GHANA INSTITUTE OF MANAGEMENT AND PUBLIC ADMINISTRATION (GIMPA). MASTERS IN BUSINESS ADMINISTRATION (MBA), SEPT. 2011.

BUSINESS ENVIRONMENT: Legal Environment of Business GROUP (B) Class

LECTURER: OHEMENG-MENSAH DATE: 2012 STUDENT: FELIX MAWUSI KUWORNU

DERICK 28-DECMBAE 11050219

QUESTION
IN LIGHT OF RECENT CORPORATE GOVERNANCE ISSUES IN GHANA AND ELSEWHERE, ADDRESS THE CHALLENGES THAT COMPANIES FACE IN SPITE OF THE CONTRIBUTIONS THAT THE COMPANIES CODE, 1963 (ACT 179) BRINGS ON BOARD IN TERMS OF GOVERNANCE. WHAT WOULD YOUR CONTRIBUTION TO GOOD EFFECTIVE BOARDROOM DYNAMICS AND GOVERNANCE?

INTRODUCTION An economy's corporate governance system has a significant impact on the profitability and growth of corporations, their access to capital, and their cost of capital (Halpern, 1999). According to Halpern (1999), the governance system can influence the decisions undertaken by firms and ultimately has an impact on the wealth created in a country. Several researchers have identified the key functions of the board as strategic, controlling (monitoring managers and accountability),

institutional (building links with investors and stakeholders), approval of a core philosophy and mission, maintenance of legal and ethical practices, communication with shareholders, and review (Riana, 2008; Zahra and Pearce, 1989; ICC, 2009). The responsibilities of the board of directors are explicitly stated by the statutory framework of the country in which the company operates. The corporations by-laws and its declaration of board values and charter for the country in which the corporation operates serve as guiding principles of the role and fiduciary duties of the board.

DEVELOPMENTS IN CORPORATE GOVERNANCE IN THE GHANA Many of the developments in corporate governance on the international scene such as the moves to codify the basic principles of good corporate governance and the conferences, fora, workshops organized to inculcate

ideals of good corporate governance in corporate leaders have been replicated in Ghana. Ghanaian businesses are compelled to practice good corporate

governance to effectively compete on the global market. This is being enforced through regulation such as: Companies code, 1963 (act 179); Securities Industry Law, 1993, (PNDCL 331); The Banking Law, 1989 (PNDCL 225); Insurance Law, 1989 (PNDCL 277); and Ghana Stock Exchange Listing and Membership Regulations. Compliance with these regulations is enforced by the following bodies; Bank of Ghana Securities and Exchange Commission Insurance Commission Ghana Stock Exchange Internal Revenue Service Registrar Generals Department There are various codes and guidelines of best practices of corporate governance, which complement the statutory regulations in fostering good corporate governance in Ghana. These include the Organization of Economic Cooperation and Development corporate governance, the South African (OECD) principle of good King Report and the

Commonwealth Association of Corporate Governance

(CACG) guidelines

which were used in compiling Ghanas own Manual on corporate

governance. Some international organisations have also sought to entrench the principles of good corporate governance in the Ghanaian corporate environment by organising and sponsoring research projects, conferences, fora and workshop to deliberate on the challenges of good corporate governance and strategies for overcoming these challenges. This is aimed at entrenching a culture of good corporate governance in the Ghanaian corporate environment. Some of these organizations are the Canadian International Development Agency (CIDA), the Africa Capital Market Forum (ACMF), Centre for International Private Enterprise (CIPE), Commonwealth Association of Corporate Governance (CACG) and the Organisation for Economic Cooperation and Development (OECD). There are several organizations in the Ghanaian which cooperate with the statutory regulatory bodies and international bodies on corporate governance to entrench the culture of good corporate governance in Ghana. These organizations include: Private Enterprises Foundation (PEF) Institute of Directors (IoD-Ghana) Institute of Economic Affairs (IEA) Association of Ghana Industries (AGI) Ghana Chamber of Commerce (GCC)

In 2000, a Manual on

Corporate Governance and code of Conduct for

Board of Director And Chief Executives in Ghana were sponsored by the International Finance Corporation and put together through the combined efforts of Carl Bro Management of Denmark, the Africa management

service Company (AMSCO) of the Netherlands and FINTRA Consult of Ghana. The Manual contained recommended guidelines adapted from the OECD guidelines, principle of guidelines developed by the CACG, the South African King Report and other comments from stakeholders in Ghana. The Manual which adopted the stakeholder approach or broad perspective in

defining corporate governance includes guidelines for the formulation of audit, remuneration, and governance committees among others, and recommendation of training of board members. In January 2001, the Centre for International Private Enterprise (CIPE) U.S.A in collaboration with the Institute of Economic Affairs (IEA) Ghana and the Development Policy Centre (DPC) Nigeria organised a conference on the theme Corporate Governance for Sustainable Growth in Accra. The conference brought together participants from Africa, Europe and America and sought for to strengthen strategies ties to between participating corporate

organizations

developing

strengthen

governance practices, policies and education at country and regional levels. During this conference, a report of a survey conducted by the Institute of Directors (IoD-G), which was presented, revealed that there is an increasing acceptance of good corporate governance practices by

businesses in Ghana. It was at this conference that the Manual on Corporate Governance in Ghana was lunched. In December 2002, the Africa Capital Markets Forum (ACMF) organized a forum in Accra on the theme Corporate Governance and Corporate Corruption in Ghana at which the various issues and challenges Ghana were Extensively deliberated upon. At this forum, the ACNF also presented a project report of a research it had undertaken in collaboration with an advisory committee of business sector stakeholders on publicly listed companies, private companies and state enterprises to demonstrate the effectiveness of sound corporate governance practices in reducing the incidence of corruption. These developments have served to disseminate the basic tenets of good corporate Governance that is transparency, participation, effectiveness and equity, in the Ghanaian corporate world (Villars, 2002). This is evidenced by the findings of the survey by the IoD-Ghana in 2002 on the State of Corporate Governance in Ghana which revealed an Increasing level of acceptance of businesses in Ghana. good corporate governance practices by of corporate governance in

STATE OF THE PRACTICE IN GHANA The demise of Bank for Housing and Construction (BHC), Ghana Cooperative Bank and Ghana Airways in the 1990s served as a clarion call to corporate leaders in Ghana to espouse the principles of good corporate governance in their management systems. This drive has been enhanced

by the existing legislations and codes of best practices such as the Companies Code, 1963 (Act179), the Securities Industry law 1993, (PNDCL 331), the Stock Exchange Listing and Membership Regulations and the Manual on Corporate Governance in Ghana. The enforcers of these regulations such as the Securities and Exchange Commission and the Ghana Stock Exchange have sought to ensure compliance with their demands for good corporate governance by compelling all companies under their jurisdiction to adhere to the provisions of their regulations on good corporate governance as a qualification for membership. A study by Private Enterprise Foundation, on Corporate Governance and the Private Sector which was conducted in 1999 and sponsored by the Canadian International Development Agency (CIDA) found that only a few companies in Ghana had the relevant structures, institutions and practices for good corporate governance as at the time. In 2000, the Institute of Directors (IoD-Ghana), conducted a survey of some Organizations from the Association of Ghana Industries, Ghanas top 100 companies and some State-Owned enterprises, to ascertain the current state of corporate governance practices in both the private and public sector of the country. The findings of the survey indicated that there is an increasing acceptance of good corporate governance practices by businesses in Ghana. CHALLENGES CONFRONTING GOOD CORPORATE GOVERNANCE IN GHANA In spite contribution may by the Companies Code 1963 (Act 179) and other relevant regulating documents toward good corporate governance

in Ghana, a number of constrains continue to inhibit the ultimate achievement of good corporate governance in Ghana. The following are some of the factors inhibiting good corporate governance in Ghana. Outdated Companies Code Absence of appropriates laws. Conflict of interest and undue influence on the part of government. Young and polarized private sector. Inadequate education or knowledge on part of stakeholders. Inadequate media and Private sector interface and expertise. Unreliability of auditors reports. Mistrust in the Private and Public sector, that is, ethics and contracts are not enforced.

ADDRESSING THE CHALLENGES In addressing the challenges faced in our efforts as a nation to ensure and entrench good corporate governance practices in our business culture, the following strategies are outlined. Strengthening board capacity and capability by strengthening institutions such as the Institute of Directors, Private Foundation and, Association of Ghana Industries Enterprise

Increased public education and awareness using advocacy groups in society and financial journalists.

Provision of funding for education of target groups and organization of training Programmes for trainers.

Maintaining a good information pool and identifying methods for acquisition and Dissemination of information.

Improvement Companies

of the regulatory framework by reviewing the in line with modern trends, strengthening

Code

enforcement mechanisms through the provision of logistics and equipment and an adoption of Alternative Dispute Resolution (ADR) mechanism. Creating an enabling environment by maintaining the political will to implement policies and adhere to basic codes of ethics. Removing executive interference and ensuring an independent and courageous judiciary. On the whole, the efforts of numerous stakeholders in corporate governance have led to an increased acceptance of good corporate governance principles by Ghanaian businesses. However the challenges outlined need to be addressed with a concerted effort of all Stakeholders so as to improve and perfect the current state of corporate governance in the Ghanaian business community.

CONTRIBUTION GOVERNANCE

TO

EFFECTIVE

BOARDROOM

DYNAMICS

AND

The Corporate governance environment largely determines the quality of the corporate governance and the path that it will take (KERR, 2005). Board of Directors constitute one of the key players in the corporate governance environment, however, the responsibility of ensuring good and effective governance which concentrates largely on: Ensuring disclosure of relevant information to shareholders and creditors, Building a system of rules and voluntary practices that will guide the board of directors, Establishing independent audit committees composed of outside directors and, Monitoring and controlling management; rest heavily on the shoulders of the Board of Directors. Regardless of the other key players in the corporate governance environment, the Board of Directors acts as a major pivot around which most corporate activities revolve. From directors and executives to stakeholders and consumers, virtually everyone is touched in some way by the deliberations of a companys board. These days, theres a lot to deliberate. The dynamic forces of globalization, technology, and demographics and a difcult economic climate have converged to dramatically reshape the world of commerce.

Im convinced, however, that todays boards can meet the challenges of our rapidly changing business environment by bringing together some dynamic forces of their own. Relationships between board members can be described by the

distribution of power, the existence of conflict, the level of trust, respect, goodwill, energy and openness to debate. These characteristics

collectively represent the dynamic of the board. The board dynamic required to achieve effective organisational performance may change over time. The board dynamic should also be considered in conjunction with the relationships between board and the Minister, organisation and external stakeholders. My contribution to an Effective Boardroom dynamics in my sector (Public service) would be to push for the under highlighted below. The individual responsibilities for developing an effective Board dynamic are acknowledged Multiple groups and individuals contribute to the board dynamic, including the Minister, individual board members, the chairperson, the CEO and support staff. Each needs to ensure they contribute to an effective dynamic within the boardroom.

Openness encouraged

and

professional

debate

within

the

board

are

Healthy debate requires an environment that allows diverse perspectives and encourages constructive enquiry. Robust debate is more likely to be achieved if the board's activities are underpinned by a spirit of trust and professional respect. Boards should not pursue consensus to avoid conflict. Boards should also be cautious when all directors consistently express similar views or consider few alternative views. Situations of conflict-avoidance or 'groupthink' should not be interpreted as an effective board dynamic. Regardless of the nature of board debate, the board should retain a single unified voice in any internal or external communications following deliberation. This ability to remain publicly unified is enabled by board member's feeling confident in the decision making process and satisfied their views have been considered. Self-evaluation, reflection and development are encouraged The board should encourage an environment of self-improvement. Board evaluations should consider the relationships within the board. This social system can be developed through several mechanisms, including brief evaluations of style and behaviour at the conclusion of board meetings. Investing in time outside of formal board meetings can be valuable for relationship building. The chairperson also fulfils a critical role by encouraging desired behaviour and identifying inappropriate

behaviour.

REFERENCES
Halpern, P.1999. Systemic Perspectives on Corporate Governance Systems, Conference and Symposium on Corporate Governance and Globalization, September 1, 1999, Available at http://www.rotman.utoronto.ca/cmi/papers/paper1-1.htm, accessed September 3, 2009. Okpara, J. O. (2010), Perspectives on Corporate Governance Challenges in a Sub-Saharan African Economy, Journal of Business & Policy Research, Vol. 5. Number 1. (July) Pp. 110 122. Villars, Elizabeth Adopting a Code of Best Practices for Corporate Governance in Ghana African Capital Markets Forum Publications, (December2002).Accra African Capital Markets Forum Corporate Governance and Corporate Corruption in Ghana (2002). Public Sector Commission (2012), Good governance for boards and committees, Retrieved from << http://publicsector.wa.gov.au/publicadministration/integrity/good-governance-boardscommittees/principles/effective-dynamics. Kerr, V. L. (2005), Effective Corporate Governance: An Emerging Market (Carribbean) Perspective on Governing Corporations in a Disparate World, Govstrat & Outskirts Press, USA.