2. INTRODUCTION
â˘In lecture two, board of directors has been
mentioned as part of the elements of the
management oversight dimension of corporate
governance. This lesson expands the discussion on
board of directors.
3. Introduction CONTâD
â˘It defines board of directors, identifies
types of directors, discusses the role of
board of directors and delves into the
dynamics of board structure
4. INTRODUCTION CONTâD
⢠At the end of the lesson the student should be able to:
⢠Define board of directors
⢠Identify types of directors
⢠Discuss the role of directors
⢠Explain board structure, its determinants and firm performance
ďˇ Discuss board diversity
ďˇ Appreciate board of directors in the Ghanaian context
5. DEFINITION OF BOARD OF DIRECTORS
â˘Variously called board of governors, board of
managers, board of regents, and board of
trustees, board of directors refers to a body of
elected or appointed members who jointly
oversee the activities of a company or
organization.
6. TYPES OF DIRECTORS
â˘Inside director: This director on the board of directors has
a meaningful connection to the organization. Inside
directors add to the board information that outside
directors would find difficult to gather.
â˘Outside director: Outside directors are typically defined as
directors who are neither current nor past employees, and
who have no strong business ties with the corporation.
7. â˘They have no meaningful connection to the
organization. Because outside directors are
considered to be more effective monitors of
managers, the literature on board effectiveness
predicts that as the proportion of outside directors
on the board increases, firm performance should
increase.
8. TYPES OF DIRECTORS CONTâD
Fama (1980) and Fama and Jensen (1983) observe
that outside directors compete in the outside
directorsâ labor market. They have incentives to
develop reputations as experts in monitoring
management because the value of their human
capital depends primarily on their performance as
monitors of the top management of other
organizations
9. TYPES OF DIRECTORS CONTâD
⢠Executive director: This is an inside director who is
also an executive with the organization. The term can
refer to the CEO of an organization. Executive directors
facilitate the transfer of information between board of
directors and management
â˘Non-executive director: A director who is not an
executive with the organization
10. TYPES OF DIRECTORS CONTâD
â˘The empirical literature identifies two types of
directors: Independent and non-independent
directors. Independent director has been defined as
one that could get a seat on the board without the
controlling shareholder's votes (Lefort and UrzĂşa
2008).
11. TYPES OF DIRECTORS CONTâD
ďThere are two types of independent
directors: outside directors and professional
directors. Outside directors are those
members of the board who are not elected
by the controlling shareholders of the
company.
12. TYPES OF DIRECTORS CONTâD
â˘On the other hand, professional directors are those board
members elected with the controlling shareholder votes,
but are independent because of profile and lack of formal
family or other ties to the controlling shareholders (Lefort
and UrzĂşa 2008). Non-independent director has been
defined as one that could get a seat in the board with the
controlling shareholder's votes.
13. THE ROLE OF DIRECTORS
â˘As part of their responsibility, directors monitor
and assess managerial performance, decide
compensation levels of senior managers,
provide advice, and provide links to other
organizations (Hanson and Song, 2000).
14. THE ROLE ODF DIRECTORS CONTâD
ďThey, however, assert that the primary
responsibility of board of directors involves
resolving agency conflicts that arise between
shareholders and managers (Hanson and
Song, 2000).
15. THE ROLE OF DIRECTORS
⢠Johnson et al. (1996) identify three main
roles of directors:
â˘Control,
â˘Service, and
â˘Resource dependence
16. THE ROLE OF DIRECTORS CONTâD
ďThe control role entails directors monitoring
managers as fiduciaries of stockholders. In this
role, directorsâ responsibilities include hiring and
firing the CEO and other top managers,
determining executive pay, and monitoring
managers to ensure that they do not expropriate
stockholder interests.
17. THE ROLE OF DIRECTORS CONTâD
â˘The service role involves directors advising the CEO and top
managers on administrative and other managerial issues, as well as
more actively initiating and formulating strategy. The resource
dependence role is in keeping with Pfefferâs (1972, 1973) view of the
board as a means for facilitating the acquisition of resources critical
to the firmâs success. Directors fulfilling this role are often
representatives of specific institutions, but may also serve a
legitimizing function (Selznick, 1949).
18. BOARD STRUCTURE
â˘This refers mainly to the size of the board, its composition
and its leadership. Thus, this section focuses on board size,
board composition and board leadership. Since corporate
governance seeks to ensure effective and efficient
performance these elements of board structure are
discussed in relation to firm performance.
19. BOARD SIZE AND FIRM PERFORMANCE
ďIt is apparent that a boardâs capacity for
monitoring increases as more competent directors
are added. This has been the position of Klein
(2002) and Andres and Vallelado (2008) who argue
that a large board size should be preferred to a
small size because of the possibility of
specialization for more effective monitoring and
advising functions.
20. BOARD SIZE AND FIRM PERFORMANCE CONTâD
However, the benefit of specialization which Klein (2002) and
Andres and Vallelado (2008) tout may be swallowed by the
incremental cost of poorer communication and decision-
making associated with larger groups. This view has been
articulated by researchers such as Fama and Jensen (1983);
Lipton and Lorsch (1992); and Yermack (1996) who favour
small boards.
21. BOARD SIZE AND FIRM PERFORMANCE CONTâD
Jensen (1993), for instance, has questioned the
effectiveness of boards with more than about seven to
eight members, arguing that such boards are not likely to
be effective. He argues that large boards result in less
effective coordination, communication and decision
making, and are more likely to be controlled by the Chief
Executive Officers of such firms.
22. BOARD SIZE AND FIRM PERFORMANCE
â˘Indeed, the survey conducted by Hermalin and Weisbach
(2003) asserts:
â˘The idea is that when boards become too big, agency
problems (such as director free-riding) increase within the
board and the board becomes more symbolic and less a
part of the management process.
23. BOARD COMPOSITION AND FIRM PERFORMANCE
â˘Board composition refers to the configuration of the
board. That is the mixture of inside and outside directors
forming the board. However, in some context
composition is used to refer to the proportion of the
outside or independent directors on the board
24. BOARD COMPOSITION AND FIRM PERFORMANCE CONTâD
â˘Independent directors are desirable because of their
breadth of knowledge and experience, as well as their
independence from corporate management (Farinha,
2003). Fama (1980) argues that the viability of the board
might be enhanced by the inclusion of outside directors
(Ghosh, 2006)
25. BOARD COMPOSITION AND FIRM PERFORMANCE
â˘Cadbury (1992) report emphasizes the value
of increased non-executive representation on
boards, arguing that non-executives are
capable of bringing greater independence
and impartiality to board decisions.
26. BOARD COMPOSITION AND FIRM PERFORMANCE CONTâD
â˘Non-executives are hypothesized to favor more
extensive risk management and (internal or external)
auditing in order to complement their own monitoring
responsibilities, since they have the objective of
identifying and rectifying reporting errors advertently or
inadvertently made by managers (Desender, 2007).
27. BOARD COMPOSITION AND FIRM PERFORMANCE CONTâD
â˘Two theoretical perspectives underpin the penchant for outside
directors. The resource dependence school of thought
spearheaded by writers such as Burt (1983) views outside
directors as a critical link to the external environment of the firm.
Such board members, according to the theory, may provide
access to valued resources and information especially in times of
adversity (Daily and Dalton, 1994a, 1994b; Sutton and Callahan,
1987).
28. BOARD COMPOSITION AND FIRM PERFORMANCE
CONTâD
â˘Another theory which justifies the proclivity for outsider-
dominated boards is agency theory (Eisenhardt, 1989, and
Jensen and Meckling, 1976). Agency theory argues that due to
the separation of ownership and control in modern
organizations which creates information asymmetry between
corporate owners and managers, the latter are likely to exploit
the amount and quality of the information they have to their
advantage by engaging in self-serving ventures that are
injurious to the interest of the former.
29. BOARD COMPOSITION AND FIRM PERFORMANCE
â˘One of the primary duties of the board of directors is to serve as
the monitoring agent for shareholders to check the behavior of
corporate managers (Fleischer et al., 1988). Therefore, having an
insider-dominated board of directors is likely to exacerbate the
situation as the boardâs role as a monitoring agent of
shareholders will be curtailed, paving way for managers to harm
shareholdersâ wealth. Consequently, agency theory argues that
effective boards will consist of outside directors.
30. BOARD COMPOSITION AND FIRM PERFORMANCE
CONTâD
â˘Stewardship theory which argues that managers are
inherently trustworthy and are not susceptible to
misappropriate corporate resources (Donaldson,
1990; Donaldson and Davis, 1994; and Pieper et al.,
2008) also explains the significance of insider
directors.
31. BOARD COMPOSITION AND FIRM PERFORMANCE
CONTâD
â˘Indeed, Donaldson and Davis (1994: 159) suggest that
âmanagers are good stewards of the corporation and
diligently work to attain high levels of corporate profit
and shareholder returns.â According to stewardship
theory the main role of the board of directors is to
advise and support management rather than to
discipline and monitor
32. BOARD LEADERSHIP STRUCTURE
â˘There is a strong sentiment among board reform advocates
especially among public funds and shareholder activist groups
that the CEO should not serve simultaneously as chairperson of
the board. Agency theory has been used to explain the clamor
for CEO and board chairperson separation. The argument is that
coupling of CEO position and board chairperson position
promotes CEO entrenchment by reducing board effectiveness.
33. BOARD LEADERSHIP STRUCTURE CONTâD
â˘The Board Chairman has the primary
responsibility for setting the board agenda,
convening stockholder meetings, and monitoring
board committees. Therefore, placing these duties
in the hands of the CEO compromises the boardâs
ability to monitor top management.
34. BOARD LEADERSHIP STRUCTURE CONTâD
â˘Consistent with agency theory predictions, Rechner and Dalton
(1991) find that firms with the separate board leadership
structure outperform those firms with the joint structure when
relying on return on equity, return on investment, and profit
margin. The UK Code of Best Practice (Cadbury Committee,
1992) recommends that positions of board chair and CEO should
be held by different individuals.
35. BOARD LEADERSHIP STRUCTURE CONTâD
â˘Fama and Jensen (1983) argue that concentration of decision
management and decision control in one individual reduces a
boardâs effectiveness in monitoring top management. Jensen
(1993) argues that when the CEO also chairs the board, internal
control systems may fail as the board cannot effectively perform
its functions including those of evaluating and firing CEOs.
36. BOARD LEADERSHIP STRUCTURE CONTâD
â˘This position finds support from Goyal and Park (2002) who
report that the sensitivity of top executive turnover to firm
performance is significantly lower for firms that vest the titles of
CEO and chairman in the same individual. When the role of the
board chair and the role of the CEO are split there are benefits
including: Greater attention to the boardâs functioning and
lightened load for the CEO.
37. BOARD LEADERSHIP STRUCTURE CONTâD
â˘However, there are costs to this: Lines of authority
are often blurred between the two roles; CEOs
and chairs can be distracted (and their
independence compromised) by struggles over
power, territory and sometimes accountability
when things go wrong (Lorsch and Zelleke, 2005).
38. BOARD LEADERSHIP STRUCTURE CONTâD
â˘Research has shown that nonexecutive board chairs
have two main inherent limitations: (1)They must have
a legitimacy with the director group achievable
industry knowledge, attention to boardroom
and leadership; and (2) they must develop a strong
trusting relationship with the CEO, a task which is
difficult to perform.
39. BOARD LEADERSHIP STRUCTURE CONTâD
â˘On the other hand, practicing managers argue on the basis of
stewardship theory or administrative theory that the joint
structure provides unified firm leadership and removes any
internal or external ambiguity regarding who is responsible for
firm processes and outcomes. Stewardship theory is premised
on the principle of âunity of commandâ and posits that
concentration of clear and unambiguous authority in one person
is essential to effective management.
40. BOARD LEADERSHIP STRUCTURE CONTâD
â˘Unity of command results in clear lines of authority to
which management and the board can respond more
effectively. It has been submitted that stakeholders are
given a good signal of who is accountable in an
environment where strong, directive, stable and
unconfused leadership is perceived as essential to
organizational success.
41. BOARD LEADERSHIP STRUCTURE CONTâD
â˘US companies such as American Express and
Kmart used to have split positions but have now
recombined the two positions. However, in Ghana
the practice in most companies especially the
listed ones is the split of the two positions.
42. BOARD LEADERSHIP STRUCTURE CONTâD
â˘It must be noted that neither split nor combined board
leadership has been linked consistently to company
financial performance. Instead, the effectiveness of the
board in terms of corporate financial performance has
been linked to behaviors and what happens inside the
boardroom are what lead a particular board to achieve
effectiveness.
43. INDICATORS OF BOARD EFFECTIVENESS
â˘Relying on the process approach to understanding board
effectiveness, there are three indicators of board effectiveness:
â˘Managing dissent: Conflict or disagreement is inevitable in
group of human beings. However, whether or not it will
negatively affect group outcomes depends on how it is handled.
Open, frank and swift resolution of conflict in the boardroom
promotes board effectiveness. On the other hand, if conflict turns
personal or lingers it could undermine the boardâs ability to
function together as a team.
44. INDICATORS OF BOARD EFFECTIVENESS CONTâD
â˘Generating a productive group discussion: Boards must balance
discussion with efficiency. This is because inefficient discussions
produce frustrated directors who disengage. Boards that
generate a productive discussion have some attributes. Few of
these attributes are: sharing of expertise and asking of relevant
questions, sharing of information, lack of domination of
discussion by few, loud directors; incorporation of prior points of
colleague directors into current contributions and speaking
directly to each other
45. INDICATORS OF BOARD EFFECTIVENESS CONTâD
â˘Facilitating a positive board culture, especially the relationship
between the board and management (including between board
chair and CEO): An effective board maintains a cordial but
uncompromising relationship with management. If the issues
under discussion require justification from management the
board does not hesitate to demand it. If there are rough edges
to be straightened, there is no hesitation to do so.
46. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF
A NONEXECUTIVE CHAIR
â˘The competence of chairmanship is vital to the contribution
which boards make to their companies. Parry (1998) defines
competency as âa cluster of related knowledge, skills, and
attitudes that affect a major part of oneâs job (a role or
responsibility), that correlates with performance on the job, that
can be measured against well-accepted standards, and that can
be improved via training and developmentâ.
47. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘What are the ingredients of competency of the board chair?
Three important traits of effective non-executive chairs are:
â˘Industry Knowledge and Respect: Knowledge of the industry
the company where the chair is serving and having excellent
track record attract respect from the board members as well as
from management. This allows the board chair to take effective
control of the board for productive discussions.
48. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘When the board chair is respected within the industry
where the company operates it eases the relationship
between management and the board particularly
between the CEO and the board. A non-executive chair
with little or no industry competency is likely to be
circumvented or pleasantly tolerated but managed by
the CEO.
49. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘Another reason why industry knowledge is important to
effective board leadership is that it provides access to important
resources: board chairs with vast experience and knowledge
about the industry are able to link the board and management
to vital information, insight into past strategic successes or
technologies at other companies and potential business
partners, employees and additional board members.
50. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘Leadership skills: Leadership skills and style allow
effective board chairs to exert influence and maintain
legitimacy in the boardroom. Leadership skills needed
for the effectiveness of the board chair include acting
with the utmost integrity, the capacity to constructively
challenge unemotionally, the ability to build consensus
among a diverse group,
51. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘the ability to communicate effectively across differing styles,
the ability to create a common vision, the ability to give
unvarnished/undistorted feedback to the CEO and the ability to
coach and develop the CEO and other directors.
â˘It has also been observed that effective board chairs have the
following features: well-developed interpersonal or âpeopleâ
skills, very good listeners and communicators, take leadership
on relevant issues, commit the time to see issues through to
fruition,
52. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘and have the ability to solicit support and respect
from other directors and management in doing
so, they skillfully assert themselves in board
discussions with impact, adeptness, and influence.
A skillful board chair is a referee, moderator and
smoothly slips in his own views.
53. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘Attention to board process: Effective board chairs are
good at the following: contributing to establishing
effective agendas, information inflow and reporting
expectations; encouraging even and shared participation
participation among their boards; understanding and
utilizing the competencies and commitment of fellow
directors;
54. FACTORS THAT CONTRIBUTE TO THE EFFECTIVENESS OF A
NONEXECUTIVE CHAIR CONTâD
â˘anticipating and adjusting for potential style clashes
among board members or with management;
preventing rapid consensus on major issues, knowing
when to push towards consensus; leading the executive
session and board meetings, managing expectations
around time and framing discussion points to keep the
board on track.
55. DETERMINANTS OF BOARD STRUCTURE
â˘Scope of Operations Hypothesis (SOH),
â˘the Board Monitoring Hypothesis (BMH) and
â˘Negotiation Hypothesis are the three main hypotheses
that have dominated the discourse on board structure.
Thus, this section discusses SOH, BHM and Negotiation
Hypotheses.
56. SCOPE OF OPERATIONS HYPOTHESIS
â˘Financial economists have reached few definitive conclusions
about the forces that determine board size and composition
(Boone et al., 2007). One of the views that have dominated the
corporate finance and financial economics literature regarding
forces that drive board size and composition is the SOH. This
view argues that as the operations of a firm grow in size and
complexity there is a corresponding increase in its demand for
more board members to deal with the concomitant challenges
associated with such growth and complexity.
57. SCOPE OF OPERATIONS HYPOTHESIS CONTâD
â˘This presupposes that a firmâs diversification into new product
lines or new geographical areas should trigger its quest for new
board members to help oversee managersâ performance (Fama &
Jensen, 1983; and Lehn et al., 2005). Contributing to the SOH
debate, Bhagat & Black (1999) and Agrawal & Knoeber (2001)
have asserted that a grown and complex firmâs motivation for
new directors stems from the possibility of new directors
possessing specialized knowledge that applies to the new growth
areas of the firm.
58. SCOPE OF OPERATIONS HYPOTHESIS CONTâD
â˘Results reported by Denis & Sarin (1999) and
Yermack (1996) lend credence to the SOH as their
findings suggest that board size is positively
related to firm size. Boone et al. (2007) find that
board size and independence increase as firms
grow and diversify over time.
59. BOARD MONITORING REQUIREMENTS
HYPOTHESIS
â˘Raheja (2005) and Adams & Ferreira (2007) report that board
structure correlates with the net benefits of monitoring
managersâ private benefits as well as the monitoring costs to
directors. BMH states that in terms of âprivate benefitsâ the
benefit obtained from board of directorsâ monitoring of
managers of the firm increases if managers have the opportunity
to increase their private benefits from the firm (Boone et al.,
2007; and Chi &Lee, 2010).
60. BOARD MONITORING REQUIREMENTS
HYPOTHESIS CONTâD
â˘Availability of free cash flows as well as managersâ immunity to any
shareholdersâ activism (i.e. M&A activities) generally provide
opportunities for private benefits to managers (Boone et al., 2007).
According to Boone et al. (2007) the tendency for firms to engage
the services of more independent directors thereby increasing
overall board size is predicated on the presence of the opportunity
for greater âprivate benefitsâ to insiders.
61. BOARD MONITORING REQUIREMENTS HYPOTHESIS
CONTâD
â˘Regarding âmonitoring costs,â Fama & Jensen (1983) argue that
they are greater for firms with high information asymmetry.
Empirical studies assert that firms with greater monitoring costs
should fall less on outside directors because it is costly to
transfer firm-specific information to outsiders since they have
relatively less information about the firmâs projects (Linck et al.,
2008).
62. BOARD MONITORING REQUIREMENTS HYPOTHESIS
CONTâD
â˘The theoretical models of Raheja (2005) and Adams &Ferreira
(2007) on board structure predict that the number of outsiders
decreases with âmonitoring costs. Harris and Raviv (2008) study a
model that allocates control of the board to insiders (whom they
define as dependent board) or outsiders (independent
directors). They report that optimal boards employ larger
numbers of outsiders when managersâ private benefits are high
and the cost of monitoring is low.
63. NEGOTIATION HYPOTHESIS
â˘According to Hermalin and Weisbach (1998) board
effectiveness is a function of its independence, which in
turn is a function of negotiations between existing
directors and the CEO over who will fill vacancies on the
board. In this model, CEOs that generate surpluses for
their firms wield considerable influence with their
outside directors.
64. NEGOTIATION HYPOTHESIS CONTâD
â˘CEOs use their influence to capture some of these
surpluses by placing insiders and affiliated outsiders in
open board positions (Boone et al., 2007). Generally, the
negotiation hypothesis implies that the proportion of
outsiders on the board will be negatively related to the
CEOâs influence and positively related to constraints on
the CEOâs influence.
65. NEGOTIATION HYPOTHESIS CONTâD
â˘Empirically, Boone et al. (2007) report that board
independence is negatively related to the managerâs
influence and positively related to constraints on that
influence. Raheja (2006) supports this hypothesis with
the development of a model predicting that optimal
board size and composition are functions of the
directorsâ and the firmâs characteristics.
66. BOARD DIVERSITY
â˘Board diversity (also called director heterogeneity) simply
means the differences that exist among directors that are on
the board of directors of a firm. In other words, board
diversity measures the extent to which the board is made up
of directors who bear different features or characteristics
67. BOARD DIVERSITY CONTâD
⢠Directors may differ in many important respects including educational
background, industry experience, social connectedness, insider status, gender, and
race.
⢠Directors may also differ on the basis of whether they are insiders or outsiders.
⢠Indeed, some researchers are of the view that director heterogeneity should be
analyzed in terms of director independence (that is, whether directors are
independent or non-independent).
â˘
68. POTENTIAL BENEFITS OF BOARD DIVERSITY
ďˇ Creativity and different perspectives: Directors from different
backgrounds with different life experiences are likely to approach issues
and problems from different perspectives.
ďˇ More diverse groups nurture creativity and produce a greater range of
perspectives and solutions to problems and thus avoid the ills of
groupthink.
69. POTENTIAL BENEFITS OF BOARD DIVERSITY CONTâD
ďˇ Access to resources and connections: Firms that select directors with different
features may have access to different resources and connections.
ďˇ For example, a director with financial industry experience may help the firm to
access funding with better terms.
ďˇ Again, directors with political connections may assist the firm to deal with
regulators as well as link it to government contracts.
70. POTENTIAL BENEFITS OF BOARD DIVERSITY CONTâD
ďˇ Mentoring: Top executives of a firm with a diverse
board are likely to benefit from mentoring from more
experienced directors which will inure to the benefit
of the firm
71. POTENTIAL BENEFITS OF BOARD DIVERSITY CONTâD
ďˇ Public relations, investor relations, and legitimacy: Board diversity may be
used by firms to create a good impression to the public and investors.
ďˇ A consumer goods firm may use board diversity to create an image of social
responsibility.
ďˇ A firm with more institutional shareholders may use board diversity in terms of
gender and ethnicity to acquire legitimacy in the eyes of the public, the media and
the government.
72. POTENTIAL COSTS OF BOARD DIVERSITY
ďˇ Conflict, lack of cooperation, and insufficient communication:
Noticeable demographic characteristics may split groups into implicit
subgroups. Demographic dissimilarity may limit communication
among subgroups, foster conflict, and decrease interpersonal
attraction and group cohesiveness.
73. POTENTIAL COSTS OF BOARD DIVERSITY CONTâD
â˘Board diversity may result in a possible breakdown of
communication between top executives and minority outside
directors.
â˘Corporate executives may perceive demographically
dissimilar directors as sharing different values and promoting
dissimilar views for which reason they may be reluctant to
share information with them which may compromise board
effectiveness.
74. POTENTIAL COSTS OF BOARD DIVERSITY CONTâD
ďˇ Choosing directors with little experience, inadequate qualifications, or who
are overused: An indirect cost of achieving board diversity is the possibility of
neglecting other important characteristics.
ďˇ For example, in an attempt to achieve gender diversity a firm may end up having
a board filled with disproportionately young and little-experienced female
directors due to the fact that the proportion of women in top executive positions
is small but growing.
75. POTENTIAL COSTS OF BOARD DIVERSITY CONTâD
ďˇ Conflicts of interests and agenda pushing: Board diversity may
lead to conflict of interest where some directors may pursue their own
interests at the expense of the firm.
ďˇ It has been observed that a more diverse board may face the risk of
being influenced by directors with distinct personal and professional
agendas.
76. BOARD OF DIRECTORS AND LEGAL
FRAMEWORK IN GHANA
â˘In summary, the legal framework regarding corporate
governance in Ghana provides the following:
â˘The business of the Company is managed by the Board, except
where the Regulations of the Company prescribe otherwise. The
relevant issues are: membership, independence and expertise.
Shareholders appoint directors. Membership qualifications
ensure that people of integrity are appointed. Minimum of 2
directors, maximum to be fixed by each company.
77. BOARD OF DIRECTORS AND LEGAL FRAMEWORK IN
GHANA CONTâD
â˘No requirement for the appointment of independent directors
â˘The Companies Code permits the appointment of executive
directors with requirement for a balance between executive and
non-executive directors
â˘Different shareholder interests may be represented
â˘CEO duality: the Code does not provide for separation of CEO
and Board Chairman.
â˘Fiduciary role of Directors
â˘Provides sanctions in the event of breaches