Corporate Governance Study: Ghana ranked 12 out of 15 African countries

KPMG and ACCA have completed a study on corporate governance requirements across global markets. The study focused on 81 key elements of the Organisation for Economic Co-operation and Development (OECD) Principles and leading corporate governance practices.

Ghana ranked 12 out of the 15 markets with a cumulative score of 82 points out of 180. This contrasts with a cumulative score of 145 for South Africa, the leading country in the region and 124 for Nigeria, the only other West African country included in the survey with a ranking of 4 in the survey.

The aim of the study was to raise awareness of corporate governance requirements to assist our markets to continue to improve on corporate governance standards. The countries were ranked on prevailing laws, rules, good practice guidance, the clarity of requirements and types of corporate governance instruments.

Though the report indicates that Ghana’s governance structures are not robust enough, we should not despair but use this result as a starting point to put together structures that will help ensure a sustainable business environment for the country.

Significantly, the survey indicated that, success in implementing corporate governance codes or similar frameworks, whether they were mandatory or voluntary by nature, depends on efforts made by enforcing bodies as well as businesses themselves.

Effective corporate governance requires investment in establishing a strong regulatory oversight and enforcement function to ensure the consequences for non-compliance are in place, understood and are effective. As established by the report, having high standards corporate governance frameworks nationally facilitates market confidence and business integrity, signals government’s commitment to create credible arrangements for investors and provides support mechanisms to safeguard investments; fundamental to economic growth.

Ghana’s regulatory framework for corporate governance largely comprises the Companies Act1963, Act 179; the membership and listing regulations of the Ghana Stock Exchange and the Securities Industry Act,2016, Act 929 and the Security and Exchange Commission’s (SEC) Code, ‘Corporate Governance – Guidelines on Best Practices’ of 2002 (developed in reference to the OECD principles of corporate governance and applies to all listed bodies and companies licensed under the securities industry laws).

Worryingly, the SEC Code, intended as a source of good practice for listed companies in Ghana is voluntary. Conversely, the Corporate Governance codes of countries that fared well and ranked higher in the survey either had corporate governance instruments designed on the ‘Apply or explain’ or ‘comply or explain’ basis.

We may wish to consider if our governance framework has achieved the full potential of intended corporate governance objectives as companies may lack impetus and incentive to adopt the intended Best Practice.

Ghana should consider adopting and updating the Security and Exchange Commission’s (SEC) Corporate Governance Guidelines on Best Practice as a national standard to address noted gaps in the survey. It is expected that such an enhancement to the SEC Code would strengthen the performance and success of companies covered and by extension positively impact the attention of non-listed companies, Small and Medium Scale Enterprises and the public sector in Ghana.

In the light of the above, we have listed some lessons and recommendations for consideration in improving our Codes:

Board Roles - The SEC Code could be revised to improve the role of the board by setting out clearly the fiduciary responsibilities of directors, a requirement for the board to document and disclose its role formally in a board charter, establish a code of conduct and ethics, conduct an induction programme for newly appointed directors and to formalise a process for ongoing director.

The framework should further enjoin the board to monitor adherence to the entity’s ethical standards by employees and other stakeholders through periodic independent assessments.

Performance Evaluation - Though there is a requirement that the board conducts a performance evaluation in our corporate governance framework, there is a need to specify the frequency and format of the evaluation; a self- assessment exercise or an independent review.

The framework should also empower the Board Chair or the AGM to act on the results of the results of the Directors found not to have discharged their duties and responsibilities satisfactorily should be exited, and the chairperson should lead this process as done in Mauritius and Nigeria.

Risk Governance - Ghana performed poorly in the assessment of risk governance among the 15 markets and needs to strengthen the risk governance aspect of its corporate governance framework by adopting the OECD principles and leading guidance on risk.

The risk governance framework of organisations should typically include the following:

Risk strategy including oversight and culture A well-defined risk management process (identification, assessment management, monitoring and reporting of risks) A well-developed risk appetite/tolerance statement Defined responsibilities for risk management, control functions and clear delineation of assurance roles and their independence from management.

Enforcement - There is a clear need for all companies to state and disclose the extent of their compliance with the Listed companies should be required to disclose their compliance on a ‘comply or explain’ basis.

Fashioning effective mechanisms for law enforcement as well as strengthening existing enforcement mechanisms through training and resources are also required.

We note that the Companies Code is being reviewed and rightly We expect the new Code or Act to provide for an acceptable mix of executive and non-executive and independent directors, appropriately inducted and evaluated/appraised from time to time to ensure they are up to their roles and responsibilities.

It is also expected to require the establishment of Audit Committees, supported by qualified Internal Auditors. The latter is especially critical in assuring the accountability principle, essential for good governance to thrive.

We expect the new Companies Act to further provide for requisite financial and non- financial disclosures, including the adequacy of risk management/internal controls systems and more importantly, for its provisions to be enforced by the Registrar-

We believe that the countries that scored higher in this study can and do have a better chance of producing multinational companies to make their economies more competitive. Their governing boards are more likely to drive the adoption of higher standards in corporate governance with:

Higher ethical conduct and codes for the Board, management and staff More coherent and practical market winning strategies Comprehensive risk management systems More effective internal controls and systems of accountability A responsive internal audit function to signal trouble before they adversely impact the Some of the essential governance principles above are pre-requisites in empowering companies to enter other markets with confidence as we have seen happening with companies from South Africa, Mauritius and Nigeria.

Conversely, we can probably count on our fingers, the number of Ghanaian-owned businesses that are truly multi-national and have been able extend their footprints beyond our borders.

As a nation, we cannot expect to build a competitive and growing economy, if we do not work in a concerted manner to improve and enforce our corporate governance codes to enable more resilient and stronger companies to emerge and expand economic opportunities for our people.