Corporate Governance Disclosures in Emerging Capital Markets

unified Governance Disclosures in travel cr admit MarketsTHE CASE OF gold coastCHAPTER 11.1 INTRODUCTIONCorporate boldness has dominated the policy agenda in developed market economies since the mid(prenominal) 1990s. The spate of in bodiedd failures and massive organization bail come ins that suck up characterised the current spherical recession has led to an upsurge in the prefigure for tighter regulation of working capital markets and more(prenominal) stringent bodied organisation. What has become clear from the current ball-shaped capital markets meltdown is that, as capital markets develop, so too does the complexity of transactions and organisational structures, and the span of inter-dependencies among the respective(a) players in the market which extend beyond the boundaries of nations and continents.It is imperative for the stability of the global economy that there is adequate and impelling regulation of the various capital markets and that the managers of m ajor companies be held scoreable for complying with these regulations and adhering to the principles of practiced bodily politics. In auberge for bodied manager to be held accountable for their compliancy with regulations and well organization, they must prep atomic number 18 relevant revealings in their companies annual reports.Corporate Governance and Emerging Capital MarketsThe recent international m onenesstary scandals take on generated change magnituded provoke in bodied ecesis as a means of mitigating fiscal problems in developing economies (Tsamenyi et al. 2007, Reed 2002, Ahunwan 2002). These problems overwhelm weak and illiquid line of credit line markets, economic uncertainties, weak legal dominates and investor protection, and frequent government intervention. Developing economies too suffer from poor corporate per formulaance and mellowed concentration of confederacy go away causation (Tsamenyi et al. 2007, Ahunwan 2002). They usually suffer from state ownership of companies, weak legal and judiciary clays, weak institutions, limited human resources capabilities, and stuffyd(a)/family companies (Mensah 2002, Young et al. 2008). Reed (2002) noned that, globalization, international trade, and international investment practices call for the phylogeny of corporate presidency in developing nations.Corporate government is mechanism for ensuring corporate management acts in the scoop up interest of a lodges stakeholders (John Senbet, 1998). If capital markets in developing economies such(prenominal) as gold coast argon to become fully established and grow, effective corporate plaque regulations direct to be developed and implemented. Such regulatory structures should non only be adequate to protect the interests of sh areholders alone also to assist in boosting the authority of prospective investors and former(a)wise stakeholders in corporate activities (Cadbury, 1992).Emerging Capital Markets (ECMs) are an i ntegral part of the global capital market. According to the International finance Corporation (IFC, 1996), EMCs can be viewed as any market in a developing economy that has the potential for development (IFC, 1996). Such markets cope for investment funds with well developed capital markets and therefore sine qua non to put in place appropriate measures to attract business activities. The word sense of effective corporate governance is one such measure. Gompers et al. (2003) assert that, non bad(predicate) corporate governance increases ac gild valuations and boosts the bottom line. Along similar lines, Claessens et al. (2002) hold open that sound corporate governance fabrics benefit companies through increased entranceway to financing, lower cost of capital, better performance and more favourable discourse of all stakeholders.Corporate transparency and full- manifestation of in institution are core attri moreoveres of the corporate governance mechanism (OECD, 1999) and are regarded as an extremely important portion in the calibre of corporate governance. Further, Beeks and Brown (2006)contend that firms with more effective corporate governance make more informative disclosures. Although corporate governance systems discord across countries, with the development of encrypts of outgo Practice around the world, there is dilatory convergence of corporate governance practices toward global standards (Hopt 1997). gold coast is an example of an uphill economy which is increasingly embracing the concept of grave corporate governance and requiring companies to report on their corporate governance practices.Attempts being make in gold coast to promote effective corporate governance admit the formation of the build of Directors in 2001 and the development of National Accounting Standards. Additionally, the gold coast Securities and counterchange equip (GSEC) has developed a Corporate Governance enroll of Best Practice against which companies can benc hmark their practices. Other regulatory requirements which govern corporate conduct include provisions in the Companies commandment 1963 ( impress 179), the Securities Industry honor 1993 (PNDCL 333) and the Membership and tilt Regulations of the gold coast stock list permute.Notwithstanding all of the higher up measures which are designed to secure good corporate governance by reality listed companies in Ghana, the general level of compliance with the requirements is, and has always been, low. A study by Tsamenyi et al. (2007), which investigated corporate governance disclosures by applying a disclosure king finger to the 2006 annual reports of 22 listed companies in Ghana, found that the outcome and quality of corporate governance disclosures were minimal.Many studies have been examined on corporate governance disclosures base on the examination of the content and scope of annual reports study by establishing corporate disclosure indexes (see Meek et al. 1995, Coy and D ixon, 2003).This study is touch on with the information disclosed mostly in the annual reports. Information in the annual report consists of qualitative and quantitative entropy. The quantitative data is twain financial and non-financial. Moreover, many annual reports contain illustrations, diagrams and graphical presentations.1.2 RESEARCH object lens AND OBJECTIVESFollowing from the above discussion, the overall aim of this study is to make recommendations designed to correct the accomplishment and quality of corporate governance disclosures by public listed companies in Ghana.In order to compass this aim the interrogation has the future(a) objectivesto determine the current corporate governance disclosure requirements of listed companies in Ghanato compare Ghanaian disclosure requirements with those applying to UK listed companiesto examine the corporate governance disclosures made by a Ghanaian listed companies in their 2008 annual reportsto identify the differences (if any) in the corporate governance disclosures made by the listed companies in Ghana canvass and the corporate governance disclosure requirementsto ascertain the reasons for the failure by listed companies in Ghana to fully comply with the corporate governance disclosure requirementsto make recommendations on how the quantity and quality of corporate governance disclosures by listed companies in Ghana might be improved.1.3 METHODOLOGYIn order to achieve the look into objectives the succeeding(a) methods have been used.Literature review Relevant articles in academic and professional journals have been reviewed in order to establish the extent to which corporate governance disclosure requirements exist and are adhered to in various ECMs. Keywords such as corporate governance, disclosures, ECMs, and Ghana input into databases such as Emerald, JSTOR, SSRN, and Google to search for relevant articles.Document studyStatutory and regulatory documents have been examined to ascertain the exi sting corporate governance disclosure requirements in Ghana. In addition, the annual reports of a consume of 25 listed companies in Ghana for the class 2008 have been studied to determine the extent and quality of their corporate governance disclosures.Disclosure IndexA corporate governance disclosure index has been and applied to the 2008 annual reports of 25 listed companies in Ghana. The index is has been constructed to include the key fruit corporate governance requirements that apply to listed companies in Ghana.Semi-structured interviews Six semi-structured interviews were conducted in order to ascertain the reasons for differences in the corporate governance disclosures made by, and required of, listed companies in Ghana. The interviewees were two finance administrators of listed companies, two senior scrutinise partners from the Big quartette audited accounting firms and one exemplification from each of the Ghana Stock Exchange and the GSEC.1.4 importance AND LIMITATI ONS OF THE STUDYPrior studies such as those of Tsamenyi, et al 2007 and ROSC 2005, which have examined aspects of corporate governance in ECMs and, in particular, Ghana have revealed that corporate governance as a policy and regulatory issue is gaining ground but the level of corporate governance disclosure is low.This study, by establishing the current extent (and quality) of corporate governance disclosures in Ghana, identifying deviations from the corporate governance disclosure requirements, and do recommendations on how corporate governance disclosure practices may be improved, will help to bring nearly improvements in the corporate governance disclosures by listed companies in GhanaHowever, the study has a number of limitations. These include the followingThe study has focused only on a limited sample of 25 out of the 36 listed companies on the GSE. As a proceeds the result may not be representative of all listed companies (or indeed, other companies) in Ghana.The study wi ll be based on one years corporate governance disclosures and these may not be representative of corporate governance disclosures made in other years. Research which incorporates a longitudinal study may be necessary to demonstrate the development of corporate governance disclosures in Ghana.The semi-structured interviews were conducted with a small(a) sample of interviewees and the opinions show may be influenced by their mortalal ideologies and the extent of their experience with listed companies in Ghana.1.5 ORGANISATION OF THIS RESEARCH REPORTThis research report has six (6) chapters as follows,Chapter 1 Introduction In this chapter the reason to the study is explained, and its aims and objectives are specified. The research methods used for the study are outlined and consideration is also disposed(p) to the contributions and limitations of the research project.Chapter 2 corporate governance requirements in Ghana This chapter go forths background information on the corpora te surround in Ghana and sets out the corporate governance requirements.Chapter 3 Literature review This chapter bids a definition of corporate governance and examines the importance of, and the principles at a lower placepinning, corporate governance. It also reviews prior research which has examined corporate governance disclosures and more particularly, those which have investigated corporate governance disclosure in ECMs.Chapter 4 Methodology.This chapter explain the development and application of the of disclosure index used to examine the quantity and quality of corporate governance disclosures in the 2008 annual reports of a sample of listed companies in Ghana. It also describes the methodology follow for the semi-structured interviews conducted with six interviewees from selected institutions in Ghana. In addition it explains the means by which the data have been analysed and account.Chapter 5 Research findings. The results of the analysis of selected companies annual re ports and the semi-structured interviews are reported and examined in the featherbrained of the exact literature.Chapter 6 Conclusions and Recommendations.This chapter provides a brief synopsis of the research project and its findings. Conclusions are drawn from the research findings and recommendations made on ways in which corporate governance disclosures by listed companies in Ghana might be improved.CHAPTER 2 collective GOVERNANCE REQUIREMENTS IN GHANA2.1 INTRODUCTIONThis chapter provides background information on Ghana, its political and economic environment and its corporate profile. It also explains the legal and regulatory framework and the corporate governance requirements which apply to listed companies in Ghana.2.2 COUNTRY PROFILEGhana is a sub-Saharan African country with a total land area of nearly 238,538 square kilometres/92,100 square miles and a population in 2007, of 23.5 million (Bureau of African Affairs, 2008). Ghanas population is concentrated along the coas t in the principal cities (Bureau of African Affairs, 2008). Ethnically, Ghana is divided into smaller groups, each of which has a different wording or dialect, however, the official language is English, which is a legacy of British colonial rule (Sarpong, 1999).2.3 POLITICAL AND ECONOMIC ENVIRONMENT IN GHANAFor more than century, Ghana was under British colonial rule. She attained independence on 6th promenade 1957 and became a republic in July 1960. After independence, Ghana alternated between civilian and military rule. After a series of putsch detats (Sarpong, 1999), in January 1993, the country returned to democratic rule under the National classless Congress (NDC). After 8 years (in 2001) power switched to the New fast(a) Party (NPP) but in January 2009, following the election, the NPP handed over power to the NDC.The economy of Ghana is dominated by agriculture, mining and forestry agriculture. Agriculture accounts for about 37.5% of GDP (GOG, 2008), and the largest fore ign counterchange earners for the country are cocoa, gold and coffee (BBC, 2009). In 2007, the countrys GDP was $15.2 billion. As at the first quarter of march 2009, the inflation rate of Ghana was 20.53 % (GOG, 2009). Ghana is a member of united Nations (UN), the British commonwealth, African Union (AU), International Monetary Fund, African outgrowth Bank (ADB), the World Bank Group and the Economic Community of westernmost African States (ECOWAS).2.4 GHANA STOCK EXCHANGE AND LISTED COMPANIES OWNERSHIPSTRUCTUREThe Ghana Stock Exchange (GSE) was incorporated in July 1989. It was recognised as an classical Stock Exchange under the Stock Exchange interpret of 1971 (Act 384) in October 1990, and trading on the floor of the Exchange commenced in November the same year. In April 1994, it became a public company limited by guarantee (GSE 2009). The exchange is regulated by the GSE Membership Regulations L.I. 1510, Listing Regulations L.I 1509 and Trading and Settlement Regulations , and is organized as a body corporate under the supervision of the Securities Exchange Commission that ensconces under the Ministry of Finance.The Exchange is governed by a council which includes inwrought representation from licensed dealing members, listed companies, banks, insurance companies, and the general public. The functions of the Council include preventing fraud and malpractice, maintaining good order among members, regulating stock market business and granting listings. The GSE currently has 36 listed companies with a market capitalization as at 31 March 2009, of GH18,041.20m, equivalent to US$13,073.33m (GSE 2009). The manufacturing and banking sectors currently dominate the Exchange, while other listed companies fall into the insurance, mining, transport, food, publication, pharmaceuticals and petroleum sectors.Most of the listed companies on the GSE are Ghanaian ( terzetto being listed family-controlled companies) but there are five multinationals. Until 2006, in dividual foreign investors, who were first allowed to inscribe on the Exchange in 1993, were not permitted, without approval, to hold more than 10% of a listed companys shares and the total foreign investments in any company could not exceed 74% of the companys shares. These limits were removed by the Foreign Exchange Act of 2006 (Act 723) and non-resident investors can now invest in the market without limit or prior exchange control approval. Dividend income is taxed at 8%, while Capital gains on listed securities are exempt from tax until November 2010 (GES 2009).2.5 CORPORATE GOVERNANCE REQUIREMENTS IN GHANAOver the recent years, notions of corporate governance has been gaining roots in Ghana in response to initiatives by some stakeholders such as the Ghana Institute of Directors (IoD-Ghana), Private Enterprise Foundation (PEF), State Enterprises Commission, the Institute of Economic Affairs, and the Ghana Centre for Democratic Development (Ocran 2001 Mensah et. al 2002). The Io D-Ghana strives to improve corporate governance practices and strengthen companies get ons of directors. It has, for example, hosted international and national conferences, run competitions to increase awareness of corporate governance issues and developed manuals and roles to help implement good corporate governance practices (Mensah et. al 2002).Notwithstanding the above developments, white-tie corporate governance structures and institutions are not widespread although a number of legalitys provide for governance structures for companies in Ghana. These laws include The Ghana Companies Code 1963 (Act 179), The Securities Industry faithfulness, 1993 (PNDCL 333) as amended by the Securities Industry (Amendment) Act 2000, (Act 590), and the Listing Regulations of the Ghana Stock Exchange, 1990 (L.I. 1509) (K-Coleman and Biekpe 2008)2.5 .1 LEGAL REQUIREMENTSThe Companies Code 1963 (Act 179), which is based substantially on the UKs Companies Act 1948, provides for governance mech anisms of all companies incorporated in Ghana (NEPAD 2005). It provides governance of ministration such as requirements to have directors, appointment and removal of directors, wage of directors, directors reports, and audited financial statements. It also provides for various mechanisms for shareholders to enforce their sets, such as rights to annual general impact, relate treatments of shareholders.The Securities Industry Law 1993 (PNDCL 333), as amended by the Securities Industry (Amendment) Act 2000 (Act 590) and Exchange Commission Regulations (2003), provides for, among other things, the governance mechanism of all stock exchanges, investment advisors, securities dealers, issues concerning accounts and audits and collective investment schemes licensed under the Securities and Exchange Commission (SEC 2003). The Securities and Exchange Commission, overseeing the disclosure of material information to the investing public by companies, including securities listed on the Ghana Stock Exchange.Regulatory Frameworks for come ons of DirectorsThe Companies Code describes directors as person who is appointed to direct and administer the business of the company, and stipulates that each company must appoint a minimum of two directors for a company. However, the Code allows companies to come to the maximum number of directors in their Regulations. Section 181 of the Companies Code provides that directors are to be appointed through the individual ballots of shareholders at a general concourse of the company. However, this frequently means that the directors are approved by the controlling shareholders. in that location is no requirement under the Companies Code for the appointment of self-directed directors but this is required under the Securities and Exchange Commissions Code of Best Practices on Corporate Governance (SEC Code) for the GSE.In the exercise of their duties, the directors are required to act at all times in what they believe to be the best interests of the company as a whole so as to preserve its assets, hike its business, promote the purposes for which it was formed, and to do so in such manner as a faithful, diligent, careful, and ordinarily skilled director would act in the circumstances.The Code makes provision for the appointment of executive directors by allowing directors to hold any other map or place of profit in the company, other than topographic point of auditor. The directors remuneration is to be reasonably related to the value of services provided and is to and shall be determined from time to time by ordinary resolutions of the companyThe Companies Code enjoins directors to, at least once annually (at intervals of not more than 15 months), to prepare and send to each shareholder the directors report, which show the state of the companys personal matters with any change during the financial year in the nature of the business of the company. The report is approved by the dining table of directors an d signed on pack of the two directors.Regulatory Framework for Shareholder RightsThe Companies Code 1963, the Securities Industry Law 1993 and the Regulations of the Ghana Stock Exchange provide the primary regulatory framework for the establishment and operations of companies that issue publicly traded securities.The Companies Code gives shareholders opportunities to participate and vote in general shareholder concourses or exercising rights through delegate for the appointment or removal of directors, access to timely and transparent company information concerning the date, location and agenda of general meetings and the right to petition against unsporting prejudice.The Securities Industry Law and the GSE Listing Regulations consider that the market for corporate control of listed companies functions in an efficient and transparent manner. It provides for example the organizing of shareholders meetings, proxy solicitation and vote by shareholders, disclosure of equity owner ship, and allowable actions that shareholders may undertake against directors, including law suits, the removal of directors, and penalties for breaches of their fiduciary duty.Regulatory Framework for Accountability and size up on a lower floor the Companies Code a companys, directors are responsible for keeping proper books of account and for the preparation of financial statements which provides a true and fair view of the company. Auditors are to be appointed by an ordinary resolution of shareholders, except that the directors may appoint the first auditor of the company and fill any anyday vacancy in the state of affairs of an auditor.Auditors are expected to employ diligence, objectiveness and independence in the discharge of their duties and functions. To ensure the auditors independence, the Code prohibits an officer of the company or any associated companies, partners of, or employees of an officer of the company from holding office as auditor. However, the Code permit s auditors, in addition to their statutory duties to shareholders as auditors, to provide other services to the company such as, advising on accounting, costing taxation, rising of finance and other matters. This provides a ground for a conflict of interest which may impair the auditors independent.An auditor may be removed from office by an ordinary resolution of shareholders at an annual general meeting after 35 days notice and is allowed to speak to this at this meeting in response to his intended removal. No provisions exist under the Companies Code limiting the term of office of auditors.The GSE Listing Regulations recognize the lead for audit sub-delegation which should be composed of non-executive directors. The GSE Listing Regulations also prescribe the audit missions duties such as making recommendations to the board concerning the appointment and remuneration of outer auditors reviewing the auditors evaluation of the system of internal control and accounting.The Compani es Code, the Securities Industry Law and the GSE Listing Regulations requires all companies to provide shareholders with audited financial statements prepared in accordance with the Ghana National Accounting Standards issued by the Institute of Chartered Accountants (Ghana) at close of their financial year to its shareholders.2.5.2 LISTING REQUIREMENTS AND GOVERNANCE GUIDANCE BY reckon OF BEST PRACTICESIn December 2003, the Ghana Securities and Exchange Commission (SEC) issued corporate governance principles for listed companies entitledCode of Best Practices on Corporate Governance. This code is based on the OECD Principles of Corporate Governance (SEC 2003). Consistent with the United Kingdom, the code is not mandatory. small-arm these provisions are not binding, the SEC encourages compliance with the Code and requires listed companies to include a statement in their annual report disclosing the extent of compliance with these guidelines. The Code set out principles for the equi table treatment of all shareholders, disclosure and transparency and responsibility of the board of directors.As require by best practice. in that location should be formal and transparent procedures for appointments to the board.Also there should be separation between the roles of chief executive officer and Board Chairman responsibilities unless there are specific reasons militating against such separation. In the case where two offices are combine the Code required companies to explain to shareholders and the board must enact procedures that ensure the independence of the board as a whole and their respective responsibilities should be defined.There should be a balance of executive and nonexecutive directors with the complement of independent non-executive directors being at least a trey of the total social station of the board and in any event, not less than two.2.6 ANALYSIS OF CORPORATE GOVERNANCE DISCLOSURES IN GHANAIN COMPARISON WITH THE UNITED nationThe provisions of th e code are set in Table 1. Further, so that the provisions applying in Ghana may be evaluated in the light of well established Code of Corporate Governance, the provisions of the UKs Combine Code of Governance (Financial Reporting Council, 2008) are also presented.B.2 ProceduresThere should be a formal and transparent procedure for developing policy on executive remuneration. Members of the committee should exclude themselves from deliberations concerning their own remuneration.There should be a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual directors. No director should be involved in deciding his or her own remunerationC.2 Internal ControlThe board is responsible for ensuring that appropriate systems of internal control are in place for monitoring risk, adherence to financial governance measures and compliance with the law.The board should maintain a sound system of internal control to safegua rd shareholders investment and the companys assetsGHANAUKA. DirectorsA.1 The Board all company should be headed by an effective board, which is collectively responsible for the conquest of the companyA.2 Chairman and Chief ExecutiveThere should ideally be a separation between the role of Board Chairman and CEO unless there are specific reasons which militate against such separation.There should be a separation between the roles of CEO and Board ChairmanA.3 Board Balance and IndependenceThe board should include a balance of executive and non-executive directors with the complement of independent non-executive directors being at least one third of the total membership of the board and in any event not less than two.The board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the boards decision takingA.4 Appointments of BoardAppointments to the boa rd should be formal and transparent selection process should be based on merit. There is no nomination committeeThere should be a formal, close and transparent procedure for the appointment of new directors to the board. There should be a nomination committee which should lead the process for board appointments and make recommendations to the boardA.5 Information and Personal DevelopmentThe board should have unrestricted access to all company information, records and documents. all(a) directors enjoy the right to retain outside professional experts for counselThe board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. All directors should flummox induction on joining the board and should regularly update and look back their skills and knowledgeA.6 Performance EvaluationThe board should annual review their own performance and that of the various committeesThe board should undertake a formal and rigoro us annual evaluation of its own performance and that of its committees and individual directors.A.7 Re- ElectionAll directors should admit themselves for re-election at regular intervals and at least once in every three yearsof its committees and individual directors. A.7 Re- Election All directors should submit themselves for re-election at regular intervals and at least once in every three years All directors should be submitted for re-election at regular intervals, beat to continued satisfactory performanceB. Directors RemunerationB.1 Directors RemunerationThe levels of remuneration in corporate bodies should be competitive, should focus on retaining management and be think to corporate and individual performance. Every corporate body should establish a remuneration committee. The remuneration committee should comprise of a majority of non-executive directors. Does not give number of directorsLevels of remuneration should be sufficient to attract, retain and make directors of the quality required to run the company successfully, but a company should avoid paying more than is necessary for this purpose. A significant equalizer of executive directors remuneration should be structured so as to affiliate rewards to corporate and individual performance. The board should establish a remuneration committee of at least three independent non executive directors.C. Accountability and AuditC.1 Financial ReportingThe board is responsible for ensuring that a balanced and understandable estimate is given of the financial and operating results of the corporate body in the financial statements.The board should present a balanced and understandable assessment of the companys position and prospectsC.3 Audit Committee and AuditorsThe board should establish an audit committee. The audit committee should comprise at least three directors, the majority of whom should be non-executiveThe board should establish an audit committee of at least three independent non-executive directorsD. Relationship with shareholdersD.1 Dialogue with institutional shareholdersThere should be a dialogue with shareholders based on the mutual understanding of objectives. The board as a whole has res