Banking is a stakeholder business

Perhaps the recent banking crisis will in the next few years remain the most topical and debatable development, business and economic issue in Ghana. It could even become an election issue, given the divisive political undertones it has assumed.

There are as usual two sides to the debate, as in political debates. The first group (those against closure of the banks) typically see banking as a shareholder business. That is, one or two business and political cronies using their political connections to obtain a licence and operate a bank (with or without the minimum required capital). Once granted the licence they automatically become shareholders, who ascribe to themselves the right to do whatever they want with depositors’ money. They grant loans to their family-members and subsidiary businesses in defiance of prudent financial and banking rules.

The second group (which is the more acceptable norm in banking) see banking as a stakeholder business; that is, once customers deposit their money into bank accounts they automatically become part-owners of the bank. The strength of this argument is that at any given time customer deposits are more than the share capital of all shareholders. This means that the so-called shareholders cease to be the dominant owners of banks.

No matter the quantum of shareholder capital, no bank can stand on its feet without depositor’s money. In fact, if all depositors decided to start a ‘run’ on banks by asking for their money at the same time not even the biggest international banks could stand. But, in Ghana, the mentality/practice has been that shareholders own the banks and have the right to do whatever they want with depositors’ money.

They decide who gets loans and who doesn’t – to the extent that for years the investible capital has been circulating among a few people in Ghana. Imprudence was the major reason cited by the Bank of Ghana for closing the seven universal banks in 2017 and 2018. It is thus surprising that some people (especially politicians) are grumbling over the banks’ closure in the face of overwhelming evidence that breaches of financial and banking regulations took place. This is aside from the weak or poor corporate governance practice that characterised the seven banks’ leadership.

Stakeholder value

Recently, doubts about the shareholder value system’s efficacy have dominated academic, business, legal and political circles.  Emerging CSR literature buttresses a range of stakeholders’ interests, rather than focusing on shareowners. Stakeholder theory is based on the notion developed by Freeman (1984) that corporations consist of various stakeholders beyond their own shareholders, and that they should be managed with those groups in mind. Stakeholder theorists argue that the legal privileges which the state provides to corporations (such as limited liability, perpetual succession and so on) “introduce a public interest dimension to the operations of companies”.

Stakeholder theory has long recognised that the company is a social organisation, dependent upon the contribution of different groups to the production of goods and services (Freeman 1983). Apart from the larger society, employees provide their skills and knowledge and investors provide capital in the form of equity or loans. The community plays a key role in providing infrastructure, education and social services. All these stakeholder-groups are needed for the firm to function properly, and all in turn are dependent upon firms for their jobs, goods and services, tax revenues etc.

Stakeholder involvement

The banking industry is the lifeblood of every economy, which explains why every good government should be concerned about the health of this crucial industry. For this reason, those who think government overreacted by collapsing the seven banks and consolidating them into one bank perhaps do not understand the role of banking in economic development. Any well-meaning government faced with that situation will first act in the interests of stakeholders.

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Employees are arguably the most central stakeholders in the company. One good criterion for identifying the centrality of different stakeholders is the degree to which their livelihoods are tied to the company’s fortunes. In the case of large publicly-traded corporations, employees are clearly much more dependent upon the well-being of the company than portfolio investors – who generally only hold small fractions of many companies to diversify risk.  So, using the recent banking crisis as a case-study, employees have the right to report unethical management and board decisions to the regulatory authorities of every industry.

In Ghana in particular, employee involvement in company sustainability policies has remained far below its potential. In principle, the following channels are available for greater worker involvement in the company’s sustainability issues:

  • Board-level employee representation (BLER) – an increasing number of companies are developing sustainability strategies, and these strategies are typically discussed at the board level. One way of involving employees in these discussions is therefore representation on the company board.
  • Collective bargaining – trade unions are negotiating agreements on sustainability issues with an increasing number of companies. However, sustainability issues are also increasingly negotiated at the national and local level.
  • Stakeholder boards – a few companies have founded formal stakeholder boards, including representatives of different interest groups in the company. If these boards are given substantial rights – e.g. the right to comment on and criticise sustainability reporting and strategies – this could be a mechanism to increase labour’s voice on sustainability issues in the firm.

Sustainable Company

The quest for an alternative to shareholder primacy and sound corporate governance stems from lack of progress on the road to sustainable communities.

In recent times, however, the stakeholder approach to the firm has been severely threatened by the so-called ‘shareholder value’ model of the firm – as depicted in the recent banking crisis in Ghana.

As stated earlier, in the case of corporate governance shareholders often take the place of undisputed ‘top-dog’. The argument made to justify this special position is that shareholders are the firm’s original founders and have used their capital to hire employees and managers, and to buy equipment and raw materials. Because of this special position, shareholders are ‘residual claimants’ to the firm – i.e. after the claims of other factors for production are satisfied, shareholders get the rest.

Although shareholders may end up with empty pockets if the firm goes bankrupt, it can also mean unlimited profits or taking undue advantage when the firm does well.  In the banking-crisis case, the Bank of Ghana found that a few shareholders looted the banks through dubious loans to business and political cronies. Given the potential of banks to collapse, the focus is now on making financial institutions sustainable.

A Sustainable Company has the following six key elements:

  • A multi-dimensional concept of sustainability and stakeholder value is the central guiding principle of the Sustainable Company.
  • In accordance with this guiding principle, the Sustainable Company has a set of sustainability goals and a detailed strategy for achieving those goals.
  • Stakeholders, in particular employees, are involved with decision-making in the Sustainable Company.
  • The Sustainable Company has an externally verifiable reporting system on both financial and non-financial (environmental, social, etc.) performance, which allows for measuring progress on the achievement of sustainability goals.
  • Incentives within the Sustainable Company are designed to support sustainability. A central role is played here by tying a portion of executive remuneration to the achievement of sustainability goals.
  • The ownership base of the company is dominated by long-term responsible investors, concerned not only with financial returns but also the social and environmental impacts of their investments.

Listing on the stock market

One measure that has been used to promote good governance, and to balance the interests of both shareholders and stakeholders, is using legislation to compel companies to list on the stock market. It is argued that the vast amount of information (public and private) available to millions of investors is filtered into the stock market, and that share price correctly reflects the long-term prospects of the firm. This approach has been highly successful, at least in providing the intellectual underpinnings for much of the change in corporate governance regulation.

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As a result, the ideal corporate governance solution is to orient the firm’s operation toward share-price as the best measure of company value. For this reason, and to avoid future bank crashes in Ghana, all universal banks (foreign or local) should consider listing on the Ghana Stock Exchange.

Another means of promoting good governance in the banking sector is ensuring that gatekeepers like auditors do their work with honesty, and without fear or favour.  Auditors are supposed to certify that companies are properly reporting their financial position. In the case of Ghana, prior to their collapse some of the banks had persistently failed to publish their financial statements – or doctored figures to deceive the public that they were financially sound.

Other gatekeepers include rating agencies, which are supposed to help investors keep an eye on developments that might change their expected returns; securities markets regulators, who are supposed to make sure that markets are ‘fair’ – e.g. by enforcing insider-trading and market-abuse regulations; and finally, independent directors – who are supposed to monitor the behaviour of executive directors and companies from the boardroom.

It has been proved that gatekeepers have conflicting interests and/or limited capacity to monitor. In theory, gatekeepers should keep companies and investors honest; but in practice many gatekeepers cannot or do not want to do this. Sadly, current practices still leave auditors and rating agencies dependent on the financial information supplied by companies.

The need for binding legislation

The previous paragraph highlights the fact that a key issue in development of the sustainable company is the degree to which a binding legislative framework is necessary. On one hand the argument that government cannot simply legislate sustainability has some merit; conversely, the argument by a portion of the sustainability community – that sustainability is in the (enlightened) self-interest of companies, and thus can for the most part be supported by voluntary initiatives – is not plausible. Therefore, this begs the question: when is binding legislation necessary and desirable to support proliferation of the sustainable company?

I think that a clear statement that the company’s primary responsibility is not only to increase shareholder value, but that as a social entity it is obligated to pay attention to the interests of stakeholder groups – and not only is it the right thing to do, but it’s also important to do it right. Such an understanding is already embedded in the company law of several countries, but I am not sure if Ghana’s company laws make provision for compulsory company sustainability. The poor governance structure and abuse of shareholder powers which led to the seven banks’ collapse should provide a timely awakening for our government and legislators.


Broomhill, R. (2007) Corporate Social Responsibility: Key Issues and debates. Dunstan Paper

No. 1/2007

Freeman, R. (1984) Strategic Management: A stakeholder approach. Pitman Publish. Boston. US.

Vitols, S., and Kluge, N. (2011) “The Sustainable Company: a new approach to corporate governance.” European Trade Union Institute. Vol. 1.

(***The writer is a Development and Communications Management Specialist, and a Social Justice Advocate.  All views expressed in this article are my personal views and do not represent those of any organisation(s). (Email:

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