Executive luxury, shareholder poverty: The problem with corporate cover

Was at a quick meeting at the Lagos Polo Club with a former bank MD when his phone rang.

He had sent for diesel, and when they told him how much they were able to secure it for, he whistled.

He then looked up at me and said, “Edgar, I miss corporate cover.”

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Now, what is corporate cover, you may ask?

Corporate cover is the benefit that accrues to an executive in an institution.

It starts from the mundane to the outrageous.

This is where the institution covers your lifestyle in its entirety, and in some cases,t he benefits also extend to your family.

From housing to power supply in the house, maids, yearly car changes, huge wardrobe allowances, extensive medical cover, international travel, tickets to exotic global events like sports and music, and even trips just to go and gape at the UN General Assembly.

From start-ups to giant quoted companies, this issue of corporate cover pervades.

For start-ups, the financial weight of corporate cover often stunts speedy take-off and growth, as promoters layer themselves with benefits that sometimes come straight from working capital.

This sucks up much-needed liquidity and stifles the business.

For large firms, its consequences, although not immediately visible, can be traced more to psychological impact.

Corporate cover for a tier-one bank, for example, may not be up to 5% of its massive profits. But where it bites the most is in the psychological effect on its top management cadre.

So for a big bank with, say, 10 executive directors who are all enmeshed in corporate cover, what you often get is a loss of hunger on their part.

They lose focus while wallowing in the luxury of corporate cover.

You see them at huge international events that have nothing to do with their business. You see them at exclusive global private clubs where they preen like peacocks instead of networking. You see them changing cars — sometimes two new cars annually, depending on the institution. Then you see them hobnobbing with top celebrities.

From there, some of them become lazy and complacent.

They can no longer push, as they see no reason to roll up their sleeves and work. Once they reach the AGM position, it becomes autopilot for some of them.

Who suffers from this, apart from the business itself?

The shareholders.

The shareholder pays for all these expenses and luxuries because the costs are taken upfront and factored in as part of running the business.

What is left comes as dividends — after all other operational costs.

Do not forget that some of these executives would have been gifted some of these shares or allowed to buy them on very lenient terms.

So they get corporate cover and still get dividends — and oh, I almost forgot — profit sharing.

I am not saying it is a bad thing or a negative. After all, what would you expect after the average 10–30 years it takes to reach peak positions in most institutions?

The sad thing, however, is when the institution is struggling or has fallen on hard times.

The investor suffers because he gets paid nothing, no dividends are declared, even though those managing the company are still enjoying their corporate cover and other entitlements.

I have worked in an environment where top managers were living like kings while shareholders took nothing home for years due to losses.

Two managers alone shared N200 million in one year legitimately through different forms of lifestyle benefits written into their contracts, without the company declaring any profit, let alone dividends.

I, for one, think that these corporate covers, while positive in inspiring a cadre of corporate leadership, should be tied to both individual and corporate performance.

You cannot say that just because you are an executive director, all 10 of you, including the one running a cost centre, must be flying private jets with Davido, or that all EDs must join the exclusive polo club or be flown to hang out at the French Riviera or Monaco, when all any of them does is HR.

If he wants to fete with Julia Roberts on Rodeo Drive, then he must move to a market-facing position. Simple.

Basically, what I am saying is that apart from the basic benefits, housing, medical cover, and the like, everything else should be job-function-based and performance-driven.

Furthermore, for quoted companies, regulators must begin to look into this area with a view to ensuring that it does not add unnecessary weight to corporate performance, especially in mid-sized and smaller companies.

For privately held companies, it is really up to the promoter whether he chooses delayed gratification or starts “chopping” everything upfront.

Corporate cover, to me, is a double-edged sword. It can inspire and attract the best minds, but it can also be lethal if not handled wisely.

I know some people will now want to come and beat me.

Duke of Shomolu