Dr. Kingsley Opoku Appiah, a Senior Lecturer at the KSB of the Kwame Nkrumah University of Science and Technology (KNUST) has reiterated the call by the Bank of Ghana (BoG) for independent boards for banks in the country to ensure the growth and sustenance of the banking sector.
Dr. Kingsley Opoku Appiah made the call when he delivered a public lecture organised by the KNUST School of Business (KSB) on the theme: “Corporate Failure in Ghana: The Role of Board of Directors”.
He observed that following the collapse of seven (7) indigenous banks, it has come to light that most of the affected banks had dominant shareholders taking decisions, which mostly were not in the interest of the larger society and which did not augur well for the Banks.
According to Dr. Opoku Appiah, an independent board that will not yield to the dictates of dominant shareholders is necessary so that they cannot manipulate and exert much influence and control on the Boards. He further said, currently, the BoG has recommended independent board members or non executive directors who are non-employees of the bank with no affiliation in any form.
He further said independent board members should have the ability to exercise objective, independent judgement after fair consideration of all relevant information and views without undue influence from management or inappropriate external parties
He also recommended that the executive directors should be made to serve a maximum of 9 years instead 12 years by the BoG and should be made to sign and certify that the information provided by the financial institution is not misleading. He added that a penalty for falsely certifying information including financial statements shall be a fine and or a term of imprisonment. “If we had such a requirement in place, the directors would not have submitted false documents to obtain licences, he added.
He attributed the failure of these banks to defects from three main dimensions, management, accounting system and response to change. The management defects identified are:
First, the collapsed financial institutions top management held on to strategies that were inappropriate in the universal banking environment in the Ghanaian context. UT Bank, for example, pursued a game plan of a loan in less than 24 hours to players in the informal sector, characterised by a relatively high risk of default.
Second, the non-executive directors did not have the required independence from both the financial institution and or dominant shareholders due to conflict of interest. For example, the independent non-executive directors reported in the financial institutions annual report and/or website, did not only serve as consultants but also received business class tickets annually from these banks. The passive board, in turn, allowed dominating shareholders to exert undue influence on the board and the CEOs of these banks, leading to poor lending practices.
Third, various boards failed to implement a well-defined strategy in response to the changes in the banking sector, especially, the change in the minimum capital requirement from GHS 120 to GHS 400 million. Dr. Appiah blamed the failures on the Board for not adopting and maintaining good strategies. He believed that strategy lies at the heart of corporate governance, and for a firm to be directed there is the need for a good strategy.
He noted that strategy is at the apex of decision making and Boards are supposed to ensure that corporate strategy is well defined in order to achieve the mission and vision of the entity as well as the basic objectives of entity that is growth, profit and survival.
In sum, he stated that the collapse of these banks was a process which started with defects, followed by mistakes and symptoms.