Oando: SEC’s Big Move to Clean up the Capital Market

It is no gain saying the fact that adopting and operating in accordance with high standards of corporate governance is essential for a company’s sustainable long-term growth, performance and value creation. Good governance practices would promote the development of the capital market, weak corporate governance practices would also inhibit its development as it would erode confidence in the capital market with potential wider implications for the Nigerian financial markets and the general economy.

Corporate governance issues were at the heart of the market crisis in 2008. It was therefore not surprising that the SEC has continued to wield the big stick by penalizing some companies especially for violating post listing requirements and other market infractions. SEC has made a lot of efforts to promote good corporate governance practices and reposition the Nigerian capital market for development.

In April 2011, the SEC issued a new code of corporate governance to align governance in public institutions with global best practices. The commission had raised the bar to strengthen its monitoring capacity, in order to address issues arising from various market infractions in the market.

The reaffirmed commitment by the regulator to do anything to compel operators in the market to obey the rules guiding it informed the decision to tighten the noose on market infractions and other miscellaneous capital market crimes. The steps being taken by the Commission on the Oando issue is therefore not a surprise to capital market watchers. Oando Nigeria Plc had been in the news since 2017 for allegations of breach of corporate governance and sharp dealings. Before the Annual General Meeting held on 11th September in Uyo, there was a petition before the Securities and Exchange Commission alleging a breach of corporate governance by the management of Oando.

The AGM was marred by protest from aggrieved shareholders, but eventually Wale Tinubu was returned as the Group Chief Executive Officer amidst a palpable atmosphere of cynicism. After the AGM, shareholders from different parts of the country expressed their grievances at different fora, including the Nigerian Stock Exchange, Ibadan and the National Assembly, Abuja.

SEC had launched an investigation into the activity of Oando following the receipt of two petitions in 2017 from shareholders of the company, accusing the company of financial misappropriation.
The SEC has to step in to serve as deterrence to other public quoted companies that are either involved in breach of corporate governance or contemplating it.

As a validation of the allegations levelled against Oando Plc by the shareholders, on the 18th of October 2017, the Securities and Exchange Commission released a circular in response to the petition written to it by Ansbury Incorporated. The regulatory body discovered among other things that Oando had breached the provisions of the Investments & Securities Act 2007. The company has also breached SEC Code of Corporate Governance for Public Companies and also have discrepancies in its shareholding structure. It was discovered that there were suspected insider dealings with related party transactions not conducted at arm’s length.

Consequently, the body directed an immediate suspension of the trading of the company’s shares on the floor of the Nigerian stock Exchange. Also, the regulatory body has constituted a consortium of experts made up of auditors, lawyers, stockbrokers and registrars that will conduct a forensic audit on the company.

Based on the preliminary findings of the Securities and Exchange Commission, the forensic audit to be conducted can only ascertain the extent of the anomalies that have been uncovered in Oando. There is certainly no form of exoneration in sight. To further compound the woes of the company, the Johannesburg Stock Exchange suspended trading of Oando stocks until further notice.

Last Friday, the SEC announced that it has concluded investigation of Oando Plc and directed among others the immediate resignation of Group Chief Executive Officer of Oando Plc, Wale Tinubu, his deputy, Omamofe Boyo and other directors of the company. The apex regulator also barred the Group Chief Executive Officer (GCEO) and the Deputy Group Chief Executive Officer (DGCEO) from being directors of public companies for a period of five (5) years.

The SEC further directed the convening of an Extra-Ordinary General Meeting on or before July 1, 2019, to appoint new directors. These among others the SEC stated, are part of measures to address identified violations in the company. According to the SEC, “Following the receipt of two petitions by the Commission in 2017, investigations were conducted into the activities of Oando Plc (a company listed on the Nigerian and Johannesburg Stock Exchanges).

“Certain infractions of Securities and other relevant laws were observed. The Commission further engaged Deloitte & Touche to conduct a Forensic Audit of the activities of Oando Plc. “The general public is hereby notified of the conclusion of the investigations of Oando Plc. The findings from the report revealed serious infractions such as false disclosures, market abuses, misstatements in financial statements, internal control failures, and corporate governance lapses stemming from poor board oversight, irregular approval of directors’ remuneration, unjustified disbursements to directors and management of the company, related party transactions not conducted at arm’s length, amongst others”.

The SEC also directed the payment of monetary penalties by the company and affected individuals and directors, and refund of improperly disbursed remuneration by the affected Board members to the company. As required under Section 304 of the Investments and Securities Act, (ISA) 2007, the Commission said it would refer all issues with possible criminality to the appropriate criminal prosecuting authorities. In addition, the SEC stated that other aspects of the findings would be referred to the Nigerian Stock Exchange (NSE), Federal Inland Revenue Service (FIRS), and the Corporate Affairs Commission (CAC).

“The Commission is confident that with the implementation of the above directives and introduction of some remedial measures, such unwholesome practices by public companies would be significantly reduced. “Therefore, in line with the Federal Government’s resolve to build strong institutions, Boards of public companies are enjoined to properly perform their fiduciary duties as required under extant securities laws” the statement added. The Commission, as the apex regulator of the Nigerian capital market, stated that it maintains its zero tolerance to market infractions, and reiterates its commitment to ensuring the fairness, integrity, efficiency and transparency of the securities market, thereby strengthening investor protection.

Late Sunday night, the SEC issued another statement appointing an interim management for the company. SEC said in a statement, “Further to our press release on Oando Plc, dated May 31, 2019, the commission hereby informs the public of the constitution of an interim management team headed by Mr Mutiu Olaniyi Adio Sunmonu CON, to oversee the affairs of Oando Plc, and conduct an Extraordinary General Meeting on or before July 1, 2019, to appoint new directors to the board of the company, who would subsequently select a management team for Oando Plc.

“The commission wishes to reiterate its commitment to maintaining the integrity of the market.”Commenting on the issue, Mr Ambrose Omordion, the Chief Operating Officer, InvestData Ltd. , said that the suspension of the duo
would send signal to other managing directors and executives in the market.

Omordion said that the outcome of the forensic audit showed that SEC could bite and not only bark. He said that the investing public had been calling for change in the company’s management for a long time. Omordion said that there would be santiy in the company when the new management takes over in July. “Other companies and their directors will seat up seeing how Oando management and its directors ended up.

“SEC decision will further boost corporate governance and transparency in qouted companies at same time investors confidence going forward,” Omordion stated. He noted that the move would create an opportunity for discerning investors in the company with the coming of the new management. Malam Shehu Mikail, National President, Constance Shareholders Association of Nigeria, expressed shareholders satisfaction to the commission’s decision.

Mikali said that the ban would instil transparency and corporate governance in the nation’s capital market. The shareholder activist said that the outcome showed that nobody was above the law in the market. He said that some companies had collapsed due to issue odu transparency and corporate governance. Alhaji Gbadebo Olatokunbo, Shareholder Activist and CoFounder,Nigeria now “NOBLE” Shareholders Solidarity Association in 1985 said as a shareholder of Oando, he does not believe that the company was very clean with most of the reports it had published so far to her shareholders.

“I have been suspecting that some people been playing a bad and very dangerous games with most of the reports & accounts of the company,therefore l am not surprised at all with the result published and the sanction by SEC. “Oando is two companies in one,it’s an offshore/onshore oil company,yet every year in and out the annual report and accounts and dividends payments were nothing to commensurate the nature and size of the company.

“Check the performances of other companies in the same sector with that of Oando,then you will appreciate my point of view,that Oando is a great disgrace,disappointment and embarrassment to the corporate Nigeria,because no multinational company in it’s shoe would have performed so badly like the management and board of Oando did,to be candid it was a dent to the Nigeria Corporate World. Olatokunbo said the management and board of Oando had taken their shareholders for a very rough ride for too long,before the intervention by SEC adding that it would serve as deterrent to other companies in the same bad habit.