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Ghana has adopted the principles published by the organization for Economic Co-operation and Development (OECD) which deal mainly with performance problems that result from the separation of ownership and management of a company. Explain FIVE (5) principles of corporate governance.
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A chairman of the board of directors leads the board in meetings. The board chairman plays a crucial role in developing a focused and effective board. The competence of the chairman of the board of directors is crucial to ensure that the company’s board is effective.
Required:
Explain FIVE (5) reasons to justify the need to separate the roles of the Chairman and Chief Executive Officer (CEO) of a company.
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ABB Bank Ltd (ABB Ltd) is a listed company. It has been given a substantial fine by the Central Bank for serious breaches of the banking regulations and, in the same month, the bank reported that it had suffered large losses because of unauthorized dealings in financial derivatives by a manager in its treasury department. The company’s reported profits for the previous financial year were overstated because of these losses.
The chairman of the audit committee of ABB Ltd has resigned, accepting responsibility for failures by the committee. A newly-appointed director has been made chairman of the audit committee. He has called a meeting with you, the Finance Director. The purpose of the meeting is to review financial reporting and internal control, with a view to making recommendations to the board. ABB Ltd does not have a strong internal audit function, and the company has been using the same firm of external auditors since it acquired its listing 8 years ago.
Required:
a) Explain the role and responsibilities of the audit committee of ABB Ltd with regards to:
i) The external audit of the company’s financial statements; and (6 marks)
ii) The internal control system and internal audit function. (6 marks)
b) In relation to the possible failures in internal controls that have occurred, suggest FOUR (4) changes that might be recommended to the board at the next board meeting. (8 marks)
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The banking sector in Ghana has witnessed the withdrawal of licenses of seven indigenous commercial banks by the Bank of Ghana. These banks were in serious financial distress that they had to be taken over by another bank. UT Bank and Capital Bank were taken over by the GCB Bank in 2017 because they were in serious financial distress. The Bank of Ghana in August 2018 created the Consolidated Bank Ghana Limited to take over Unibank, Beige Bank, Sovereign Bank, The Royal Bank, and Construction Bank for similar reasons.
Different views about who or what was to blame for the crisis have been advanced, but many commentators agree that senior bankers and the Bank of Ghana had failed to recognize the early signs or ignored the indicators until it was too late. When companies collapse, there is often evidence of poor corporate governance.
Required:
Discuss FOUR (4) ways in which the difficulties faced by these banks may have been attributable to weak or inadequate corporate governance systems.
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Muntaka Property Investments Ltd (MPI) owns a variety of shopping centres and retail units throughout Ghana. Last year, it decided to build a new outlet shopping centre in Adenta, Accra City, in the belief that the opening of the new light-rail line in this area would facilitate customer access to this centre and could attract customers from all parts of the country. To finance this development, MPI decided to sell some of its other properties. One of these properties was a small retail park located within three kilometers off Weija (a large provincial town). Gyeabour, a director of MPI, was tasked with overseeing this sale. Within three weeks of the Weija property being advertised for sale, Gyeabour reported that he had received an offer on the property for the full asking price. Delighted with this, the Board of MPI authorized Gyeabour to effect the sale of this property.
However, two months after the sale was completed, it was announced that one of the largest pharmaceutical companies in the world was establishing its global head office on the site adjacent to the former Weija property, and as a consequence of this fact, the value of the property had already increased by an excess of 60%. Upon further investigation, MPI discovered that the Weija property was purchased by Gyasco Properties Ltd., a company wholly owned by Gyeabour’s two sons, and that the mother-in-law of one of these sons is a local politician in Weija. Consequently, she would have been aware of the impending purchase of the adjacent property by the pharmaceutical company.
Required:
Describe a director’s fiduciary duty regarding conflict of interest and determine whether this duty has been breached by Gyeabour in this situation.
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Agency problems are inherent in static corporate structures. This conflict arises when separate parties in a business relationship, such as a corporation’s managers and shareholders, have disparate interests. Corporations employ several dynamic techniques to circumvent static issues resulting from agency problems.
Required:
Identify FOUR measures which shareholders may seek to resolve any agency problems that arise. (4 marks)
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Covenant Mission (CM) is a non-governmental organisation that provides charitable support to disadvantaged families.
It is currently involved in a number of community projects to assist in the provision of clean water supply to families in Liberia, Nigeria, and the Gambia. In its home country, Ghana, it focuses more on assisting clients in accessing state-granted financial support as well as providing counselling and psychological support to less privileged people.
The NGO has grown very rapidly in recent years as demand for its services has increased. In line with this rising demand, it has begun to slowly evolve from an enterprise primarily run by volunteers to an institution employing professional managers from the private sector. These changes are considered essential in supporting the sustainability of the charity.
The board of trustees at the NGO recognizes the need to adopt a relevant code of ethics as part of necessary governance support structures. They are, however, concerned about recent criticism of such codes and wish to ensure that any code developed is effective throughout the organization.
Required:
a) Advise CM on FOUR fundamental principles to be included in its code of ethics. (8 marks)
b) Explain FOUR benefits of good corporate governance to CM. (12 marks)
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Aster Ltd is a manufacturing company listed on the Ghana Stock Exchange (GSE). The company has seven directors on its board, with four being non-executive directors, including the chairman, who is a non-executive director. The company has faced some challenges over the past two years, including issues related to governance, transparency, and accountability.
The company’s board meets regularly to discuss the company’s performance and to make strategic decisions. However, there have been complaints from some shareholders about the lack of transparency in the board’s decisions and the dominance of the executive directors in board meetings.
Required:
a) Explain FOUR ways in which the board of Aster Ltd can improve its corporate governance practices. (8 marks)
b) Discuss THREE challenges that Aster Ltd may face in implementing good corporate governance practices. (6 marks)
c) Identify and explain TWO roles of non-executive directors in promoting good corporate governance in Aster Ltd. (6 marks)
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Sawaba Telco Ltd is a recently listed local company that is in the process of reorganizing its corporate governance structure to reflect its status as a public company. At the first board meeting after the listing, the board chairman raised the issue of setting up sub-committees of the Board. The Board agreed to start with two sub-committees: the Remuneration Committee and the Audit Committee. The board chairman is unsure how the remuneration committee of the board should be composed, its functions, and other related matters. As a corporate governance consultant, the board chairman has written to you for advice on various issues regarding the remuneration committee.
Required:
Write a report to the board chairman advising him on the following:
i) The composition of the Remuneration Committee. (3 marks)
ii) THREE functions of the Remuneration Committee. (3 marks)
iii) THREE factors to be considered in the remuneration of executive and non-executive directors. (6 marks)
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