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- 10 Marks
Question
Ghana Approval Authority (GAA) is a public sub-vented organization established in 1995 as a standard approving authority for industrial, medical, and food substances in Ghana. Dr. Kamkam was appointed as the Chief Executive Officer (CEO) four years ago and he reports to a seven-member Board of Directors. GAA derives its powers from an Act of Parliament that was passed over two decades ago. The CEO upon resumption of office found that the enabling enactment of the Authority is out of date and could not regulate the activities of the board effectively. He therefore introduced a lot of innovations and initiatives to run the Authority effectively and efficiently, however, some of his initiatives were inconsistent with the provisions of the enabling enactment. His initiatives, despite their inconsistency with the law, produce great results for the Authority.
Dr. Kamkam has a very good relationship with the Board of Directors over the period resulting from fat allowances and kingly treatment he offers them, especially the board chairman who is a personal friend to him. This empowers him to make unilateral decisions knowing that the board is under his full control and dominance. The board meets fewer times than required by the enabling Act of the GAA. Furthermore, internal audit is not given the required attention by management and the audit committee has not been constituted in the last four years.
The Authority outsourced most of its supporting services to the private sector. The CEO has ensured that all of these services are outsourced to companies owned by his close friends and relatives. In some cases, the services are outsourced to companies in which the board chairman has significant interest. Past records support the action of the CEO that outsourcing to close associates produces better services than an “arm’s length” sourcing. The Authority is also not able to meet information disclosure requirements due to the policy of the CEO to operate on the blind side of the public in order to reduce visibility and nose-poking behaviors of the media.
Required:
i) Explain FOUR symptoms of defective corporate governance that can be identified in GAA. (6 marks)
ii) Identify FOUR responsibilities expected of the Board of Directors of GAA to promote good corporate governance. (4 marks)
Answer
i) Symptoms of Defective Corporate Governance in GAA:
- Violation of Rule of Law: The CEO’s actions undermine the legal framework of the Authority by implementing initiatives inconsistent with the enabling enactment, which weakens the rule of law.
- Ineffective Board: The Board of Directors is ineffective as it fails to meet regularly and is overly influenced by the CEO, compromising its independence and effectiveness in governance.
- Conflict of Interest: The CEO and Board Chairman engage in actions that create conflicts of interest, such as outsourcing services to companies owned by their close associates and relatives.
- Lack of Internal and External Scrutiny: The absence of a constituted audit committee and neglect of internal audit weaken the internal control environment, reducing transparency and accountability.
ii) Responsibilities of the Board of Directors to Promote Good Corporate Governance:
- Oversight and Monitoring: The Board should actively oversee the operations of the Authority, ensuring compliance with laws and regulations.
- Independence and Objectivity: The Board should maintain independence from management, avoiding conflicts of interest and ensuring decisions are made in the best interest of the Authority.
- Internal Control and Audit: The Board should ensure that effective internal controls are in place, including the establishment of an audit committee and support for internal audit functions.
- Accountability and Transparency: The Board should promote transparency by ensuring that the Authority meets its information disclosure requirements and operates in a manner that is accountable to the public.
- Topic: The context of public financial management
- Series: MAY 2017
- Uploader: Joseph