Overview of corporate governance in Ethiopia: The role, composition and remuneration of boards of directors in share companies

Abstract

Good corporate governance is an important pillar of the market economy and it enhances investor confidence. A strong and balanced board of directors is necessary as a supervising body for the executive management of a company with dispersed ownership. The Ethiopian company law does not have adequate legislative provisions on governance issues related to the separation of supervision and management responsibilities, and on the composition, independence and remuneration of board of directors in share companies. Besides, the draft Commercial Code has not yet been finalized. This article critically examines Ethiopia’s company law with specific reference to the powers, composition and remuneration of board of directors in light of internationally recognized best practices and principles of corporate governance. It argues that there is a need to distinguish between corporate governance and corporate management in Ethiopian company law, and that the board should be suitably composed of non-executive and truly independent members who should be professionally competent. Furthermore, directors’ remuneration should be incentive-oriented based on company and individualbest performance, subject to the caveat against excessive amounts ofremuneration that go beyond the achievement of this purpose.