Paradigm-shift

I think there is a lot of wisdom in the popular saying, “the unexamined life is not worth living”. Though its literary meaning relates to the human person, we also see its application to businesses or companies as artificial persons. Business owners normally take stock of their businesses and adopt new strategies to improve existing situations for the better. To obtain more resources for new initiatives, businesses explore many financing options which are feasible and suitable to the nature of their operations.

Indeed, individual entrepreneurs or companies registered in Ghana are not immune from the financing challenges which confront business managers in other countries. But one critical observation which many people have made about the Ghanaian businessmen that limits them from raising enough capital to grow their businesses is the clenched-fist attitude to wielding controlling interest (or 100%) equity ownership in their businesses. This is influenced by their fear factor of losing control over the companies when their shares are diluted.

Nonetheless, some businesses explored the options and invited the public to buy shares in them by way of listing on the stock exchange. As one of the well-organised and regulated platforms for raising long-term capital, the securities’ industry players encourage many companies – including banks – in the country to get listed on the Ghana Stock Exchange to enjoy the benefits thereof. For instance, when the Bank of Ghana announced the new paid-up capital of GH¢400million in September 2017, many were of the view that it offered banks which hitherto were not listed on the local bourse an opportunity to explore this financing option.

So far, apart from GCB Bank, adb Bank and CAL Bank which make the list of nine (9) banks currently listed on the Ghana Stock Exchange, the other local banks don’t trade on the bourse. We need a paradigm-shift to increase the number of banks on the bourse. Indeed, the Bank of Ghana has recently given indications of assisting in streamlining the complex processes involved in the listing process to encourage more banks to go public. The central bank’s resolve for more banks to list on the stock exchange is not only to help them raise more equity capital, but also to strengthen them within the realm of sound corporate governance.

The decision is strongly motivated by the fact that the central bank identified weak corporate governance as the root of problems which caused seven banks’ recent liquidation in the country. Listing on the stock exchange is therefore expected to improve their corporate governance. In fact, it is part of the reform strategy to collaborate with other financial regulatory bodies on building a resilient financial services sector that will support the country’s economic growth. A strong collaboration means the regulators will work together to ensure that listed banks comply strenuously with the Securities law and the Ghana Stock Exchange Listing Rules, while not forgetting their obligations under the Specialised Deposit-Taking Institutions Act (930) 2016.

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We can consider the collaborative effort as a clarion call that is worth supporting by stakeholders in the financial services industry to enhance the much-talked-about corporate governance.  But then, what lessons have we learnt from the experiences of companies which were listed on the stock exchange(s) but could not live up to the demands of sound corporate governance? What can we do differently to correct the wrongs of the past and secure the future?

Experiences from some listed Corporates

Encompass Health, until January 2018, was called HealthSouth Corporation and listed on the U.S. Stock Exchange. Around 2003, the company was involved in a corporate accounting scandal involving misappropriation of assets and fraudulent financial reporting. The founder and chief executive officer, Richard M. Scrushy, was accused of directing his employees to falsify the company’s earnings to meet investor expectations and control the price of the company’s stock. The fraud continued for seven years (emphasis mine) before the U.S Securities and Exchange Commission got wind of it.

In the wake of the 2001 Enron scandal, accounting standards were improved and continued as such to enhance corporate transparency – but that could not deter Madoff Investment from committing stock and securities fraud discovered in late 2008 in the U.S. Indeed, we heard of other cases in which some listed companies were able to act on the blindside of regulators – until that time when they could not have luxury of ‘borrowed time’ to correct the deliberate wrongs of impropriety or cooking the books.

Based on the foregoing viewpoints, the case of the erstwhile UT Bank, which traded on the Ghana Stock Exchange until its licence was revoked in August 2017 by the Bank of Ghana, is worth citing. It was the case that the bank could not live by its corporate governance underpinnings, even though it was under the watchful eyes of the two regulatory and supervisory institutions. The lessons from their experiences reveal that companies can still fail to operate by the tenets of sound corporate governance whether they are listed or under the supervision of different regulatory bodies simultaneously. This brings to the fore the need to consider what we can do to bring a paradigm-shift in the reporting systems, monitoring and supervisory strategies to ensure there is compliance in its strictest sense for our operations.

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Compliance Culture

We have always had policies in our banks required by regulation, but it is always tempting to breach the policies when there is a weak culture of compliance. Thus, in an environment where there is a weak culture of compliance, policies are considered mere formalities and disregarded. To note, credit policies are the most breached of all policies in our banks or financial institutions. How many times haven’t we heard or seen in some circles credit papers (reports) written as mere formalities, even when the loans had already been disbursed in advance? Concerning the Madoff Investment case in the U.S., the company had chief compliance officers to ensure the company met regulatory standards – but they turned a blind eye to unethical conduct.

In our banking environment today, we can smell or see outcomes of non-adherence to policies. The paradigm-shift that is required to ensure there is adherence to the policies, reporting systems and regulations is to build a strong culture of compliance on all fronts – in the banks, regulators, and other connected agencies. It is not enough to have the compliance policies; the culture required for the policies to work must be given priority attention. The benefits and long-term consequences of breaching the policies should be clearly communicated to staff and other stakeholders.

In addition to the reform programmes in the banking sector, banks and regulators must preach the compliance gospel regularly, so that they become the way of life in our institutions. It is worth recognising that the foundation for building this strong culture of compliance rests on ethical values and procedures for punishing misconduct when it occurs. It must be admitted that there is no perfect system or model anywhere that averts crises, but when we change our old ways of doing things to the new and well-considered ones the dividends are enormous. That is the whole essence of a paradigm-shift.

God bless You for reading. Have a blessed time!

 

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