THE CENTRAL BANK OF NIGERIA (CBN) COMPETENCY FRAMEWORK FOR THE NIGERIAN BANKING INDUSTRY: A CASE OF “NEAR” ADEQUACY?
Introduction
The Central Bank of Nigeria (CBN) issued the competency framework for the Nigerian banking industry in November 2012 and it came into full effect from November 2014.[1] The framework is detailed in its presentation of requisite qualifications and skills for officers in the banking industry. Under the framework, jobs in the banking industry are classified into roles and controlled functions, with a list of controlled functions and categories provided.[2] Section 4 provides for an approved persons regime, indicating that officers of the ranking of Assistant General Manager and above, along with persons who occupy key positions with significant impact on the resources and operations of a bank will be approved for appointment in line with the assessment criteria issued and reviewed from time to time by the CBN.[3] A code of practice is provided for under section 5 and it states that an approved person performing a controlled function must act with integrity, due skill, care and diligence.[4] The framework also provides for a structured generic and role specific training and certification process that enable a reliable and objective assessment of an employee’s competence and ability to perform adequately and consistently on a job over time.[5]
In the framework policy document, it is stated that the last global financial crisis evidenced the inadequacy of skills and executive capacity in the banking industry which manifested in issues such as poor understanding of banking operations and regulations, unethical conduct and unprofessional practices, poor risk management and ineffective corporate governance.[6] Reasons provided for these inadequacies include the lack of training, certification, accreditation and competency standard for the industry. The policy initiative is therefore aimed at developing a competency standard, recognising the need for banks to accord priority to the continuous enhancement of human capital. The availability of competent human resources is viewed as a critical factor in enhancing effectiveness in the banking sector. The objectives of the competency framework include, amongst other issues, to define the minimum knowledge, skills and competencies needed for operators and regulators to perform optimally in their roles.[7] In this article, the aim is to discuss the CBN competency framework, analysing its prospects at solving the problems of incompetency in the human capital of banks and determining whether the framework addresses all that it should in that regard. At first glance, it appears as though the framework has taken account of all the issues which are likely to contribute to the creation of a cohort of qualified and competent banking industry human resources. However, upon a closer analysis, it becomes evident that the framework omits the issue of personality, a critical aspect of individuality which impacts on the overall ability to attain effectiveness in any of the roles it considers.
The article is structured as follows: The first section deals with the issue of personality, competency and the framework, highlighting the relevance of personality and behaviour, as well as their impact on an individual’s ability to be competent. Section two analyses the CBN competency framework and presents a highlight of its core initiatives and how they serve to achieve its objectives. The third section presents arguments regarding the need to incorporate personality assessment into the competency framework. It discusses personality issues in greater detail and their impact on the ability of an individual to perform effectively. It is also indicated that the conscientious personality dimension is, at the least, a requisite personality dimension which can aid the achievement of the objectives of the competency framework. In conclusion, it is reiterated that the framework has indeed provided a standard as regards knowledge, skills and experience issues as it relates to officers working in the Nigerian banking industry. However, in relation to overall competency and ensuring that effectiveness is achieved, the CBN framework has not taken cognisance of personality issues and is therefore limited in its adequacy as regards defining and providing for minimum standards of competence.
Personality, Competency and the Framework
The starting point in assessing how the framework addresses competency issues is an adoption of the definition of competency as the ability to perform effectively.[8] Being competent as regards a job function would certainly involve possessing requisite knowledge and skills. However, the manner in which these attributes are deployed to the job in question and whether they are utilised in an effective way is predominantly influenced by an individual’s behaviour.[9] It is established in psychology research that behaviour is significantly influenced by personality or personal characteristics.[10] The Nigerian Corporate Governance Code also recognises that certain personal characteristics are required for effective governance, in addition to knowledge, skills and experience.[11] Most of the major corporate failures that occurred in the UK, US and Nigeria had inappropriate behavioural issues as contributory elements.[12] Some of the corporate officers who were responsible for actions and decisions which led to these failures may have possessed the requisite knowledge, skill and experience needed for their job, but, the events that contributed to the failures bothered on their actual behaviour. Therefore, a framework which is aimed at improving effectiveness in human capital but ignores the critical aspect of individual personality and its contributions to governance outcomes is somewhat deficient. In order to acquire an all-encompassing picture of an individual’s ability to perform effectively in a given role, it is necessary to determine whether his/her personality supports such ability. It is simply not enough to outline the ideal behavioural patterns expected of such a person in a code of practice without considering the question of whether the individual possesses the requisite ability to produce such behaviours. It could be argued that individuals are expected to learn acceptable modes of behaviour, but, there is the dominant school of thought that suggests that personality which influences behaviour is relatively stable and constant over time.[13] In other words, a person is usually of a certain personality over the course of a lifetime, and knowledge of that is essential to determining how effective a code of practice would be.
Evidence of past experiences might duly indicate a capability to act with integrity; however, it will not provide a more reasonable assumption as to the ability to continually act with integrity more than a personality test which indicates a personal characteristic of integrity. As the Nigerian corporate governance code has alluded to the necessity to have persons of upright personal characteristics in the management of companies, then if a framework is being developed to enhance effectiveness in corporate management, it should take cognisance of the personality factor. This article argues that the competency framework has omitted an essential determinant and facilitator of effectiveness. It has no doubt provided a necessary standard of qualifications and skills. But, it might be the case that after the implementation of these standards, corporate failures still occur as a result of behavioural issues which are dependent on personality. It would be pertinent to incorporate personality requirements and tests in such a competency framework. Over time, there can then be the hope of establishing a human resources base for the banking industry which possesses the requisite knowledge, skills, experience and personal characteristic for effective corporate governance. Requiring that individuals should act with integrity is merely stating the ideal, however, regulatory intervention is needed in order to ensure that people actually act with integrity. This could be done by specifying sanctions for deviation from the norms, but, a more proactive approach which also serves to prevent failures is to ensure as reasonably as possible that these individuals who are involved in corporate management especially in companies such as those in the financial services sector are persons who actually have the ability to act with integrity. Ex ante mechanisms would arguably work better than ex post interventions because they prevent the occurrence of failures. As regards personality tests, psychology research provides a model for personality identification. The Five-Factor Model of personality has proven robust against scrutinized empirical testing and has provided a valid model for understanding personality.[14] The model provides the most widely used and empirically supported structure for describing individual differences in total behaviour.[15] The five dimensions of personality traits are (i) Neuroticism versus Emotional Stability (ii) Extraversion (iii) Openness to Experience or Intellect, Imagination or Culture (iv) Agreeableness versus Antagonism (v) Conscientiousness or Will to Achieve.[16] The NEO Personality Inventory (NEO-PI) and the NEO Personality Inventory Revised (NEO PI-R) were developed to operationalize the Five-Factor Model.[17]
In relation to leadership and job performance roles, there is enormous indication that certain personality dimensions are better suited to creating effectiveness than others.[18] The conscientious personality has proven to be a valid and stable predictor of both leadership and performance roles.[19] The other positive personality dimensions are of importance no doubt, but, as regards goal directed tasks such as corporate governance, the most vital personality dimension would be conscientiousness.[20] More importantly, as there is evidence to support the fact that some major corporate failures occurred as a result of disobedience to established principles and regulations,[21] and conscientious personalities are more likely than not to be dutiful by obeying principles and regulations, having conscientious personalities involved the governance of companies would increase the likelihood of obedience to principles and regulations, thereby preventing the kind of corporate failures that can occur for reasons of disobedience. Particularly in the case of the Nigerian banking industry where past failures have been attributable to issues such as corruption and disobedience to rules and regulations, it is argued that a high level of the conscientious personality dimension should be a requisite personality trait in the quest to achieve effectiveness in leadership and performance roles in the banking sector. Personality is argued to contribute to competence as it contributes significantly to the ability of an individual to be effective.
The Competency Framework
A main objective of the CBN framework is to define the minimum standards of competencies required for optimal performance in the financial services industry. The critical question, though, is whether it actually achieves this aim. In analysing the framework, emphasis will be placed on the governing functions which essentially dictate the tone downwards in an organisation. These functions include those of the chairman, managing director (CEO), deputy managing director, executive directors and non-executive directors. Other management levels and consequently other employees are accustomed to acting on the directions of the persons in these roles, which renders these roles most important for ensuring overall effectiveness. The following table presents a highlight of the competencies specified for these roles under the framework:
Governing Function / CompetenciesChairman / · Good understanding of the role of board chairman
· Ability to operate effectively in such a role
· Relevant financial industry experience
· Experience of Nigerian boardroom and corporate governance issues
· Leadership/influencing skills
· Analytical/problem solving skills
· Entrepreneurship skills
· Inter-personal relationship skills
· Self-management skills
Managing Director- CEO / · Knowledge and understanding of the Nigerian banking market
· Strong strategic orientation
· Excellent customer relationship skills
· Negotiation, problem-solving and conflict resolution skills
· Creativity and innovation skills
· Good product development and portfolio management capabilities
· Ability to network
· Knowledge of risk management
· Leadership, managerial and administrative skills
· Entrepreneurship skills
· Analytical and problem solving skills
· Inter-personal relationship skills
· Self-management skills
Deputy Managing Director- DMD / · Knowledge and understanding of the Nigerian banking market
· Strong strategic orientation
· Excellent customer relationship skills
· Negotiation, problem-solving and conflict resolution skills
· Creativity and innovation skills
· Good product development and portfolio management capabilities
· Ability to network
· Leadership, managerial and administrative skills
· Entrepreneurship skills
· Analytical and problem solving skills
· Inter-personal relationship skills
· Self-management skills
Executive Directors / · Knowledge and understanding of the Nigerian banking market
· Knowledge and understanding required for specific responsibilities
· Strong strategic orientation
· Excellent customer relationship skills
· Negotiation, problem-solving and conflict resolution skills
· Creativity and innovation skills
· Good product development and portfolio management capabilities
· Ability to network
· Leadership, managerial and administrative skills
· Entrepreneurship skills
· Analytical and problem solving skills
· Inter-personal relationship skills
· Self-management skills
Non-Executive Directors / · Broad experience
· Integrity and credibility
· Proven skills and competencies in their various fields
· Knowledge of the operations of the financial services industry
· Knowledge of relevant laws and regulations guiding operations in the financial services industry
· Ability to make meaningful contributions to board deliberations
· Leadership, managerial and administrative skills
· Entrepreneurship skills
· Analytical and problem solving skills
· Inter-personal relationship skills
· Self-management skills
In analysing the competences specified in the framework, the aim is to discuss the exceptions, because therein lies the arguments for lack of adequacy of the framework.
A few issues emerge from the competencies highlighted.
1) Integrity and Credibility: This is recommended only in relation to the role of non-executive directors. It might be argued that the underlying reason for expecting non-executive directors to have such competencies is because their role is largely that of oversight. However, considering the connotations of the word integrity which refers to the quality of being honest and able to adhere to moral and ethical principles; and the word credibility which means the capability to be believable and trustworthy; it becomes evident that these competencies are indeed necessary for every person undertaking a governance function. An important question then arises in relation to ascertaining that persons in governance roles can and do indeed possess these competencies.
2) Knowledge of risk management: Risk management is the human activity which integrates the recognition and identification of risk, assessment of risk, developing strategies to manage risk and mitigation of risk using managerial resources.[22] Risk management enables company management to deal effectively with identifiable events that can have an adverse effect on the company.[23] Entrepreneurial endeavour is an exercise which involves elements of risk. It has also been argued that risk is inherent in business.[24] Every governance role involves some level of entrepreneurship and management function; therefore, it is critical that any person undertaking these roles should have knowledge of risk management. The CBN framework specifies this competency as required only for the Managing Director/CEO. It is particularly interesting to note that the CBN framework does not include this competency for the role of the Deputy Managing Director (DMD), even when it specifies expressly that the DMD is to take up the role of CEO in his/her absence. These are precisely the kind of circumstances that create loopholes for corporate failures, because for instance, in a situation where the CEO is made to become absent on a short notice and the DMD steps into that role and is faced with risk management decisions and has no clue as to how to engage with the issues, chances become very high that wrong decisions will be made. One wonders whether the intention of the framers of the framework is that the DMD will suddenly acquire the requisite knowledge as and when he is made to stand in for the CEO. Arguably, it is better that the knowledge of risk management is inherent and there is the ability to apply it when necessary. The same argument can be made in regard to the other governance roles.