“Capacity Building on Corporate Governance for Financial Institutions and Corporations in Africa”
Note Prepared by:
Mr. AbdoulieJanneh
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 theAfreximbank 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 dynamicsof corporategovernance needed to help them maximize the impact of its action inRegional Membercountries (RMCs). Through this study, ADB wished tohavenew elements of reflectionto bridgethis knowledge gap. I will thus present a synthesis of theresults of this work, its conclusions which are also applicable toother companies in theorganized private sectorandmultinationalsin Africa.
PARAMETERS OF THE STUDY
Several clarificationsneed to be madeat this stage.
a)To carry out this study, AGIadoptedthe definition ofcorporate governanceproposedby the AfricanPeer ReviewMechanism (APRM).
-Corporate governanceis one of the fourthemesthatAfrican countries,membersof the mechanism, mustincorporate into theirnational action programsandwhich will periodically bereviewed as partof thepeer review process. It is defined as theinstitutional, legaland regulatory frameworkgoverning the relationshipbetween managersand investorsin abusiness, whetheritis aprivateorpubliclisted company. Corporate governanceimplies thatthesecompanies (includingfinancial institutions)aredirected, controlledandareaccountable. Discipline, transparency, independence, fairness,inclusion and socialand environmental responsibilityand respect forthe interests of otherstakeholders(includingNon-State Actors) are also part of itscommon denominators.Thesefactorsare importantbecause they strengthencompliance with rule of law,increase investor confidenceand facilitatethe mobilization of capitalandinvestment financefor businesses.
-From the perspectiveof the APRM, good corporate governanceshouldfoster the emergence ofefficient, effectiveand sustainable firmsthatcontribute to the well-being of citizens of African countriesbycreating wealth, generating jobs and
providing solutions(without prejudice) to the environmentand other socialissues.According toAPRM, the objectives ofcorporate governancecan be summarized infivemain points:
* Createa favorable environmentandaneffective controlled frameworkfor economic andfinancial activities;
*Ensurethat companieshave civic responsibility when it comes tohuman rights, social responsibility and respect forthe environment;
*Promote the adoption ofcodesofethics insuccessful businesswithin thebusiness objectives;
*Ensure thatcorporations treatall theirstakeholders (shareholders, employees, communities, suppliers and customers, but alsothecommunityin which they operate) in a fair,inclusiveand equitablemanner;
*Ensurethe accountability ofboardsof directorsandcorporate managementinthe context of theefficient use of itsresources;
b)AGI maintained in the study a broad concept of social responsibility of enterprises inAfrica, whichgoesbeyondthe traditionalenvironmentalapproach and takes into account theirsocietal responsibilityin orderto strengthentheir role ascatalysts forsocio-economic transformation of the continent.
c)In addition,AGItargeted inthis studynational, regionaland continentalfinancial institutions. The coverage excludes local financial institutions andthosein the informal sector( for example the tontine), and includesorganizedcompanies in theprivate sectorin Africaand multinational corporationsthat need toplay a keyrole in thesocio-economic transformation ofthe Continentalongside the publicsector.
d)Finally,for AGI, there is clearlya positive relationship betweengood corporate governanceand accountablegovernance and development. The firstseeksto balancethe interestsof shareholders andother stakeholdersandit focuseson the social responsibilityof the company.Theaccountable
governance and developmentin turn isessential for the achievementof socio-economic transformation of Africa.Developmental Governanceensures
the optimal allocation oflimited resources, the inclusion of all sectorsof societyincluding womenand youth, fairness, the formulation andimplementationof effective policies as well asthe qualityofdelivery ofprograms, projects andservices.Accountabilityrefers to transparencyand integrityin the public sectorand economic management, as well as enhancing the effectivenessin meeting theneeds of citizenswhen it comes tobasic services.Goodcorporate governance,developmental governanceand accountabilityare closely related andcomplement each other ina virtuous circle thatreinforces politicalparticipation, maintainthe momentumofgrowth,ensuresthe implementationoftransformativemacroeconomic policiesand strengthensthe inclusion ofall social groups, including youth and women. In order for this to be achieved, this virtuouscircleneedsan environment of peaceand security.Peace/security and developmentare indeedtwo sides ofthe same coin.Onecannot gowithout the other;they mutuallymaintain andreinforce each other.It is precisely forthis reasonthat the AfricanCharter on Democracy, Elections and Governance(ACDEG) considerspeace and securityas the beginningof the institutionalizationof participatorydemocracy andsocio-economic transformationof the Continent. The creation of crediblepublic and private institutions, canarticulatepriorities andconsistentlydeliver resultsbased on theobservance of goodcorporategovernance as well asaccountablegovernanceanddevelopment thatenecessaryto meet the challengesof stability: human development,climate changeas well as unpredictable internal and external changes.
METHODOLOGY
3On the above basis, the study highlighted the linkages ofquantitativeand qualitative data.AGIfirst sent80questionnairesin EnglishandFrenchto financial institutionsfrom the threetarget levels(includingEximbank) in 52African countries(excludingSudanand SouthSudan). The return rateobservedwas 85%, which confirmedthe idea ofthe relevanceof the study. Along with the data obtained from thequestionnaires, AGI alsoconducted telephone interviews with80Researchers indifferent financial institutionsexcluding thosewho received the questionnaires. Thesefirst-hand datawere
supplemented byan analysis ofseveraldocuments(thirty belonging tothree levels)Africanfinancial institutions thatwere willing tocommunicatewith AGIas well as thesummary of the findingsof theEvaluationAfricanPeer Review Mechanism(APRM)on corporategovernancein some Africancountries.Finally, anonline validationof the resultsof surveyed financial institutionswas organized fromduringDecember 2012.
MAINRESULTS
4Five keylessons can be drawnfrom theanalysis of the data collected.
a)There is a general increase inthe implementationof practices of goodcorporate governance,particularlyin the category oftargeted financialinstitutionsinallAfrican countries.This generalincreasecan be explainedby external factors(the need tofollow and respectinternational norms and standards, in particular the principlesofthe OECD...), but mostly by internal factors(commitment of leaders offinancial institutions to adoptgood corporategovernance tocontribute activelyto the objective ofsocio-economic transformationof the continent,pressure from stakeholdersespecially customersandnon-State Actors, ...).
b)However,this overall progress is tampered bythe lack of correspondingprogressin political andeconomic governance.According to the Mo Ibrahim African Index of African Governance,mostAfrican countriescontinue to experience somedeficiencies inrespect to ruleof law: for example, theirjudicial systemsdo not protectthe rightsofproperty and contractrights, andthe resolution of commercialdisputes ordisputes withemployees islongand expensive.The business environmentin whichthey operateisoftenweakenedby crises andpolitical and institutionaluncertainties.The lack of significant progresses is mainly due to the unsatisfactory implementationofthe regulatoryframeworks forexisting corporategovernanceand deficienciesrelating to the flow of information.In addition,African Financial Institutions, mainlynationalones,have difficulties accessing capital market like other African companiesdue to underdevelopmentand opacitythat surroundssomeoftheir accounting practicesdespiteincreased action from oversightagencies.Finally, the abilityof self-assessmentto complywith rulesof Africanfinancialinstitutions remains weak justlike
otherbusinesses;rulesthat are used as reference are generally imported fromabroad (OECD principles for example)and notappropriate. It is clear thatthese rulesconformwithinternational standards but it should also be clearthat they are derived from foreign sources and need to be adaptedto the local context.
c)African financial institutions, like mostlarge organized privatesectorand multinational, reduce their social responsibilityespecially when it comes toenvironmental standards, which shouldbe thought of associetal public goods including largesocialissues relating tosocio-economic transformation of the Continent(fightagainstillicit financial flows, good governance of naturalresources,youth and women employment for local communities, poverty eradication,fightagainstpandemics,promotion andstrengthening innovation, throughsynergiesthat contribute to the implementationof the Agendafor regional integrationin Africa, ...).
d)Inclusionandcitizen participation in good governance offinancial institutions in Africaneed furtherimprovement. It iswidely accepted thatnon-state actors(including civil society, the media, youth groupsandorganized women, think tanks ...) along withstate institutionshave a role toplay in theimplementationofgovernanceforthe effectiveandsustainablepoverty reductionandsocio-economic transformation of the Continent.Some majorAfricanfinancial institutions,particularly the ADBandEcobank, have come with theirstrategies: The AFDB in its1999 Declaration onitsVisionto promotestakeholder participation, improved governance, expanding the range of partnersof civil societyand have greater impacton the field andon other occasions, the African Development Bankhas clearlyexpressed itscommitment tothe participatoryapproach to development andits desire toengage constructivelywith organizationsoperating within the civil society.Ecobankhas adopted the sameapproachin its note'Investing and doingbusinessin WestAfrica 2011. In doing so, ADB and Ecobankhave aligned theirpolicies with those ofother major internationalfinancial institutions as wellas initiativesand continentallegal instruments such asthe African Charteron Humanand Peoples'Rightsof 1981;the AfricanCharter onPopular Participation inDevelopment andTransformation1990and the AfricanCharter on Democracy, Elections and Governance2007. The wide replicabilityof this approach
among Africanfinancial institutions andother companiesshould beencouraged.
e)Finally,it is difficult tomeasure and quantifythecorporate governanceof Africanfinancial institutions-likeother companies in thecontinent-becausethere is not enough objective indicators thatis systematicallycollected fromall these actorswithina country, not to mention all countries. The World Bankbegan publishingadegree of protectionof investors' (InvestorProtactionIndex)as part ofitsDoing Business Report. This indexmeasures the degree ofprotection of minorityshareholders in the eventof misappropriation ofcompany assetsbydirectorsfor personalenrichment.Therefore, this index coverslimited aspectsof corporategovernancebut yetoffersapankeycomparisonfrom one country to another.
RECOMMENDATIONS
5There are fivemajor areasofcapacity building,whichcan be applied tocompanies in theorganized private sectorandAfricanmultinationals thatare identified by thesurveyedfinancial institutionsto improve theircorporate governance.
a)Develop their capacityto respond tosocietal issuesof socio-economic transformation of the Continent(promoting andstrengthening innovationin governancedevelopment, fightagainstillicit financial flows, good governance of naturalresources,supportyouth employmentand womenof local communities,enhancinginclusion,contribution to the fightagainstpandemics,strengtheningsynergies tocontribute to the implementationof the Agendafor regional integrationin Africa, support for industrializationof the continentstrategy based oncomparative advantage, ...).
b)Strengtheningcitizen participation inthe establishment andconsolidation ofgood corporate governanceby developing programsofcooperation with non-state actors (especiallycivilsociety, mediaand think tanks). Thiswould help reduce thesize of informaland unorganizedsectors.
c)Strengthen the capacity ofagentsof Africanfinancial institutionstargeted by the study(and other organizedprivate sector companies)
to increase their understanding of theagendafor socio-economictransformation of the continentandthe key rolethey must play inthis process.
d)Strengthen the capacity for self-assessmentand measurementofsound corporate by African financial institutions-likeother largeprivate sector companiesandmultinationals.A specificstatisticsand evaluationof goodcorporate governancein Africa couldbedevelopedfor this purposeas partof the ActionPlanGovernanceII of the ADBand sectoral programsof other agencies, organized private sector companiesandmultinational companies operatingon the Continent.
e)Develop the capacity offinancial institutions andotherAfrican companiesso thatappropriate regulatorybodiesare in place, and who havesufficient coercive powers-including the ability toimposepenalties fornon-compliance.In addition,these codes and standardsat national level shouldbestreamlined and simplifiedto reflectthe limitations of smallercompanies’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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