LECTURE 2

CORPORATE
GOVERNANCE
(CG)

DR. ANDREW OSEI AGYEMANG

OVERVIEW OF CG.
 Corporate governance is the combination of rules,
processes or laws by which businesses are
operated, regulated or controlled.
 The term encompasses the internal and external
factors that affect the interests of a company's
stakeholders, including shareholders, customers,
suppliers, government regulators and management.
 ACTS ON CG
 Sarbanes-Oxley Act: This act was passed after it was found that
high-profile companies and their executives were committing
fraud. As a result, emphasis was placed on corporate
governance as a way to restore faith in public companies.
 Gramm-Leach-Bliley Act: This act regulated the ways that
financial institutions handled privation information, making it
crucial for corporate governance to include how to oversee
financial organizations and stakeholders.
 Basel Accords: This is a business standard that minimizes the
financial effect of risky operational decisions. The rights of
shareholders are covered under this standard, thus affecting
corporate governance.
 WHAT IS CG?

 The most often quoted definition of Corporate

Governance is the one contained in the Cadbury
Report –the system by which companies are directed
and controlled.
 Derived originally from the Cadbury Report and sets
out good practice for directors in areas of leadership,
remuneration, performance monitoring and
relationships with shareholders.
DEFINITION – (CONT)
 Corporate Governance is the process under which
people in power, monitor, direct and lead an
organization in order to create or modify the
structure and procedures under which the
organization operates.
 Parkinson (1995) offers an expanded and suitable
version of this definition; “The process of
supervision and control intended to ensure that the
company’s management acts in accordance with the
interests of shareholders.”
OBJECTIVES OF CG
 To create social responsibility
 To create a transparent working system
 To create a management accountable for corporate
functioning
 To protect and promote the interest of shareholders
 To develop an efficient organization culture
 To aid in achieving social and economic goals
 To improve social cohesion
 To minimize wastages and corruption
THEORIES OF CG
 Agency Theory
 Stewardship Theory
 Stakeholder Theory
 Sociological Theory
PRINCIPLES OF GOOD CG
The fundamental principles of good governance which underpin all
the detailed rules contained in major CG codes around the world
are;
 Accountability: The Board should take responsibility for actions

with the obligation to report the outcome of those actions.

 Transparency: Openness and willingness to communicate. The

Board should respond positively to request for information and

disseminate more than an annual set of accounts.
 Probity: honesty, truthfulness and ethical behaviour

 Focus: On the sustainable success of an entity over the longer

term.
 BOARD OF DIRECTORS
 An effective board responsible for the long term
success of the company.
 There are two types of directors
Executive Directors (Are part of management)
Non-Executive directors (Not part of mgt)
 The board and its committees should have the
appropriate balance of skill, experience,
independence and knowledge of the company to
enable them discharge their respective duties and
responsibilities effectively.
 DIRECTORS IN ENSURING
ACCOUNTABILITY

 Separation of the roles of Chairman and CEO

The chairperson is responsible for leadership of the board
and ensuring its effectiveness on all aspects of its role. The
CEO also ensures the smooth daily running of the
company. If one person occupies the two positions, it
becomes difficult to ensure accountability.
 Having more non-executive directors than executive
directors.
Non- executive directors should constructively challenge
and help develop proposals on strategy.
DIRECTORS IN ENSURING
ACCOUNTABILITY (Cont)

 All directors should receive induction on joining the board and

should regularly update and refresh their skills and knowledge.
 The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its own
committees and individual directors.
 The size of the board
 Diversity in the boardroom (gender, age, cultural / nationality)
 Incentive (shareholding proportion and annual remuneration
packages
 Board meeting / meeting attendance
 RESPONSIBILITIES OF DIRECTORS –
ACCOUNTABILITY AND AUDIT

 The Directors are responsible for keeping proper accounting records

which disclose with reasonable accuracy at any time the financial
position of the entity.
 Responsible for taking steps as are reasonably open to them to

safeguard the assets of the entity and to prevent and detect fraud and
other irregularities.
 Select suitable accounting policies and then apply them consistently.

 Make judgements and estimates that are reasonable and prudent.

 State whether applicable accounting standards have been followed,

subject to any material departures disclosed and explained in the

financial statements;
 Prepare the financial statements on the going concern basis unless it

is inappropriate to presume that the entity will continue in business.

RESPONSIBILITIES OF DIRECTORS
– ACCOUNTABILITY AND AUDIT
 The board should present a balanced and
understandable assessment of the company’s position
and prospectus.
 The board should maintain sound risk management
and internal control systems.
 The board should establish formal and transparent
arrangements for considering how they should apply
the corporate reporting and risk management and
internal control principles and for maintaining an
appropriate relationship with the company’s auditor
AUDITORS’ RIGHTS, APPOINTMENT,
REMOVAL, RESIGNATION AND REGULATION
(Generally)

 Must pass an approved set of professional

examinations, set by a Recognised Qualifying Body
(RQB) eg the ICAG, ACCA , CPA etc
 Must become a member (and stay a member!) of a
Recognised Supervisory Body (RSB) eg the ICAG
 The auditor must not be a director or employee of the
company, or of any associated companies
 The auditor must not be an employee or business
partner of a director or employee of the company, or of
any associated companies.
APPOINTMENT OF
AUDITORS
 Auditors have to be reappointed by resolution at every annual
general meeting.
 Note that reappointment is not automatic. This is to prevent the
incumbent auditors from simply staying in office.
 The requirement for a resolution means that the members have to take
positive action to get auditors appointed.
 Prior to the first annual general meeting the directors can
appoint the first auditors or if an auditor resigns, for example,
because he or she falls ill, the directors can appoint another
auditor to fill a casual vacancy
REMOVAL OF AUDITORS
 Auditors can be removed from office. This would normally be at
instigation of the directors, but does have to be ratified by the
shareholders.
 They could be removed for failing to the find a material fraud in

the company and the directors have lost faith in them, or perhaps
the company has now become international and a larger firm of
auditors is needed.
 However, the big fear is that the auditors were, perhaps, too good,

too strict on insisting that certain aspects of the financial statements

should be changed, or perhaps they issued a critical audit
 This is why the auditors are given the right to make representations

about why they should stay in office.

RIGHTS OF THE AUDITOR
 right to access to the books, records, documents and
accounts of the company
 right to require from the officers of the company such
information and explanations as the auditor thinks
necessary for the performance of the auditors duties
 right to receive all notices relating to any general
meeting of the company
 right to attend any general meeting 
 right to be heard at any general meeting on any part of
the business which concerns him as an auditor
DUTIES OF THE AUDITOR
 Compliance with regulation 
 express an opinion on the truth and fairness of the
accounts
 Consider in their report whether or not proper records
and returns have been kept for the audit
 consider whether or not there is an agreement of the
accounts to the records
 consider the consistency of other information published
along with accounts
 Disclosure of directors' emoluments 
Requirements of the Companies Act, 2019 (Act
992)

 s138. (1) A person is qualified for appointment as an auditor of a

private or public company, if that person is qualified and licensed
in accordance with the Chartered Accountants Act, 1963 (Act 170).
 A person is disqualified for appointment as an auditor, if that
person is
 (a) an officer of the company or of an associated company;
 (b) a partner of, or in the employment of, an officer of the
company or of an associated company;
 (c) an infant;
 (d) found by a court of competent jurisdiction to be a person of
unsound mind;
Requirements of Act 992 (cont’d)
 (e) a body corporate, except that a member of an
incorporated partnership may be appointed in the manner
provided by subsection (2) of section 139;
 (f) one in respect of whom an order has been made so long
as the order remains in force unless leave to act as an
auditor of the company concerned has been granted by the
Court
 (g) an undischarged bankrupt, unless that person has been
granted leave to act as an auditor of the company concerned
by the Court by which the adjudication as bankrupt was
made
Requirements of the Companies Act, 2019 (Act 992)

 139. (1) A person shall not be appointed as an auditor

of a company unless, that person (a) has, before the
appointment, consented in writing to be appointed; and
(b) is duly qualified in accordance with section 138.
 A partnership firm may be appointed, in the name of
the firm, as an auditor of a company, but, whether or
not that firm is a body corporate, the appointment shall
be deemed to be an appointment of the partners of the
firm who, at the time of the appointment, are duly
qualified.
Requirements of Act 992
 s141 A resolution to remove an auditor or to appoint any other
person in the place of that auditor is not effective unless, (a) a
written notice has been given to the company of the intention
to pass the resolution, not less than thirty-five days before the
general meeting at which the resolution is to be moved.
 On receipt of the resolution, the company has forthwith sent a
copy of the resolution to the auditor concerned; (b) the
resolution is passed at a general meeting of the company; and
(c) the company has given the members notice of the
resolution at the same time and in the same manner as the
company gives notice of meetings .
Group Discussion

 Critically review the Sarbanes-Oxley Act, 2002 in

relation to its contribution to global efforts at
Improving Corporate Governance.
 Theories of Corporate Governance
LIKELY EXAMINABLE
QUESTIONS
 Critically examine the principles of good corporate
governance in ensuring growth and sustainability.
 Explain with examples five ways in which board of
directors can ensure and promote accountability of
firms.
 Explain four possible reasons why auditors can be
removed from office and four criteria to look out for in
appointing new auditors for a mining firm
 Identify and explain three theories of corporate
governance