OVERVIEW OF CORPORATE GOVERNANCE IN ETHIOPIA: … BOARD OF DIRECTORS IN SH. COMPANIES 47
This Article examines the law pertinent to the governance of share
companies in Ethiopia with specific reference to the powers, composition and
remuneration of board of directors with a view to identifying deficiencies in the
company law and suggests the solutions in light of internationally recognized
best principles and practices of corporate governance. It contends that the
supervisory powers of the board should be separated from the management
responsibilities of the executives of share companies in the relevant laws. It also
argues that the composition and independence of directors should be
reconsidered. Moreover, it examines the effects of quantum of directors’
remuneration on the integrity of share companies, independence of directors and
the retention of competent and diligent directors. It further provides some
conclusions based on the findings of the study.
1. What is Corporate Governance?
Various scholars and practitioners define ‘corporate governance’ differently.6
Economists and social scientists, for instance, tend to define it broadly as “the
institutions that influence how business corporations allocate resources and
returns”; and “the organizations and rules that affect expectations about the
exercise of control of resources in firms.”7 This definition encompasses not only
the formal rules and institutions of corporate governance, but also the informal
practices that evolve in the absence or weakness of formal rules.
Corporate managers, investors, policy makers, and lawyers, on the other
hand, tend to employ a narrower definition. For them, corporate governance is
the system of rules and institutions that determines the control and direction of
the corporation and that defines relations among the corporation’s primary
participants.8 The definition used in the United Kingdom’s 1992 Cadbury
Report is widely cited from this perspective, and it reads: “Corporate
governance is the system by which businesses are directed and controlled.”9
This narrower definition focuses almost exclusively on the internal structure and
operation of the corporation’s decision-making processes, and is central to
public policy discussions about corporate governance in most countries.10
6 See A. C. Fernando (2006), Corporate Governance: Principles, Policies, and
Practices, (Pearson Education), p.12.
7 See Jeswald W. Salacuse (2004), “Corporate Governance in the New Century”, 25
No.3, The company Lawyer, p.69.
9 See Report of the Committee on the Financial Aspects of Corporate Governance,
(Cadbury Report), para. 2.5 available at <www.ecgn.org> (Visited on 24 March,
10 Salacuse, supra note 7.