Introduction to Corporate Governance

Introduction:

This note will discuss the meaning of corporate governance, the need for corporate governance, the key principles that underpin good corporate governance, and the legal and regulatory framework of corporate governance in Ghana.

Meaning of Corporate Governance:

At its core, corporate governance refers to the set of rules, processes, and structures by which a body corporate is controlled, regulated, operated, or governed.

A common definition of corporate governance is provided by the Organisation for Economic Co-Operation and Development (OECD) as follows:

A set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.

The Course Manual on Company and Commercial Practice simply defined corporate governance as “a system of administering a body corporate.”

Need for Corporate Governance:

Corporate governance is important for the following reasons:

1. The company is an artificial entity, can only act through humans, and those humans must act through a governance structure.

2. There are several competing interests, and those interests need to be resolved through a governance structure.

Legal and Regulatory Framework for Corporate Governance in Ghana:

A host of legislation provides a set of rules for the governance of a body corporate, and collectively forms what is described as the legal and regulatory framework for corporate governance in Ghana.

These include:

1. The Companies Act, 2019 (Act 922) as the principal law that governs the operations of a company. Among others, the Act regulates the relationship, powers, and interests between members, directors, officers of the company, the community, among others. In subsequent notes, we will discuss the roles and powers of the directors, members, and officers of the company.

2. The Public Financial Management Act 2016 (Act 921).

3. The State Interest and Governance Authority Act 2019 (Act 990).

4. The Corporate Insolvency and Restructuring Act 2020 (Act 1015).

Principles of Good Corporate Governance:

To ensure that competing interests are balanced and satisfied and the company, as an artificial entity, is properly managed and operated, a corporate governance structure should embody the following characteristics.

1. Promote Accountability and Transparency: Corporate governance should require companies to operate openly and honestly, ensuring that financial reports, business decisions, and policies are disclosed to stakeholders. Decision-makers, including executives and board members, must be held responsible for their actions, ensuring that they act in the best interests of the company and its stakeholders.

2. Ensure Fairness and Equity: The governance structure should treat all stakeholders, including shareholders, employees, customers, and regulators, fairly and equitably, preventing conflicts of interest and favouritism

3. Establish Clear Roles and Responsibilities: Corporate governance should define the duties and powers of the board of directors, management, and shareholders to ensure efficient decision-making and avoid overlapping responsibilities.

4. Ensure Compliance with Laws and Regulations: The governance framework should ensure that the company adheres to legal, regulatory, and industry standards to avoid penalties and maintain credibility.

5. Facilitate Effective Risk Management: A strong governance system should identify, assess, and manage risks to prevent and mitigate potential financial, operational, and reputational threats.

6. Encourage Stakeholder Engagement: Corporate governance should foster communication and engagement with stakeholders to understand their concerns and incorporate their interests into decision-making processes.

Note that the above list is not exhaustive.