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Opinions of Saturday, 18 April 2015

Columnist: Adjei, John Kwasi

Corporate Governance among Ghanaian NGOs

As a concept, corporate governance involves 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, the means of attaining those objectives and the system for monitoring performance. It also ensures that the board of directors is accountable for the pursuit of corporate objectives and that the company itself conforms to the law and regulations.

Corporations and companies are created as legal persons by the laws and regulations of a particular jurisdiction. These may vary in many respects between countries, but a corporation's legal person status is fundamental to all jurisdictions and is conferred by statute. This allows the entity to own property in its own right without reference to any particular real person. It also results in the perpetual existence that characterizes the modern corporation.
Regulation
Corporate governance in Ghana exists within the framework of laws, regulations, rules,
guidelines, and local government bye laws. The basic framework for corporate governance in Ghana is provided for mainly under the Companies Code, Act 179 of 1963. This spells out the role and duties of directors, shareholders, creditors, auditors, regulators, and other stakeholders and procedures for making decisions in the organization.
The Department of Social Welfare and the various District Assemblies also exercise a regulating influence on the operations of corporate organizations. Other laws such as the Labour Act, 2003 (Act 651), the Environmental Protection Agency Act, 1994 (Act 490) and the Environmental Assessment Regulations, 1999 (L.I.1652) impact the company’s dealings with employees and management of the environment respectively.

Every limited liability company is governed by a memorandum of incorporation and memorandum of association. This serves as its constitution, spelling out what the company does, and how it relates to the various stakeholders, both internally and the external world. Under the Companies Code, which is the Ghana law, this is referred to as the Company Regulation.
Profit-making organizations are concerned with maximizing profits or increasing shareholder value. This situation is different with NGO’s which are non profit making. They are usually aimed at meeting their mission objectives, which may include addressing particular challenges in their working communities.
Stakeholder interests
All parties to corporate governance have an interest, whether direct or indirect, in the financial performance of the corporation. Directors, management and staff receive salaries, benefits and reputation, while investors expect to receive financial returns, (in case of a profit making company), and for NGOs, the provision of social services. Customers and beneficiary communities are concerned with the certainty of the provision of goods and services of an appropriate quality; suppliers are concerned with compensation for their goods or services, and the possible continued trading relationships. Regulators and donors are usually concerned with compliance with the laws that govern the operations of the company.
A key factor in a stakeholder decision to participate in or engage with a company is their confidence that the company will deliver the expected outcomes. When categories of stakeholders do not have sufficient confidence that a company is being controlled and directed in a manner consistent with their desired outcomes, they are less likely to engage with the company.
Ghana has not been attractive in the donor community and three main factors account for that. These include the rebasing of the GDP and the subsequent classification of Ghana as a middle income country, which does not make us attractive on the donor market. Another factor is Ghana’s classification as an oil producing country following our discovery of crude oil in commercial quantities. Most of the world producers of crude oil are among nations in the middle income category. The third is the increasing and sometimes exagerated reports of corruption in Ghana. In an age of technology, these reports are easy to access.
Role of Board of Directors
The Companies Code defines a director as someone who directs and administers the affairs of a company. Every company must have a minimum of two directors who operate as the Board of directors, with one of them appointed as the Chair. Due to the legal responsibilities that are placed on the shoulders of directors, they are expected to meet some criteria to qualify for appointment. They are not to be an infant or a person of unsound mind, a fraudulent person nor an undischarged bankrupt.
The Institute of Directors lists the following as some of the responsibilities of Directors:
• They should not engage in any activity that will dent the image or reputation of the company. They make statutory and voluntary disclosures about the company’s affairs for the sake of stakeholders.
• They have a duty to institute internal controls of checks and balances to avoid internal process failures.
• They have oversight functions of supervising all the functional areas and monitoring activities.
• They prepare the annual reports to the Annual General Meeting and submit themselves to periodic appraisal and upgrade their knowledge and skills.
• They act as boundary spanners by integrating the internal and external environments of the company to avoid strategic drift. Directors should be rotated every 3 years and they may offer themselves to be reelected.
Challenges
Corporate governance practices are affected by attempts to align the interests of stakeholders. Interest in the corporate governance practices of modern corporations, particularly in relation to accountability, increased following the collapse of a number of large corporations between 2001 and 2002, most of which involved accounting fraud. Corporate scandals of various forms have maintained public and political interest in the regulation of corporate governance. In the U.S., these include Enron and MCI Inc. (formerly WorldCom). Their demise is associated with the U.S. Federal government passing the Sarbanes-Oxley Act in 2002, which intended to restore public confidence in corporate governance.
In Ghana, the operations of some NGOs paint a disturbing picture of philantropy and charity work. The recent reports of mismanagement at the Osu Children’s Home and the Bawjiase Orphanage go to tarnish the hard earned reputation and good work being done by NGOs. There is an urgent need for regulatory agencies to tighten supervision.
There is the need for the Registrar Generals’ Department to be more active in performing its statutory mandate. This would include weeding out unregistered whose accounts are not audited annually. Members of the public can minimize the risk of being defrauded by the fraudulent NGOs if they conduct background searches from the Registrar Generals’ Department.
The Ghanaian economy is growing and needs the support of external inflows to facilitate this growth. Just as the economy requires an inflow of Foreign Direct Investment (FDI) to support the national budget, the supervisory role played by the regulators in the NGO sector needs to be strengthened to sustain donor confidence.
Fundraising within Ghana is possible from corporate sponsorship, as most profit making organizations normally allocate a portion of their profits to meet their corporate social responsibilities. Internal corporate governance controls need to be strengthened to ensure that the company’s activities are monitored and operate efficiently to accomplish organizational goals. This would ensure the sustainability of the efficient NGOs, whilst minimizing the dependence on foreign donors.
Conclusion
Corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community. Whereas the 20th century might be viewed as the age of management, the early 21st century appears to focus more on corporate governance. There are enormous opportunities for Ghanaians to enrich our governance culture.


John Kwasi Adjei
Internal Auditor, ActionAid Ghana