/blog/?p=174

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    Weak Shareholder Model of

    Corporate Governance in NigeriaWithout going into details, it is apparent from the recent and persistentbanking failures and scandals in Nigeria that proper corporate governance and

    effective internal control mechanisms, including shareholder control, in banksare either non-existent or at least severely attenuated in many banks. Acorporate governance model based on shareholder control and other internalmechanisms has not worked with many Nigeria banks. The result is that theCBN cannot effectivel erform its role of ensurin financial stabilit and

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    promoting a sound financial system without intervening in apparently privatearrangements in banks. CEOs tenure is presumably one of such arrangementsthat affect internal corporate governance and the national financial system.

    - The Fronteira Post article by Dr Onyeka Osuji, University of Exeter

    School of Law, Cornwall Campus, United Kingdom

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    Even with SEC ?To further enhance the powers of shareholders in the corporate decision makingprocess, the Nigerian Securities and Exchange Commission introduced the Code ofBest Practices for Public Companies in Nigeria. One of the core focuses of the code

    is shareholders right and responsibilities. The code expressly provides that thecompany or the board should not discourage shareholder activism whether byinstitutional shareholders or by organized shareholders' groups.

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    - Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activismin Emergent Democracies: a case study of Nigeria. Center for the Study ofGlobalization and Regionalization.

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    What the CBN ought to have done is to leverage ealier communique by theclaimed 160 bank directors and strengthened by the efforts already made in

    this respect by SEC and seek ways of strengthening shareholder control of the

    CEO.

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    Weak Shareholder Control Modela senior official of the Nigerian SEC said, We have been attending AGMs where directorsare elected or re-elected, such proceedings are just formalities. Even the so called shareholderassociations that attend such meetings are easily compromised by the board and managementof these companies

    It must be noted that regulatory agencies have legal provisions to attend AGMs as observersonly, with no right(s) to interfere on deliberations. As another respondent puts it, someAGMs are so predetermined that you notice from the onset that this is a doctored

    roceedin In the same vein, a former CEO and Chairman of a listed cor oration said; I

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    acknowledge that management and boards do hijack the independence and activism ofshareholder associations, by giving them financial incentives/bribes. It got to a point that apresident of one of the shareholder associations became a director on a company which wasreally bad. In sum, it is possible to conclude that shareholder activism in Nigeria is bogus.

    - Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism in

    Emergent Democracies: a case study of Nigeria. Center for the Study of Globalization andRegionalization.

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    Unregulated Tenure Behind Monumental

    Corruption in Banksunregulated tenure brought about "entrenched monumentalcorruption, the type that we have just seen as revealed by theEconomic and Financial Crimes Commission (EFCC) and from the end

    of year audited accounts of the banks. What that means is that someof these CEOs had compromised their positions by enrichingthemselves and putting depositors' investments at risk. Under thiscircumstance, do we encourage such a regime to continue? No of

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    course; s new re me mus e sus a ne o en en er corpora e

    governance and best practices.- Abubakar Nagona, President of Integrated Development and Investment Service (IDIS).http://allafrica.com/stories/201002010719.html

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    y wr

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    How Much Will Tenure Fixing Help

    Please, talk to the agency in charge first, may be EFCC or the ICPC tomake a mark on curruption, witch-hunting, collecting money without jailsentences will assume that they are still not doing nothing, if you like fix

    two months, billioniares will be made within the short time as CEO,listen, nigerians are so currupt ridden, we are so perfect and are noteven afraid of trial because we are sure nothing will come out of thetrial, a CEO buying an SUV for over 35 million naira weeks after assuming

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    office shows that he is worse that his predecessors, please we need to

    fix Nigeria first.

    - OJO OLUBUNMI (BBD) on 24/01/2010 02:25:13 http://thewillnigeria.com/business/3482-Central-Bank-Fixes--Year-Tenure-For-CEOs.html

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    What if the CBN was

    Uncompromised & Effective?It is not clear what determined the 10 years tenor, but what is clear is that this directive is intandem with the 'holier than thou attitude' brazenly flaunted by the current CBN Governor

    since his appointment last year.

    However, serious analysts have begun to wonder if we are not again gullibly being led to theslaughter slab on the wings of public deceit and ignorance! The CBN Governor has carried onas if the CBN he inherited was the Pope's Inner Sanctum with angelic officials.

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    Indeed, editorials in Nigerian dailies rightly recognize that the incidence of rampant marginloans, reckless share price manipulations and heavily cooked trading results, whichprecipitated the banking crisis, could not have happened if the regulatory authorities wereeffective and uncompromised!

    - Les Leba (2010). The Putrid Messalso in CBN (2) Vanguard Newspaper 1 February

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    CBN Worsened Corporate Governance

    SituationsThe failure of corporate governance in the Nigerian financial system and its exacerbationover the time was due to the failure of the central bank of Nigeria to exercise its supervisory,monitoring and sanctioning roles effectively. It was not a failure that was substantially tied to

    the tenure of bank CEOs. The reason being that corporate governance is best achieved in anenvironment of full disclosure and effective monitoring that ensures that the disclosures areindeed authentic and at desired level and on desired items. Therefore the CBN should be moreconcerned with establishing the rules and procedures that ensure the safety of depositors

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    ,

    that enable itself (as the regulators) and the market to guage participants performance and

    compliance with these procedures are clear and known, disclose levels of actual performanceand compliance as well as infractions, punish or reward violations where applicable. All theseinformation will equally allows the market to determine who to penalize or reward with itspatronage.

    - Martin Oluba, The Fronteira Post

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    Legal & Regulatory Dimensions

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    Legal & Regulatory Dimensions I

    First, it arguably interferes in private arrangements by intervening in and rewritingbanks memorandum and articles of association as well as the service contracts ofthe CEOs. These documents are generally regarded as private contracts. For

    example, this private contractual status is recognised in section 41(1) of theCompanies and Allied Matters Act which provides that the memorandum andarticles of association of companies (including banks) constitute a contractbetween the company, and its members and officers. Second, the CBNs guideline

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    .

    - The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law,Cornwall Campus, United Kingdom

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    Legal & Regulatory Dimensions IIthe legality of the CBNs action depends on the relevant statutory provisions. Specificprovisions of BOFIA relating to qualifications of directors and officers of banks appear to be insections 19, 33 and 44. It seems that none of the provisions expressly permit the CBN to issue aguideline restricting the tenure of bank CEOs. Section 19 prohibits employment of bankrupts

    and persons convicted of offences involving fraud, dishonesty or professional misconduct. Italso prohibits joint directorships of banks and engagement of bank directors in any otherbusiness or vocation. Section 19 does not in any way authorize the CBN to limit the tenure ofCEOs or prevent banks from engaging their CEOs for more than 10 years.

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    - The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, CornwallCampus, United Kingdom

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    Legal & Regulatory Dimensions IV

    The clear conclusion is that there are no explicit enabling provisions in the BOFIA for therecent CBN tenure limit guideline. However, there are provisions in the CBN Act and BOFIAthat suggest the CBNs legal right to impose tenure limit on banks CEOs. It is submitted that aholistic approach to both statutes would indicate that the CBN was probably legally right, at

    least under the two statutes, in issuing the tenure limit guideline. For example, section 42(1)of the CBN imposes a duty on the CBN to, among other matters, ensure high standards ofconduct and management in the banking system. Although tenure limit is arguably an issue ofhigh standards of conduct and management, the difficulty here is that the CBNs duty is to - -

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    .limit is plainly not a co-operative activity.

    - The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall Campus,United Kingdom

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    Legal & Regulatory Dimensions V

    However, section 2(d) of the CBN Act provides that one of the principal objects of the CBN isthe promotion of a sound financial system in Nigeria. More importantly, section 33(1)(b) of theCBN Act confirms that the CBN has the power to issue guidelines to any person and anyinstitution under its supervision (emphasis supplied). Read with section 2(d), the implication

    is that the CBN can issue guidelines to any such person and institution while acting infurtherance of the statutory object of promoting a sound financial system in Nigeria. Tenurelimit arguably comes within this remit. It is clearly a question of proper governance of bankswhich, in turn, is connected to the existence of a sound financial system. Incidentally, sections1 and 2 of BOFIA confirm that the CBN retains and can exercise its owers under the CBN Act

    37

    and BOFIA.

    -The Fronteira Post article by Dr Onyeka Osuji, University of Exeter School of Law, Cornwall Campus, United Kingdom

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    Inconsistent with InternationalBest Practices

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    No Regulator-imposed Term Limits in

    US and UKOther commentators have argued that no regulator-imposed term limits exists for CEOs ofbanks in the US and the UK. My simple answer to that point is that these other jurisdictionshave mature institutions and had developed complimentary structures of checks andbalances for their corporate governance regimes. It is common knowledge that some of thecorporate chieftains we celebrate in Nigeria today, even outside the banking sector, wouldbe languishing in jail in these other countries were they to attempt some of the things thatbrought them their fabled wealth. If we must set time limits for bank CEOs while we work to

    39

    build a sustainable culture of good corporate governance in the sector, so be it.

    -Dr. Oladimeji Alo* The New Tenure Rule and the Bank Governance Debate. 29 January, 2010.http://proshareng.com/blog/?p=174

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    When Do Retroactive Policies Make

    41Nigerian Bank CEO Tenure Limits09/02/2010

    A id i P i hi C i U

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    Aside in Punishing Crime Unsavoury

    Retroactive Policy If the CBN is excited by that model, then itshould focus rather on getting the banks to

    put in place going forward arrangementsthat enable the transition of leadership notretroactively. Going backwards is asidebeing military negates the principles of

    42

    er y upon w c e mar e economy

    should sit.

    Martin Oluba, The Fronteira Post

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    Policy Was Retroactive, and So What?

    "What is being termed as retroactive is nothing new. It hasprecedence. When consolidation was done, the policy was thatevery bank must have a minimum of N25 billion capital. It did not

    matter if you were just getting a licence or you had been inexistence for 100 years. So I don't really see the point about aretroactive policy. When you make a policy, you apply it acrossboard," CBN Governor

    43

    http://allafrica.com/stories/201001220233.html

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    Infringement on Shareholder Rights

    44Nigerian Bank CEO Tenure Limits09/02/2010

    h h ld h

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    Shareholders to the RescueApart from specific situations where the law requires shareholders consent,the traditional model of directorial accountability to the shareholdersdepends heavily upon the ability of the shareholders to review theperformance of the board and to take decisions if they think that the

    performance has not been adequate. (Gower and Davies 2008: 411-412). Thebalance of power between the board and shareholders has thus emerged asone of the centrepieces of the discourse on corporate governance andaccountability.

    45

    - Adegbite, Amaeshi and Amao (2009). Political Analysis of Shareholder Activism in Emergent

    Democracies: a case study of Nigeria. Center for the Study of Globalization and Regionalization.

    Nigerian Bank CEO Tenure Limits09/02/2010

    The Role of Sha eholde s is

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    The Role of Shareholders is

    SacrosanctThis is a position no one can and should fault That the role of the shareholders issacrosanct and that the use of military-type executive fiat does very little to enthrone andpromote good corporate governance.

    I have, and I repeat (recall that issued my position 24 hours after the announcement) reliedon the documents I was privy to in which bank Directors executive and non-executive- hadthree years ago agreed on the issue of tenure limits (after so many years of deliberations on

    46

    how to deal with the issue across board) but could not resolve the question of when tenure

    limits should begin.

    Certain CEOs were able to resolve this and some could not the ironic truth is that thisdecision has to be made

    - Olufemi Awoyemi, MD/CEO Proshare Nigeria Limited. www.proshareng.com

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    Only the ShareholderThe industry is one where experience is a key factor in ensuringgrowth and overall good performance, Pianim told BusinessDay inAccra. Such decisions are better left for the shareholders and

    boards of such banks to determine. Where the stakeholders seethat the bank is better off under a particular CEO they ought to befree to say please continue so long as the CEO has not reached themandatory retirement age,

    47

    Kwame Pianim, Chairman of UBA Plc Ghana,http://www.businessdayonline.com/index.php?option=com_content&view=article&id=7748:banks-ceos-tenure-should-be-left-to-shareholders-directors-to-determine-says-uba-ghana-chairman&catid=85:national&Itemid=340#yvComment7748

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    T Li it i A l

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    Tenure Limit is Anomalous

    Shareholders, under the aegis of the Independent ShareholdersAssociation of Nigeria (ISAN) described the tenure directive asanomalous, since the CBN is merely a regulatory body and notowners or part owners of the banks. Sunny Nwosu, President ofISAN, says it is unfair, unjust and illegal.

    http://www.businessdayonline.com/index.php?option=com_content&view=article&id=8010:fixed-tenure-for-bank-ceos-what-expectations&catid=117:news&Itemid=278

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    Greater Board Diligence Should Lead to

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    Greater Board Diligence Should Lead to

    Shorter CEO TenuresBecause the probability of dismissal increases with the intensity of board monitoring, astraightforward prediction of the model is that greater board diligence should lead to shorterceo tenures on average. This effect is strengthened in an indirect way: Because greater

    diligence increases the option value of a new ceo, increased diligence makes boards morewilling to give up a higher estimated ability in exchange for greater uncertainty about ability.Hence, the average estimated ability of ceos hired should decrease as board diligenceincreases. Given that the sample of hired ceos is of lower average quality, their tenure should

    49

    estimated abilities in the populations of internal and external candidates, this last insight

    plausibly suggests that external candidates expected tenure as ceo will be less than internalcandidates.

    - Hermalin (2004). Trends in Corporate Governance. The Journal of Finance. P. 2.http://www.afajof.org/afa/forthcoming/hermalin.pdf

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    Wh I th B d i CBN C l l ti

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    Where Is the Board in CBNs Calculations?

    it is unfair, unjust and illegal on the part of the apex bank to determine the tenure ofbank directors, over and above the ownersit is left for shareholders to decide when themanaging directors could go, "since at inception, there was no memorandum in respect oftenure issues. If there was any, the board and the shareholders would have to make up theirminds on succession plan. So it is wrong for CBN to, midway, shift the goal post.

    "The managing directors that would be affected, as we were told, were cleared during theaudit exercises conducted on their respective banks. Why then, after four months, is CBNresorting to tenure system to oust them? "It is against natural justice to remove people, who

    50

    had used their initiatives in these private organizations to add value to the economy, in

    various ways."

    - Sir Sunny Nwosu, national coordinator, Independent Shareholders Association of Nigeria.http://www.ngrguardiannews.com/news/article03/indexn2_html?pdate=220110&ptitle=Mixed+reactions+trail+CBN+guidelines+on+bank+chiefs%27+tenure

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    Where Is the Board in CBNs Calculations?

    In a chat, Unegbu disagreed with the position of the CBN and pointed out that agood chief executive could, in fact, stay for more than 20 years in that position."You can stay for 20 years in a position if you are good. There is no point in theCBN suggesting tenure for bank executives. It is not done, because there is a

    board," argued Unegbu.

    Rather, he said, proper corporate governance should ensure that the boardinstitutes appointment and compensation committee, "which will assess the

    51

    . ,determined by performance and his willingness to continue.

    - Mazi Okechukwu Unegbuformer President of the Chartered Institute of Bankers of Nigeria.http://www.ngrguardiannews.com/news/article03/indexn2_html?pdate=220110&ptitle=Mixed+reactions+trail+CBN+guidelines+on+bank+chiefs%27+tenure

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    To What Extent Does CEO TenureMatter in Preventin Bank failures?

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    Why Banks FailBanks fail for three reasons. First, bad management (poor internal controls,self-dealing, bad lending and investment decisions, excessively rapidexpansion, and so forth) is the main cause of isolated or non-contagious bank

    failures. Second, an economic contagion, almost always triggered by adecline in the market value of assets, causes many banks to fail that in normaleconomic times would not. Third, government restrictions on asset andgeographical risk dispersion limit the ability of individual banks to diversify

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    e r asse r s n or er o pro ec emse ves a a ns con a ous even s suc

    as a regional asset deflation made worse by asset fire sales. In effect, assetand branching restrictions magnify contagion losses by increasing thenumber of bank failures.

    Bert Ely (1999). Regulatory Moral Hazard. The Real Moral Hazard in Federal Deposit Insurance. TheIndependent Review, v. IV, n. 2, Fall 1999, ISSN 1086-1653, Copyright 1999, pp. 241254

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    Bank Failures Reflect Regulatory Failure

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    Bank Failures Reflect Regulatory Failure

    Because it is unrealistic to trust bank owners to comply at all times with safety-and-soundness requirements, governments have enforced these failure-prevention schemesthrough a bank inspection or examination program complemented by banking supervision.Government banking supervisors intervene, formally or informally, in the management of abank to prevent its failure.Therefore, unlike the failure of other businesses, bank failurereflects regulatory failure. There are different kinds of regulatory failure, including restrictingbranch banking, encouraging institutions to borrow short and lend long (which did in thesavings- and-loans), failing to identify problems in banks, sweeping known problems under

    54

    the rug (regulatory forbearance), and others.

    - Bert Ely (1999). Regulatory Moral Hazard The Real Moral Hazard in Federal Deposit Insurance.The Independent Review, v. IV, n. 2, Fall 1999, ISSN 1086-1653, Copyright 1999, pp. 241254

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    Why Should CEO Tenure be Made to Look

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    Why Should CEO Tenure be Made to Look

    at as the Cause of the Problems?The action of the CBN is a transfer of the penalty or blame due to itself over its inability toappropriately monitor, supervise and sanction the system over to entrepreneurs that havesuccessfully steered their organizations over these years. We should not loose sight of thefact that the innovations and the progress made by this industry in the last decade havebeen triggered by the foresight and resilience of these CEOs whose incentive was that theysaw these banks as their own property, nurtured it as well as triggered the much neededcompetition that eventually brought about lots of the positive changes that have brought

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    the financial system where it is today. It was actually the because of grossly poor monitoring,

    supervision, sanctioning and high levels of complicity and tolerance of corporate governanceviolations on the side of the CBN itself that the competition over-stepped the bounds ofprofessionalism and industry ethics which led to the degrees of gross abuses that arewitnessed today.

    Martin Oluba, The Fronteira Post

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    The More the Tenure, the Less theInitiative for Better Performance

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    Perhaps, Zenith Bank & UBA Plc Suffered

    Poor Initiatives. Quite the Contrary!!

    We should not loose sight of the fact that the innovations and the progress made by thisindustry in the last decade have been triggered by the foresight and resilience of these CEOs

    whose incentive was that they saw these banks as their own property, nurtured it as well astriggered the much needed competition that eventually brought about lots of the positivechanges that have brought the financial system where it is today. It was actually the becauseof grossly poor monitoring, supervision, sanctioning and high levels of complicity andtolerance of cor orate overnance violations on the side of the CBN itself that the

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    competition over-stepped the bounds of professionalism and industry ethics which led to

    the degrees of gross abuses that are witnessed today.

    Martin Oluba. The Fronteira Post.

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    What Should the CBN be Doing Now?

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    What Should the CBN be Doing Now?

    For instance, I ask myself whether these atrocities were committed in the financial yearleading to the August date of the first public announcement of the new CBN governor. Fromsome of the information coming out recently, some of these acts went far back in time. If thatis so, what is the CBN doing to learn from the banks Compliance Officers, Chief Inspectors,Resident Examiners, and External Auditors how they missed out on all these information?What must change in the structure of things to ensure that these important gate keepers earntheir keep in the corporate governance structure? Where were the boards of these bankswhen all the alleged acts, some of which bother of plain criminality, were being perpetuated?In addition to rosecutin articular board members who mi ht be found to have committed

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    criminal offences, how do we reach out to others to learn of their experiences on the board of

    these banks? Were they compromised, blindsided or fooled? What must change in theappointment, screening, orientation, remuneration and education of board members to fortifythem against such occurrences in the future?

    Dr. Oladimeji Alo, The New Tenure Rule and the Bank Governance Debate. 29 January, 2010

    http://proshareng.com/blog/?p=174

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    What Should the CBN be Doing Now? II

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    What Should the CBN be Doing Now? II

    In the last four years, a lucrative business had grown around the conduct ofcorporate governance audits and the issuance of governance certificates to banksby some reputable professional firms. The reports of these audits were proudlypublished by the banks concerned in their annual reports. In retrospect, it would

    appear that these reports helped in the mass deception of the public on the healthof these institutions until the stress tests initiated by the CBN and the NDIC. In thisregard, I wonder if the CBN had gone back to read the reports of these governance

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    . ,of these audit reports have been invited by CBN to discuss their methodologies andthe scope of their audits. More importantly, there must exist some useful lessons tolearn from these corporate governance auditors on the large gap between theirrosy reports and the stark reality uncovered by the stress tests?

    - Dr. Oladimeji Alo* The New Tenure Rule and the Bank Governance Debate. 29 January, 2010.

    http://proshareng.com/blog/?p=174

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    What the CBN should be doing is to ensure that the variousbanks put in place and agree processes and procedures that areconsistent with upholding the highest standards of corporate

    governance without infringing on the private property rights ofthe owners and decision makers in those banks. In addition tothat, the CBN should put in place adequate mechanisms toensure that banks com l with the s ecifications of those

    What Should the CBN be Doing Now? III

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    procedures and processes.

    Martin Oluba. The Fronteira Post.

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    Determinants of CEO Power &

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    Influence Over Boardset of governance structure variables to capture the level of CEOpower and influence over the board and the compensation committee,including: (1) the proportion of inside directors on the board; (2) the

    proportion of gray outside directors on the board; (3) the proportion ofoutside directors appointed by the incumbent CEO; (4) whether the CEOserves as chairman of the board; (5) whether an inside director serves onthe compensation committee; and (6) CEO tenure.

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    - Collinsa, Gongb, Lic (2008). Corporate Governance and Backdating of Executive

    Stock Options.http://www.personal.psu.edu/faculty/g/u/gug3/CollinsGongLi082008.pdf

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    In Conclusion

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    This Policy is Not Core to Solving the

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    Problem at Hand

    This policy is not at the heart of the problems

    facing the sector;CBN needs to concentrate more actively in

    ensurin that it develo s ade uate ca acit and

    effective processes for monitoring, supervision andsanctioning;

    Less of the noise on tenure limit is necessary.

    64Nigerian Bank CEO Tenure Limits09/02/2010

    This Policy is Meddlesome

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    This Policy is Meddlesome

    the CBN has set the guidelines because our businesses failed to take theactions themselves.

    Frankly, I do not support the meddlesome nature of the CBN and I concludedthat this was an ineffectual policy that can be easily side-stepped.

    I guess the central argument is that should CBN be allowed to wield so muchinfluence or interference? The answer lies in the law ranted it and it is o en to

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    debate.

    - Olufemi Awoyemi, MD/CEO Proshare Nigeria Limited. www.proshareng.com

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    The removal of CEOs traditionally is the function of shareholders, or theboard in extreme cases. Unfortunately, the history of shareholders activism inNigeria has not been very encouraging. That said, I believe the CBN shouldhave handled this issue in a different manner. I have always complained about

    the governance of most of these banks. Most of these CEOs ran theirinstitutions as extensions of their personal businesses, even though theinstitutions were publicly traded companies. The problem was that mostNigerians even the very educated and well informed believed that some of

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    these CEOs owned their respective banks, and the CEOs believe the myth.

    However, If Mr. Ovia and Mr. Elumelu have committed some infractions, itwould have been better to expose them and force their BODs to do their jobs,rather than replace them clandestinely through tenure limits. At this point it iswater under the bridge.- Dr. Chukwuma Biosah.

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