In a response to my recent article on the Ashanti Goldfields Corporation’s dividend to the Government of Ghana, one of the AGC’s overseas shareholders has provided an important insight into the company’s challenges, which requires exploring further.
Responding to my article, the shareholder indicated that part of the reason for the AGC’s low dividend to the Government of Ghana was because “AGC continues to spend all the profit it is making on digging gold out of the ground on unwinding the "forward-selling" contracts that it entered into several years ago.”
According to the shareholder, nearly five years ago, the AGC management “entered into wildly speculative derivatives contracts - largely at the promptings of its merchant bankers that very nearly bankrupted the company”. Although the AGC entered into these speculative contracts on the advice of American banks such as Warburgs, which the shareholder described as the “real culprits”, neither the previous nor the current government has pursued the matter for compensation.
The issues raised by the shareholder are important “public interest” matters, particularly in a democracy such as Ghana. Why has this matter not been pursued through the American courts by either the previous or present governments in collaboration with the AGC? Unless the matters raised by the shareholder are governed by statute of limitations under American law, it may not be too late for the current government to pursue the matter and seek just compensation for the company and shareholders including the people of Ghana. As the shareholder pointed out in his response to me, there is precedence globally where governments have pursued companies, which have contributed to the financial losses of shareholders.
The shareholder referred to the example of the New York state attorney, which required the banks to pay fines for giving bad advice in the dot.com bubble. Another notable example is the ultimate bankruptcy of the accounting and auditing company, Arthur Anderson, for its alleged part in the collapse of the Enron oil company in the USA.
In Australia, the Australian Securities and Investment Commission (ASIC) is pursuing the companies and individuals behind the collapse of HIH and One Tel, insurance and dot.com companies respectively.
As a democratic administration committed to protecting the public interest through transparency, accountability and zero tolerance of corruption, the Kuffour Government has no choice but to pursue the companies and individuals who have contributed to the AGC’s current plight. To not do so might suggest that the government has something to hide.
The fact that the AGC’s speculative contracts debacle happened during the time of the Rawlings’ government should not be used by the present administration as an excuse for not pursuing the matter, to achieve justice for shareholders. Similarly, the potential high cost of a lawsuit in American courts should not be a deterrent. Opportunities exist in the American legal system for lawyers to take on cases based on arrangements, which require the plaintiff to pay legal fees only if the case is successful.
Given its own record on the dot.com and Enron debacles, it will amount to a double standard for the Bush administration to frustrate efforts by the Government of Ghana to pursue these matters. To do so will undermine America’s credibility as the bastion of democracy, justice and free market principles. The present Government’s record in pursuing the individuals involved in the Quality Grains affair, which has resulted in some of the public officials being convicted and sentenced to jail terms, gives one cause for optimism. Protecting the interest of shareholders is a very important principle to pursue in its own right. For a developing country like Ghana, which is committed to attracting foreign investment into the economy, dealing firmly with corporate fraud will be a powerful incentive to potential investors.
During the cold war era, sovereign risk through nationalisation of foreign assets was one of the main deterrents to foreign investment in developing countries. Today, some of the main deterrents are the perception of the lack of rule of law and an effective corporate governance framework, for protecting foreign investment and shareholder interests. Having a democratic government on its own is not enough to attract foreign investment. By Dr Kwame Asumadu MAICD Director of Asumadu & Associates Views expressed by the author(s) do not necessarily reflect those of GhanaHomePage.