Empowering Shareholders: A path to strengthening corporate governance and accountability

As Ghana’s corporate sector expands, the role of shareholders becomes increasingly critical in ensuring transparency, ethical behaviour, and profitability. Shareholders, especially those with substantial stakes, are positioned to influence corporate governance directly.

Yet, their effectiveness hinges on the robustness of legal protections and remedies when their rights are infringed. This feature explores the evolution of shareholder rights in Ghana, examining real-life corporate cases, financial data, and the role of key stakeholders in enhancing corporate governance.

The Corporate Landscape in Ghana: Key Stakeholders

The corporate governance framework in Ghana is supported by various stakeholders whose roles are pivotal to ensuring a fair and transparent business environment:

1. Shareholders – Core investors who have a direct interest in corporate performance and governance.
2. Corporate Directors and Executives – Responsible for the company’s strategy and day-to-day operations.
3. Regulatory Bodies – Institutions like the Securities and Exchange Commission (SEC) and the Registrar of Companies oversee corporate conduct and ensure compliance with laws.
4. Legal Practitioners – Lawyers and advisors who protect shareholder interests.
5. Policymakers – Lawmakers shaping the corporate governance framework, especially through the Companies Act, 2019 (Act 992).
6. Civil Society and Advocacy Groups – Promote transparency, accountability, and strong governance practices.

Shareholder Rights in Ghana: Current Realities, Cases, and Challenges

1. Right to Information: Transparency in Corporate Governance

Under Section 127 of the Companies Act, 2019 (Act 992), shareholders are entitled to access critical company documents, such as financial statements and meeting minutes.

This provision is foundational to promoting transparency. However, enforcement of this right remains inconsistent, particularly for minority shareholders.

One significant case that tested these rights was the Republic vs. Pioneer Kitchenware Ltd (2021). In this case, minority shareholders were denied access to financial records despite repeated requests.

The courts ruled in favor of the shareholders, reinforcing their right to access essential company information. This ruling built on earlier decisions, such as Re Akai Foods Ltd. (2020), where shareholders fought for access to critical financial documents. Despite judicial victories, delays in enforcement remain a significant challenge, particularly for smaller investors.

According to the Ghana Stock Exchange (GSE) 2023 report, companies listed on the exchange recorded a 7.5% increase in profits, with a total payout of GHS 3.5 billion in dividends.

Yet, despite these gains, numerous complaints have been raised regarding the transparency of dividend declarations and financial reporting. Instances of financial manipulation were cited in the case of Fan Milk Ghana (2022), where discrepancies between reported profits and actual dividend payments raised red flags among shareholders.

2. Right to Dividends: Ensuring Fair Distribution of Profits

Section 129 of the Companies Act entitles shareholders to receive dividends from company profits. In 2023, dividend payouts in Ghana totaled GHS 2.5 billion, with companies like Ghana Oil Company (GOIL) and CAL Bank being key contributors.

Despite this, some companies have faced legal challenges over the fairness of their dividend distribution policies. For example, in the case of AngloGold Ashanti (2022), minority shareholders contested the company’s decision to withhold dividends due to alleged reinvestment plans. The court ruled in favor of shareholders, reinforcing the principle that companies must align their dividend policies with shareholder interests.

3. Voting Rights: Shareholders’ Direct Influence on Corporate Decisions

Section 172 of the Companies Act mandates that shareholders’ voting power be proportional to their holdings. This ensures that those with larger investments have more say in crucial decisions such as director appointments and mergers. However, shareholder apathy remains a problem, with participation rates in general meetings often below 50%, according to the SEC’s 2023 report.

In 2021, a landmark case involving Benso Oil Palm Plantation highlighted the issue of passive voting. The majority shareholder group used its influence to push through decisions that harmed minority shareholders.

The case led to calls for regulatory bodies to mandate more transparent voting processes, ensuring that all shareholders, regardless of stake, are adequately informed and can actively participate in decision-making.

Strengthening Remedies for Shareholders: What More Can Be Done

1. Derivative Actions: Safeguarding Company Interests

Section 202 of the Companies Act permits shareholders to file derivative actions when company interests are at risk. This mechanism was notably used in Republic vs. UT Bank (2017), where shareholders accused executives of mismanaging company funds, resulting in its collapse. The case underscored the complexities of pursuing derivative actions in Ghana, as legal costs often deter shareholders from taking action.

To empower shareholders further, reforms are necessary to simplify the derivative action process and reduce associated costs. According to a 2023 study by the Ghana Institute of Management and Public Administration (GIMPA), 68% of shareholders believed the legal process was too cumbersome, while 72% cited financial constraints as the main deterrent to pursuing legal action.

Unfair Prejudice Remedy: Protecting Minority Shareholders

Section 218 of the Companies Act offers protection to minority shareholders from actions that are oppressive or prejudicial. In the case of Tullow Oil Ghana (2023), minority shareholders brought forward claims of unfair prejudice, arguing that the company’s board had approved significant executive bonuses while withholding dividends. The court’s ruling in favor of the minority shareholders set a strong precedent, emphasizing the need for corporate fairness in decision-making.

Despite such victories, challenges remain in the enforcement of unfair prejudice remedies. The number of cases brought under this provision tripled from 2019 to 2023, reflecting its increasing importance in Ghana’s corporate environment. Yet, enforcement delays continue to frustrate shareholders, with cases often dragging on for years due to backlogs in the judicial system.

Enhancing Corporate Governance: A Call to Action for Stakeholders

For Ghana’s corporate governance system to function effectively, all stakeholders must be proactive in protecting shareholder rights. Key actions include:

1. Shareholders: Take an active role in company governance by attending meetings, voting on key issues, and holding executives accountable. Education on shareholder rights is essential, particularly for minority investors who often feel disenfranchised.
2. Corporate Directors and Executives: Promote a culture of transparency by ensuring that shareholders have access to relevant information. Regular updates on company performance, especially during economically volatile times, can help foster trust.
3. Regulatory Bodies: Strengthen enforcement mechanisms. The Registrar of Companies and the SEC must conduct regular audits and enforce penalties when companies violate shareholder rights.
4. Legal Practitioners: Offer accessible legal services, especially to minority shareholders, and advocate for reforms that simplify the derivative action process.
5. Policymakers: Update corporate governance laws to reflect modern practices and align with international standards. Simplifying procedures for initiating legal actions and improving court efficiency are critical steps.
6. Civil Society and Advocacy Groups: Continue raising awareness of shareholder rights and the importance of corporate governance. By educating the public, these groups can help foster a culture of accountability.

Conclusion

The future of Ghana’s corporate governance system lies in the empowerment and protection of shareholders. By addressing the challenges of transparency, dividend distribution, and shareholder participation, and by strengthening legal remedies, Ghana can cultivate a robust corporate environment that attracts investment and promotes economic growth.

Collaborative efforts between shareholders, directors, regulators, legal practitioners, and civil society will be critical to creating a corporate culture that is transparent, accountable, and equitable. With stronger governance, shareholders will be better positioned to drive the success and sustainability of Ghana’s corporate sector.