The NBU's decision to disqualify five of Oschadbank's newly elected Supervisory Board members is an unprecedented challenge to the corporate governance reform in state-owned banks

Oschad News

We, the Members of the Supervisory Board of Oschadbank, are shocked and dismayed at the decision of the National Bank of Ukraine to disqualify five of our members to serve on the Supervisory Board of Oschadbank. It is remarkable that five highly-experienced professionals with unimpeachable credentials and reputations were found to be unsuitable by the NBU review committee, with no explanation given. In the absence of an explanation, we can only infer from the NBU’s public statement released today that the real reason for the disqualification was the displeasure expressed by some NBU committee members with the Board’s recent decision to renew the employment contract of Oschadbank’s CEO, Mr Andriy Pyshniy. We would have expected that as a matter of universally-recognized standards of fairness and due process that the NBU committee would have disclosed the grounds upon which five of us were disqualified in order to allow us to at least meet the objections. Even the exercise of discretionary powers must be exercised in a non-arbitrary fashion according to parameters of fairness.

Regardless of what anyone may subjectively feel about our decision, it was taken in full compliance with our statutory powers under Ukrainian law and Oschadbank’s Charter and with the full knowledge of the National Bank at each stage of the decision-making process. As a result, the National Bank’s decision to disqualify us is in our view be a breach of the law and could have the unfortunate impact of undermining Ukraine’s nascent corporate governance reforms. This is a vital matter of principle - if Supervisory Boards are only allowed to operate if they take decisions favoured by regulators, then the reforms will have achieved nothing.

The members of the Supervisory Board of Oschadbank have been duly appointed in accordance with the Law "On Banks and Banking" and the independent members among us have undergone a rigourous assessment by an arms-length respected international recruitment company from among several hundred domestic and international candidates. During the selection process, A major international recruitment consultancy firm and the government-appointed Selection Board assessed all applicants against compliance with requirements of the law, including NBU requirements and regulations, and submitted all necessary documents to the Cabinet of Ministers of Ukraine for approval.

For two months, Oschadbank’s Supervisory Board has been working in accordance with our mandate in strict compliance with Ukrainian law, especially legislation regulating the banking sector and Oschadbank’s Charter. Crucially, all of the decisions relating to the CEO assessment process, were (and continue to be) made in the presence of the NBU’s representative to the Supervisory Board, an accountability measure to ensure that the NBU is aware in real time of the Supervisory Board’s deliberations. The law obliges us, as our first act, to immediately review the performance of Oschadbank’s management, which we duly did. We set very high international-standard criteria for the CEO selection, and engaged international executive search specialists to assess the performance of Oschadbank’s CEO, Andriy Pyshniy, against these criteria. After a rigourous vetting it has been reported that the CEO met or exceeded the criteria and was suitable to move the Bank towards realization of its strategy and mission . We further reviewed Oschabank’s results over the past five years, especially the last two, where we benchmarked progress against the bank’s strategic plan, approved in 2018 by the Cabinet of Ministers and the National Bank. Based on this performance (indeed, objectively, the CEO has engineered a remarkable turnaround of Oschadbank since 2014), and the fact that there were no extenuating reasons to remove him, the Supervisory Board exercised it exclusive powers to continue the CEO’s employment, as we are permitted to do in full accordance with the law and the bank’s Charter, powers which have been approved by the NBU. Had we not endorsed the assessment, we would then have called for an open competition to hire a new CEO, since the position would now be vacant. There were no objections at any time with respect to the procedures followed and the substance of the discussions from the NBU’s representative to the Supervisory Board. We are fully confident of the propriety and legality of all of our decisions, which are taken in the best interests of the bank.

The right of the Oschadbank Supervisory Board to exercise its powers free from external interference is the culmination of more than five years of effort, where Ukraine, supported by international partners, has been working to achieve state-owned banking sector reform aimed at stopping direct interference in the activities of state-owned banks. While the NBU, or anyone else, may not like the Supervisory Board’s decision, it was our’s alone to make, and was taken in the best interests of the bank. Only when we see the results of the implementation of the bank’s strategy by the CEO and management, will we know if we made the right decision. In the meantime, we are confident that we have.

In this context, our reputation in the domestic and international arena, which is the principle asset of any director and supervisory board in any company anywhere in the world, has now been needlessly impugned by what we consider to have been a biased and inappropriate review process by the National Bank.

Please pay attention that this decision comes after two weeks of an unprecedented public campaign in various internet sources and on Facebook attacking Mr. Pyshniy and the Supervisory Board. Indeed, this campaign unfortunately also involved employees of the National Bank, including the Director of the Risk Management Department at the NBU, who in a post manipulated the figures to assess the standing of the bank and sought to undermine the legality of our decisions. In an official letter to the NBU, we have expressed our opinion that such publications by NBU employees are completely unacceptable.

It felt for many of us as if this campaign culminated on 14 August 2019 in the standard qualification interview at the NBU. According to NBU procedures, this interview is an opportunity for members of the NBU review committee to personally acquaint themselves with supervisory board members as the final stage of a lengthy vetting process, including the submission of required documents and passing a written competency test. Instead, some of us were subjected to an interrogation by NBU Deputy Governor Kateryna Rozhkova regarding a single issue - our decision to reappoint the CEO. Virtually no other substantive issues regarding our suitability were seriously discussed and the rest of the NBU Board members present did not actively participate.

In the result, five of our members were disqualified. Aside from the lack of explanation and fair procedure, it is odd that, under the circumstances, only five members and not the whole board were disqualified, since 8 of 9 members voted to renew Mr. Pyshniy’s contract (there was one abstention, as the member had only joined the Board on that day and might have had no time to familiarize himself with the documents). Control of the Supervisory Board by the bank’s management also could not be an issue, since, as the NBU's supervisor can attest, the Supervisory Board challenges and debates Oschadbank management decisions in robust discussions regarding all matters in which we exercise oversight.

Why then the disqualifications? And who benefits from the removal of a Supervisory Board that practices the independence that it is granted by law? We invite all of the stakeholders in the corporate governance process to reflect on these issues.

We firmly believe that the NBU review committee’s decision does not have any legal basis, and is prejudiced and biased. We have now addressed an official letter to the NBU governing council demanding that it prevent this improper action in relation to the Members of the Supervisory Board of a systemic Ukrainian bank. This is a vital matter of principle, lest the action of the particular NBU's officials in this case compromises its credibility as an independent and unbiased bank regulator.

Members of Oschadbank's Supervisory Board:

  • Sevki Acuner
  • Oleksii Grinchenko
  • Oleksii Reznikov
  • Dmytro Vlasov
  • Baiba Apine
  • Michael Weinstein
  • Daniel Bilak
  • Peter Briggs

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