Weak corporate governance has an adverse impact on financial stability, and that’s a statement of fact, not opinion. You only have to examine the evidence from scholarly literature which correlates corporate governance with firm performance. For instance, Gosh (2007), using data on over 200 listed manufacturing firms in India in 2005, and after controlling for various firm-specific factors, finds that board diligence as well as director responsibility exerts a positive influence on corporate performance.

Also, Karami, Karimiyan and Ghaznavi (2007), after studying the relationship between corporate governance structure and financial performance of banks under the Non-usury Banking Act in Iran, concludes inter alia, that there is a significant positive correlation among board size and financial performance.

In Ghana, circa 2017, a raft of corporate governance weaknesses, were diagnosed as part of the malaise which caused the insolvency crises, which in turn necessitated the resolution of nine banks and over 340 NBFIs. Some of the governance issues raised at the time included: director tenure limits, related party transactions, conflict of interest, separation of powers, etc.

Recall that by December 2018 when the final CG directive was introduced, 6 non-executive directors (from various banks) had served more than 9 years (the current term limit), 9 board chair persons had served more than the 6-year term limit, and 2 CEOs (Mr. Frank Adu Jr., of CAL and Stephen Sekyere-Abankwa of Prudential Bank) had served more 12 years, which is the current term limit for CEOs.

The introduction of new directives by Bank of Ghana to regulate corporate governance was therefore a welcomed news. The Corporate Governance Directive, 2018, fair to say, was a balanced policy response that was grounded on a lucid analysis of the problem at the time. And as fate will have it, a disclosure directive followed in 2022 (see Corporate Governance Disclosure Directive, 2022).

It is important to also recognize that since then, there has been other reforms such as the new Company Act 2019, Act 992. Worthy of mention also is the introduction ISO 37,000:2021 by the International Organization for Standardization (ISO). The confluence of these macro forces has resulted in a material improvement in the governance of regulated financial institutions, according to research by Metis Decisions.

A key aspect of the Corporate Governance Disclosure Directive, 2022 is the requirement for the external auditor to make comments on the corporate governance practices and the Corporate Governance Report of the auditee/client. This brief article seeks to highlight an insightful observation regarding auditing firms’ compliance with section 21 of the Corporate Governance Disclosure Directive, 2022.

The Auditor’s Responsibility under CG Disclosure Directive 2022 Per Section 21 of the Corporate Governance Disclosure Directive, 2022, “External auditors shall review and make comments on the Corporate Governance practices and the Corporate Governance Report of the RFI in the “other matters” section of the “Independent Auditors’ Report” in the Audited Financial Statement.”

Interestingly, a thorough review of the external auditor’s report contained in the annual reports of 15 banks showed that auditing firms are not complying with Section 21. A standard text in the “Other Information” section of the Auditor’s Report is reproduced in Figure 1.

Not a single mention of the governance practices. In some case, compliance could be inferred, arguably, given that the same auditors acted as consultants in conducting board evaluation for the client. In most cases, a different consultant conducted the board evaluation, making the auditor’s comment on the Corporate Governance Report all the more needful. Perhaps there is a legitimate reason for the current level of non-compliance. Be that as it may, the regulator needs to address it, and not allow regulatory violations to go unexplained.