Effective corporate governance: Cure to ECG’s challenges

Ghana plans to privatise ECG to revitalise its energy sector.

Yet privatisation has been tried before at ECG and other local firms disastrously.

Of Ghana’s over 400 privatisations, very few succeeded. Globally, private companies fail from lack of proper Corporate Governance (CorpGov) which Ghana has underrated. 

I pursued an MBA in CorpGov and realised that our problem’s not private or public ownership but lack of effective CorpGov normally taken as token.

However, it’s key to organisational success. Locally, financial institutions collapsed or were closed by the BOG. All were private. People would have called for privatisation if they were state-owned.

Despite calls for privatisation, Ghana’s public sector is relatively small: public sector employment in Ghana is eleven per cent, China (50%), USA (17.6%), UK (21.5%), Sweden (30%), Singapore (40%), France (29%), India (55) and Germany (15.3%). I suggest first improving CorpGov, at ECG to support government’s quest to inject efficiency before considering privatisation.

CorpGov is the system of rules, practices and processes for directing and controlling organisations. It isn’t management. I, like many, had seen management/leadership as the key. I was surprised.

We had been so unserious about CorpGov that although we adopted our companies act in 1963 from England’s own of 1948, by 2018 we had not reviewed ours whereas England had reviewed theirs seven times by 2006.

The absence of proper CorpGov is the main reason why companies don’t survive owners. 

CorpGov is relevant to ECG as its agency theory states that business owners employ agents to run it for them. Naturally selfish humans left on their own rather seek personal interest instead of their owner’s. CorpGov seeks to cure this.

Its stakeholder theory advocates accountability to stakeholders and balancing varied interests.

Entities that can affect organisations or are affected by organisations and how organisational and societal interests interplay must be considered. Key stakeholders must be represented on boards.

Resource dependency theory says that organisations need resources for effectiveness and thus those with access to resources need representation.  

Stewardship theory says “stewards protect and maximise owners’ wealth through firm performance, “as it maximises the steward’s utility functions”.

Satisfaction and motivation are achieved by stewards through organisational success. Certain structures make stewards autonomous and trustworthy. Reputation is a motivation.

Transaction cost theory sees organisations as sums of contracts that organise and regulate transactions.

It considers most efficient ways of performing economic transactions through efficient structures besides explicit and direct fees and is linked to monitoring and controlling. It advocates outsourcing activities, if cheaper.

Political theory suggests active investors changing corporate policy by developing voting support from dispersed shareholders.

Internal and functional controls help prepare periodic, accurate and complete financial statements to protect companies from risks. USA’s Sarbanes-Oxley helped regulate internal control in public companies while Europe adopted market regulation.

Good internal control frameworks include control environment/activities, risk assessment, information, communication and monitoring.

Due to time/resource constraints, specific board tasks are delegated to committees essentially: Finance and Administration, Audit, Remuneration and Nomination and Technical committees.  

Transparency

Sweden has an efficient public sector with low corruption, consistently leading on the corruption perception index. Sweden’s unique Public Administration model prioritises high openness, accountability and autonomy for civil servants and institutionalised involvement of organised interest groups.

It has mandatory public access to official documents: ‘Offentlighetsprincipen’ (assess principle) adopted in 1766: All documents coming into, stored at, leaving administrative agencies, or produced from agency activities are public documents and must be accessible to any seeker.

Exceptions: classified documents (CD), documents containing personal and sensitive info about individuals unless they consent, internal working documents (IWD), and documents containing info about corporations that, if released, would disadvantage them when in a competition, eg., closed bidding, but expires when the consideration must be given to ends.

IWD and CD are released under petition. IWD become public if they are referenced in agency decisions or used for decisions. Information requesters can remain anonymous. Ghana’s freedom of info appears to be a watered-down version.

Sweden’s also distinguished by a demarcation between political ministries and MPs and non-political agencies. It’s illegal for politicians to interfere with affairs of public agencies; Ministers can, however, control particular agencies under them but cannot interfere in specific cases or decisions concerning individual entities.

The government can appoint agency heads and use informal contacts between ‘ministerial political appointees and agency personnel. Swedish public sector companies issue annual reports.

Some hold AGMs with annual reports publicly accessible. 

Stakeholders

Suggested stakeholders for ECG’s board include consumers, industry, labour, power/fuel procurers, energy engineers, GRIDCO, security agencies, lawyers and economists and a worker’s rep as with GWL.    

The govt needs greater accountability from ECG and should strengthen openness including public AGMs for ECG to account for stewardship and possibly offload some shares on the stock exchange and outsource some ECG duties.

Government needs independent, knowledgeable people on ECG’s board as the one to whom the board is supposed to hold the agents accountable is himself an agent. Because the President assumes power with assistance from many quarters, it’s important that he frees himself of pressure from them.

CorpGov also considers relationships with working environments. Ideally, competition regulates. Regulators play that role especially when competition’s absent and must be encouraged.

PURC is supposed to consider ECG’s needs, consumers, investors and the national economy and make several considerations, seeking views of all stakeholders including government before approving tariffs.

Its parent act mandates consumer, industry and labour board representation.

Hence, political actors must not unduly pressurise PURC by suggesting lowering tariffs by particular figures as PURC going against it may be considered antagonistic and going towards it as ‘doing the bidding’.

An aspect of privatisation always overlooked is the cost for private owners missing from the public; the amount paid to the private and profit evacuated. For Ghana, reeling under capital flight, and forex losses, allowing companies to export capital worsens the problem.

It’s possible, however, that only privatisation can save ECG. I however urge government to consider improving CorpGov before we consider privatisation.

The writer is a civil/water engineer, holding an MBA in CorpGov.  

E-mail: notallan@yahoo.com