CORPORATE

GOVERNANCE
Lesson 3: Conceptualizing Corporate Governance
Learning Objectives
By the end of the lesson, a student will be able to:
1. Identify and explain five elements of CG
2. What are the symptoms of poor CG
3. Describe the development of corporate governance in Ghana
4. Using scenarios and practical examples, explain five elements of
CG
5. distinguish between shareholder and stakeholder
6. describe the role of different stakeholder groups
7. State and explain the OECD principles of CG
 Elements of good corporate
governance
• Rule of law: due process and just cause
• Separation of powers (chairman should not be the same
as CEO)
• Balanced and committed Board of Directors
• A management team that is well motivated to strive for
business prosperity
• Board appointment based on skills
• Effective and functioning board committees with Terms of
Reference
• Well documented functions of Board and Management –
there must be a Board Manual 3
 Elements of good corporate governance Cont.

• Documented authorization limits for Board and Management

referred to as: Matters
• Reserved for the Board
• Board Evaluation – assessment of Board performance
• Evaluation of the CEO
• Induction programme for new members of the Board
 Continuous capacity development programmes for Board
members
 Management of corporate risks – constantly monitor risks. A
risk policy manual is necessary
4
Elements of good corporate
governance Cont.
 Have a remuneration policy to guide in the determination of board
remuneration
 Code of Ethics to be developed to guide director behaviour
 Social Responsibilities – monitor and promulgate policies consistent
with company’s legitimate interest and best practice
 Internal Control Procedures – regular review to ensure effectiveness
of systems

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Symptoms of poor corporate governance

• The following symptoms can indicate poor

corporate governance.
• Domination by a single individual
• Lack of involvement of board
• Lack of adequate control function
• Lack of supervision
• Lack of independent scrutiny
• Lack of contact with shareholders
• Emphasis on short-term profitability
• Misleading accounts and information

6
 Development of Corporate Governance
in Ghana.
• The development of Ghanaian corporate governance can be
traced to its root in Ghana’s colonial past.
• Like most other former British colonies, Ghana inherited, at
independence, many rules and regulations left behind by the
colonial government.
• During the colonial period, British company legislation was
introduced into the country; hence Ghana’s legal system and
corporate governance practices mirrored the UK pattern.
• Prior to the independence, foreigners, mostly British
merchants, controlled the activities of business enterprises in
many of their old colonies and thus bring along with them
their economic interest and their (British) legislation.
Development of Corporate Governance in
Ghana
• The regulation, control and governance of business
enterprises in Ghana as of present, are largely contained
within the provisions of the company legislation which has its
root in Ghana’s colonial past.
• Thus, the Ghanaian Companies Code, 1963 (Act 179) is based
largely on the English Companies Act (1948).
• Although, the Code has seen no major changes since the
enactment and many attempts at revising it have mainly been
mere editorial changes, these historical analysis, therefore,
confirms and suggest that the Ghanaian system of corporate
governance is essentially an “Anglo-Saxon”, or the “outsider
control system”, and is a reflection of its colonial heritage
Legislative framework of Corporate
Governance in Ghana
• Some of the legal and regulatory frameworks of Ghanaian
corporate governance system include:
• The Company’s Code established in 1963 (Act 179) to regulate
all companies incorporated in Ghana.
• The Code anticipated and provided adequately for the central
issues of corporate governance in the Ghanaian private
sector.
• The Securities Industry Law, 1993 (PNDCL, 333) and the
Securities Industry (Amendment) Act, 2000 (Act 590) created
the Securities and Exchange Commission, Ghana.
Legislative framework of Corporate
Governance in Ghana
• The two laws, as well as the Ghana Stock Exchange (GSE) rules
regulate stock exchanges, investment advisors, securities dealers, and
collective investment schemes are licensed under the Securities and
Exchange Commission.
• Specifically, the Ghanaian Companies Act, 1963 (Act 179) specifies the
requirements of corporate governance fundamentals in Ghana such
as greater roles for the company’s directors and an effective
participation of the shareholders in company’s affairs.
 Legislative framework of Corporate Governance
in Ghana
• The Securities and Exchange Commission is an active regulator that
has been unafraid to suspend market participants that disobey.
• Corporate governance developments in Ghana took an interesting
dimension with the introduction of 2002 Code of best practices by
SEC; as well as many other guidelines by all other agencies.
• Ghana SEC (2002) identified some common elements that underlie
good corporate governance upon which further evolution and
developments in governance structures are built upon today.
• They are:
• the rights of shareholders;
• the equitable treatment of shareholders;
• the roles of stakeholders;
• disclosure and transparency;
• the responsibilities of the board.
Contemporary Issues of Corporate
Governance practice in Ghana
• Corporate Governance and the Banking Sector
• Corporate Governance and the Public Sector
• Corporate Governance and the Private Sector
Corporate Governance and the Banking
Sector
• Companies Code of 1963 (Act 179) was a complete mimicking of the
English Business Act of 1948 with very little or no modification,
Ghana’s 1963 Companies Code is yet to be properly reviewed.
• Whereas, the UK had revised its Acts in 1967, 1976, 1989, 1991,
1985, 1989 and 2006 in recognition of the changing societal
perceptions. However, the UK Acts of 1980, 1981, 1985, 1989 and
2006 etc. were heavily influenced by the European Communities
Directives.
Corporate Governance and the Banking Sector
• However, serious attempts have been made in the past time in Ghana to
promote effective corporate governance through various organizations.
• This include the formation of the Institute of Directors, the development
of the National Accounting Standards, the formation of Ghana Securities
and Exchange Commission which developed a Corporate Governance
Code of Best Practice to be followed by the companies in Ghana.
• Thus, the SEC Guidelines on Best Corporate Governance Practices is
based on OECD principles.
• The Bank of Ghana (BoG) also incorporated some corporate governance
rules into the Banking Act 2004 (Banking Act 2004 amended in 2007)
and published the BoG code of Conduct for Primary Dealer
• Bank of Ghana Directive 2018 on Corporate Governance
Factors influencing Corporate Governance in
Ghana
• The corporate governance developments and disclosures in any
country are often shaped by a wide array of internal as well as
external factors.
• Accordingly, the internal factors include the state of the
economy and the capital market, corporate and business
culture, the legal system, government policies,
professional/regulatory bodies, amongst others.
• The external factors (such as the old colonial ties, membership
of international accounting standard committee, direct foreign
investment activities of multinationals such as foreign banks
and companies) contribute considerably, if not totally, to the
complex reality of corporate governance development in any
developing country, such as Ghana
Stakeholder vs Shareholder?
• The terms “stakeholder” and “shareholder” are often used
interchangeably in the business environment.
• Looking closely at the meanings of stakeholder vs shareholder, there
are key differences in usage.
• Generally, a shareholder is a stakeholder of the company while a
stakeholder is not necessarily a shareholder.
• A shareholder is a person who owns an equity stock in the company
and therefore holds an ownership stake in the company.
• On the other hand, a stakeholder is an interested party in the
company’s performance for reasons other than capital appreciation.
Stakeholder vs Shareholder?
 Stakeholder vs Shareholder?
• What is a Shareholder?
• A shareholder is any party, either an
individual, company or institution that
owns at least one share of a company
and, therefore with a financial interest in
its profitability.
• Shareholders may be individual investors
who are saving part of their salaries in
preparation for retirement or large
corporations and who hope to exercise a
vote in the management of a company.
• If the company’s share price increases,
the shareholder’s value increases, while if
the company performs poorly and its stock
price declines, then the shareholder’s
value decreases.
• Shareholders would prefer the company’s
management to take actions that increase
the share price and dividends, and that
improve their financial position.
• What is a Stakeholder?
• A stakeholder is a party that has an interest
in the company’s success or failure.
• A stakeholder can affect or be affected by
the company’s policies and objectives.
• Stakeholders can either be internal or
external.
• Internal stakeholders have a direct
relationship with the company either through
employment, ownership or investment.
• Examples of internal stakeholders include
employees, shareholders, and managers.
• On the other hand, external stakeholders
are parties that do not have a direct
relationship with the company but may be
affected by the actions of that company.
• Examples of external stakeholders include
suppliers, creditors, community and public
groups.
 Core Elements of the OECD Principles
• Principle I: Ensuring the basis for an effective corporate governance framework
• The corporate governance framework should promote transparent and
efficient markets, be consistent with the rule of law and clearly articulate the
division of responsibilities among different supervisory, regulatory and
enforcement authorities
• Principle II: Basic rights of shareholders and key ownership functions
• The corporate governance framework should protect and facilitate the exercise
of shareholders’ rights
• Principle III: Equitable treatment of shareholders
• The corporate governance framework should ensure the equitable treatment of
all shareholders, including minority and foreign shareholders. All shareholders
should have the opportunity to obtain effective redress for violation of their
rights.
 The OECD Principles (continued)
• Principle IV: Role of stakeholders in corporate governance
• The corporate governance framework should recognise the rights of
stakeholders established by law or through mutual agreements and encourage
active co-operation between corporations and stakeholders in creating
wealth, jobs, and the sustainability of financially sound enterprises.
• Principle V: Disclosure and transparency
• The corporate governance framework should ensure that timely and accurate
disclosure is made on all material matters regarding the corporation, including
the financial situation, performance, ownership, and governance of the
company.
• Principle VI: Board responsibilities
• The corporate governance framework should ensure the strategic guidance of
the company, the effective monitoring of management by the board, and the
board’s accountability to the company and the shareholders.
Reading Assignment
Corporate Failures – Abroad
• Enron Corporation
• Worldcom
• Adelphia
• Meryl Lynch
• Lehman Brothers

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Recent Corporate Failures – Ghana
• DKM
• UT Bank
• Capital Bank
• Uni Bank
• Sovereign Bank
• Other 23 savings and loans bank

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The End

• Thank you