In Ghana’s corporate society a troubling yet common practice occurs, which is appointing Chief Executive Officers (CEOs) before the Board of Directors is formed. This practice does not follow the corporate structure the Companies Act seeks to create as principles such as transparency and accountability are not fully implemented. This article discusses the effect of this anomaly on the company and in society.
Legal Framework
Under Ghanaian law, Directors are responsible for overseeing and controlling a company’s affairs. This function by the Board of Directors also includes the appointment of Chief Executive Officers (CEOs). This means that it is the sole responsibility of the Board, and not shareholders or other stakeholders, to appoint CEOs. Appointing a CEO in the absence of a functioning Board is not the proper legal procedure.
The Anomaly
Generally, many newly formed companies and state-owned enterprises appoint the CEO before the directors. This act may or may not be an anomaly, depending on the type of business. For private companies, the board of directors is responsible for appointing CEOs. Here, if a CEO is appointed before the board, it is an anomaly.
However, in a public company, the President of the Republic is responsible for appointing CEOs. Here, where the CEO is appointed before the board, there will be no anomaly as the president is granted this constitutional right. Despite this fact, the appointment of a CEO before the board in both private and public companies creates certain issues with respect to corporate governance.
- Since the CEO exists before the Board of Directors, certain decisions that require board resolutions cannot be made due to the absence of a board. This may render the CEO’s decision or action void as it is without the proper legal authorization.
- There is no supervisory body to monitor the CEO’s decisions. This is because the CEO is ordinarily supposed to report to the board. In their absence, no one supervises the CEO’s actions. This increases the risk of mismanagement and abuse of power in the company.
- The appointment of a CEO before a board is constituted conflicts with the Companies Act, which gives the power of company management exclusively to the board.
The appointment of CEOs before the establishment of a board, whether or not done by the appropriate authority, may be inconsistent with the corporate governance structure put in place by the Companies Act and must be addressed with urgency. The board should begin the administration of a company, not the CEO. Without the board’s oversight, any actions taken by the CEO may lack legitimacy, authority, and accountability.
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Philipa N. A. Sima Nuamah on behalf of OSD and Partners. [email protected]
