Every day, new companies are registered at the Registrar General’s Department of Ghana. Statistics available at the time of writing this paper revealed that to date, over one million companies have been issued with Certificates to Commence Business by the Registrar General’s Department.
The reason for the popularity in the registration of companies cannot be far-fetched. For many persons, registering a company is a step to achieving a life-long dream. For many a person, a company serves as the only vehicle to achieving his or vision in life and provides an avenue for leaving a legacy.
Under Ghanaian law, a company could be registered as a limited liability company, an unlimited company or a company limited by guarantee. A company registered as any of the above, could also be a public company, which may be listed on the Ghana Stock Exchange or a private company with a limited membership of up to 50.
A company is defined by the Black Laws Dictionary as a “A society or association of persons, in considerable number, interested in a common object, and uniting themselves for the prosecution of some commercial or industrial undertaking, or other legitimate business.”
Generally, companies are required to have its owners (shareholders or members) and its directors. Most companies also have a third tier structure which is referred to as the management of the company.
Research has shown that for a company to thrive and perform effectively, there must be a “proper” and “regulated” relationship between its Members, directors and Management. These arms of the company are the stakeholders of the company and the relationship between them must be properly governed.
Corporate governance is therefore the regulation of the relationship between the various stakeholders of the company. Corporate governance focuses on how the relationship between these stakeholders will be managed and harnessed to promote the best interest of the company at large.
The aim of this paper, is to discuss the modern trends in corporate governance worldwide and how some of these emerging trends can be adopted in Ghana to make our corporate governance regime more effective and efficient.
Breaking the Myth: What Corporate Governance is not!
The term “corporate governance” is not new in Ghana. In fact, it is a very popular term among managers and directors. The term however, is often used in a very limited context.
Corporate governance, from the survey conducted by the author, is a term that is used in Ghana to refer to the level of compliance with statutory prescriptions by a company. In other words, a lot of directors and management staff use the term to refer to the ability of the company to meet all statutory requirements such as filing of annual returns, paying permits and licensing fees, etc.
This wrong perception, unfortunately is supported by most of the statutory provisions which relate to the incorporation of companies and the regulations of companies in specific industries in Ghana. A cursory reading of the Companies Act, the Ghana Stock Exchange (GAX) Rules, Securities and Exchanges Commission Regulations, Ghana Investment Promotion Center Act and the various statutes regulating the financial sector, will reveal that the concentration of law making is the need for the directors of the company to comply with statutory provisions, in default of which fines and other penalties are imposed.
There are few statutory provisions on the relationship between the various stakeholders of the company, how to maximize value of the company and the composition and assessment of the management and directors of the company.
Corporate governance, however, goes beyond mere statutory compliance!
What Corporate Governance is!
As indicated earlier, the term refers to the relationship between the various stakeholders of the company. A company’s corporate governance regime should be reflected in among other things:
- How the directors of the company are appointed, assessed and removed
- The level of engagement between the shareholders and directors of the company
- The level of engagement between the shareholders and management of the company
- The level of engagement between the directors and management of the company
- The CEO Succession Plan
- The directors/management Role in value creation
- The compensation paid to directors and management
- The tone at the top
The focus of any corporate governance code should be how to manage the relationship between these stakeholders to increase the value creation potential of the company. An effective corporate governance regime, will lead to a maximization of a company’s values.
Examples from other Jurisdictions
In other jurisdictions with more developed legal frameworks on corporate governance, there are statutory provisions which relate to how to maximize value of the company and the composition and assessment of the management and directors of the company. These legal regimes regulate the corporate governance of private, public (listed) and even non-profit companies. Examples of such statutory regimes in other countries are as follows:
- The Mauritius Code of corporate governance (2016)
- The Third Code of Corporate Governance of South Africa (King III 2009)
- The Corporate and Auditing Accountability and Responsibility Act, 2002 (SOX) of America
- The Wall Street Reform and Consumer Protection Act, 2010 of America
- Australian Stock Exchange Act (ASX)
Unfortunately, most of these countries had to develop a code on corporate governance after several high profile company failures and increasing lack of investor confidence in the honesty and accountability of listed and private companies.
Countries that came out of these situations had to choose between enacting statutes which will require total compliance on the pain of penalties or codes which will motivate compliance and give defaulting companies the opportunity to explain the reason for their non-compliance and commit to ensuring compliance by the next auditing period.
With the benefit of the experience of these countries, Ghana should act now to either enact a legislation or adopt a code to regulate the corporate governance issues in the country. Especially in the wake of recent reports of company failures and lack of investor confidence in the financial sector.
Modern trends worth emulating in Ghana
A company is as good as its board. There are no bad companies. There are only bad boards! The role of the Board of directors in the life of a company could not have been more succinctly put.
The Board of directors is the engine room of the company. If the Board fails, the company fails. This is why the composition of the company is one of the most important subjects of corporate governance.
According to Henry Wolfe, the Board of directors is the most undervalued asset of a company. But this should not be the case. We will attempt to make a case for why companies should pay particular attention to who constitutes its Board and why the work of the Board of directors should be periodically reviewed.
Qualification for directorship
In Ghana, the Companies Act and the Banking Act, 2004, are examples of statutory prescriptions on who qualifies to be director. The qualifications have generally been tied to age, mental capacity, bankruptcy or whether or not the person has been found by a court of competent jurisdiction of not being qualified to be appointed as a director.
These criteria, with all due respect to the framers of the various statutory regimes, corporate governance issues have moved beyond these “light” criteria.
Modern trends in corporate governance have moved the qualification for appointment to the Board of directors of companies from mere age and mental capacity to criteria relating to
- Independence of the prospective director: A director is required to have the ability to take decisions which will be devoid of any form of influence from other directors or other stakeholders of the company. The independence of a director may be affected by several factors which will be discussed later.
- Competence of the prospective director: A prospective director should demonstrate sufficient understanding of his or her role as a director in value creation for the shareholders, sufficient knowledge of the industry and the ability to contribute effectively to the execution of the agenda set by the shareholders of the company.
- Diversity of the Board: Research has revealed that a diverse board is more likely to perform better than a board which is not diverse. The European Union has for instance set down a marker for the determination of whether a Board is Diverse or not. Diversity in this context relates to issues such as gender, race, age and experience. It is presumed that a board which is diverse, is likely to prevent the “Group Think” syndrome.
- Limit on the number of directorships: There should be a regulation on the number of Boards an individual can serve on as a director at any given time. The ideal situation is for an individual not to be on more than four boards at the same time. The argument in favour of this restriction is to limit the possibility of conflict of interest and to ensure that a director devotes as much time as possible to the affairs of the companies on which he serves on the Board.
From the above, it is obvious that there is a lacuna in the regulatory regime in corporate governance in Ghana which must be filled if there is any hope of better corporate governance practices in Ghana. Our laws should be amended to reflect these modern trends on the composition of Board of directors.
The exercise of assessing Boards have gained notoriety over the past decade. This is key to determining whether a Board, as currently constituted, has maintained the criteria which was or should have been checked prior to the composition of the board.
The Broad criteria under which a Board can be assessed may vary from independence, behavior, diversity, competence and the likes.
The Board Assessment should be done periodically and should be undertaken by independent external agencies who have the requisite skill to do so.
The Assessment could be undertaken of the Board as a whole and of individual directors.
The Results of the Assessment should be managed professionally to achieve the ultimate purpose of ensuring that non performing directors are “kicked off” the ship whiles better qualified directors are engaged to promote the value creation agenda of the shareholders of the company.
In its current state, there is no legal regime in Ghana which makes Board Assessment obligatory. That notwithstanding, it is the duty of all stakeholders of the company to ensure that periodic reviews of the work of the directors and management are conducted and the results/recommendations effectively implemented to ensure that the company’s performance improves. An effective Board Assessment is a tool for an effective board performance.
Every company has an owner(s). The owners of a company could be labelled as shareholders or members. For the purposes of this paper, the owner(s) of a company will simply be referred to as its shareholder(s).
Hitherto, a shareholder is seen as the risk taker in the business. All that is expected of a shareholder is for him/her to invest the capital into the business and sit back and relax whiles the directors run the show (so to say). The shareholders hope is to receive dividends at the end of the financial year of the company, subject to the discretion of the directors.
It is true that the right of the shareholder to appoint some of the directors of the company may provide some comfort for a shareholder as far as the work of the directors are concerned and to protect his investment. But directors have so much power under our current statutory dispensation and the rights of a shareholder to remove a director is sometimes curtailed.
Modern trends in corporate governance have provided avenues for a shareholder to ensure that he/she is the ultimate winner in the running of the company. The shareholder now has ways to ensure that the purpose of the Board is to create value for the shareholder and nothing more. Some of the modern trends which have been adopted to ensure shareholder activism include:
- Say on Pay
All over the world, shareholders are increasingly demanding for the right to have a say on the compensation awarded to directors and management of the company. Directors and management may continue to receive their salaries and other compensation packages even when the company is not doing so well and shareholder value is decreasing. To arrest this situation, shareholders are demanding that they should determine the compensation packages of the directors. In some companies, shareholders vote for director compensation to be packaged in the form of both shares and monetary rewards to encourage the directors to protect the share values of the company.
- Proxy Access
Most institutional and activists shareholders have insisted on exercising the right to appoint a certain percentages of the membership of the Board of Directors, albeit, subject to the regulations of the company and/or shareholders agreement. This right of proxy access allows shareholders who are entitled to exercise them to have a say, through their proxies on the Board, on the direction that the Board of directors will take.
Generally, more attention has been give lately to issues relating to CEO Succession Plan, Strategies for Risk Control, Financial Controls, Corporate Responsibilities and Corporate Communication. What remains however is that Ghana is not where it ought to be when it comes to corporate governance issues. In the light of recent publications about company failures, there could not have been a better time for a corporate governance code to regulate the relationship among the various stakeholders of a company and to ensure checks and balances. We must build our ark before the rains begin!
* The Author is the lead Consultant of Smith & Adelaide Law, Labone-Accra, a Boutique Law firm specialised in of corporate governance consulting.
 Section 9 of the companies Code, 1963, Act 179
 The Cadbury Report of corporate governance, 1992.
 Feb 2013
 2003, LI 1728
 2013, Act 865
 Prof. Richard Leblanc in his book “The Hand book of corporate governance”.
 Chairman of De La Vega Occidental & Oriental Holdings and a shareholder Activist.
 Section 182 of Act 179
 Section 38 of Act 673
 According to Chris Pierce, Director of Education, Caribbean corporate governance Institute.
 Heidrick & Struggles, Towards Dynamic Governance: European corporate governance Report (London: Heidrick & Struggles, 2014)