Ghana’s Combined Code

The collapse and liquidation of banks in Ghana have much to do with corporate governance, a leadership and control issue. Human beings capable of making quality decisions and plans of the banks as well as exercise control and discretion over them lead these institutions. The issue of corporate governance is seen as being central to these failures. Directors manage the banks for and on behalf of shareholders. The evidence is that they usually take decisions that are outside of their jurisdictions. The decisions of these directors reduce the value of the returns of shareholders.

Funds of shareholders have been mismanaged as a result of the flaws in their decisions. The banking sector is risky and therefore prudence in managing shareholders’ funds is required. The single obligor limit of lending that is being employed by the Central Bank is only one of the several measures that can help correct some of the lapses in the industry. There is the need to have a comprehensive combined code for directors and managers of all financial institutions including savings and loans. Such a code will maintain sanity in the industry and later boost the confidence of the populace. The confidence of people to invest or save is being eroded every passing day as we experience these challenges.

The directors are seen to be pursuing their own interests at the expense of the shareholders. This is impacting negatively on shareholders to invest. A combined code and the enforcement of the rules in this code will help serve as a redress for many of the problems in the sector. There seems to be weak guiding principles for the conduct of the directors. The guiding principles of disclosure, fairness and accountability have not been followed. Directors need to provide adequate and timely information about the performance of corporations. These pieces of information can only be obtained by relying on the information provided by auditors of the institutions. Accountability of directors that involves defining the roles and duties of the directors as well as establishing an adequate monitoring process was absolutely lacking. The directors did not account properly for their roles and decisions. The principle of fairness was not adhered to as the directors had insider information of the performance of the banks. The shareholders had been misinformed on several occasions which is contrary to one of the guiding principles in managing and controlling a corporation. There was negligent of duty and the board of directors have been complicit in the activities leading to the collapse of the five banks. This therefore indicates the need for a code to regulate the conduct of directors to prevent failures.

Corporate governance procedures have been weak and these pave the way for the fraud in the system. Without a proper framework for corporate governance for directors in the banking industry, these challenges in the sector will recur. The professional bodies in Ghana need to immediately put together their expertise to develop a combined code for the country’s banking sector. The professional accountants, auditors, tax experts should develop a code that will guide the conduct of the directors and CEOs. In the UK, a code of best practice emerged in 1992 and as such, a combined code was developed and used. There should be a committee made up of professionals that will guide the regulator in establishing a code of best practice for banking institutions. The code should target the following areas:

1. Board of directors must have limited roles in the decisions of the management of the companies. This is because the board in the case of the collapsed banks seems to have influenced the decisions of the management to a greater extent. They should be made to account for the decisions they make.
2. Powers to the chairman and the CEO should clearly be separated and each made to take certain decisions that are within their power without interfering the other.
3. There should be clearly defined internal controls for all the institutions. Internal controls should be put in place to correct future failures. The internal controls should be enforced by the directors and internal auditors. Granting of loan facilities must be done within a framework of policies and clearly outlined procedures.
4. Loan approval committees need to be formed by all these institutions. Many people should be engaged in the credit chain.
5. The central bank should always verify and review the external auditors’ report on the institutions they control with a set criteria. The external auditors of the collapsed banks did not give revealing information that could have used to take informed decisions.

The overall importance for developing a combined code of best practice is clear. A proper system to be put in place to serve as check and balance for the conduct of the directors and executives is requisite. The continues collapse and liquidation of banks is destroying the savings and investment culture that is being built. Savings and investments are activities that must be encouraged in every country. Let’s have a consensus to develop a combined code for the conduct of directors in the banking industry in order to safeguard the toil of shareholders and other stakeholders in the sector.

Emmanuel Kwabena Wucharey.