The term corporate governance has no single accepted definition. It is generally understood to encompass how an organization is managed, its corporate structures, policies and strategies, and ways in which it deals with its stakeholders. This term is derived from a Latin word gubermare which means 'to steer' usually applying showing direction. It therefore means that corporate governance involves the function of direction rather than control (Solomon, 2007). Many scholars have made attempts to explain what corporate governance is all about (Cochran and Warwick, 1998, Oman, 2001; King, 2002). The contribution of these scholars concur that governance focuses on the organization's stakeholders, the associated objectives, and the responsibility of the organization's management to achieve certain objectives. The goal of governance is to create safeguards enabling these objectives to be achieved.
According to Cochran and Warwick (1998) corporate governance is the international term associated with the trend towards greater corporate responsibility and the conduct of business within acceptable ethical standards. Transparency, accountability and openness in reporting and disclosure of information, both operational and financial, are internationally accepted to be vital to the practice of good corporate governance. Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals - the aim is to align as nearly as possible the interests of individuals, corporations and society (World Bank, 1999). The objectives of good corporate governance are attained when institutions demonstrate their public accountability and conduct their business within acceptable ethical standards. This demonstration will take the form of effective financial reporting, both internally and externally, and the unqualified encouragement of public debate in respect of such financial reports.
The World Bank (1998) notes that corporate governance is concerned with the processes, systems, practices and procedures as well as the formal and informal rules that govern institutions, the manner in which these rules and regulations are applied and followed, the relationships that these rules and regulations determine or create, and the nature of those relationships. It also addresses the leadership role in the institutional framework. Corporate Governance, therefore, refers to the manner in which the power of a corporation is exercised in the stewardship of the corporation's total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfaction of other stakeholders in the context of its corporate mission. According to Oman (2001) corporate governance implies that companies not only maximize shareholders wealth, but balance the interests of shareholders with those of other stakeholders, employees, customers, suppliers, and investors so as to achieve long-term sustainable value. From a public policy perspective, corporate governance is about managing an enterprise while ensuring accountability in the exercise of power and patronage by firms.
1.1.2 Corporate Governance in the Public Sector
Corporate governance in the public sector means that public officials must demonstrate compliance with the following six characteristics: they are composed of people with the knowledge, ability and commitment to fulfill their responsibilities; they understand their purpose and whose interests they represent; they understand the objectives and strategies of the departments or organization; they understand what constitutes reasonable information for good government and do everything possible to obtain it; once appropriately informed, they are prepared to ensure that the department's objectives are met and that operational performance is never less than satisfactory; and they fulfill their accountability obligations to those whose interests they represent by regularly and adequately reporting on their department's activities and effectiveness (King, 2002). According to MCCG (2000), corporate governance goes beyond the financial and regulatory aspects of governance and advocates for an integrated approach to good governance in the interests of a wide range of stakeholders having regard to the fundamental principles of good financial, social, ethical and environmental practice.
Corporate governance is frequently discussed in the context of complex accounting procedures and disclosure mechanisms. It has not been looked at from the strategic management point of view. The conventional view of corporate governance has much to do with separation of ownership and control. These are issues that arise between owners and managers of corporations. Managers and owners, the theory holds, may have different interests. To address the issue of conflict of interest between the managers and directors or owners, corporate governance comes in handy. It establishes the mechanisms necessary to ensure proper actions on behalf of managers of a corporation. Corporate governance provides directors the tools they need to ensure efficiency, accountability and sound decision-making. It helps prevent theft of property or misuse by management. Weak corporate governance has been linked to financial collapses, persistent corruption and failures of privatization of state corporations in many economies.
Implications of Strategic Management on Corporate Governance
The introduction of management techniques in the public sector that were predominantly rooted in the private has resulted in a paradigm shift as far as management of public enterprises is concerned. It has also led to two challenges; the need to have long term policy consistency required to accommodate the planning and implementation of organizational changes is hard to obtain and; the need for more accountable and transparent systems to guarantee delivery of public services. According to Stewart (1999) public sector organizations have complex accountability models because the political leadership is responsible for strategy formulation while the executive leadership is responsible for implementation of the strategies. This division of accountability is prone to conflict making it very necessary for the strategic approach to management to be adopted if the aforementioned conflict is to be managed effectively.
Like the private sector, public enterprises are tasked with producing value to its stakeholders. Alford (2000) explains that public sector value is associated with production of products and services to create an impact or outcome on socio-economic issues affecting the society at large. Creation of value can only be realized through prudent resource allocation and accountability which are closely related to corporate governance practices. Moore (1995) noted that strategic management in the public sector is more complex because it involves application of a combination of law enforcement, tax collection and environmental protection and power play.
While accepting the fact that public enterprises are not homogenous, they all conform to the application of the strategic management practices which, among others, have a direct influence on corporate governance practices. Simons (1995) explains that public organizations have no choice but to try and implement an approach that can help alleviate the potentially negative consequences of the traditional management philosophy.
Overview of the Kenyan Public sector
Kenya's Public Sector is broad and is comprised of Government Ministries, Local authorities, Parastatals and Semi Autonomous Government Agencies (SAGAS). The Public Sector is heavily relied on by the Kenyan public for the provision of services and public goods. Over the last decade, the Government of Kenya has implemented a number of public sector reforms which, as an aspect of adoption of good corporate governance practices include; the introduction of performance contracting, the adoption of Results Based Management (RBM) approach, systems and structures restructuring, adoption of the strategic approach to planning hinged on the Vision 2030 blue print and adoption of performance based evaluation of public institutions.
Government Ministries are the basic functional units of government which translate government policies into action and exercises oversight role over the management of Local Authorities, parastatals and SAGAS. Ministries are headed by Ministers who is in charge of policy formulation and the Permanent Secretaries who are the accounting officers in charge of all administrative core functions and activities of a given Ministry. Ministers are assisted by Assistant Ministers and the Permanent Secretaries are assisted by Senior Deputy Secretaries. All Ministries have departments such as human resource, finance, procurement, administration, audit and a technical department in charge of the core function of a given ministry. The Minister, Assistant Minister - who must be members of parliament- and Permanent Secretaries are appointed by the President in his capacity as Head of Government while all the other employees are civil servants employed by the Public Service Commission. A ministry discharges its mandate as described by the head of civil service and is allocated a budget from treasury in every financial year.
Local Authorities are also political institutions which are headed by Councillors who are elected during the general elections. They constitute the political arm headed by either the Mayor or Chairman depending on the type of Local authority. Parastatals are run by a Board of Directors appointed by the President and the Managing Director who is competitively recruited. SAGAS are managed by Directors appointed by the President and or Minister of the line Ministry where they belong. All Parastatals, Local Authorities and SAGS receive Financial Support from the Central Government to cushion their budgets in order to meet the service delivery expectations of the public.
In the envisaged new system of devolved government, these institutions are expected to play even a more crucial role towards achievement of Kenya's Development blue print as envisioned in Vision 2030. It is for this reason that any effort geared towards making these institutions effective cannot be overemphasized.
1.2 Statement of the Problem
Corporate governance remains an issue of global significance which has attracted worldwide attention because of its apparent importance for strategic health and performance of both public and private sector organizations. In fact a number of scholars (Nam,Manyuru & Onyango, 2002; Sanda, Milkailu & Garba, 2005; King, 2002) underscore importance of corporate governance practices as a strong determinant of organizational performance. Researching on the effects of good corporate governance practices, Nam et al (2002) and Sanda et al (2005) found out a close link between good corporate governance and performance. They recommended organizations to put in place systems and processes for strong and effective corporate governance practices for promotion of sustainable development and self-dependence.
Corporate Governance has grown rapidly in the last decade and is now viewed as an important attribute of the corporate sector. In the developed countries such as the United States of America and Britain, corporate governance practices in the public sector are part and parcel of the political system. Studying on the importance of disclosures in public sector enterprises in the UK, the Audit Commission for Local Authorities (2003) noted that implementation of corporate governance practices up scaled Government's aim of modernizing public services and enhanced engagement with service users because of improved confidence by the public.
In Kenya a number of studies have been carried out on corporate governance ( Ngugi, 2007; Gatauwa, 2008; Matengo, 2008). A study on the relationship between corporate governance structures and the performance of insurance companies in Kenya (Ngugi, 2007) found out that inside directors are more familiar with the firm's activities and they can act as monitors to top management especially if they perceive the opportunity to advance into positions held by incompetent executives. The study also found that the effectiveness of a board depends on the optimal mix of inside and outside directors concluding that an optimal board composition lead to better performance of the companies. In a related study, Gatauwa (2008) investigating the relationship between corporate governance practices and stock market liquidity for firms listed on the Nairobi Stock Exchange found out that greater disclosure enhances stock market liquidity, thereby reducing the cost of capital. The study further revealed that commitment of management teams to increase the level of disclosure also lower the information asymmetry between managers and shareholders and lower the cost of capital. Further, Matengo (2008) conducting a study on the relationship between corporate governance practices and performance the case of banking industries in Kenya found out that good corporate governance lead to lower firm risk and subsequently to lower cost of capital. The study also found that separation of ownership and control maximized shareholders wealth. All the above studies recommended the formulation of policies and procedures to guide composition of Boards, an establishment of a sound legal framework and the need to put in place systems to ensure transparency and accountability in organizations.
Notwithstanding the above studies and their respective recommendations, there is need to conduct sectoral studies to find out specific issues related to accountability, transparency, service delivery and efficiency that must be addressed in order entrench corporate governance practices in Kenyan organizations. This study's intention to unveil the influence of corporate governance practices on performance of the public sector in Kenya is a modest attempt to bridge the gap occasioned by the urgent need to build a strong public sector that is responsive to the changes of the operating environment.
1.3 Research Gaps
Several studies have been done on corporate governance in the private sector in Kenya but none has been conducted in the public sector. This research intends to look at corporate governance practices in Kenya's public sector and their influence on performance.
1.4 Objectives of the Study
1.4.1 General Objectives
The general objective of this study will be to investigate the strategic influence of corporate governance practices on performance in government ministries in Kenya.
1.4.2 Specific Objectives
This study seeks to address the following specific objectives:
To establish the strategic influence of efficiency on performance in government ministries in Kenya.
To explain the strategic influence of service delivery on performance in government ministries in Kenya.
To evaluate the strategic influence of risk management on performance in government ministries in Kenya.
To determine the strategic influence of transparency and accountability on performance in government ministries in Kenya.
To determine how government policy, organization politics and work culture influence performance in government ministries in Kenya.
1.4 RESEARCH HYPOTHESES
This research proposal is going to test the following hypotheses to determine the strategic influence of corporate governance practices on the performance of the public sector.
H01; There is no significant relationship between efficiency index and performance index in government ministries in Kenya
H02; There is no significant relationship between transparency & accountability index and performance index in government ministries in Kenya.
H03; There is no significant relationship between risk management index and performance index in government ministries in Kenya.
H04; There is no significant relationship between service delivery index and performance index in government ministries in Kenya.
1.5 Research Questions
The study will address the following research questions:
How does efficiency influence performance in government ministries in Kenya?
How does service delivery influence performance in government ministries in Kenya?
What is the influence of risk management on performance in government ministries in Kenya?
How does transparency and accountability influence performance in government ministries in Kenya?
1.6 Significance of the Study
It is hoped that this study shall be of great significance to the following:
1.6.1 Corporate managers and policy makers
This study will help corporate managers and policy makers in analysis the issues on corporate governance in order to improve the image of their organization thus installation of discipline in the management of the Firms. Corporate governance is a very critical issue in both the private and public sector and this continue to be an issue of great importance to firms both in the short run and long run survival of firms will be determined by what they engage in whether questionable or unquestionable, which will be relied upon by policy makers to make critical decision on firms. Thus good corporate governance practice will enhance transparency to firms.
1.6.2 The scholars
The study will also be of benefit to scholars who would wish to undertake further studies aimed at improving corporate governance structures in Kenya. Thus, a major responsibility lies on the shoulders of academicians who are considered as intellectuals in imparting the concept of corporate governance in the minds of young professionals. The study aims to understand the perception of academicians regarding reasons for failure of corporate governance in Kenya.
1.7 Limitations of the Study
The limiting factors of this study include: Due to the veil of confidentiality surrounding the many public sectors, most of respondent may be reluctant to participate. However, the researcher will assure the respondents that the findings will be used for academic purposes only.
1.8 Scope of the Study
The study aims at establishing the influence of corporate governance on performance in Kenya's public sector. Data will be specifically collected from employees working in government ministries in management level. These will be considered as main respondents of the study and aim will be to collect data in order to determine the influence of corporate governance practices on performance in government ministries in Kenya.
