BY PROF. JOSEPH MBA

DIRECTOR, RESEARCH AND LEARNING STRATEGIC BUSINESS SCHOOL

CORPORATE GOVERNANCE IN THE NIGERIAN FINANCIAL INSTITUTIONS –

THE ROLE OF PORTFOLIO/ INVESTMENT MANAGER

Revolutions in the forces and dynamics of change are increasingly bombarding organisations with complex challenges and opportunities.

Three dynamics of scarcity, risk and competition are forcing organizations to pursue the optimization of performance of resources, maximization of returns and minimization of risk.

The role and tasks of deciding and managing the portfolios of an organization’s assets have become a professional discipline. My assignment is to discuss the role of the portfolio manager today, especially in financial institutions.

INTRODUCTION

You have been invited by Strategic Business Bank Plc. for final interview for the position of General Manager, Portfolio Management .

Provide the answers to the following questions from the Employment Consultant.

What are the classes of the Company’s Assets/Resources that will need to be managed?

What components of Portfolio Opportunities fall within your scope as a Portfolio Manager?

You are informed that if you are engaged, you will be

reporting to the Executive Director, Bank Operations. Any comments?

OPENING DISCUSSION

CLASSES OF A COMPANY’S ASSETS/RESOURCES TODAY. Tangible Resources : Financial, Human, Physical and Infrastructure. Intangible Assets: Human Capital, Information Capital and Organization

Capital. Capabilities: Projects, Core Competences, Research and Development,

Innovations, Intrapreneurship, Processes.

WHAT COMPONENTS/DIMENSIONS OF PORTFOLIO OPPORTUNITIES FALL WITHIN THE SCOPE OF A PORTFOLIO MANAGER.

Investment/Securities Portfolio Product/Business Portfolio Project Portfolio Portfolio of Core Competences / Capabilities.

REPORTAGE TO EXECUTIVE DIRECTOR, BANK OPERATIONS. Second best – reportage to ED, Corporate Finance. Best – Reportage to CEO A GM, Portfolio Management, as a Top Executive Director, should have

direct access to the CEO and/or Board of Directors

ANSWERS TO OPENING DISCUSSION

At the end of this presentation, you should be able to:

Explain the Corporate Governance Structure and its relationship to Top Executive/ Management.

Analyze the Role of Governance in driving organization’s performance in the Financial Institutions.

Discuss the concept and practice of assets and Portfolio

Mix and Management Today.

Identify the Role of Portfolio Manager in Governance, Portfolio Analysis and Portfolio Management.

LEARNING OBJECTIVES

The following discussions will drive the achievement of the learning objectives.

Governance Structure and Executives Pyramid.

Generic Role and Tasks of Governance.

Corporate Governance and Performance of Financial Institutions.

The Concept and Scope of Organization’s Portfolio.

Roles of Portfolio/Investment Managers.

PRESENTATION STRUCTURE

CORPORATE GOVERNANCE - PERFORMANCE STRUCTURE

© J. MBA (2004)

Governance is the exercise of overall direction and control over an organization and its management in order to ensure the achievement of its strategic goals and objectives, deliverance of appropriate values to all its stakeholders and the sustenance of Superior Strategic Performance.

The Board of Directors or Governing Council is the principal agent of governance.

Governance is not the same thing as managing or leading an organization or its operations. It does not lead but directs the leaders, it does not manage, but it controls the managers.

GOVERNANCE AND CORPORATE GOVERNANCE

Public Governance.

Political Party Governance.

Corporate Governance.

Small/Family Business Governance.

Civil Society Governance.

All quoted companies and Financial Institutions should be governed under Corporate Governance.

GOVERNANCE DIMENSIONS

The six cardinal roles/responsibilities of governance are:

Strategic Performance Focused

Strategic Surveillance /Monitoring

Supervision of Top Executives

Strategy Formation and Strategic Planning

Systems and Structure – Overall

Social, Ethical and Legal Responsibilities

KEY ROLES OF CORPORATE GOVERNANCE

Laws and Regulating Agencies – Effectiveness, Professionalism and Integrity, CAMA, CBN, SEC, PENCOM, NICOM etc.

Application of OECD principles of Corporate Governance: Fairness to all stakeholders, transparency, responsibility and accountability.

Active Independence of Board Members: Non - ED > ED, Independent Minds Judgment, Self Determined/Self Leading.

Contestability/Replaceability: Mechanisms that empower most suitable to replace unstable Board (3W – Wisdom, Web, Wealth) and Top Executives.

Participation in Strategic Planning (without over bearing micro – managing of Top Executives).

Professional Associations and Committees: Reputation and Persuasive Influence of Bankers Committee, CIBN, CIA, NSE, Code of Corporate Governance for Financial Institutions.

FACTORS THAT AFFECT EFFECTIVENESS OF GOVERNANCE IN FINANCIAL INSTITUTIONS

Management/Leadership is for performance.

Organizations should achieve and sustain superior performance.

For Financial Institutions, Performance is indispensable. Reasons: Finance Sector is the engine of a nation.

Success is based on the trust and confidence of the public.

CORPORATE GOVERNANCE AND PERFORMANCE

Accountability: to hold managers of the Institutions accountable for what they do.

Performance Information – Credible, Reliable, Accurate.

Protection/Balancing of interest/influence of stakeholders.

Need to maintain safety and soundness of the Financial Systems.

Need to ensure that general societal interests are weighted, considered and protected.

Need to establish a framework where private sector can

flourish.

IMPORTANCE OF EFFECTIVE GOVERNANCE OF FINANCIAL INSTITUTIONS

A Portfolio Manager is a:

Strategic Manager.

Senior or Top Manager.

Responsible to CEO or Board.

Portfolio Manager:

A person who internally manages the company’s assets (investments/businesses/projects/products/core capabilities).

An independent person/company who makes investment/commitment decisions using money/resources, other people/companies have placed under his/her control.

Today the role and responsibilities of the Portfolio Manager have expanded in response to the expansions in the concept and practice of Portfolio Analysis and Management.

PERFORMANCE AND PORTFOLIO MANAGER

The professional application of systematic management to portfolio construction, best allocation of resources to the selected holdings and the maximization of performance of individual, classes and combined portfolios.

The professional strategies, models and skills differ according to the class of portfolio: Investment Portfolio Management.

Business Portfolio Management. Project Portfolio Management. Product Portfolio Management.

Core Competencies/Capabilities Portfolio Management.

These technical details are outside the scope of this paper.

PORTFOLIO MANAGEMENT DIMENSIONS

PORTFOLIO MANAGERS: FIVE STAR ROLE DIMENSIONS

Portfolio Core

Competences

Investm

en

t/Secu

rity

Portfo

lio

Business

Portfolio

Project Portfolio

Pro

duct

Portfo

lio

PORTFOLIO MANAGER

THREE KEY ROLES AND RESPONSIBILITIES

Role in Corporate Governance Tasks and Strategic Planning.

PM’S Role in Portfolio Analysis.

PM’S Role in Portfolio Management.

PERFORMANCE GOALS

Achieving the best portfolio mix and best allocation of the company’s corporate resources.

Achieving maximum performance of individual type or class of portfolio holdings.

Achieving optimium and combined, cross portfolio performance

PM’S ROLES AND CORPORATE PERFORMANCE

Role at Board involves:

STRATEGIC ENTREPRENEURSHIP – Searching for investment opportunities and business possibilities, and advising the board accordingly.

ESTABLISHING PORTFOLIO AND INVESTMENT STRATEGIES, and obtaining approval of portfolio strategies from the CEO or Board .

PARTICIPATE ON DECISIONS AND ACTIONS FOR ALLOCATING RESOURCES and advise the Board on how to move the company’s resources to the best portfolio in order to achieve diversification and best mix of portfolio holdings.

PARTICIPATE AND ADVICE IN DECISION/ACTIONS FOR BOOSTING PERFORMANCE of individual investment/initiative and capturing cross portfolio fitness and synergies.

PM’S ROLES IN CORPORATE GOVERNANCE

Portfolio Analysis is the analysis of the components of a company’s Portfolio mix to determine the best (optimum) allocation of its resources among the competing opportunities.

Roles and responsibilities of PM are:

Continually and carefully choose the proportion of various competing opportunities: selecting those that best support and promote the company’s diverse business goals and strategies.

Professionally measure goals and strategic assets that represent the best mix of individual and portfolio, based on the assumptions about market and Return/Risk Correlations.

Continually provide oversight and decision making about which investments/projects/products/business units and core competences/capabilities to undertake, which to continue or which to reject or discontinue.

Ensure that all allocation of resources and portfolio holding confirm to applicable laws and regulations e.g. CBN Reserve Ratios.

Strive to reduce the inherent risks to its barest minimum possible values and subsequently get paid for accepting some.

PM’S ROLES IN PORTFOLIO ANALYSIS

While Portfolio Manager may specialize in any one of the above dimensions, all Portfolio Managers should have reasonable understanding of their general roles as stated below: Work jointly with the board of directors and his team of analysts and

researchers to establish the organizations portfolio/investment strategy.

Portfolio construction – selection of the best mix of individual and classes of investments that will constitute the most appropriate portfolio mix.

Allocating individual or class of assets properly for fund – asset management vehicle.

Provide the company and the (investment/business/project/product/capability) managers with information that will enable them maximize the performance of each holding and properly balance the performance of each holding.

GENERIC PM’S ROLE IN PORTFOLIO MANAGEMENT

We Have Learnt:

The Structure and Dimensions of Governance and Corporate Governance.

The Importance and Roles of Corporate Governance in Driving Corporate Performance in Financial Institutions.

The Expanded Concept of Portfolio Management.

The Three Level Roles of the Portfolio Manager in Organizations.

The PM’s Role in Corporate Governance.

The PM’s Role in Portfolio Analysis.

The PM’s Generic Role in Portfolio Management

SUMMARY

THE PORTFOLIO MANAGER OF 21ST CENTURY

MUST DEVELOP FROM

INVESTMENT PORTFOLIO MANAGER

TO

STRATEGIC PORTFOLIO ENTREPRENEUR AND MANAGER.

CONCLUSIVE REMARK

ALMIGHTY GOD BLESS YOU ALL!

Prof Joseph MbaDirector, Research and Learning, SBS

+234 (0) 8037185264jmba@sbsng.org, jmbasbs@yahoo.com

For the Opportunity