UNIVERSITY OF PROFESSIONAL STUDIES, ACCRA (UPSA)

SCHOOL OF GRADUATE STUDIES

BOARDS COMPOSITION AND THEIR INFLUENCE ON BOARDS’ PERFORMANCE:

A STUDY OF FORESTRY COMMISSION OF GHANA

BY

Peace Afi Ahovi (10070817)

Rosemary Amedzi (10071100)

Millicent Owusu-Donkor (10071084)

Mohammed IssahMunkaila (10080040)

A PROJECT WORK SUBMITTED TO THE SCHOOL OF GRADUATE STUDIES, UNIVERSITY

OF PROFESSIONAL STUDIES (UPSA) ACCRA, IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION
CORPORATE GOVERNANCE

MAY 2018
 CANDIDATES’ DECLARATION

We, the undersigned do hereby declare that this project is the result of our original research and

that no part of it has been presented for another Degree in any University.

However, all sources of borrowed materials have been duly acknowledged.

NAMES OF STUDENTS SIGNATURE DATE

PEACE AFI AHOVI …………………… ……………………

ROSEMARY AMEDZI …………………… ……………………

MILLICENT OWUSU-DONKOR …………………… ……………………

MOHAMMED ISSAH MUNKAILA …………………… ……………………

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 SUPERVISOR’S DECLARATION

I declare that the preparation of this project work is in accordance with the laid down guidelines

of the University of Professional Studies, Accra

NAME OF SUPERVISOR SIGNATURE DATE

…………………….. …………….

ii
 DEDICATION

We dedicate this work to God Almighty and our families and friends for the guidance and support.

iii
 ACKNOWLEDGEMENT

We are very grateful to the Almighty God for His mercy and guidance that has sustained us to this

day without which we could not have come this far. To our Supervisor, Dr. Ernest M. Abraham

we owe him a special debt of thanks for his excellent support and guidance to produce this work.

Finally, we thank all those, who in diverse ways assisted greatly for the success and eventual

completion of this work.

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 EXECUTIVE SUMMARY

Corporate governance failures globally in the last decade as well as the financial crisis worldwide
have mounted strong pressure on the board of various organizations to live up to their
responsibilities and roles. In Ghana, a number of cases have been recorded as the failure of board
members to carry out their responsibilities (for example, Capital Bank and UT Bank). Boards have
been faulted for lack of vigilant oversight functions, the relinquishing of control to corporate
managers who had pursue their interest as we as the lack of accountability to its stakeholders. The
study sort to investigate the influence of board composition on the performance of the board. The
information from the organization was sort through unstructured interview. The researchers
encourage the board members and the workers at the organization to uphold good corporate
governance practices as this has been missing in most government institutions and agencies as well
as commissions. The board is also advised to appoint its members to head the various committees
for effective monitoring. What is the concern The diversity of the board is also a major concern to
the researchers as it is the only remedy to the numerous challenges facing the board and their
performance. The forestry commission Act (Act 571) must always be adhered to in appointing
members of the board and must also be amended to contain specific criteria for appointing the
CEO and the board chairman. The board is also advised to periodically undergo training on good
corporate governance practices. The study again recommended that, positions to the board of the
SOEs should be announced in public with all the requirements so that those who considers
him/herself qualified would tender in their application.

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 TABLE OF CONTENTS

CANDIDATES’ DECLARATION ............................................................................................................... i

SUPERVISOR’S DECLARATION ............................................................................................................. ii
DEDICATION ............................................................................................................................................. iii
ACKNOWLEDGEMENT ........................................................................................................................... iv
EXECUTIVE SUMMARY .......................................................................................................................... v
TABLE OF CONTENTS ............................................................................................................................. vi
CHAPTER ONE ........................................................................................................................................... 1
1.1. Background of the Study................................................................................................................... 1
1.2 Profile of the SOE understudy: The Forestry Commission, Ghana ........................................................ 3
1.2.1 Mission of the forestry Commission ............................................................................................. 4
1.2.2 Vision of the Commission .............................................................................................................. 4
1.2.3 Function .......................................................................................................................................... 4
1.3 Problem Statement .................................................................................................................................. 6
1.4 Purpose of the Study ............................................................................................................................... 7
1.4.1 The objective of the study.............................................................................................................. 7
1.5 Significance of the Project ...................................................................................................................... 7
CHAPTER TWO .......................................................................................................................................... 9
PROJECT EXECUTION AND EXPERIENCE ........................................................................................... 9
2.1 Schedule of Activities of Students for the Project Work ............................................................... 9
2.2 Explanation of Theories Used ............................................................................................................... 10
2.2.1 Introduction .................................................................................................................................. 10
2.2.2 Theoretical Framework of Board Composition ........................................................................ 10
2.2.2.1. Agency Theory...................................................................................................................... 11
2.2.2.2. Resource Dependence Perspective ...................................................................................... 12
2.3 Empirical Literature Review ................................................................................................................. 14
CHAPTER THREE .................................................................................................................................... 17
APPLICATION OF THEORIES TO REAL LIFE SITUATION ............................................................... 17
3.1 Explanation of the Nature of Problem in Study Organization .............................................................. 17
3.2 Solution Provided for the Problem........................................................................................................ 18

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3.3 Contribution of Student to the Organization ......................................................................................... 19
LESSONS LEARNT AND CHALLENGES .............................................................................................. 21
4.1 Lessons Learnt....................................................................................................................................... 21
4.2 Challenges ............................................................................................................................................. 22
CHAPTER FIVE ........................................................................................................................................ 23
CONCLUSION AND RECOMMENDATION .......................................................................................... 23
5.1 Conclusion ............................................................................................................................................ 23
5.2 Recommendations ................................................................................................................................. 24
REFERENCES ........................................................................................................................................... 26
APPENDIX II ............................................................................................................................................. 33

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 CHAPTER ONE

1.1. Background of the Study

The composition of a board has been one of the highly researched topic with regards to the private

and individual firms but much cannot be said of the public and State Owned Enterprise (SOEs)

(Boycko, Shleifer & Vishny,1996).The reason is that the issue of corporate governance has mostly

been the concern of organizations that operate in the market economies, however, firms or

institutions with well identified and concentrated ownership like the family firms and state owned

enterprises, as well as firms that operate in less competitive markets in developed countries has

not been given much focus. However, it is worthy to note that, the SOEs would likely have serious

issues of agency problem, which may not always be the case in the private sector. The SOEs are

affected by the “common agency” challenges as they are supervised by the government, for

instance they can be supervised or overseen by a “local government” by which they are

accountable to, or in most cases by the central government and in some instances by both the

minority shareholders and the state (Agrawal & Knoeber, 2001). This arises when a potential

difference comes up between the controlling body and the managers on one side and also between

the eventual owners and the politicians on the next side (Agrawal & Knoeber, 2001). Current

researches on developing and transition economies have taken into consideration “corporate

governance issues” in managing SOEs. According to the World Bank (2006), “fundamental

problems in the governance of SOEs explain much of the poor performance of SOEs”. This study

is focused on how Board composition would eventually trickle down to the performance of the

Board in carrying out its mandate at a particular point or in their stipulated time frame as a board

of an organization or a State Owned Enterprise (SOE).

1
A number of empirical studies opined that the corporate boards composition (“outsiders vs.

insiders, independent vs. non independent”) influences shareholders value (Bennett and Robson,

2004). “Outside directors” are refers to as directors that are not employed by the organization. The

inside directors are employee that are currently with the organization.

“Grey” or “affiliated” “outsiders are not currently employed by the firm, but they were somehow

formerly connected to the firm’s management or shareholders, i.e. because they were suppliers,

customers, consultants, relatives, or former employees or directors”. According to Fields and Keys

(2003), “although similar in their structure and functioning, Boards of Directors in State-Owned

enterprises (SOEs) often do not engage in the same activities they undertake in private companies”.

The governance challenge in SOEs is government control and state ownership, this control and

ownership contributes to poor performance of most of the SOEs. the desire to enhance and better

the performance of SOEs had become weaker over the years than in the private sector where

extensive changes has been put in place over the years (Fields & Keys, 2003). The focus of SOEs

has been privatization since the nineties, but for economic and political reasons, however, the state

had remained a major owner in the productive assets in many countries and will continues to be in

many years to come.

The SOEs sector cannot change or have its board change by a way of takeover unlike the private

sector and in most cases cannot go bankrupt. The non-existence of proxy contests or likely takeover

takes away the motivation of members of the board and other managers to increase and maximize

the company’s value couple with the difficult in going bankrupt indicates an easy budget

constraint, this take way the need to contain costs. As a result, there is an absent of the two most

important instruments in corporate governance to curtail underperformance. DELETE The SOEs

have a very concentrated owners, that’s the citizens but are managed by a higher body or bodies.

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There is a creation of a ministry or ministries as well as an ownership entity the manage the SOEs.

Most at times the created authorities use the SOEs to attain a short-term political goals disregarding

the efficiency and the long-term objectives and goals of the SOEs (Shleifer and Vishny, 1994).

Without evident abuse even, the complex chain of agency across the every levels of government

usually comes with difficulties that are not always present in the relationship of the company’s

managers as well as the board on one side and on the other side the shareholders. The State-owned

Enterprises also in most cases have a difficult of “common agency”: this is because every essential

part of the government has their own goals and objectives which each of this relevant part of the

government may attempt to influence the SOE in their favor. The act of managing many and

potential conflicting agendas and goals is one of the major difficulty in the governance of the

SOEs, as noticed by the OECD and the World Bank. In this study, the researchers will address the

issue of the link that exists between the board composition and the performance of the SOEs

Ghana, the relationship between the size of the board and the firm’s performance and the how the

ownership structure can affect the performance of the commission.

1.2 Profile of the SOE understudy: The Forestry Commission, Ghana

The Forestry Commission of Ghana is responsible for the regulation of utilization of forest and

wildlife resources, the conservation and management of those resources and the coordination of

policies related to them.

The Commission embodies the various public bodies and agencies that were individually

implementing the functions of protection, management, the regulation of forest and wildlife

resources. These agencies currently form the divisions of the Commission: Forestry Service

3
Division, Timber Industry Development Division, Forestry Commission Training Centre, and

Resources Management Support Centre.

1.2.1 Mission of the forestry Commission

To sustain the development and management of the forestry and wildlife endowments in Ghana is
the main mission of the organization (Forestry Commission of Ghana).

1.2.2 Vision of the Commission

To make the inherited forestry and wildlife resources and its surrounding communities much
better, valuable and richer for future generations.

1.2.3 Function

The Forestry commission of Ghana has the following enshrined roles and duties to perform:

 To establish, safeguard as well as manage the contemporary forestry and wildlife protected

areas in the various demarcated ecological territories of the country, to conserve and

preserve the biophysical heritage of Ghana.

 To formulate and effectively implement an integrated management plans for the forest and

wildlife commission that would ensure proper maintenance of the environment and the

betterment society at large.

 To ensure that the harvesting of wood or timber and other wildlife and forestry products

are well regulated.

 To issue permits that would enable the genuine export of forest and wildlife products

through vetting after contract registration.

 To prudently track the transportation of timber, wood and other related wildlife products.

 To effectively monitor and control the harvesting and marketing of the commission’s

products.

4
  To establish and enforce proactive industrial standards and trade initiatives or guidelines

to effectively regulate timbers and wildlife products effectively.

 To ensure the optimal utilization and benefits of forest and wildlife resources through the

promotion of value added activities as well as an increased use of wildlife species and

timbers that are lesser known.

 To assist both Government and industry players on product trends, trade and pricing with

an available intelligence of the market.

 To aid the improvement and usage of forestry and wildlife with the provision of technical

service assistance.

The responsibility of the Forestry Commission includes:

 Coordinating, implementing as well as enforcing of policies, laws and regulation on

development, management and regulation of the utilization of forest and wildlife resources.

 To assist the private sector and other bodies with the implementation of forest and wildlife

policies

 Promotion of public awareness on forest and wildlife management.

 To advise and provide technical services with regards to matters of resource protection,

management and development of market intelligence pertaining to forest and wildlife

industries

 To advise and provide technical services for forest plantation for the restoration of

degraded forest and environmental conservation in general.

 To advise and provide technical services on wild animal breeding facilities for restocking

depleted areas and improving wild animal availability to the general public.

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  The coordination of policies related to the conservation, management and development of

forest and wildlife resources.

 The commission is also responsible for conducting pre-shipment inspection for forest and

wildlife resources.

1.3 Problem Statement

The corporate governance failures globally in the last decade as well as the financial crisis

worldwide have mounted strong pressure on the board of various organization to live up to their

responsibilities and roles. In most country worldwide with the emerging economies, are interested

in how their businesses are doing. According to Walker (2009), in is necessary to improve the

quality of board, their roles and responsibilities, how their performance are evaluated as well as

their remuneration and capabilities to manage risk when he reviewed the corporate governance in

the United Kingdom (UK).

The directors of boards have been criticized largely for the wealth of shareholders as well as failure

of the organization. They have been in the spotlight for the fraud cases that have resulted in the

failure of major corporations around world. In Ghana, a number of cases had been recorded as the

failure of board members to carry out their responsibilities (for example, Capital Bank and UT

Bank). The board these banks has been faulted for lack of vigilant oversight functions, the

relinquishing of control to corporate managers who pursed their interest instead of the that of their

bank and customers as well as the lack of accountability to its stakeholders.

As a result of these failures many corporate governance reforms have stressed on appropriate

changes to be effected on the board of directors with regards to ownership and structure

configuration (Abidin, Kamal and Jusoff, 2009). Even though these amendments are made with

6
the aim of making the corporate boards, challenges still persist in how the board members are

appointed and constitute at the forestry commission, the processes of their operations and how they

carry out their duties. Therefore, the study extends and contributes to the body of research using

Ghanaian data to investigate the likely impact of board composition on a firm’s performance.

1.4 Purpose of the Study

To investigate the influence of board composition on the performance of the board

1.4.1 The objective of the study

 To ascertain the link between the composition of the board and the performance of the

firms among the SOEs in Ghana.

 To find out the impact of board size on the performance of the Forestry Commission.

 To identify the effect of ownership structure on the performance of the forestry

commission.

1.5 Significance of the Project

This study is conducted to help fill the research gap that existed in the field of government

corporations, commissions as well as agencies regarding how members of boards are appointed.

This study would serve as the basis for more research work on how members of the state-owned

organizations appoint their board members to meet the required corporate governance standards.

This study seeks to offer relevant corporate government information to all government institutions

most importantly in the area of appointing members devoid of political interference. The outcome

of the study would also serve as a reference to all persons that want relevant information on the

impact of board composition on the performance of forestry commission of Ghana. The content of

7
the research work would help in knowledge seeking in the field of corporate governance; it will

also help in making vital decision to boost the performance of the organization. The content would

also be used as reference in policy making and formulation. The study will be useful in the area of

academics where it will serve as a point of reference to students and others interested in the subject

under study.

The outcome of the study will be to the Cabinet and the Ministry of Lands and Natural Resource.

The study would help them to address various issues that affect the performance of boards in the

SOEs. The study will also unearth corporate governance issues affecting the operation of the board

at the commission which could be applied on other boards. The study would help also help the

forestry commission to come to terms with corporate governance issues affecting the commission

and how they can work in accordance with required rules and regulation, be compliant to

international standards of wildlife and natural resource protection which would contribute to the

growth and success of the commission. Future studies may build on the findings of this study as a

source of empirical information regarding the relationship between board composition and their

performance in the forestry commission.

8
 CHAPTER TWO

PROJECT EXECUTION AND EXPERIENCE

2.1 Schedule of Activities of Students for the Project Work

PERIOD ACTIVITY RESOURCES WHO IS
NEEDED RESPONSIBLE
May 2017 Problem identification Articles, books, All members
Journals, conference
Papers.

Presentation of research Computer for typing, Group members

December 2017 proposal printing, brown
envelope, papers for
printing

21st March 2018 Presentation of letter to Note pads and pens Millicent &
Forestry Commission Rosemary

December 2017 Submission of chapter one Articles, Journals, All members

books, laptop,
notepads, pen

February 2018 Submission of chapter two Articles, Journals, All members

books, laptop,
notepads, pen,
conference papers

13rd March 2018 Enquires at Aheto and notepad, pens and a 3 Members
associates. Corporate recorder
Governance specialist

18th March 2018 Enquires on corporate Note Pads, Pens 2 Members

governance issues
affecting Ghana at the
Institute of Directors
Ghana-(IOD)

20th March 2018 Interview with Forestry Note pad, pens and All members
Commission interview guide

9
 28th March 2018 Submission of chapter Articles, Journals, All members
three books, laptop,
notepads, pen,
conference papers,

28th March 2018 Submission of chapter Articles, Journals, All members

four and five books, laptop,
notepads, pen,
conference papers

29th March 2018 Review of all chapters Laptops, notepad, pen Group members and
supervisor

16th April 2018 Review of Chapters with Laptops, Pens, All members
Supervisor Notepads etc.

Submission of final Laptops, notepad, pen Group members and

project supervisor

2.2 Explanation of Theories Used

2.2.1 Introduction

This chapter talks about theoretical framework on the impact of board composition on the

performance of the organization. These theories would help elaborate on the importance of board

composition on the performance of the organization.

2.2.2 Theoretical Framework of Board Composition

Many researchers have used a lot of theoretical perspectives to study strategic leadership in order

to understand the behaviors, characteristics as well as the effectiveness of executives (Finkelstein

& Hambrick, 1996). Jensen & Meckling (1976) stated that one of the most used and recognized

theory in research to contribute more to boards and board’s composition is the agency theory.

Zahra & Pearce (1989) also indicated that “the Agency theory is the use of the board as a

mechanism for managing resource dependencies”. Another theory frequently used by researchers

10
in studying board composition is the “institutional theory” (DiMaggio & Powell, 1983; Meyer &

Rowan, 1977). These theories have been discussed by many researchers and overview are

presented to inform how each theories are related to board composition. This theoretical brief

discussed by scholars provides context for scholars to know that these theories have different

highlights. This also depends on the stage of the life cycles of the organizations and the power of

the stakeholders in accordance with the board composition.

2.2.2.1. Agency Theory

The “Agency theory” has been noted to be one of the most used theoretical framework in corporate

governance study. The origin of agency theory stems from a seminal work by (Berle and Mean,

1932) on how ownership can be separated from management control. This separation of ownership

(shareholder) from the control of management provides the chance for the management also the

agents to act in the interest of themselves by increasing their power and wealth to the detriment of

the principals (Fama, 1980; Jensen &Meckling, 1976). Fama & Jensen (1983) stated that “Agency

costs” comes when the interest of management is pursued instead of the interest of the owners

(shareholders). “From an agency theory perspective, boards of directors are put in place to monitor

management on behalf of shareholders (Eisenhardt, 1989; Jensen & Meckling, 1976)”. Boards are

to monitor the activities of management as they serve as fiduciaries of owners. The boards

members are to ensure the interest of the shareholders are pursued by the management (Johnson,

et al., 1996; Zahra & Pearce, 1989).

It is acknowledged by the theory of agency that, incentives are very essential in the effective

monitoring of boards and as such boards are to vary based on their incentives to monitor (Fama &

Jensen, 1983; Jensen & Meckling, 1976). The independence board or “the degree to board

11
members are dependent on the current CEO or organization, is seen as a primary incentive that is

key to board monitoring” (Baysinger & Butler, 1985; Daily & Dalton, 1994a, 1994b; Weisbach,

1988). DELETE Dependent boards are made up of insiders and outside directors. The inside

directors are made up of employees of the organization or former or current managers of the firm.

The outside directors are individuals or person with business relation with the organization or

persons that have social or family relationship with the firm’s CEO. The individuals are seen not

to be effective in monitoring as they are considered to be dependent on the firm.

Just like the dependent boards, the independent boards consist primarily of independents outside

directors. These individuals are seen to be more effective than dependents outside directors in

monitoring as they have no ties with the organization and the firm’s CEO. The incentives of the

independents boards are not determine by the organization or the CEO hence, have no control over

them. As a result, in the view of the shareholders, the perspective of agency on the composition of

the board is interested in creating a board that is independent or to align the interest of the directors

to that of the shareholders of the firm to enable effective management monitoring. Also, the

perspective of the agency assume that managers are inclined to the composition of board that

permits some level of managerial discretion and independence.

2.2.2.2. Resource Dependence Perspective

The theory of resource dependence theory sees the organization as an “open system”, which is

dependent on the external firms and contingencies of the environment (Pfeffer and Salancik, 1978).

According to Pfeffer and Salancik (1978) indicated that corporate boards are meant to direct

external dependency as well as to reduce uncertainty in the environment. Corporate boards are also

seen as a means to reduce the cost of transaction linked with interdependency of the environment

12
(Williamson, 1984) as a result of associating the firm with its environment externally. The basic

responsibility of the boards in the perspective of resources dependency theory is to act as a provider

of resources. The four main resources that are supposed to be offered by the boards “Advice and

counsel”, “Provide Legitimacy”, “channels for communicating information between the firm and

external organizations” as well as to provide “assistance in obtaining resources or commitments

from important elements outside the firm” (Hillman, Cannella, and Paetzold, 2000; Pfeffer and

Salancik, 1978). Many studies have identified boards to be very vital source of counsel and advice

to the firm’s management (Baysinger and Butler, 1985; Gales & Kesner, 1994; Westphal, 1999)

as well as to maximize the legitimacy and reputation of the organization (Daily & Schwenk, 1996;

Hambrick and D’Aveni, 1992). In the same manner, the interlocks of the director have been seen

to play a pivotal role in information disseminating across the organizations (Burt, 1980; Useem,

1984) as well as the desire to secure critical and favorable resources (Boeker and Goodstein, 1991;

Mizruchi and Stearns, 1994; Selznick, 1949). Corporate boards are supposed to reflect the firm’s

environment (Boyd, 1990; Hillman, et al., 2000; Pfeffer, 1972) as corporate directors are required

to increase the provision of essential resources to the organization. The resources dependency

theorist in opposite of the agency theory, argue that the corporate boards are means of absorbing

essential external organizations. One major implication of the theory of resource dependency is

that, every director is required to bring different resources and links to the board.

2.2.2.3. Human capital theory

Carter, D’souza, Simkins, & Simpson (2010) stated that, “the theory of human capital is an

organizational view and how the skills, experience and education of the employees can be used to

benefit the organization”. Carter et al. (2010:398) again indicated that, there is an increase in the

director’s “unique human capital” when there in enough increase in the diversity of the board. This

13
is simply because each individuals I s seen to possessed distinct set of “human capital attributes”.

According to Hafsi & Turgut (2013), “increased diversity among board members results in a range

of increase in unique human capital, as this lead to greater innovation as well as enhanced decision

making”

2.3 Empirical Literature Review

This section presents primarily evidence from other empirical researches that sought to justify or

confirm the impact of board composition on the performance of the firm. The academic literatures

from the various studies talks about the ownership structure, the composition of the board and the

performance of the firm. It also talks about the size of the board as well as the ownership and board

structure.

2.3.1 Ownership Structure, Board Composition and Firm Performance

Many studies or researches had used use the theory of agency and the resource dependency theory

to assess the link between the composition of the board and the performance of the firm (Randøy

et al., (2006); and Dalton et al., 1999). It has been noticed that, the theoretical reviews on the board

structure are inconclusive. For instance, the heterogeneity of the board could be positive or

negative. Hermalin and Weisbach (2003) noted that the theoretical framework lacks coherent

which is responsible for most of the studies on the composition of the board and the performance

of the firm to be driven empirically. The composition and size of the board usually differs in many

case between organizations. Recent study shows that dependents board or smaller boards are

frequent in organization that are characterized by “high growth opportunities; high R&D

expenditures and high stock return volatility whereas large firms have larger and more independent

boards” (Linck et al., (2008), p. 2). Raheja (2005) offers model that indicate the determining factor

14
of the composition of the board is the cost of verification of investments. A number of researches

with sample taken from OECD (Organization for Economic Co-operation and Development)

nations also found negative links between the size of the board and the performance. For instance,

Pablo and Lopez (2005) gathered 450 samples from non-financial organization in ten OECD

countries and indicated that there was negative correlation between the size of the board and the

firm’s performance.

2.3.2 Ownership and Board Structure

The main task of the board of directors is to control and monitor the management, i.e. to align the

classical principal agent problem between the management and the owners of the firm (Fama and

Jensen 1983). In corporate governance system characterized by concentrated ownership a second

type of agency problems between the controlling and minority shareholders arise (see Villalonga

and Amit, (2006); (Söderström Tson et al., (2003) for further discussion). In the Swedish system

the controlling owner has a considerable impact on the composition of the board and its

functioning. The board of directors is supposed to act in the interest of all owners. With strong

controlling owners’ problems might occur however in the decision-making process. There is a

possible problem that the interest of the minority shareholders are not properly acknowledged. The

Swedish corporate governance code highlights this dependency problem and rules regarding the

composition of board of directors as it has been introduced on the Stockholm stock exchange. Most

scholars have started that one most important way for the board of most organization to be more

independent is to appoint directors from foreign. By reducing the ability of controlling owners to

entrench the management foreign and institutional owners can also play a monitoring role

(Bjuggren et al. 2007). As shown by Bilimoria and Wheeler, (2000) one can assume a positive

relationship between institutional owners and board diversity.

15
One way for the board to become more independent is to appoint foreign directors. By reducing the ability

of controlling owners to entrench the management foreign and institutional owners can also play a

monitoring role (Bjuggren et al. 2007). As shown by Bilimoria and Wheeler, (2000) one can assume a

positive relationship between institutional owners and board diversity.

3.3.3 Board Size

Hermalin & and Weisbach (2003) indicated that many empirical studies studied the relationship

the size of the board and the performance of the firm. The studies argue in favor of the argument

by (Jensen, 1993) on “oversized boards”. For instance, Yermack (1996) found a negative link

between Tobin’s q and board size. The research shows that the value of the firm is lost if the it

moves from small size to medium. According to Randøy et al, (2006), larger boards also affects

negatively the performance of the firm. Jensen, (1993) was emphatic and argues that board of

directors of “seven or eight members” affects negatively the performance of the firm. It was also

stated that boards that exceed seven or eight mostly controlled by the CEO of the firms and in most

cases ineffective in their role.

16
 CHAPTER THREE

APPLICATION OF THEORIES TO REAL LIFE SITUATION

3.1 Explanation of the Nature of Problem in Study Organization

The researchers after interacting with the staff and a board member of the Commission identified

the following problem in the organization.

The problems identified are:

1. The process of appointing board members,

2. Decision making

3. Board size and gender disparity

4. Expertise of the board members.

To begin with, the process of appointing board members to the board on the forestry commission

is the sole prerogative of the President of the republic of Ghana. The appointment is done in

accordance with the Act, 1999, Act 571. The board consists of eleven members which includes the

Chief Executive Officer. After talking to well-placed staff through the interview conducted within

the organization, it appears the Act is not clearly followed in the appointment process as more

consideration is given to political affiliation than the Stipulations in the Act. The researchers

realize that this in a way practically contravenes good corporate governance processes, procedure

as well as rules in appointing members of a board to a firm, and this is likely to affect the

corporation and smooth running of the commission.

Also, in terms of decision making, it was revealed after engaging some informant within the board

members that the views of the CEO dominate in taken strategic decisions for the commission,

since he is seen as the mouthpiece of the government. This has been the issue across most SOEs

17
Nevertheless, the CEO usually cooperates effectively when a member with expertise in the area of

practice makes a contribution which is normally seen as viable.

Finally, it has also been revealed that the expertise of the board members were not well followed

in the appointment, as majority of the board members bring little or no knowledge in the

management of the Forestry Commission. Even though the Acts stipulates the various institution

that are supposed to be represented on the board, the Act fails to regulate and states the skills set

of the members.

3.2 Solution Provided for the Problem

The purpose of the study was to assess the impact of the board composition on the performance of

the organization. The main issues identified at the organization are; the appointment process, the

decision making by the board, the board diversity and the skills set of the board members.

The researchers, after critically identifying the issues provided the following solution to solve the

problems identified at the organization. The number of the female representative on the board must

be increase to complement the agenda of the current government. Increased gender diversity and

company performance are predicted by the theoretical frameworks of the agency, resource

dependency and human capital theories. As per the agency theory, increased levels of female

representation can lead to increased board independence and improved governance if female

directors act independently of their male counterparts, either by choice or due to inherent societal

structures and norms. According to the resource dependency theory, increased diversity allows a

broader network of different views to be incorporated with resultant effects on board and company

decisions. Human capital theory can be linked to the effect seen in many test, as descriptive

18
statistics have shown that together with an increase in the number of female directors, there was

also an increase in the level and number of qualifications.

Secondly the appointment to the board must be more consultative than what is done now. The

powers of the president must be neutralize in the appointment of the board members since the

president is mostly seen to be more political in his appointment than competency and expertise

oriented. Kim and Nofsinger (2007, p46) “think that the members of boards should possess

relevant experience, expertise and different backgrounds”. There is no doubt that it is much better

for offering expert advice to management if some members have expertise of certain industries

where the firm belongs. The performance of the board members must be looked at periodically

and that must be used to renew their mandate and subsequent re-assignment. This would make

them more effective in discharging their duties and serve the general interest of the public and the

country than the appointing authority or the government in power.

3.3 Contribution of Student to the Organization

The objective of this study was to help provide ways to make board of government institutions,

agencies as well as commissions more effective. The study sought to assess how the composition

of the board can help the organization to perform well.

The researchers, after examining the board composition at forestry commission identified that the

CEO of the forestry commission has too much decision making powers and these powers must be

reduced for better organizational performance.

The expertise of the Board Chairman and the CEO are not a benchmark for their appointment and

this must be reconsidered and changed for better organizational performance. The researchers

encourage the board members and the workers at the organization to uphold good corporate
19
governance practices as this has been missing in most government institutions and agencies as well

as commissions. The board is also advised to appoint its members to head the various committees

for effective monitoring. The diversity of the board is also a major concern to the researchers as it

is the only remedy to the numerous challenges facing the board and their performance. The forestry

commission Act (Act 571) must always be adhered to in appointing members of the board and

must also be amended to contain specific criteria for appointing the CEO and the board chairman.

The board is also advised to periodically undergo training on good corporate governance practices.

Also, the entire study including the findings and recommendations would be made available to the

organization and the board for better corporate governance practice and advice how it could

enhance the performance of the organization.

20
 CHAPTER FOUR

LESSONS LEARNT AND CHALLENGES

4.1 Lessons Learnt

The study showed that the agency theory which also happens to be the most dominant among all

the theories deployed is the most useful in undertaking this study. From an agency theory

perspective, board of directors is put in place to monitor management on behalf of shareholders

and therefore the independence of the board is critical.

Independence of the board is considered a key standard in the governance of the SOEs. A reliable

and meaningful measure of board independence is difficult to obtain. Some previous studies

consider the proportion of outside directors on the board as a proxy for independence. This is a

crude approximation, but it might be the most significant measure of board independence (Linck,

Netter, and Yang, 2009; and Ferreira, Ferreira, and Raposo, 2009).

Agency theory favours board independence as it provides for better oversight of management

activities by the board. Independence could lead to the syndrome of board versus management and

will adversely affect the quality and speed of decision making. Inside directors have a better

understanding of the business than outside directors and so can make better decisions (Nicholson

and Kiel, 2007), but may not have their way on a board that has more outside directors. However,

outside board members are thought to contribute objectively in evaluating managerial decisions

(Byrd and Hickman, 1992), and they may ask the difficult questions, which management may not

face because of an unconscious pride of authorship‘(Winter, 1977, p. 285). The larger the

21
proportion of outside directors, the higher the chances of more questions being asked and the

slower the decision-making speed.

Independent boards, or those primarily consisting of independent outside directors, are thought to

be the most effective at monitoring because their incentives are not compromised by any

dependence on the CEO or the organization. At the Forestry Commission, as in the case of many

organizations, the CEO who is part of the management is as well a member of the board. This

creates challenges since the Board Chair and the CEO might compete for superiority in decision

making.

4.2 Challenges

Access to information at the commission has been a major barrier as the personnel and board

members are unwilling to give out information. The website of the commission which could also

provide us with some useful information was also not helpful. Also the methodology prescribed

for the study was also a major challenge as it provides no statistical information that helps in

straightforward analysis. The researchers encountered challenges on their meeting schedules and

time as it has contributed largely to the delays in submission and correction of the various chapters.

22
 CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.1 Conclusion

The issue of corporate governance is a vital economic question since management and ownership

begun to be separated. The Ghanaian economy has been working to improve the effectiveness and

efficiency of its governance mechanism in the last few years. In the corporate governance context

of Ghana, it is said that firms with better and higher governance quality have a better value. The

directors of the board of the various SOEs are one of the most vital mechanisms in corporate

governance. Many research or studies has been conducted to determine the relationship between

the performance of the board and the board composition. In most empirical studies, the ownership

structure has been found to be of a high concentration and its benefits to the corporate governance

and firm has not been paused yet. And in Ghana, the composition of the board need to be looked

into well in different years and SOEs. The first objective of the study was to ascertain the link

between the board composition and the firm’s performance.

By finding out the link between the firm’s performance and the board composition of the forestry

commission, the study adds to many researches on corporate governance in Ghana as well as

adding to empirical researches on corporate governance in the country. As compared to other

studies in the area, this study chooses the forestry commission as an area of study. The study

concluded that there are not enough grounds to conclude that independent board has helped to

improve the performance of the commission.

Per our study it emerged that the performance of the board is not affected in relation to the size of

the board. From our interviews analysis from some employees, the board members indicated that,

23
the relationship between the board size and the firm’s performance is inconclusive as it has no

significant impact on the performance of the commission.

They study found that there is an existence of owner identity on firm performance and differs

among various owners. This is so because each owner has its own preference on strategic goals

and differs in terms of capability and incentives in dealing with agency issues and challenges.

However, the outcome of the study shows that the board composition or the size of the board is

not affected by the ownership concentration hence the presence of the CEO on the board. The

commission benefits from the high concentrated ownership ideology.

5.2 Recommendations

This research work was intended to measure the effect of board composition on the performance

of board. Based on the study conducted the following are recommended;

 The study recommended that research in future should look out for methods that can test
the efficiency and effectiveness of mechanism of directors of board of the forestry

commission as well as how to establish efficient and effective corporate governance

mechanism so as to enhance the performance of the board.

 It is also recommended that, positions to the board of the forestry commission should be

announced in public with all the requirements so that a person who considers him/herself

qualified would tender in his/her application, since the issue of director independence has

been identified as a major challenge in the forestry commission.

 It is recommended that a large pool of directors should be created from which the SOEs

could get well-qualified individuals from to minimize the appointment of retired civil

servants as well as government functionaries.

24
 The study also recommended that the forestry commission put in place evaluation

mechanisms which would help in formal and regular evaluation of the activities of the

board, in order, to enhance the performance of the board and the organization.

 The researchers also opined that for good corporate governance practice at forestry

commission, the organization should move away or diffuse the high concentrated

ownership system of governance to make way for transparency and accountability which

in turn would impact on the commission positively.

 The researchers also recommended that further study should be conducted with which data
will be gathered with well-defined research methodology.

 Finally, the appointment process must be depoliticized to ensure that well qualified persons

are appointed to the board of the commission to ensure adequate use of resources to

enhance the performance of the commission.

25
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APPENDIX I

BOARD MEMBERS

Brigadier General (Retired) Joseph Odei Retired military officer

Mr Kwadwo Owusu Afriyie Lawyer

Mr Richard Duah Nsenkyire Legal Practitioner and Intellectual Property

Attorney

Mr George Wireko Brobby Healthcare Practitioner

Mr Henry Kwabena Kokofu Lawyer

Mr Salifu SulemanaForesters

Dr. Wilfred Kwabena Anim –OdameLand Economist

Kumbun-Na Iddrisu Abu II

Nana Akosua K. Agyeman Prempeh

Togbe Gabusu VI

Mr Mahmoud Hamid Nassir-Deen

32
APPENDIX II

INTERVIEW GUIDE

1. What is the size of the board in your commission?

………………………………………………………………………………………………

………………………………………………………………………………………………

2. Do you think the size of the board have affected the performance of the board?

………………………………………………………………………………………………

………………………………………………………………………………………………

……………………………………………………………………………….

3. If yes how?

………………………………………………………………………………………………

………………………………………………………………………………………………

…………………

4. If no why?

………………………………………………………………………………………………

………………………………………………………………………………………………

…………………………………………

5. What is the impact of various members on the board to the organization?

………………………………………………………………………………………………

………………………………………………………………………………………………

33
 ………………………………………………………………………………………………

…………………………………………………..

6. How is the process of appointing members to the board like?

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

……………………………………………………

7. Do you think the process of appointment have impacted on the organization?

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

……………………

8. If yes how?

………………………………………………………………………………………………

………………………………………………………………………………………………

…………………

9. If no why?

………………………………………………………………………………………………

………………………………………………………………………………………………

…………………………………………

10. What is the ownership structure like in the commission?

………………………………………………………………………………………………

………………………………………………………………………………………………

34
 ………………………………………………………………………………………………

………………………………………………………………………………….

11. Does the ownership structure affected the decision making in the organization?

………………………………………………………………………………………………

………………………………………………………………………………………………

……………………………………………………………………

12. What is the effectiveness rate of the board members? (NB: you can rate individually)

………………………………………………………………………………………………

………………………………………………………………………………………………

………………………………………………………………………………………………

…………………………………….

35