In my recent article titled “At the regulatory front, 2018 is poised to be the busiest year in the Banking history in Ghana”, I noted item 6 as this
- Bank of Ghana corporate governance directives
Based on an address made by Dr. Ernest Addison, Governor, Bank of Ghana (BoG) at the Annual Dinner of the Chartered Institute of Bankers Ghana on Dec. 2, 2017 (https://www.bog.gov.gh/privatecontent/Speeches/Speech_Annual%20Bankers%20Dinner_Final%20Dec%202017.pdf), Bank of Ghana soon will release directives on corporate governance for the banking sector. Among others, these directives will focus on oversight responsibilities of the Board of Directors and bank management, prioritize risk management systems, and ensure independent audit roles, among others. In particular, the guidelines will impose the tenure of Chief Executive Officers and Non-Executive Directors of banks, the size of bank Boards, the retiring age for Directors and disclosure of attendance at Board meetings by Directors in annual reports.
I have being thinking of highlighted item in red and asking myself two questions :
- Does Bank of Ghana have the legal right to dictate tenure of Chief Executive Officers and Non-Executive Directors of banks and
- Aside BoG prescribing the tenure , is there any other way BoG can achieve the same objective
Question 1: Does Bank of Ghana have the legal right to dictate tenure of Chief Executive Officers and Non-Executive Directors of banks?
First of all what does the law says:
Section 56 of Banks and Specialized Deposit-taking Institutions Act 2016 (Act 930) requires that the Bank of Ghana may prescribe rules regarding any matter of corporate governance of a bank, including matters relating to
(a) the scope and nature of the duties of directors of a bank,
(b) the requirements for audit and other specific committees of the Board;
(c) the responsibilities of key management personnel;
(d) risk management;
(e) internal audit; and
(f) internal controls and compliance.
From a layman standpoint, one can take a position that BoG can set rules around the scope and nature of duties of directors of a bank, but tenure not so sure???
Playing the devil advocate again, it sounds that the law says any matter of corporate governance and used including? So again a layman approach to this means, BoG is allowed to go very far? But how far can they go? I don’t know. This looks to be a 50% game here? Is there other ways BoG can achieve the tenure objective? Let’s go to my question 2 .
Question 2 : other ways BoG can achieve its objective
Barring any challenge to BoG on prescribing tenure of Chief Executive Officers and Non-Executive Directors of banks, I think they can achieve same result if they have this phrase in their yet to release corporate governance guidelines like my regulator (OSFI) here in Canada has (see http://www.osfi-bsif.gc.ca/Eng/fi-if/rg-ro/gdn-ort/gl-ld/Pages/CG_dft_Guideline.aspx) . They can require this.
The Board should have a director independence policy that considers the specific shareholder/ownership structure of the institution, as well as director tenure.
In order words using the powers specified in subsection a) of section 56: (the scope and nature of the duties of directors of a bank) , BoG can force banks to prescribe the tenure of their Chief Executive Officers and Non-Executive Director and challenge each bank on their tenure policy by asking how does your tenure achieve independence . Independence is the principle here! Bingo ! BoG will not be challenge if they do that, because they have that legal right to prescribe the scope and nature of the duties of directors of a bank.
In most case, it is good to go by principle approach rather than prescriptive approach.
Like I advise them on IFRS 9, they shouldn’t worry themselves prescribing rules, they should challenge banks on their methodology and assumptions and most importantly, ask banks to back test their assumptions? Back testing/validation is where they can get banks, not prescribing rules. Back-testing is requiring in IFRS 9 and any estimation gymnastics.
My overall advice to BoG, please it is always good to go by principle approach. Provide broad principle guidelines and challenge people around the principle, if you go with the approach of setting rules? There is always loopholes.
What I find interesting here in Canada is that IFRS is applied in principle way and the regulator set broad principles around their expectations and little rules? Before I came here my approach to IFRS was apply the letter and not the underlying principle? Honestly, it appears in some cases I did not even understand the underlying principle of a particular IFRS standard. I only used to read only the standard, I was not reading the basis of conclusion, diverging views expressed during the standard setting process and implementation. After 5 years in banking industry working on risk management, accounting policies and business strategy , it is very hard for you punch holes in my accounting white paper, simply because before I put up a white paper, I would have read the entire standard, basis of conclusion and read all the big 4 firms accounting manual. So if you E&Y or KPMG or D&T or PwC and look at my white paper, you will see your views there and how I have debunk it to arrive at my conclusion. When I put up over 20 white papers on adoption of IFRS of my bank $3billion investment funds 3 years ago, not even single comment from E&Y and the regulator called OSC.
Taking about the principle approach again, when Canadian banks issued their IFRS 9 impact there was no surprise because the way Canadian banks were applying IAS 39 is like current IFRS 9 , which is different from the European banks were going about IAS 39. The magic here was that the regulator issued a broad principle approach for banks to adopt IAS 39, the regulator was simply challenging the banks through their own back-testing or validation. So BoG please consider a principle approach and challenge banks based on principles, challenge them using banks own back testing results, insist on annual back-testing of estimates. I rest my case for now.
By Emmanuel Akrong