Question Tag: Banking Sector

Inadequate Corporate Governance Systems and Their Contribution to the Financial Distress in the Ghanaian Banking Sector

1. Failure to Review Internal Control Systems:
   • It is a requirement of good corporate governance that the board of directors should review the effectiveness of the system of internal control (including financial, operational, and compliance controls) and risk management. However, it is probable that in some banks, the systems of control were inadequate for their purpose. The complexity of banking operations may have exceeded the board’s understanding, leading to insufficient oversight and excessive uncontrolled risk.
2. Dominance by Key Individuals:
   • In some banks, there may have been a dominance of power by key individuals such as the CEO or board chairpersons, which could have led to poor decision-making. The non-executive directors (NEDs) may not have acted effectively as a counter-balance to these dominant figures, allowing high-risk strategies to proceed unchecked.
3. Ineffective Non-Executive Directors (NEDs):
   • The supervisory role of NEDs is crucial in corporate governance. However, in these cases, the NEDs may have failed to provide the necessary challenge to management’s decisions, particularly those involving high risk. This raises questions about the effectiveness of annual performance evaluations of NEDs and their ability to contribute meaningfully to board decisions.
4. Lack of Transparency in Financial Reporting:
   • Transparency in financial reporting is essential for good governance. The financial statements of these banks may have been overly complex, making it difficult for even experienced investors to understand the true financial position of the banks. This lack of clarity could have prevented shareholders and regulators from identifying the extent of the banks’ financial difficulties in time to take corrective action.