Dar es Salaam — Long-serving bank chief executives and board members will soon exit their positions after the central bank capped their their tenure at 10 years.
The new regulations which were announced by the Bank of Tanzania (BoT) this week, seek to improve governance among banks and other financial institutions by establishing standards for corporate governance, processes and structures, among other objectives.
Dubbed “Banking and Financial Institutions (Corporate Governance) Regulations,” these also aim to promote and maintain public confidence in banks and financial institutions; and provide guidance to directors for proper discharge of their responsibilities.
“A board member or a chief executive officer of a bank or financial institution shall not hold office for a consecutive period of more than ten years,” state the regulations in part.
The regulations explain that if a bank or financial institution was formed through merger, acquisition, takeover or any other form of combination, the period of ten years will include the pre and post combination years of a board member or CEO.
The regulations also stipulate the cooling-off period is at least three years. That means, a person who has served as board member or CEO of a bank or financial institution for consecutive ten years will not qualify for appointment in his former bank or its subsidiaries in any capacity until after a period of three years.
“A board member or chief executive officer of a bank or financial institution who has served for a period of ten years or more by the date these regulations come into effect shall have a moratorium period of two years before ceasing to function in that capacity,” the regulations add.
The regulations also restrict appointing a person as a director during a two-year period from the date when such person ceased to be a director of another bank or financial institution unless the permission of the BoT is obtained.
Experts react
Experts described the regulations as the standards which may have both positive and negative implications in the financial sector.
“Under proper governance standards, it should be like that to ensure performance and bring changes to banks. You know, the board plays an oversight role to a financial institution but sometimes if a CEO stays longer with the same board members, they become friends or the CEO may be directing the board what to do,” said Dr Abel Kinyondo, economics lecturer at the University of Dar es Salaam (UDSM).
He said such tenure limitations help the banks to have in place succession plan which is also good for governance.
However, he said, for a growing country which needs to learn, a CEO may need more time to gain experience.
“Experience is important and that means, you may need more time for a CEO who has institutional memory that helps to make decisions in critical conditions,” he said.
Another expert who spoke on anonymity condition said capping the tenure was “unnecessary as long as the bank is well performing.”
“I remember Dr Charles Kimei stayed in CRDB Bank for 20 years – and the bank was doing well,” she said.
Mr Laurence Mafuru, co-founder and managing partner of banking consulting firm Bankable, said the regulations were good. But, he raised questions on the practicability of the rules.
“I agree with the regulations. But, I see a challenge in practice, especially for a CEO. Someone may be appointed CEO at the age of 30 and the 10 years will expire when this person is 40. What do you do with this person who has not reached the retirement age? Forced retirement?” he questioned.
“I think these regulations need to distinguish between management and board. Management are employees who should not be forced to retire when they are still energetic and productive,” he said.