Effective managerial control through proper director conduct

Effective managerial control through proper director conduct
  • A good director creates an environment which gives the actor the encouragement to fly” – Kevin Bacon

The business of the company shall be managed by the board of directors (the board) who may exercise the power of the company which has not been given to the members in the constitution of the company.

The policies, risk management, financial growth, human resource development, controls, etc. are the cardinal responsibility of the board of directors.

On the other hand, the health of all companies is critical to the country’s preferred economic progress, and this may be impacted to a considerable extent by directors doing everything in their ability to promote the company of which they are directors. The structure and language of the regulatory framework impacting directors’ duties and the proper execution of those laws can have a big impact on them.

Directorship is not a post to be occupied but a call to service by competent personnel in the best interest of the company. As directors spend their expertise and time, and dedicate themselves, without conflict of interest, to serve companies, the same companies must take the necessary steps to develop directors’ capacity to perform their functions judiciously. The envisioned result of these measures is better-equipped directors, better corporate governance, and better alignment of companies.

Directors are not only expected to work in the best interests of a firm as a whole to improve corporate governance in the country. Directors must act in the same way as a faithful, conscientious, careful and ordinary skilled director would act in similar circumstances to maintain the company’s assets, advance the business, and promote the purposes for which the company was created.

The link between corporate governance and responsible management development is intuitive, given the political nature of management implementing company effectiveness, and considering the cause/effect relationships between methods chosen to satisfy stakeholders, strategic targets, operational targets, and effective results.

The efficacy of management control is linked to the achievement of chosen strategic and operational goals as well as the reduction of risks. It necessitates internal penetration and consistency, as well as the flexibility to react to changes in management policy and the surrounding environment.

Indeed, managerial control must be reconfigured as corporate governance attempts to completely acquire all of the elements required for business success. At the same time, governance must understand how to take advantage of effective management control process opportunities that are part of the global internal control systems (internal control in the strict sense, internal auditing, and management control) that are closely linked to cost/benefit logic.

Changes in industrial systems and products, as well as organisational, information, competition and market variables, all influence management control. As a result, recent changes in the competitive landscape have unquestionably emphasised the need for management control and company effectiveness, while also adjusting essential aspects and observation parameters.

According to the Bank of Ghana, which regulates banking and other specialised deposit-taking businesses in Ghana, the banking industry’s problems stem from “supervisory weaknesses, regulatory breaches, corporate governance failures, insider dealings, and accounting and financial improprieties, among other things.”

The remaining issues, aside from the recognised supervisory flaws that were internal to the regulator, were entirely internal to the banks. Proper director conduct and good managerial oversight might have and should have prevented these incidents. In one way or another, these are all issues of corporate governance. The Central Bank’s initiatives, such as giving new guidelines to banks and other financial institutions on corporate governance, risk management, and bank capital bases, among other things, reflect this. ‘A Corporate Governance Directive’ and ‘A Fit and Proper Persons Directive’ are two of Bank of Ghana’s regulations that acknowledge the unethical human factor in the banks’ failures.

Unscrupulous related party activities were at the root of many of the corporate governance shortcomings and regulatory violations. The Official Administrator designated for one of the failing banks said in June 2018 that advances by the company’s directors and management to shareholders and linked parties totalled a little over US$1.1billion, representing three-quarters of the bank’s total assets. Many of these loans were alleged to have not verified or incomplete origination documentation and checks. Between 2017 and 2018, this was a recurring element in the level veiled against the directors of the seven largest collapsed banks.

While these banks and other specialised deposit-taking institutions are specially regulated companies subject to additional regulation beyond general company law, the recent lapses in corporate governance within them provide a good context in which to examine wider concerns about director conduct in Ghanaian company law.

Internal control & risk management by directors

The presence of a registered constitution with pre-approved checks and balances helps to limit or regulate risks in corporate management. While it is not required for a corporation to file a customised constitution, it is an option. However, if it chooses not to customise its constitution, the conventional constitution outlined in Act 992 takes precedence. A constitution would normally regulate crucial issues such as the number of directors and meetings, as well as the company’s dividend policy and other critical issues.

The payment of dividends is frequently a source of disagreement among business members. The dual engagement of both directors and shareholders in the declaration and payment of dividends is frequently the source of division. Directors decide whether or not dividends will be paid in a given financial year, and shareholders approve or ratify the dividend payment by ordinary resolution.

Certain resolutions must also be approved by the court after being passed by the corporation in Ghana. Thus, for acts like lowering the company’s stated capital, lowering the unpaid liability on any shares, returning assets to shareholders, or cancelling shares, which require changing the constitution, the resolution would have to be validated by a court after it was enacted.

Potential criminality

Directors must conduct corporate business with the understanding that their acts may expose the corporation to criminal culpability, and that liability might attach to the company just as it would to a human. When one considers that the firm would not be relieved of duty if a director behaved illegally or faked documents in pursuit of the objective, the magnitude of the risk becomes even more persuasive. This must be balanced against the realisation that not all activities of directors can bring the company into disrepute.

Thus, the act of a director or officer can only be attributed to the firm if the board of directors, shareholders at a meeting, or the managing director has specifically authorised them to do so. At the very least, the individual director must be able to establish that he was given specific authority to act at some point before executing the action. As a result, it is in the board’s best interests not to leave any individual’s standing as a director in doubt.

Directors’ duties under the Companies Act, 2019 (Act 992)

The directors have a fiduciary responsibility to the company. Also, directors are required to behave in good faith and the best interests of the company at all times because they hold a position of trust. This entails both the preservation of the company’s assets and the advancement of the company’s business interests. For instance, directors of companies are not allowed to use the company’s assets for personal gain.

The standard expected of directors includes the need to evaluate the repercussions of any decisions they take, as well as the need to maintain high standards, and a positive brand image. The directors are responsible for managing the company’s business, in line with the Second and Third Schedules of Act 992. They have been mandated to pay any fees and expenses related to promoting and registering the company out of the coffers.

The subjective component of a director’s competence responsibility may be construed as encouraging autonomous judgment. When the director is aware that exercising independent judgment is protected under the law, even if it appears counter-intuitive, it can assist avoid the herd effect. Under Act 179, the subjective aspect of the director’s competence obligation was merged with the duty to exercise care. However, there is a distinct and more specific provision in Act 992 that states that a director must use independent judgment.

This admonition will not go unnoticed by astute observers of the purported causes of numerous financial sector institutions’ insolvencies in Ghana between 2017 and 2019. A common thread running through all of the corporate governance horror stories arising from bank, savings and loan, microfinance, and finance house insolvencies is that a powerful personality, often also the majority shareholder, chief executive officer, or board chair of the company, acting alone or with nominees or related parties, effectively reduced the other members of the board to rubber stamps in sometimes reckless corporate decision-making. These board members had grown accustomed to acting on the whims of this powerful personality, with little evidence of thoughtful, independent, and individual assessment of the issues before the board.

Enforcement of directors’ duties under the Companies Act, 2019 (Act 992)

Act 992 did not affect the scope of the provisions relating to proceedings to enforce liabilities arising from directors’ breaches of duty. The company may begin proceedings to enforce the stated liabilities, to restrain a threatening violation of duty, or to collect from a director a company property, often on the authority of the board or by a member. Additional obligations can be enforced by the board of directors, a receiver and manager, a liquidator, the members in general meetings, and the Registrar of Companies can start proceedings in the company’s name following an investigation of the company’s business. The legislative recognition of derivative proceedings expands the scope of these rules, slightly altering the proper plaintiff rule. A court may grant leave to a member or director of a company to bring proceedings in the name and on behalf of the company, or to intervene in proceedings in which the company or any related company is a party, to continue, defend, or terminate the proceedings on behalf of the company, on application by the member or director. This is an extra way to enforce good director behaviour, especially if the corporation is unable or unable to file a lawsuit.


In conclusion, proper director conduct is a high-stakes game that will enhance effective managerial control. According to Act 992, regulating director conduct depends more on specific rules than on the traditional principle-based regulatory technique. Some of the specific declarations governing behaviour may have been drawn from the general principles without the necessity for an explicit statement of rules, it is debatable. Those who favour minimalist language with a narrow scope may argue that the specified rules are unnecessary. However, the additional and clear statement of basic norms, in addition to the concepts carried over from Act 179, leaves little doubt about the new legislative goal to stop reckless business activity, particularly in systemically critical sectors of the economy. All of this suggests that when Parliament and the government passed Act 929, they took the repercussions of director misconduct very seriously. It strengthens and unambiguously regulates their behaviour.

The new legislation’s scope, formulation, and structure of directors’ obligations are capable of encouraging corporately advantageous director behaviour, while also being suited to dealing with recent failures in corporate governance that resulted in financial sector insolvencies. A good law must be backed up by prompt and proactive enforcement. The health of all companies is critical to the country’s preferred economic progress, and this may be impacted to a considerable extent by directors doing everything in their ability to promote the company of which they are directors. Support by government in director education on their responsibilities to the company could be a good contribution.


Company Act, 2019 (Act 992) – Ghana

Company Act, 1963 (Act 179)

Company Law in Ghana – Prof. Philip Ebow Bondzi-Simpson

The Modern Principles of Company Law in Ghana – Ferdinand Adadzi, Head of Corporate & Finance Practice and partner of AB & David,

Business and Financial Times, ‘Poor corporate governance and the collapse of banks’ (B&FTonline, August 13, 2018) accessed 16 September 2018;

Joy Business, ‘Poor Corporate Governance to Blame for UT, Capital Bank Collapse (Myjoyonline.com, 14 September 2017) accessed 16 September 2018.

The writer is a Ph.D. candidate, CEPA, CFIP, ATA MIPA, ChMC, AMCFE, and Researcher

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