Is looking for ways to make its debt-ridden energy sector more efficient with privatisation of ECG suggested. However, privatisation has not only been tried at ECG before but in GWL and other local firms with disastrous results. Some say that, from Ghana’s over 400 privatisations, very few have succeeded. Globally, many private companies fall including Pamalat, Enron, Freddie Mae and many others. These failures resulted from lack of proper Corporate Governance (Corp Gov) which Ghana has also taken for granted. This neglect had led to the failure of also state-owned companies. I stumbled into pursuing an MBA in Corp. Gov. at the UPSA-Accra where I realised that our problem is not private or public ownership but the lack of effective Corp. Gov as it is taken as token, a decoration or used to placate people.
However, Çorp Gov. is the key to organisational success. In Ghana, many financial institutions collapsed or were shut down by the Bank of Ghana. All were private. Had they been state-owned, people would have called for their privatisation. However, because they were private, no one noticed. Despite calls for privatisation, Ghana has a relatively smaller public sector than many developed nations. Public sector size does not reflect level of prosperity, e.g., public sector employment in Ghana is 11, compared to Zambia (9.7 percent ), Senegal (8.7 percent ), Mali (8.1 percent ), China (50 percent ), USA (17.6 percent ), UK (21.5 ), Sweden (30 percent), Singapore (40 percent ), France (29percent ), India (55) and Germany (15.3 percent ). Therefore, and in supporting the government’s quest to inject efficiency into ECG, I suggest improving Corp. Gov. as a solution. If we try it in our public sector in the short run and after the first year the problem does not resolve, then we could look at privatisation.
Corp. Gov., defined as the system of rules, practices, and processes by which organizations are directed and controlled, is not management. It opines that humans are by nature selfish and left on their own, will seek personal interest instead of their owner’s even in simple businesses like someone running your taxi or your shop. Prior this MBA, I like many Ghanaians had seen management and leadership as the key to organisational success. I got surprised at the lack of focus on management. I almost dropped the program thinking I had been tricked into paying huge moneys to learn about company boards which I had assumed were not active in organizations. I realised Ghana’s problem. We had been so unserious about Corp. Gov. that even though we adopted our companies act in 1963 from England’s own of 1948, by 2018 we had not reviewed ours whereas England out of changing dynamics had reviewed theirs in 1967, 1976, 1989, 1991, 1985, 1989 and 2006. Also, the absence of proper corp gov even in our private sector is the main reason why companies don’t survive their owners. Why is Corp. Gov., underpinned by certain theories, relevant to running ECG?
Firstly, its agency theory states that owners of businesses employ agents to run it for them. The agents, left alone will follow their own self-interests instead of the owners’. Boards who direct and control the managers are a cure to this problem.
Its stakeholder theory holds that organisations must be accountable to their stakeholders, and balance the varied interests. Consideration must be given to entities that can affect organisations or are affected by organisational activities. It advocates that companies should not only consider profits but how company and societal interests interplay. In board and board committee composition therefore, key stakeholders must be incorporated.
Its resource dependency theory says that organizations need resources for effectiveness and thus those with access to resources need board representation.
Its stewardship theory says that “stewards protect and maximise owners’ wealth through firm performance, as in doing, the steward’s utility functions are maximised”. Agents then work as good stewards. It suggests that satisfaction and motivation is achieved by stewards when organizational success is attained. It holds that certain structures can cause the steward to become autonomous and trustworthy. Reputation is seen as a motivation for which a steward will pursue his owner’s objectives. This includes proper renumeration, reward and praise of good stewards and punishment for bad ones.
The transaction cost theory sees organizations as a sum of contracts that organizes and regulates transactions to attain contractual obligations. It considers most efficient ways of performing economic transactions through a most efficient governance structure besides explicit and direct fees and is implicitly linked to monitoring and controlling transactions. It argues that if costs are considered, and it is cheaper to outsource an activity to the market, it should be done.
The political theory suggests active investors changing corporate policy by developing voting support from dispersed shareholders, rather than by just purchasing voting power. For example, consumers as a block could be given more say in determining how ECG operates by getting them involved in AGMs or divesting some ECG shares.
Internal control helps prepare periodic accurate and complete financial statements to protect and prevent companies from operating risks by implementing functional controls. In America, the Sarbanes-Oxley act helped regulate the internal control systems of public companies while in Europe adopted a market regulated approach. Good internal control systems has a framework including control environment, risk assessment, control activities, information and communication and monitoring activities.
Boards control and direct. However, due to time and resource constraints, specific tasks are delegated to committees. Therefore, the existence and effectiveness of committees is essential to effectiveness. Various committees based on needs include Finance and Administration, Audit, Remuneration and Nomination committees. For those engaged in technical work, a technical committee is required.
Transparency and the Swedish example
Transparency is very important to Corp. Gov. Sweden has practiced it for centuries. Sweden has a very efficient public sector with low corruption, consistently performing well on the corruption perception index. This results from Sweden’s model of Public Administration, distinguished from that of all other countries by a high degree of openness, accountability and autonomy for civil servants and a high incidence of “‘corporatism’ or institutionalized involvement of organized interest groups”. The high openness and accountability emanate from mandatory public access to official documents under the ‘Offentlighetsprincipen’ loosely meaning ‘assess principle’ adopted in 1766. It says ‘all documents that come in to, are stored at, or leave an administrative agency, or that are produced as a result of agency activities are public documents and must be accessible to anyone seeking to see it’. Exceptions are classified documents, documents containing personal and sensitive info about individuals unless the person gives consent, internal working documents (IWD), and documents containing information about corporations that, if released, would put them at a disadvantage when in a competition such as a closed bidding process, but expires at the end of the process. IWD and classified documents are released upon a petition asking for them to be made public. IWD become public if they are referred to in a decision by an agency or used as a basis for a decision. Within this principle, a requester for information can remain anonymous. Ghana’s freedom of information act appears to be a watered-down version of Sweden’s Offentlighetsprincipen.
The Swedish system is also distinguished by ‘dualism’: a clear demarcation between political ministries and MPs and non-political agencies. It is illegal for politicians to interfere with affairs of public agencies; Ministers can however generally control particular agencies under them but are not allowed to interfere in issues regarding specific cases or decisions concerning individual entities. The Government can however appoint agency heads and use informal contacts between political appointees in the ministries and agency personnel. Swedish public sector companies issue annual reports. Some hold AGMs. Annual reports of all 50 Swedish state-owned companies including two traded publicly are publicly accessible.
Suggested key stakeholders on ECG’s board may include consumers, industry, labour, power producers, reps of energy engineering, probably GRIDCO, security agencies as well as legal and finance experts and probably a worker’s rep as its sister utility, the GWL has. (Workers immediately see problems and can inform boards) and most important, government.
It should be looked if some of ECG’s duties could be outsourced.
The government needs greater accountability from its companies and should strengthen openness in them.
The state should make ECG hold public AGMs attended by stakeholders where ECG will account of its stewardship and present audited accounts. The state could also offload some of its shares on the stock exchange to 1 raise capital and 2 to bring more stakeholders.
It is in government’s interest to have independent, knowledgeable people as board members. ECG’s titular owner the state is represented by the president who himself is the people’s agent. Thus, the one to whom the board is supposed to hold the agents accountable is himself an agent. Because the president comes to power with the assistance of many quarters, it is important that he plays an arm’s length role in running ECG to free himself of pressure from them.
Corp.Gov. also considers relationships organisations have with their working environment. Among these is the regulator. Ideally, competition regulates. However, in its absence, a regulator plays that role. Regulators must thus be left to play their role. ECG’s regulator by law is supposed to look at its needs and that of consumers, the national economy and that of investors before coming out with tariffs. In its tariff decisions, therefore, PURC seeks the views of all stakeholders including government. PURC’s parent act incorporates stakeholder representation; consumers, industry and labour on its board. Because so many factors are looked at before tariffs are arrived at, it is important that undue influence is not placed on PURC by politicians ordering it to lower tariffs by a particular percentage as this makes the regulator’s position untenable; if it goes against it, it will be seen as antagonistic; if it goes towards it, it will be seen as doing the government’s bidden.
One aspect of privatisation is always overlooked: between two organisations run similarly, there is a cost for the private one that is missing from the public’s; the amount to be paid to the private entity or the profit evacuated. For a country reeling under capital flight, leading to forex losses1, allowing companies to export their capital will worsen the forex problem increasing the headache of the energy sector.
It is entirely possible, however, that only privatisation can save ECG. I however urge government to consider Corp. Gov. as a cure failing which it can call in the private man.
If President Mahama can improve the public sector, his legacy will last.
The writer is a civil and water resources engineer with degrees and an MBA in Corporate Governance.
BY DANIEL ASSEH ALLAN