DEPARTMENT OF MANAGEMENT
Corporate Governance, Ethics and the Legal Environment
Proposal on: Individual project Paper (IPP)
Entitled: Assessment of Corporate Governance Practices
in a Financial Company in View of Principles
(A Case of Dashen Bank)Submitted to: Ethiopia Legesse (D.Sc.) Associate Professor
Prepared by: Mekonnen GetachewID. No. GSE/6317/09
Abstract 1.7% plagarismCorporate governance is understood as a system of governance of companies. At present, it is becoming an essential component of modern corporations which can determine the success or failure of companies. Due to this, in the age of corporations, countries in the world have started to look seriously the governance of companies which operate in its land. There are various forms for foreign companies to operate business in Ethiopia. Establishing a branch of foreign company is one of such forms in order to operate business in Ethiopia. In Ethiopia, branches of foreign companies are highly engaged in various business sectors.
The Ethiopian legal regime concerning branches of foreign companies has insufficient provisions on some governance aspects of such companies. With the absence of sufficient laws, there will be multifaceted impacts on those parties or stakeholders having various dealings with branches of foreign companies in Ethiopia. Such stakeholders include, but not limited to, creditors, the government, employees, customers of the branch foreign companies and the public in general.
This thesis is concerned with investigating corporate governance of branches of foreign companies operating in Ethiopia. It tries to identify major problems in the Ethiopian law relating to governance of branches of foreign companies. Such problems would have tremendous negative consequences in the future unless required measures are taken to correct the problems. Hence, the thesis is intended to inform the stakeholders, particularly, the government to make reform of laws and other kinds of measures.
Background of the study 79.1 % plagarismThe issue of corporations and their governance has been becoming key issue in the international business. The focus seems to shift from only profit maximization to their conduct of governance and social responsibility. A corporation is a mechanism established to allow different parties to contribute capital, expertise, and labor for their mutual benefit. The investor/shareholder participates in the profits of the enterprise without taking responsibility for the operations. Management runs the company without being responsible for personally providing the funds. To make this possible, laws have been passed that give shareholders limited liability and, correspondingly, limited involvement in a corporation’s activities. That involvement does include, however, the right to select directors who have a legal duty to represent the shareholders and protect their interests. As representatives of the shareholders, directors have both the authority and the responsibility to establish basic corporate policies and to ensure that they are followed. The board of directors, therefore, has an obligation to approve all decisions that might affect the long-run performance of the corporation. This means that the corporation is fundamentally governed by the board of directors overseeing top management, with the concurrence of the shareholder. The term corporate governance refers to the relationship among these three groups in determining the direction and performance of the corporation.
Corporate Governance has a broad scope. It includes both social and institutional aspects. Corporate Governance encourages a trustworthy, moral, as well as ethical environment.
In view of the stated corporate governance concept, this research will assess the corporate governance structure and practices of Ethiopia Agricultural Businesses corporation (EABC).
The Ethiopian Agricultural Businesses Corporation is a newly established corporation as a Federal Government Public Enterprise by Council of Minister Regulation Number 368/2015 in 22nd December 2015. The corporation was formed by merging five owned Enterprises; namely Ethiopian Seed Enterprise, Agricultural Equipment and Technical Services Share Company, Agricultural Inputs Supply Enterprise, Natural Gum Processing and Marketing Enterprise and Agricultural Mechanization Service Enterprise. EABC is located on Saris, Addis Ababa, Ethiopia.
2.1 Purposes of Establishment
The purpose for which the Corporation is established are:
to buy from domestic and international markets and supply agricultural inputs, process same; undertake agricultural inputs market price stabilization activities;
to render agricultural mechanization services, agricultural and construction equipment repair services and provide rental services of agricultural machineries and transport vehicles;
to buy from domestic and international markets and supply agricultural machineries and spare parts, construction equipment and agro-chemicals;
to provide necessary education for promotion of the use of modern agricultural machineries; provide consultancy service in handling and use of agricultural machineries and provide on the job technical trainings;
to harvest, buy, value add to and process natural gum, produce other forest products, and supply to domestic and international markets;
to undertake agricultural land development studies and preparation of designs, agricultural land surveying, clearing, leveling, drainage end irrigation activities as well as other activities related to agricultural land development;
to cause undertaking of feasibility studies, design preparation, technology selection and negotiation, erection and commissioning of new and expansion projects as well as for research activities;
to cause the local designing and manufacturing of agricultural machineries and spare parts in partnership with capable local and foreign companies;
to work in cooperation with the concerned educational research and training institutions in producing trained manpower in such fields, numbers and quality as required by the sector,
to undertake studies, based on direction given to it by the Ministry of Public Enterprises, for the acquisition of financial, technological and modem governance inputs (including attracting investments or participating in investments) that can help it to become competitive; both locally and globally, and profitable and implement same upon approval;
to multiply, clean and process pre-basic, basic and certified seeds of various crop; vegetables and fruits; where necessary import pre-basic seeds and cause their production or sale them; to sell byproducts;
to undertake research and implement improvements with respect to the supply of agricultural inputs, agricultural machineries repair, the production and marketing of natural gum, mechanization services and related matters and thereby ensure its competitiveness.
to sell bonds, collateralize, negotiate and sign loan agreements with local and foreign sources in accordance with directives issued by the Ministry of Finance and Economic Corporation and on the basis of the guidance of Ministry of Public Enterprise;
to engage in other related activities for the attainment of its purposes.
2.2 Organizational Set-up
EABC is organized into seven main operational sectors of which four are led by Agricultural Inputs Supply D/Chief Executive Officer and the rest Three are by Machineries supply and Engineering D/Chief Executive Officer. The Four support giving units are guided by Corporate Human Resource D/Chief Executive and the remaining Eight corporate support giving units are directly report to chief Executive Officer and there are also 19 Branches and 6 sub-Branches located in different administrative regions of the country.
2.3 EABC Mission ; Vision
“Provide Agricultural inputs and technologies that should considerably improve production and productivity, boost modern farms and Agro-Industries at very competitive price to make the economic development of the nation grow fast.”
“By rendering integrated agricultural inputs and mechanization service, to be a strong competitor in Africa by 2025.”
2.4 Organizational Structure
Figure 1: Organizational Structure of EABC
Statement of the problem 57.6% plagarismBusiness entities to succeed consistently over all integration between shareholders, Managing body and the society is very important, to keep this balance sound corporate governance is key factor for organizations. This might scale up to significant and irreversible loss which may lead businesses to closure if not managed and addressed timely and have a system in place to mitigate the risk.
The board of directors plays essential role in the effective governance of its bank. The board is accountable to shareholders, regulators, and other stakeholders and also responsible for overseeing management, providing organizational leadership, and establishing core corporate values.
In view of the above core values, Dashen Bank is part of the business world and hence the challenge indicated above are expected as any other business entities. The research will help keep the company health and stakeholders to take lesson from the assessment to strengthen their best practices and improve on the gaps that might be identified.
Objective of the study 24.4 % plagarismThe main objective of this project is to make assessment of the existing BODs in Dashen Bank, to evaluate the corporate governance methods and practices.
To make assessment on BOD structure, composition its role and responsibilities,
To check and evaluate what corporate governance principles are deployed,
To check whether corporate social responsibilities are being practiced,
To suggest on improvement areas.
Literature Review 24.4% plagarismThe concept corporate governance actually gives an insight regarding the code of conduct of the company’s business. Corporate Governance is the process by which companies are governed and held accountable to their owners. Corporate Governance is the whole system of managing and controlling a company. Many view corporate governance in the light of the long-run value creation of shareholders. Corporate Governance is the enhancement of the long-term shareholder value while at the same time protecting the interest of other shareholders. From this view, corporate governance focuses on structure and rules of the board of directors; the independent audit committee and control management. So, corporate governance is a pervasive concept, which basically tells about the corporate practices.
from background of the statement The importance of corporate governance became dramatically clear at the beginning of the 21st century as a series of corporate meltdowns arising from managerial fraud, misconduct, and negligence caused a massive loss of shareholder wealth.
The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company. Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.
Corporate Governance refers to the way a corporation is governed. It is the technique by which companies are directed and managed. It means carrying the business as per the stakeholders’ desires. It is actually conducted by the board of Directors and the concerned committees for the company’s stakeholder’s benefit. It is all about balancing individual and societal goals, as well as, economic and social goals.
Corporate Governance is the interaction between various participants (shareholders, board of directors, and company’s management) in shaping corporation’s performance and the way it is proceeding towards. The relationship between the owners and the managers in an organization must be healthy and there should be no conflict between the two. The owners must see that individual’s actual performance is according to the standard performance. These dimensions of corporate governance should not be overlooked.
Organization for Economic Cooperation and Development (OECD) set few principles of corporate governance, which have been adopted by the member countries of the OCED. These principles are available in the web site: www.oecd.org.
Disclosure and Transparency: The OECD also lays out a number of provisions for the disclosure and communication and key facts about the company ranging from financial details to governance structures including the board of directors and their remuneration.
The Responsibilities to the Board: The guidelines provide a great deal of detail about the functions of the board in protecting the company, its shareholders, and its stakeholders. These include concerns about corporate strategy, risk, executive compensation and performance, as well as accounting and reporting systems.
Basic research questions 56.9% plagarismIn this project, it is anticipated to assess the practices of the corporate governance in Dashen Bank and will be tried to answer the following questions:
Who are members of the board of directors? Composition?
How are people nominated and elected to boards?
What are the selection criteria of Board of Directors?
How does the board of directors operate (process and constraints)?
Who determines the independence of Board of Directors?
What social responsibilities are practiced?
What practices of Dashen Bank comply and which ones do not as seen from corporate governance principles perspective?
Scope of the study 56.9% plagarismThis project is expected cover corporate governance structure and practices of Dashen Bank.
Significance of the study 56.9% plagarismThis particular project will be an important practical means of lesson for understanding of the course matter. In addition, the company under assessment can refer it to check its alignment against the CG principles. Lastly, it can be a reference for future research on this topic.
Methodology of the study 56.9% plagarismIn this research both primary and secondary data will be utilized. primary data collection from observation, interview on focus group, whereas secondary sources data will be generated through a review of relevant documents such as the company profiles, reports, journals and related materials on this subject will be source materials.
Limitation of the study56.9 % plagarismThis project requires data from company’s BOD and top level management. Time will be a key constraint for the researcher to get these people for interview.
Company website: www.dashenbanksc.comAnnual report 2017-18 of Dashen Bank, Lecture Notes and research Papers.
Monks, Robert A. G & Minow, N. (2004). Corporate Governance. Third Edition, MA: Blackwell Publishing.
Baker, H. Kent & Anderson, Ronald (2010). Corporate Governance: A Synthesis of Theory, Research, and Practice. The Robert W. Kolb Series in Finance, Hoboken, New Jersey: John Wiley & Sons.