About 33 percent of the 40 listed companies Chief Executive Officers (CEOs) who hold top management position in the companies also serves as chairman of the board, Prof Joshua Yindenaba Abor, Dean of University of Business School (UGBS) has revealed.
He said such practice is against the general recommendation for such companies to decouple the roles and for listed companies who has to serve the interest of the shareholders to engage in this is against the practice of good corporate governance.
In Ghana, all companies are required to have board of directors that is tasked with the oversight of corporate activities and protects the interests of the company’s shareholders.
Prof Abor who was speaking under the theme: Corporate Governance a Pillar to Sustainable Growth and Development at the relaunch of UGBS Executive Courses in Accra said there are good reasons to separate the two positions in order to strengthen the overall integrity of the company.
The forum seeks to provide a platform for dialogue between industry and academia to discuss pertinent issues on sustainability, growth and development of business in Ghana.
The general recommendation is to decouple the roles and for listed companies the advice is to ensure that the role of the board chairman is different from the CEO.
The CEO should be involved in the daily management of the company. So, if you like he is in charge of controlling the business and the board chairman superintends over board activities, and the board as a whole ensures that the managers are acting in ways that deliver value to the shareholders, Prof Abor said.
He said if CEOs who are in charge of managing the company are also the same people in the board chairman position then the supervisory role that is supposed to be done by the board will be compromised.
He said at times there are challenges that are faced with board members, this he said, may affect the smooth operations of the board as well as the company.
For instance, he said board members who are coming from outside the companies might have some sort of business or personal tie with the CEO and that will not make them exercise their control over the management of the company.
Applying good CG principles reduce information asymmetry and the presence of a functioning board curtails moral hazard, he said.
One of the events that gets the most attention from a company’s shareholders is an increase in director remuneration. Increases come at the expense of shareholder profits, although most understand that competitive pay helps to keep talent in the business. However, it is the board of directors that votes to increase executive pay.
Since the CEO is also the chairman, a conflict of interest arises, as the CEO is voting on his or her own compensation.
Although a board is required by legislation to have some members who are independent of management, the chair can influence the activities of the board, which allows for abuse of the chair position.