The significance of Corporate Governance in today’s progressive and dynamic business environment cannot be denied. Corporate Governance is crucial to the achievement of organizational success, survival, and sustainable growth. An organisation’s Board of Directors is the primary force influencing Corporate Governance. Corporate governance and best board practices have become topics of increasing interest and importance to policymakers, investors, and other relevant stakeholders.
With so much attention focusing on Corporate Governance practices and the role of the board, it may be time to ask: What exactly is Corporate Governance, and what makes it so imperative to an organisation’s success? Why must the role and conduct of the Board of Directors engage our attention, especially in the area of procurement?
What is Corporate Governance?
According to the Institute of Directors-Ghana (IoD-Gh) “Corporate Governance refers to the systems and structures by which stakeholders of an organisation ensure that the actions and or interactions of the organization and its officers are consistent with the best interest of the company, best practice, desired ends, policies, procedures, law, and regulation”. Corporate Governance is the system by which companies are directed and controlled (Cadbury Report). Also, corporate governance is the structure of rules, practices and processes used to direct and manage an organisation. Corporate Governance is considered as a performance issue because it provides the framework for how an organization operates.
Boards of Directors and their roles
A Board of Directors is a group of individuals within an organisation, elected or appointed as representatives of owners to establish Corporate Governance and to ensure that the Organization is properly governed and managed. The Board of Directors can also be seen as a collective consensus decision-making entity where the whole is far greater than the sum of the individuals.
The primary mission of the Board is to create sustainable wealth for the stakeholders and nurture and increase the assets of the shareholders on a sustainable basis.
The role of the Director of a Board has serious legal implications as per the Ghana’s Companies Act of 2019 (Act 992). In effect, Directors must take their role seriously.
In the discourse concerning the creation of sustainable wealth for stakeholders, one cannot ignore the significant impact that procurement practices have on sustainable organisational wealth creation and success. Ineffective, inefficient and unethical procurement practices pose significant threat to organizational performance value creation and survival.
What is procurement?
Procurement is the process of looking for, agreeing terms, and acquiring goods, services, or works from an external source, usually through a tendering or competitive bidding process. The process is used to ensure that the purchaser receives goods, services, or works at the best possible price, considering aspects such as quality, quantity, time, and location. Corporations and public bodies often put in place processes intended to promote fair and open competition for their businesses while minimizing risks, such as exposure to fraud and exploitation.
Almost all purchasing decisions include factors such as delivery and handling, marginal benefit, and price fluctuations. Procurement generally involves making buying decisions under conditions of scarcity. If reliable information is available, it is acceptable practice to make use of economic analytics methods such as cost-benefit analysis or cost-utility analysis in procurement.
Must Directors of a Board be involved in Procurement?
All matters that have material impact on an Organization or any of its subsidiaries must be referred to the Board. However, there must be a schedule of matters reserved specifically for the decision of the Board or a duly authorised committee. Thus, a Board must ensure that the organization has effective Procurement Policy consistent with objectives, law, regulations and best Practices. The Procurement Policy must be clear on what matters are reserved for the Board, Management and Committees based on limits and needs of the organisation without any person being in conflict of interest or flouting any law, rules and regulations.
Among others, in Ghana, the Public Procurement Act, 2003 (Act 663) provides guidelines for structures, rules, and methods of procurement in Public Organisations.
In addition to the matters reserved for the Board, the Board must not lose sight of its basic roles without inappropriately getting involved with the day-to-day operational activities of the organization, including arrogating to itself the procurement function. The Board must avoid the temptation of being a referee and player at the same time within the procurement chain and space. Such a situation can be problematic and expose Board members to conflict of interest and bad governance practices, which will jeopardize personal ethics thereby creating risk for the organisation. Limits, roles, and due processes of procurement must be strictly respected at all times.
Indeed, the Board must be the ultimate referee in overseeing and ensuring that the procurement structures and processes are working in consonance with good Corporate Governance practices.
Procurement is always a significant part of an organization’s annual expenditure. It is therefore important for all stakeholders to ensure that the entire procurement system provides value to all.
24th January, 2022.
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