Abstract

This thesis deals with the apply/explain principle in the OHADA Uniform Act on Commercial Companies and Economic Interest Groups. Corporate Governance is a concept adopted under the company law legislations including OHADA laws because the competitivety of a company imposes those investors and stakeholder in general feel secure with the law in charge of regulating companies.

The legal instrument which ought to be questioned to verify the efficiency of the apply/explain principle is the OHADA UACCEIG since it deals with the management or governance of companies.

However this piece of work is ambiguous. As such, there is need to see how the OHADA Law of the Uniform Act on Commercial Companies and Economic Interest groups has introduced the apply/explain principle to the management of companies and verify if that introduction is well done to impact positively in the management of companies.

The study will be carried out through literary review, looking at both primary and secondary sources of information. This study reveals that most companies should be governed by good corporate governance codes through the apply/explain principle for the effective management of companies.

Companies have to comply with the provisions of the Codes. If they do not comply should give an explanation for noncompliance as it is in the English and French countries which make use of the corporate governance code enacted by them.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Business management has been facilitated during recent years due to developments in innovations, technologies, computer techniques, software support, and the introduction of the internet and digital media but simultaneously has been complicated as well. Management is not of the same type now as it has been a couple of decades earlier.

Businesses, Companies, Corporate and small and medium enterprises have been globalized and treating the whole world as one village. Besides all recent developments in business management, ethical issues have strengthened and appeared in new forms and nature. Corporate responsibility and ethics and accountability are some of the prominent and hot issues. (Bernstein, 2016).

Therefore, ethical issues in modern management are emerging as a huge problem (Kim et al., 2015). These ethical issues may affect the business negatively losing the reputation and popularity of companies resulting in a decrease in customers’ number, loss of business, and reductions in revenues.

There are some examples of failure and closure of companies based on ethical issues like a big American energy company “Enron” in 2001 (Florida Tech, 2017).

The constant problem of ethics in the management of companies could be seen in the ethical issues related to accounting and finance. Kaur (2017) have pointed out unethical account matters like dressing and misleading financial analysis, manipulation of accounts, bribery, money frauds, overbilling of expenses and purchase. These ethical issues elaborated above are the main reason behind the creation and development of corporate governance.

Corporate Governance is a concept adopted under all company law legislation including OHADA laws because the competitively of a company imposes those investors and stakeholders in general feel secure with the law in charge of regulating companies.

Corporate governance can be defined as a set of principles, laws, policies, and institutional structures used in the management of an organization (Yeh & Lee,2002). It refers to the ways in which the many relationships between the stakeholders of a firm are managed (Singh & Davidson, 2003).

In contemporary business corporations, the major eternal stakeholders include trade creditors, shareholders, debt holders, suppliers, customers, and the host communities that are affected by an organization’s activities (Lemmon & Lins, 2003). The internal stakeholders include the executives the board of directors, and the rest of the employees.

The term “Corporate governance” became prominent in the 1980s (Kiel & Nicholson, 2003). Back then, it was generally used to describe the different principles through which businesses and the management of companies were governed.

Over the last three decades, many debates have emerged on how corporate governance should be conducted and its effects on firm performance. Meanwhile, some scholars believe that corporate governance has a positive effect on performance (Weir & Laing, 2001), others believe that many other factors than just corporate governance variables contribute to firm performance (Thonet & Poensgen, 2014).

However, the way in which a firm is managed is a crucial factor in shaping its functioning and thus its performance in the short and long run. Ruirok et al (2006) write that different corporate governance laws in different countries determine the way in which firms develop and make use of corporate governance structures.

As far as the OHADA is concerned there is a particular uniform act in charge of regulating companies.  The Council of Ministers of the Organization for the Harmonization of Business Law in Africa (OHADA).

Mindful of the Treaty on the Harmonization of Business Law in Africa, in particular Articles 2,5,6,7,8,9,10,11 and 12 thereof;

Mindful of the report of the OHADA Permanent Secretariat and the observations of the Contracting States;

Mindful of the opinion of the Common Court of Justice and Arbitration dated 7 April 1997;

The Contracting States present has deliberated upon and unanimously adopted the Uniform Act set out.

After the enactment came the reform Uniform Act on commercial companies and economic interest groups (the “Revised Uniform Act”) was adopted on 30 January 2014 by the OHADA Council of Ministers. The Revised Uniform Act, which replaces the Uniform Act of 1997, was published in the OHADA official gazette on 4 February 2014.

The Revised Uniform Act is applicable to all companies incorporated in any of the OHADA Member States from 5 May 2014. Companies that have been set up before the entry into force of the Revised Uniform Act shall update their article of association.

The Reform Uniform Act 2014 came to amend some provisions of the 1997 Uniform Act which brought in the concept of corporate governance and essentially one of its principles: Comply/Explain.

The principle emanates from Article 831-2 which states that: <Where a company voluntarily refers to a corporate governance code drafted by business organizations, the report provided for in this article shall also identify the provisions that have been rejected and the reasons therefor. In addition, the report shall also disclose the location where this code can be consulted.

Where a company does not refer to such a corporate governance code, this report shall state the rules adopted in addition to legal requirements and shall explain the reasons why the company has decided not to apply any provisions of such corporate governance.

The report provided for in this article shall also specify special rules relating to the participation of shareholders in the general meeting or refer to the provisions of the articles of association set out these terms>.   By introducing corporate governance codes and asking companies to choose or not to apply them, the lawmaker has put in place the Comply/Explain principle which is at the center of this project.

1.2 Statement Of The Problem

The problem of respect of ethics or good governance in companies; is the apply/explain principle as introduced by the 2014 reform of OHADA company law efficient to ensure ethical management of OHADA companies?

The legal instrument which ought to be questioned to verify the efficiency of the apply/explain principle is the OHADA UACCEIG since it deals with the management or governance of companies.

However, this piece of legislation is ambiguous. Despite the fact it incites corporate directors to adopt corporate governance codes or extra-legal rules through the provision of its revised Article 831-2, the Act is voluntary as it doesn’t force companies to take into consideration the provision of the corporate governance code in the management of companies.

Hence the question is to know if the principles comply/explain as designed by the Uniform act is efficient in the management of OHADA companies.

1.3 Research Question

What is the meaning of the Comply/Explain principle in the context of Corporate Governance?

Is the principle well labeled in the OHADA Uniform Act so as to impact positively on the management of companies?

1.4 Objectives of the Study

1.4.1 General Objectives

To see how OHADA law makes through the Uniform Act on Commercial Companies and Economic Interest Group has introduced the Comply/Explain principle to the management of companies and verify if that introduction is well done to impact positively in the management of companies.

1.4.2 Specific Objectives

1. To explain very well the principle of Apply/Explain in the evolution of corporate governance.
2. To see how the principle is reflected in the Uniform Act on Commercial Companies and Economic Interest Group.
3. To access the quality of the principle in the future performance of OHADA companies.