CBK orders banks’ chiefs succession plan over coronavirus fears

The Central Bank of Kenya (CBK) has ordered banks to provide a list of executives and directors who will replace sitting top managers, including CEOs, in the event that Coronavirus hits the current teams.

In a circular to all lenders, the regulator has asked the boards of banks to oversee succession planning policies, staff testing and isolation and prepare for transfer of power if executives and key directors are unavailable to discharge their duties due to illness related to the Coronavirus pandemic.

Temporary succession planning has become a pressing issue across the globe in recent weeks as companies prepare for the possibility of top executives coming down with the infectious virus.

CBK had given banks up to Monday this week to provide the succession plan as part of contingency measures that would ensure banks operate at near normal levels amid the spread of coronavirus.

The banking regulator is keen on key positions such as CEOs, deputy chief executives, chief operating officers, chief financial officers, heads of audit and the company secretaries— positions that require CBK approval ahead of appointment.

“Formulate Human Resources and Succession Planning Policies relating to testing and isolation of staff who have been affected by a pandemic such as a communicable disease that has been declared pandemic,” says CBK in a circular shared with banks in late March but which the Business Daily has now seen. “In addition, the policy should cover procedures for temporary or permanent transfer of authority, if senior management or board members are incapacitated.”

As the coronavirus pandemic spreads across the globe, management teams are refreshing their succession plans and reviewing back-up operating procedures for when top executives or other critical employees fall ill.

Boards also need to prepare for a scenario in which the emergency successor is also ill, says Bernard Kiragu, Managing Partner at Scribe Services — a corporate governance consultancy firm. Finance chiefs, long seen as a steady hand within an organisation, are likely contenders to temporarily stand in as chief executives if and when needed.

“The potential effect of Coronavirus on executives’ health will likely make boards become more conscious of succession plans,” said Mr Kiragu. Kenya has far reported 179 coronavirus cases, six deaths and seven recoveries since the first case was reported on March 13.

The Ministry of Health recently warned that in the absence of drastic containment measures, the country could have as many as 5,000 confirmed Covid-19 infections by mid this month rising to 10,000 by start of May.

The death rate of the disease stands at about 3.5 percent of confirmed cases. CBK has demanded that the bankers’ succession plan and other emergency measures be shared with the lenders’ internal and external auditors as well as with the regulator. For a smooth transition, CBK will need to vet the names provided under the succession plan through what is called a fit and proper test.

Vetting

CBK has to vet key banking executives, including CEOs and heads of finance and audit, secretaries to the boards as well as directors. The regulator also approves anyone with a similar level of responsibilities outside the C-suite.

One would be disqualified if they have a criminal history of fraud or offences with a dishonest element, or led to the financial loss for the public through dishonesty, incompetence or malpractices at a financial service institution. A person can also be disqualified if they have defaulted on a loan from a licensed financial provider for three months. Directors and senior officers of institutions that have been liquidated or are under liquidation are also not eligible to hold top jobs in the banking sector.

CBK also checks past business practices for any whiff of fraud, prejudice or improper conduct even if executives seeking vetting were never convicted.

As part of the Coronavirus succession plan, CBK wants banks’ senior managers to create a special team of top executives to manage any emerging or potential crisis and ensure business continues without interruption.

“Establish a Crisis Management Team, consisting of key executives and functional heads of critical operational areas who will be responsible for dealing with crisis management and business continuity during a crisis. This will require the institution to re-prioritise and re-allocate resources in order to expedite recovery,” CBK said.

The regulator has also urged board members to conduct business through video conferencing rather than physical meetings in line with social distancing rules to contain the spread of the virus.

To that effect CBK has exempted banks from regulations that limit the number of times that board meetings can be held virtually. It has also issued strict video conferencing guidelines state how such meetings should be conducted, including establishing clear links, stating names and location of board members, taking and storing records as well as minutes.

The CBK law says that in the event of any failure arising from human or machine error or power outage and as a result it is not possible to hold a meeting in the prescribed manner, even if the meeting has commenced, the meeting shall be deemed not to have been held. No director is allowed to attend all board meetings in any given year through video conferencing.