The End is Night: Towards an OHADA Code/Guideline on Corporate Governance

Corporate governance has become a catchword in many legal systems, the more so today than ever before. Corporate and accounting frauds coupled with general dissatisfaction by shareholders on the ways corporate executives control and manage companies in which they have invested have accentuated the need for mechanisms which will make the management of companies more transparent. The need for such transparency reached a crescendo after the Enron Scandal in the US, which led to major financial losses to investors. The direct consequence of this was a systemic response and a complete overhauling of the ways companies were managed.  This was evident with the coming into force of new pieces of legislation, such as the Sarbanes-Oxley Act in the US, which ushered in a wave of corporate governance reforms that dramatically change the ways companies were managed. There is no gainsaying that the Sarbanes-Oxley Act, in one way or the other influenced similar pieces of legislation globally. In Africa, for example, countries like Senegal and South Africa are at the forefront of developing pieces of legislation on corporate governance. Thus far, South Africa appears to have taken the lead with the various King Reports.

However, not all African countries have followed suit. This is the case of some francophone African countries that are Member States of the Organization for the Harmonization of Business Laws in Africa (OHADA) Treaty, an initiative aim at streamlining, reforming and harmonizing business laws in Africa. This initiative has led to the development and adoption of various aspects of business laws, ranging from corporate laws to bankruptcy laws through Uniform Acts. However, corporate governance principles have been conspicuously left out. It is debatable whether this was by accident or design. However, taking into cognizance the fact that the initiative will soon be 20 years old—a period in which the need for a corporate governance code has been heralded and sung in most regional and international fora, and most countries have enacted laws making corporate operations more transparent and corporate executives more accountable—the lack of interest by OHADA Member States to legislate on this area remains the more alarming and in certain respects, appalling.

Although the OHADA Uniform Act on Commercial Companies and general Interests Groups has unconvincing snippets of corporate governance provisions such as pre-emptory rights, double voting rights, appointment of statutory auditors, they pale in comparison with regard to legal systems that have effective corporate governance regimes. This is because the current Uniform Act on Commercial Companies and General Interests Groups has many loopholes, which significantly trump and outweigh any of the aforementioned corporate governance principles. First, there is no clear separation between the roles of chairman of board of directors (BOD) and chief executive officer (CEO), and the CEO combining the roles of both the CEO and Chairman of BOD in a portfolio called administrator general. Second, there is the absence of independent directors to neutralize the powers of the CEOs. Third, the disclosure mechanism for corporate information is inadequate. This is because the system heavily relies on company registries for information, where for the most part information are stored manually and where there is usually insufficient human resources to respond to the many questions from the public/investors.

The above loopholes make a compelling case for an OHADA Corporate Governance Code. Acknowledging the difficulty inherent in having a traditional Uniform Act and the mundane and murky course such a process would take, OHADA Member States might want to adopt a principles-based approach in putting in place a comprehensive corporate governance system, instead of the traditional legislation and rules based approach. A principles-based approach will give OHADA Member States the flexibility to set up the appropriate structures and to progressively adapt their respective national legal regimes to any agreed corporate governance guidelines/code. It will also make it possible to implement universally acknowledged corporate governance concepts such as the ‘comply or explain principle.’ More importantly, it will be easier for OHADA Member States to copy the examples of countries with tried, tested and robust corporate governance systems and at the same time to depart from systems that have been found wanting and ill-desired. This is because the soft law status of a principles-based approach does not have the disadvantage of going through a cavalcade of convoluted processes such as national parliamentary debates and ratification like its rules-based counterpart.

From the foregoing, OHADA Member States have to put an end to the unjustifiable impasse and come up with a corporate governance code. In the past, the possibility of having a code/guideline on corporate governance might have appeared to be a dream, which had a great distance to travel before it becomes anything remotely resembling reality. However, this is not the case today. Having a corporate governance code is fashionable nowadays and OHADA Member States cannot pretend to have blind eyes to this.