“Capacity Building on Corporate Governance for
Financial Institutions and Corporations in Africa”
Note Prepared by:
Mr. Abdoulie Janneh
President of the Governing Board at the African
Governance Institute
Board Member/ Executive Director of the Mo Ibrahim
Foundation
AFREXIMBANK Customer Due Diligence and Corporate
Governance Forum
Dakar, 28-29 October, 2014
INTRODUCTION
This note is prepared for presentation at the Afreximbank Customer Due Diligence
and Corporate Governance Forum. It focuses on the findings and recommendations
of the study by the African Governance Institute (AGI), financed by the African
Development Bank (ADB) (October-December 2012). The study was to respond to
the Bank’s need for appropriate information on the dynamics of corporate
governance needed to help them maximize the impact of its action in Regional
Member countries (RMCs). Through this study, ADB wished to have new elements of
reflection to bridge this knowledge gap. I will thus present a synthesis of the results
of this work, its conclusions which are also applicable to other companies in the
organized private sector and multinationals in Africa.
PARAMETERS OF THE STUDY
Several clarifications need to be made at this stage.
a) To carry out this study, AGI adopted the definition of corporate governance
proposed by the African Peer Review Mechanism (APRM).
- Corporate governance is one of the four themes that African countries, members of
the mechanism, must incorporate into their national action programs and which will
periodically be reviewed as part of the peer review process. It is defined as the
institutional, legal and regulatory framework governing the relationship between
managers and investors in a business, whether it is a private or public listed
company. Corporate governance implies that these companies (including financial
institutions) are directed, controlled and are accountable. Discipline, transparency,
independence, fairness, inclusion and social and environmental responsibility and
respect for the interests of other stakeholders (including Non-State Actors) are also
part of its common denominators. These factors are important because they
strengthen compliance with rule of law, increase investor confidence and facilitate
the mobilization of capital and investment finance for businesses.
- From the perspective of the APRM, good corporate governance should foster the
emergence of efficient, effective and sustainable firms that contribute to the wellbeing of citizens of African countries by creating wealth, generating jobs and
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providing solutions (without prejudice) to the environment and other social issues.
According to APRM, the objectives of corporate governance can be summarized in
five main points:
* Create a favorable environment and an effective controlled framework for
economic and financial activities;
* Ensure that companies have civic responsibility when it comes to human rights,
social responsibility and respect for the environment;
* Promote the adoption of codes of ethics in successful business within the business
objectives;
* Ensure that corporations treat all their stakeholders (shareholders, employees,
communities, suppliers and customers, but also the community in which they
operate) in a fair, inclusive and equitable manner;
* Ensure the accountability of boards of directors and corporate management in the
context of the efficient use of its resources;
b) AGI maintained in the study a broad concept of social responsibility of
enterprises in Africa, which goes beyond the traditional environmental
approach and takes into account their societal responsibility in order to
strengthen their role as catalysts for socio-economic transformation of the
continent.
c) In addition, AGI targeted in this study national, regional and continental
financial institutions. The coverage excludes local financial institutions and
those in the informal sector ( for example the tontine), and includes
organized companies in the private sector in Africa and multinational
corporations that need to play a key role in the socio-economic
transformation of the Continent alongside the public sector.
d) Finally, for AGI, there is clearly a positive relationship between good
corporate governance and accountable governance and development. The
first seeks to balance the interests of shareholders and other stakeholders
and it focuses on the social responsibility of the company. The accountable
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governance and development in turn is essential for the achievement of
socio-economic transformation of Africa. Developmental Governance ensures
the optimal allocation of limited resources, the inclusion of all sectors of
society including women and youth, fairness, the formulation and
implementation of effective policies as well as the quality of delivery of
programs, projects and services. Accountability refers to transparency and
integrity in the public sector and economic management, as well as
enhancing the effectiveness in meeting the needs of citizens when it comes to
basic services. Good corporate governance, developmental governance and
accountability are closely related and complement each other in a virtuous
circle that reinforces political participation, maintain the momentum of
growth, ensures the implementation of transformative macroeconomic
policies and strengthens the inclusion of all social groups, including youth and
women. In order for this to be achieved, this virtuous circle needs an
environment of peace and security. Peace / security and development are
indeed two sides of the same coin. One cannot go without the other; they
mutually maintain and reinforce each other. It is precisely for this reason that
the African Charter on Democracy, Elections and Governance (ACDEG)
considers peace and security as the beginning of the institutionalization of
participatory democracy and socio-economic transformation of the Continent.
The creation of credible public and private institutions, can articulate priorities
and consistently deliver results based on the observance of good corporate
governance as well as accountable governance and development that e
necessary to meet the challenges of stability: human development, climate
change as well as unpredictable internal and external changes.
METHODOLOGY
3 On the above basis, the study highlighted the linkages of quantitative and
qualitative data. AGI first sent 80 questionnaires in English and French to
financial institutions from the three target levels (including Eximbank) in 52
African countries (excluding Sudan and South Sudan). The return rate
observed was 85%, which confirmed the idea of the relevance of the study.
Along with the data obtained from the questionnaires, AGI also conducted
telephone interviews with 80 Researchers in different financial institutions
excluding those who received the questionnaires. These first-hand data were
supplemented by an analysis of several documents (thirty belonging to three
levels) African financial institutions that were willing to communicate with AGI
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as well as the summary of the findings of the Evaluation African Peer Review
Mechanism (APRM) on corporate governance in some African countries.
Finally, an online validation of the results of surveyed financial institutions
was organized from during December 2012.
MAIN RESULTS
4 Five key lessons can be drawn from the analysis of the data collected.
a) There is a general increase in the implementation of practices of good
corporate governance, particularly in the category of targeted financial
institutions in all African countries. This general increase can be
explained by external factors (the need to follow and respect
international norms and standards, in particular the principles of the
OECD ...), but mostly by internal factors (commitment of leaders of
financial institutions to adopt good corporate governance to contribute
actively to the objective of socio-economic transformation of the
continent, pressure from stakeholders especially customers and nonState Actors, ...).
b) However, this overall progress is tampered by the lack of corresponding
progress in political and economic governance. According to the Mo
Ibrahim African Index of African Governance, most African countries
continue to experience some deficiencies in respect to rule of law: for
example, their judicial systems do not protect the rights of property and
contract rights, and the resolution of commercial disputes or disputes
with employees is long and expensive. The business environment in
which they operate is often weakened by crises and political and
institutional uncertainties. The lack of significant progresses is mainly
due to the unsatisfactory implementation of the regulatory frameworks
for existing corporate governance and deficiencies relating to the flow
of information. In addition, African Financial Institutions, mainly
national ones, have difficulties accessing capital market like other
African companies due to underdevelopment and opacity that
surrounds some of their accounting practices despite increased action
from oversight agencies. Finally, the ability of self-assessment to
comply with rules of African financial institutions remains weak just like
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other businesses; rules that are used as reference are generally
imported from abroad (OECD principles for example) and not
appropriate. It is clear that these rules conform with international
standards but it should also be clear that they are derived from foreign
sources and need to be adapted to the local context.
c) African financial institutions, like most large organized private sector
and multinational, reduce their social responsibility especially when it
comes to environmental standards, which should be thought of as
societal public goods including large social issues relating to socioeconomic transformation of the Continent (fight against illicit financial
flows, good governance of natural resources, youth and women
employment for local communities, poverty eradication, fight against
pandemics, promotion and strengthening innovation, through synergies
that contribute to the implementation of the Agenda for regional
integration in Africa, ...).
d) Inclusion and citizen participation in good governance of financial
institutions in Africa need further improvement. It is widely accepted
that non-state actors (including civil society, the media, youth groups
and organized women, think tanks ...) along with state institutions have
a role to play in the implementation of governance for the effective and
sustainable poverty reduction and socio-economic transformation of the
Continent. Some major African financial institutions, particularly the
ADB and Ecobank, have come with their strategies: The AFDB in its
1999 Declaration on its Vision to promote stakeholder participation,
improved governance, expanding the range of partners of civil society
and have greater impact on the field and on other occasions, the
African Development Bank has clearly expressed its commitment to the
participatory approach to development and its desire to engage
constructively with organizations operating within the civil society.
Ecobank has adopted the same approach in its note 'Investing and
doing business in West Africa 2011. In doing so, ADB and Ecobank
have aligned their policies with those of other major international
financial institutions as well as initiatives and continental legal
instruments such as the African Charter on Human and Peoples' Rights
of 1981; the African Charter on Popular Participation in Development
and Transformation 1990 and the African Charter on Democracy,
Elections and Governance 2007. The wide replicability of this approach
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among African financial institutions and other companies should be
encouraged.
e) Finally, it is difficult to measure and quantify the corporate governance
of African financial institutions - like other companies in the continent because there is not enough objective indicators that is systematically
collected from all these actors within a country, not to mention all
countries. The World Bank began publishing a degree of protection of
investors' (Investor Protaction Index) as part of its Doing Business
Report. This index measures the degree of protection of minority
shareholders in the event of misappropriation of company assets by
directors for personal enrichment. Therefore, this index covers limited
aspects of corporate governance but yet offers a pan key comparison
from one country to another.
RECOMMENDATIONS
5 There are five major areas of capacity building, which can be applied to
companies in the organized private sector and African multinationals that are
identified by the surveyed financial institutions to improve their corporate
governance.
a) Develop their capacity to respond to societal issues of socio-economic
transformation of the Continent (promoting and strengthening
innovation in governance development, fight against illicit financial
flows, good governance of natural resources, support youth
employment and women of local communities, enhancing inclusion,
contribution to the fight against pandemics, strengthening synergies to
contribute to the implementation of the Agenda for regional integration
in Africa, support for industrialization of the continent strategy based
on comparative advantage, ...).
b) Strengthening citizen participation in the establishment and
consolidation of good corporate governance by developing programs of
cooperation with non-state actors (especially civil society, media and
think tanks). This would help reduce the size of informal and
unorganized sectors.
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c) Strengthen the capacity of agents of African financial institutions
targeted by the study (and other organized private sector companies)
to increase their understanding of the agenda for socio-economic
transformation of the continent and the key role they must play in this
process.
d) Strengthen the capacity for self-assessment and measurement of sound
corporate by African financial institutions - like other large private
sector companies and multinationals. A specific statistics and evaluation
of good corporate governance in Africa could be developed for this
purpose as part of the Action Plan Governance II of the ADB and
sectoral programs of other agencies, organized private sector
companies and multinational companies operating on the Continent.
e) Develop the capacity of financial institutions and other African
companies so that appropriate regulatory bodies are in place, and who
have sufficient coercive powers - including the ability to impose
penalties for non-compliance. In addition, these codes and standards at
national level should be streamlined and simplified to reflect the
limitations of smaller companies’ abilities.
It is hoped that the issues and ideas raised in this note will help stimulate the
conclusions and discussions during the forum on the issue of capacity building for
financial institutions and corporations in Africa. Thank you.
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