The Codes on Corporate Governance published in 2002 by the Securities and Exchange Commission of Ghana defines corporate governance as “the manner in which corporate bodies are managed and operated”. The Organization for Economic Co-operation and Development (OECD) on the other hand defines corporate governance as a “the system by which business corporations are directed and controlled”.
The issue of corporate governance in corporate institutions gained a lot of momentum after high profile financial scandals such as the Enron’s case, WorldCom, Global Crossing and Tyco rocked the corporate world starting from the United States of America. Measures to help prevent corporate failure led to the promulgation of several laws one of which is the Sarbanes- Oxley’s Act of 2002 (SOX). The SOX is a legislation to protect shareholders and the general public from accounting errors and fraudulent practices in enterprises, as well as to improve the accuracy of corporate disclosures. SOX principally is about corporate governance and financial disclosures. The SOX also requires the establishment of board audit sub-committees for publicly listed companies and the decoupling of board chairmanship from the post of chief executive. It also laid emphasis on the disclosure of material information of business transactions and general affairs of the company to the public.
As the case is for Ghana, the Securities and Exchange Commission’s Codes on Corporate Governance has made it a mandatory reporting requirement for the disclosure of material information on transactions of listed companies. Indeed, non-disclosure of such material information during initial offerings to the public can lead to the cancellation of the offer if it were established that the controllers of the company were aware of the sensitive nature of the information but failed to disclose it to the public.
The Companies Act, 1963 (Act 179) gave powers to persons who are appointed to direct and administer the business of the company. Such persons are to take decisions that are in the best interest of the company. This body of appointed persons referred to as the directors usually form the governing board of the company. They are to at least once a year organize a general meeting for all the shareholders of the company.
The Companies Act also made provision for shareholders or members who subscribe to the shares of the company, the right to attend a general meeting of the company, speak and vote on resolution(s). This does not only allow the shareholders to participate in the decision making process of the company, but also serve as transparent means that the company willingly provide information needed by shareholders and other stakeholders to make decisions. The information is considered transparent when it is simple and to the extent that shareholders can understand the financial condition, results of operations, cash flows and other aspects of the company’s business.
Pension products like any financial instrument thrives on trust, transparency, integrity of the actors and equitable application of rules to the stakeholders in the industry. Good corporate governance as the case has been in all markets is the catalyst that fuels the trust and insulates the integrity of the market. It gives great assurances to the market participants. In pensions, good corporate governance practices are cues that indicate to the contributors that persons (trustees) who are entrusted with decision making would seek their best interest at all times.
Unlike corporations where the board of directors take decisions on behalf of the company, in pension scheme administration however, it is the board of trustees that take decisions on behalf of the pension scheme. In fact the board of trustees is the highest decision making body in pension schemes administration under the three tiered pension system in Ghana. In view of this, the law that brought about the three tiered pension system, the national pensions Act, 2008 (Act 766) amended as Act 883 has carefully laid down measures that would bring about good corporate governance in pension schemes.
The pension schemes’ board of trustees is made up of individuals and or companies who are first of all licensed as trustees by the National Pensions Regulatory Authority (NPRA). They must be persons of high moral character, who must not have been barred from managing any company in Ghana, are not undischarged bankrupts and do not have criminal backgrounds.
Just like any trustees, the board of trustee have fiduciary responsibilities towards the scheme, contributors, next of kin(s) and or beneficiaries of the schemes. The trustees are not to make secret profits. They have to prevent situations of conflict of interest. They are to keep records of assets, account for profits and make lawful payments from the assets of the scheme. Every trustee is expected to take active part in the administration of the scheme. A trustee is said to be in breach of trust if they do anything contrary to the duties imposed on them by law. The trustees are jointly and severally liable for any breaches of duty under the trust deed. However, a trustee may not be made liable for a breach committed before his appointment and after his retirement. After a trustee has retired from the trusteeship, they may nevertheless be liable afterwards for breaches committed during term of their office, and their personal estate may be liable after their death. If a trustee retires in order to facilitate a breach, he is equally liable for such breach. However, the law protects a trustee for acts done in good faith and without being negligent. The onerous nature of the tasks of a trustees perhaps might be the probable rational for asking trustees to obtain performance guarantees with respect of their roles as trustees under the pension law.
The trustee board derives its powers from the trust instrument which is also known as the trust deed. The trust board is also guided by the trust governing rules and the investment policy.
The Composition of the Scheme Board of Trustees
The composition of each scheme board of trustees depends largely on the type of scheme under consideration and for the purposes of this topic, the focus would be on Master Trust Schemes and Employer Sponsored Schemes. A master trust schemes is a multiple employer scheme, which is usually owned by a “corporate trustee”, a company licensed solely to undertake a trusteeship business of pension scheme administration. The directors of the corporate trustee are not trustees of the scheme. They are simply directors of the incorporated company referred to as the Corporate Trustee. To wit, if a director of the corporate trustee wishes to become a trustee of a master trust scheme, he/she must apply to the NPRA to be licensed as a trustee of a scheme by fulfilling the requirements of section 122 of the pension law. After licensing such a director, he/she becomes a director trustee of the master trust scheme. The trustee is expected to exercise a level of care, skill, diligence and prudence that is reasonably expected of a prudent person who is acting in a similar capacity and who is familiar with the operation of registered schemes. The trustees are to attend meetings regularly and actively participate in the administration of the scheme.
The law also provide for the presence of an Independent Trustee as part of the governing board of trustees of the master trust scheme. An independent trustee is an individual or corporate body who has no direct or indirect involvement with the pension scheme, the member employers, or employees other than performing the trustee duties of the scheme. There may be more than one independent trustee to a scheme. Indeed, there is no limit to the number that a scheme may have at a time. The law regards the independent trustee as an integral part of the governing board such that he/she must be present at all meetings and where he/she is absent from a meeting, the proceedings of that meeting must be made available to him/her to read and sign concurring or stating his /her reservations with the resolutions of the said meeting. Notwithstanding the reservations of the independent trustee, the board as a whole may stand by their decision and be ready to provide cogent reasoning for the decision in contention. The independent trustee is obligated to submit reports to the regulator on determinable periods.
One other essential component of the scheme governing board is the Member-Nominated trustees. This class of trustees are the direct representatives of the members or contributors of the scheme. They are contributors who are selected, verted and voted for as trustees by the general membership of the scheme. They make a minimum of one-third of the scheme governing board. To obtain validity as trustees, the member-nominated trustees are to obtain prior approval and licensing from the NPRA just as any other trustees. In the views of the Regulations L.I. 1990, a member-nominated trustee may be directors of companies and corporate bodies or employers who are members of the scheme. In cases where the scheme governing board is made up of both individual trustees and companies, each trustee company counts as a single trustee for the purpose of determining the total number of trustees on the board. The expectation of the Regulation is that the member-nominated trustees’ requirement would be met six months after the registration of the scheme.
In the nutshell, it should be noted that the board of trustees of a master trust scheme is made up of director trustees, independent trustee(s) and member-nominated trustees who may appoint one of them as the chairperson to chair their meetings.
The other type of scheme under consideration is the Employer Sponsored Scheme (ESS). This is a single employer scheme whose membership is limited to the employees of the sponsoring employer, its subsidiaries and associated companies. The ESS may be an occupational pension scheme or a provident fund scheme. The scheme governing board under the ESS is slightly different from that of a master trust scheme. The trustees are first of all employees of the sponsoring employer and great care is always recommended for the selection of various categories of trustees. The ideal situation would be where the trustees are selected from all ranks such as the junior staff, senior staff, management and the executives. It is believed that such array of persons being appointed and licensed as trustees would be a fair representation of all the classes of staff at the workplace. This category of trustees under the ESS form the member-nominated trustees. The pensions law requires that the process for the selection of member-nominated trustee in an ESS should involve all the active contributing members of the scheme. This process provides a fair and equitable mode of selection from amongst the general membership of the employees who are in this case the members of the scheme.
With the approval of the employer, a greater number more than the one-third minimum required by the law may be accepted unto a scheme board. In addition to this provision, a person who is neither an employee and by that extension not a member of the scheme, may be accepted as a member-nominated trustee with the prior approval of the employer.
The member-nominated trustees are to perform their functions as trustee and no provisions in either the trust deed or the scheme governing rule seeking to curtail, exclude or prevent them from exercising functions exercisable by other trustees because they are member-nominated trustees shall not receive the backing of the law.
The pension law also requires that there should be an independent trustee on the board of the ESS. Here again, as the case may be, there could be more than one independent trustee on the board of the scheme.
Powers of the Board of Trustees
All trustees derive their powers from the Trust Deed. The deed is the instrument that set up the scheme, providing the duties and responsibilities of the trustees. The deed is registered with the NPRA so as to become efficacious and have the backing of the national pensions law. Once the deed and Governing Rules are registered, the trustees may exercise their powers to appoint the pension fund manager, custodian, auditors and other professionals that they deem fit to be appointed so that they can better perform their duties as trustees.
Corporate governance in the corporate world generally put final authority as regards administration and decision making in the hands of the board of directors. However, that final authority for administration and decision making in private pension schemes is squarely vested in the Scheme Board of Trustees.
Author: Martin Kofi Aflo
Article originally appeared on BFT online