Following the passage of the new Companies Act, 2019, ACT 992, there is no need for the Bank of Ghana Corporate Governance Directives or the Securities and Exchanges Commission's Corporate Governance Code.
IS THAT RIGHT?
The Companies Act, 2019 (ACT 992) is the principal legislation governing all body corporate or Incorporated companies in Ghana. The ACT per Section 2 of ACT 992 defines it applicability to Private Companies(defined under Section 7), Public Companies, External Companies and Unincorporated Companies in Ghana.
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Section 380 of the ACT, mandates the Attorney General to, by a Legislative Instrument extend the applicability to any body corporate not covered under the ACT.
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It is however to be noted that the ACT, although applicable to all companies in Ghana, allows for special vehicle companies and other companies subject to special regulations like institutions in the Banking sector, Insurance, Finance houses and Listed Companies under the Ghana Stock Exchange Market to have special legislation and regulations under Section 4 of ACT 992. An example is the Corporate Governance Code for Listed Companies, 2020 by the Securities and Exchanges Commission and the Corporate Governance Directives, 2018 by the Bank of Ghana.
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The question posed is whether there is the need for the Bank of Ghana Corporate Governance Directives or the Securities and Exchange Commission's Corporate Governance Code following the Passage of the Companies Act in 2019.
To be able to answer this question, there is the need to analyze the two legislative instruments specifically mentioned as well as the broad and general provision on Corporate Governance in the Companies Act, 2019 (ACT 992).
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To begin, a discussion will be made on Corporate Governance under the Companies Act, 2019.
Corporate Governance is a system of administering a body corporate, adhering to the tenets of accountability, disclosure, transparency, fairness, integrity, social responsibility and reporting to owners and stakeholders.
The corporate Governance system provided by the Act under Section 144 to Section 148 covers what is known as the rules of attribution and distribution of corporate power. The rules of attribution divide the power to act, for and on behalf of the company, into two broad organs. That is the Principal Organ and The Subordinate Organ of Governance
Acts of the principal organs are automatically acts of the company according to Section 147 of ACT 992. The principal organ consist of the Board of Directors and the Members in a General Meeting.
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According to Section 144, unless otherwise provided by the Act, the power to manage and direct the business of the company is vested in the Board of Directors. The Board shall manage the business of the company within the limits of its powers provided for by Section 189. The duties of directors under Section 190 are not limited to the following; That Directors stand in a fiduciary relationship towards the company, as well as observing utmost good faith in any transaction with or on behalf of the company and acting in what they believe to be in the best interest of the company, shareholders, creditors and officers.
The second principal organ is the Members in a General Meeting. The decision of the Members in a General Meeting is the principal way by which members may act on behalf of the company. Member's may also act unanimously through written resolutions per Section 163. Shareholders consents and approve all decisions and board recommendations to shareholders, in a general meeting or by written resolutions in accordance with Section 163 and the Duomatic Principle.
The subordinate organs are appointed by the principal organs. According to Section 148, acts of the subordinate organs are binding on the company if the principal organs either authorize the acts, ratify the acts or represents to an officer or agent, that the said officer or agent has the authority to engage in said act. This is in accordance to the Presumption of Regularity in a company's dealing.
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The Companies Act, 2019 has introduced provisions to seek to enhance good corporate governance in Ghana. We will mention a few of such provisions.
To begin, there is a time frame for ratification of Pre-Incorporation Contracts, Section 11 provides that, all such contracts be ratified within 18 months after incorporation, failing of which the promoters will be held personally liable for them.
Secondly, The qualification position of Company Secretary, a subordinate organ of the company has been enhanced. Section 211 of the ACT provides for the necessary qualifications and skills required for one to be appointed as Secretary for a company. This acknowledges the importance of a competent company secretary, who plays a vital role in the company in ensuring compliance and providing support to the Board.
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Furthermore, Section 139 makes provision for Rotation of auditors of the company. Auditors are to be rotated after six years of service and another six years cooling off period. As the saying goes, familiarity breeds contempt. Therefore, this provision will seek to avoid familiar which leads to corrupt practices.
We can say that, these new provisions, complimenting the already existing corporate governance provisions, the attainment of the key attributes of corporate governance is within reach.
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We now move to discuss the two other directives to ascertain their individual usefulness.
The Bank of Ghana Corporate Governance Directives, 2018, was provided for use by Banks, Savings and Loans Companies and Finance Houses, broadly referred to as Regulated Financial Institutions under the Bank of Ghana per the mandate provided for by Section 56 and Section 92 of the Bank and Specialized Deposit Taking Institutions Act, 2018 (ACT 930).
Its objectives are;
i. to require Regulated Financial Institutions to adopt sound corporate governance principles and best practices.
ii. to promote and maintain public trust and confidence in Regulated Financial
Institutions.
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The directives from the Bank of Ghana are directed to their regulated financial institutions which, to a large extent, are not fully covered under the Companies Act and are regulated by the Bank of Ghana.
The directives complement the Companies Act, which is the primary legislation for a body corporate in Ghana, by adding up a few sector-specific requirements. For example, the Bank Of Ghana (BOG) Directives tasks Regulated Financial institutions to appoint Directors and Key Management Personnel with the prior approval of the Bank of Ghana and this is backed by Section 56 of ACT 930.
Also, it provides for the appointment of Independent Directors who will provide independent judgment on key governance issues. An independent director is not provided for under the Companies Act and does not apply to all companies. An Independent Director per Directive 21 of the BOG Directives, is a director who is a non-executive director with less than 5% interest in the company and has not been employed in an executive position at least 2 years before his appointment.
Regulated Financial Institutions that are covered under the Corporate Governance Directives are tasked with establishing Sub-Board Committees. However under the Companies Act, such sub-committees are not required of companies.
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This Corporate Governance Directives compliments the Companies Act by introducing the key sub committee establishment. Regulated Financial Institutions are at the very least required per Directive 50, to establish two key sub-board committees namely the Audit Committee and the Risk Committee, chaired by an Independent Director. The Audit Committee, per Directive 54, will consist solely of non-executive directors and independent directors with the oversight responsibility on both the internal and external audit functions. The Risk Committee per Directive 55 on the other hand, will be responsible for the overall current and future risk tolerance and strategy including Anti-Money Laundering risk and Countering Financing Terrorism.
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It can be seen and also said that, these Directives from the Bank of Ghana to its Regulated Financial institutions are very vital and conform with Section 4 of ACT 992. These Corporate Governance Directives compliment the Companies Act and add provisions which are not covered under the Companies Act, 2019.
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Secondly, we take a look at the Corporate Governance Code for Listed Companies by the Securities and Exchanges Commission (SEC).
It is to be noted that, this Code was passed in 2020, after the Companies Act which the objective set out in Part One of the code to be the protection of investors on the Ghana Stock Exchange and Securities Market.
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The minimum requirements set out in the code must be met at all times as stipulated in Part one of the Code.
One of the minimum requirements under the SEC Code is the Board of Directors' Composition. The Board must be composed of at least two independent non-executive directors. And a major part of the board must be composed of non-executive directors.
The SEC Corporate Governance code, in Part Four, provides for the establishment of committees of the Board. Just like the Bank of Ghana Directives, the SEC also requires its Regulated Institutions to establish a Risk and Audit Committee and well as a Nominating Committee.
The Nominating Committee is tasked with the responsibility of operating a nominating policy and developing of a succession plan for the CEO and other senior executives as determined by the Board.
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The Audit and Risk Committees just like the ones under the BOG Directives, will be chaired by an independent director.
These special requirements provided for under the BOG Directives and the SEC Code, seeks to enhance effective corporate governance to their regulated institutions which are not better taken care of by the new Companies Act, 2019.
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Therefore, following the passage of the new Companies Act, 2019, ACT 992, there's still the need for the Bank of Ghana Corporate Governance Directives or the Securities and Exchanges Commission's Corporate Governance Code. They are there to compliment and supplement the mother act with special attention to their regulated institutions.