Walter Institute is a research organization with branches in five African countries. The majority shareholder, Mr. Walter though not recognized in the company’s organizational structure, is actively involved in management. He gives directives and instructions to management and employees which are sometimes in direct contravention with the policies of the organization. Customers, employees and management are often affected in various ways by the decisions of Mr. Walter.
Preparations are underway to get the company listed on the Ghana Stock Exchange and a consultant is needed to advise on the improvement of the weak corporate governance status of the company.
Required:
Explain to Mr. Walter what is meant by good corporate governance, including the problems it is intended to address. (4 marks)
View Solution
There is good corporate governance when an organization is properly directed and controlled. This involves two issues – good performance in terms of value creation, resource utilization, risk management; and conformance which means complying properly with relevant regulations and being accountable and trustworthy. The company should operate in a manner that serves the best interests of its stakeholders including its shareholders and investors by performing well economically.
Good corporate governance is intended to manage the agency problem which is that directors act as agents of the company but may find their interests conflicting with those of the company. Directors are in a privileged position and are likely to act to serve their interests at the expense of shareholders and other stakeholders.