Corporate Governance: Stakeholders’ role critical

By Samuel Adjetey Osekre

Introduction

GHANA’S corporate landscape is rapidly evolving, with the increasing recognition of the critical role that shareholders play in shaping the future of businesses. As the backbone of corporate entities, shareholders have a vested interest in ensuring that companies operate transparently, ethically, and profitably.

However, the effectiveness of shareholders in influencing corporate governance depends largely on the legal framework that protects their rights and provides remedies when those rights are violated. This article delves into the current state of shareholder rights in Ghana, highlighting the key stakeholders and what they need to know and do to strengthen the country’s corporate ecosystem.

The Ghanaian Corporate Landscape: Key Stakeholders

In Ghana, the corporate ecosystem comprises several key stakeholders, each playing a vital role in the development and governance of businesses. For Ghana’s corporate ecosystem to thrive, these stakeholders must work together to enhance the legal and regulatory frameworks that govern shareholder rights and corporate governance.

These stakeholders include:

1. Shareholders:

The primary investors in companies have a direct interest in the company’s success and governance.

• Corporate Directors and Executives:

Individuals responsible for making strategic decisions and managing the day-to-day operations of companies.

• Regulatory Bodies:

Institutions such as the Registrar of Companies and the Securities and Exchange Commission (SEC), oversee corporate activities and ensure compliance with laws and regulations.

• Legal Practitioners:

Lawyers and legal advisors who provide guidance on corporate law and represent stakeholders in legal matters.

• Policymakers:

Government officials and legislators who design and implement laws that shape the corporate environment.

• Civil Society and Advocacy Groups:

Organizations that advocate for transparency, accountability, and the protection of shareholder rights.

Shareholder Rights in Ghana: Current State and Challenges

Shareholders in Ghana are granted a range of rights under the Companies Act, 2019 (Act 992), which serves as the cornerstone of corporate law in the country. The Act, which replaced the Companies Code of 1963, was introduced to modernize Ghana’s corporate legal framework and align it with international best practices. Despite these advancements, there are still challenges that need to be addressed to fully realize the potential of shareholder rights in Ghana.

Right to Information: Transparency as a Pillar of Corporate Governance

One of the most fundamental rights granted to shareholders under the Companies Act is the right to access vital company information. Section 127 of the Act mandates that companies provide shareholders with access to financial statements, minutes of meetings, and other essential documents. This right is crucial for fostering transparency and enabling shareholders to make informed decisions about their investments.

However, while the legal provisions are in place, the enforcement of this right remains inconsistent. Shareholders, particularly minority shareholders, often face difficulties in accessing the information they need.

This challenge was highlighted in the 2020 case of Re Akai Foods Ltd., where the court ruled in favor of shareholders who had been denied access to critical company documents. The case underscored the importance of judicial intervention in upholding shareholder rights but also highlighted the need for stronger regulatory enforcement.

Right to Dividends: Aligning Interests with Corporate Profitability

The right to receive dividends is another key entitlement for shareholders in Ghana. Section 129 of the Companies Act stipulates that shareholders are entitled to dividends if the company has sufficient profits. This provision ensures that shareholders benefit directly from the financial success of the companies they invest in.

In 2023, Ghanaian companies distributed approximately GHS 2.5 billion in dividends, reflecting the growing importance of shareholder returns in the corporate sector. However, there are concerns about the transparency and fairness of dividend distributions, particularly in companies with complex ownership structures. Shareholders need to be vigilant and assertive in ensuring that dividend policies are clear and that distributions are made equitably.

Voting Rights: Empowering Shareholders to Influence Corporate Decisions

Voting rights are perhaps the most direct way for shareholders to influence corporate governance. In Ghana, Section 172 of the Companies Act 2019 ensures that shareholders’ voting power is proportionate to their shareholding. This means that those with larger stakes in a company have a greater influence on key decisions, such as the appointment of directors and approval of mergers.

Despite this, many shareholders in Ghana remain passive, either due to a lack of understanding of their rights or a belief that their votes do not matter. For the corporate ecosystem to develop, it is crucial that shareholders are educated about the importance of voting and encouraged to actively participate in company meetings and decision-making processes.

Strengthening Remedies for Shareholders: What Needs to Be Done

When shareholder rights are violated, effective remedies are essential for maintaining trust in the corporate system. The Companies Act 2019 provides several mechanisms for shareholders to seek redress, but there is still room for improvement in both the legal framework and its enforcement.

Derivative Actions: Protecting the Company’s Interests

Section 202 of the Companies Act allows shareholders to initiate derivative actions on behalf of the company if its interests are harmed. This mechanism is particularly important for addressing breaches of fiduciary duty, fraud, or other misconduct by directors or executives.

However, the process for initiating derivative actions in Ghana can be complex and costly, deterring many shareholders from pursuing legal action. To address this, there is a need for legal reforms that simplify the process and reduce the financial burden on shareholders. Additionally, raising awareness about derivative actions among shareholders can empower them to act when necessary.

Unfair Prejudice Remedy: Safeguarding Minority Shareholders

The unfair prejudice remedy, provided under Section 218 of the Companies Act, is designed to protect shareholders from actions that are oppressive, discriminatory, or unfairly prejudicial. This remedy is particularly important for minority shareholders, who may be vulnerable to decisions made by majority shareholders or directors that do not align with their interests.

In 2023, several cases were brought under this provision, reflecting its growing importance in the Ghanaian corporate landscape. However, the effectiveness of this remedy depends on the willingness of the courts to interpret the law broadly and in favor of protecting shareholder rights. There is also a need for stronger regulatory oversight to prevent unfair practices before they escalate into legal disputes.

What Stakeholders Need to Do

For Ghana’s corporate ecosystem to thrive, all stakeholders must take proactive steps to enhance corporate governance and protect shareholder rights. Here are some key actions:

Shareholders: Educate themselves about their rights and actively participate in corporate governance. This includes attending company meetings, voting on key decisions, and holding directors accountable for their actions.

Corporate Directors and Executives: Foster a culture of transparency and accountability within their organizations. This involves ensuring that shareholders have access to the information they need and that their rights are respected.

Regulatory Bodies: Strengthen enforcement mechanisms to ensure compliance with the Companies Act. This includes conducting regular audits, investigating complaints, and imposing penalties for violations of shareholder rights.

1. Legal Practitioners:

Provide accessible legal advice and representation to shareholders, particularly those who may be unfamiliar with their rights or unable to afford legal services.

• Policymakers:

Continue to refine and update the legal framework governing corporate governance in Ghana. This includes simplifying the process for initiating derivative actions and ensuring that the laws are aligned with international best practices.

• Civil Society and Advocacy Groups:

Raise awareness about shareholder rights and advocate for stronger protections. These groups can play a crucial role in educating shareholders and pushing for reforms that enhance corporate governance.

Conclusion

The future of Ghana’s corporate ecosystem depends on the effective protection and empowerment of shareholders. By understanding their rights and taking active steps to assert them, shareholders can contribute to a more transparent, accountable, and equitable corporate environment.

At the same time, other stakeholders including corporate directors, regulatory bodies, legal practitioners, policymakers, and advocacy groups must work together to strengthen the legal framework and ensure that shareholder rights are not just theoretical but are actively upheld and enforced. With concerted effort and collaboration, Ghana can continue to develop a robust corporate governance system that fosters trust, attracts investment, and drives economic growth.