All over the world, corporations, business entities and other modern day organisations are going through challenging times and are also experiencing fundamental changes and other environmental dynamics which are having big impact on how they are managed and governed. Such entities are now having to not only keep abreast of these emerging local and global issues and how they impact on their organisations, but more importantly how to harness the same to their advantage.
The Paper aims to discuss rationale for the proposed study and highlight some of the key issues emerging in corporate governance of the contemporary organizations with specific reference to commercial state corporations in Kenya. It draws illustrations from global case scenarios to help demonstrate impact of issues identified in literature that have impacted on management and governance of commercial state corporations in Kenya.
1.2 Key Definitions and Evolution of the Concept of Corporate Governance
A Corporate entity is a structure established by law to allow different parties to contribute capital, expertise, and labour for the maximum benefit of all of them. Examples of Corporate entities include; companies, charities, foundations, multinationals, public firms and other organizational structures. The unique thing about a corporate entity is that it has an identity and life of its own, separate from the owners and often outlasting its founders (Monk and Minow, 2011).
A corporate entity operates in society and for society. Its license emanates from the state, and society, therefore, expects it to perform and realize its purpose. It is also supposed to act in the best interest of all its stakeholders including the owners, employees, suppliers, distributers, lenders, customers and the environment in general. In short, a corporate entity should behave and act like a good and responsible citizen.
Corporate Governance has been defined as the "manner in which corporations are directed, controlled and made to account" (Colley, Jnr, et al (2005). It is also defined as the manner in which the power of, and the power over, a corporation is exercised in the stewardship of its assets and resources so as to increase and sustain owners values while satisfying the needs and interests of all stakeholders.
According to Solomon and Solomon (2004) "Corporate governance is the system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity". It includes systems, practices and procedures by which individual corporations' are regulated in order to remain legitimate, competitive, sustainable and relevant.
Corporate governance is as old as the large corporations that emerged circa 1600 AD, during the Industrial Revolution. As these large corporations emerged, the separation of ownership and the control of capital gave rise to conflict of interest between the principals and their agents (Barle and Means, 1932). While the principals sought to enhance the value of their firms, their agents (boards and/or management) sought to enhance their goals of personal wealth and social prestige. This brought about the so-called Agency Problem. Corporate governance then emerged as one way of managing this particular corporate predicament. Corporate governance has now become a mainstream topic with a lot of keen and research interest over the last eight decades
Quality of governance is critical for the success of the county's institutions and the economy at large. Countries that have institutionalized good corporate governance enjoy high levels of development and prosperity. Well run organizations are not only efficient and effective in their resource utilization but are also, a boon to the country's economy, and indispensable vehicles for continued economic growth, wealth and employment creation. Good corporate governance is therefore, becoming a prerequisite for national economic development, the world over.
1.3 Commercial State Corporations in Kenya
Most state corporations or parastatals are established either under a specific Act of Parliament (statute) or set up by the President under the State Corporations Act CAP 446 (1987) of the Laws of Kenya. Others operate under the Companies Act CAP 486 or the Banking Act. East African Portland Cement Company, for example, operates under both the companies act and the state corporations act and as a result has quite a share of its corporate governance issue.
Sessional Paper No. 10 of 1965 allowed the government to participate in activities that are normally reserved for the private sector. By so doing the government sought to decolonize the economy, promote the economy and regional balance, increase citizen participation in the economy, and ensure greater public control of the economy (SCAC, 2009). Currently there are over one hundred (100) state corporations in Kenya engaged in financial, commercial, regulatory, research service, regional development, university education and tertiary education and training. Over 50% of them depend on the Exchequer funding for their all funding or are subsidized to a large extent. Commercial state corporations engage in commercial activities such as trading in goods, services or both and are geared towards profitability. They are either wholly owned or partially owned by the state or by another state corporation.
Prior to the late 1980s, the economies of many African countries, Kenya included, were largely, state-controlled. This phenomenon was explained by the predominance of state-owned commercial enterprises in practically every sector of the economy and the administrative control of interest rates, credit and foreign exchange allocation to commercial enterprises throughout the economy. Coupled with this state of affairs was the lack of a democratic culture, with many African countries under dictatorial military or civilian rule. At the state and corporate levels, traditions that underpin governance, such as the rule of law, transparency, accountability and social justice were either non-existent, or received mere lip service (Okeahalam & Akinloade, 2003). In state-owned enterprises worldwide, the government appoints the directors or managers who carry out the day-to-day operations of the corporations.
1.4 Problem Statement
The rather dynamic environment in which many firms operate has continued to generate and give rise to a number of pertinent and new realities, ideas, approaches and ways of doing things that affect the manner in which these corporations are run and managed. Some of the realities shaping corporate governance in the Kenyan public sector are discussed below.
Globalization, which refers to the trend to unify the nation states into a single and larger whole, as well as benchmarking with and adherence to the world's standards, is now a reality and has a strong bearing on the governance, management and the general operations of modern day organizations. Commercial state corporations are no exception.
The general public is increasingly becoming concerned about the processes, systems, structures, practices as well as the rules and regulations that govern public institutions. More importantly, the citizenry are getting more and more concerned about how these rules are applied and the impact they have on corporate stewardship. Kenya has recently enacted a new constitution and has, amongst other things, entrenched a number of constitutional requirements regarding the governance structure of many public institutions. For instance, they must respect and reflect regional diversity, ethnic balance and gender equity, amongst other considerations. This has greatly helped engender diversity in the work place.
The structure and composition of the firms boards of directors are changing and so are core competencies, leading to a more balanced mix of skills and professionalism. As a consequence, boards are becoming more robust, assertive, engaging and strategic in the discharge of their mandate. Nowadays, news about directors challenging their unlawful dismissal from state firms or the undue interference by the parent ministries in the running of the affairs of the parastatal concerned have become common place. The Capital Markets Authority (CAM) has also come up with more rules for the vetting of directors of publicly listed firms to ensure personal integrity, probity and other requisite characteristics of those who will serve in the boards.
There is also a change in the ownership structure in most of the commercial firms giving way to much more diversified ownership structure and identity. Government has plans to wholly or partially divest from a number of commercial state firms and recently established The Privatization Commission, whose mandate is to oversee its divesture programme. This move will lessen the government grip on most of these firms and will impact on how such firms are run.
The emergence of an increasingly knowledgeable and vigilant corporate stakeholder group, capable of constantly questioning the running of their companies has given rise to new accountability requirements. Nearly all the stakeholders of corporate entities, including customers, suppliers, distributors, creditors, lenders and others, are taking a very keen interest in the affairs of the corporations they deal with. Increasingly, they are demanding more disclosure, transparency, accountability and fairness in the way these corporations do business with them; they have come to claim some stake in these organizations and to demand they that are ran in best interest of all.
The above mentioned emerging issues among others have and will continue to have far reaching implications on how the commercial state corporations are run, managed and governed. Despite these significant developments, not much has been done to analyze the impact of the same on the firms' corporate governance and management practices. Many studies have pointed out the need to enhance both management and governance practices of the corporate sector. Some of the key unanswered questions requiring research on the subject include: Are these changes and other emerging issues the necessary catalyst to a new and different way of running, managing and governing commercial state corporations? How does the diversified ownership structure or quasi nature of the commercial state corporation impact on its corporate governance?
1.5 Research Aims and Objectives
The main aim of the study is to identify emerging corporate management issues and establish their impact on governance of commercial state corporations in Kenya.
Specific research objectives are:
To identify key emerging corporate management issues facing the commercial state corporations in Kenya;
To establish impact of emerging corporate management issues on management and governance of commercial corporations firms;
1.6 Research Questions
The research will be guided by the following questions:
What are the key emerging corporate management issues facing commercial state corporations in Kenya?
To what extent do the above emerging corporate management issues affect management and governance of commercial state corporations in Kenya?
What other factors should be considered to improve corporate governance of the commercial state corporations of Kenya
2.0 RESEARCH METHOLODY
2.1 Research Design
A research design is a plan and strategy of investigating a phenomenon and it seeks to obtain answers to various study questions (Kerlinger, 1973). The study will adopt a sample survey design. A sample survey is a way of collecting data from a population with a view towards making statistical inferences about the population using the sample (Kothari, 2004). This descriptive survey design is most suitable for the study since it will help obtain data that describes the characteristics of the topic of interest in the research. Descriptive statistics discover and measure cause and effect relationships among variables (Cooper et al, 2003).
2.2 Target Population and Sample Size
Population is a group of knowledgeable people also known as universe (Hair et al., 2007). Cooper and Schindler (2003) define a population as the total collection of elements about which we wish to make inferences. The researcher intends to draw a full list of commercial state corporations in the entire country to form the study population. According to Mulusa (1998), 20% of the target population is an ideal sample size to work with since it ensures that the sample is representative of the population and hence both the internal and external validity is attained. The study will cover at least 20% of total commercial state corporations in Kenya based on representation in terms of industry (nature of business) and regional balance.
Methods of Data Collection
The proposed research design will enable collection of primary data using semi-structured questionnaires as the main tool. Shao (1997) defines a questionnaire as a formal set of questions or statements designed to gather information from respondents. The use of the questionnaire will ensure faster collection of data as well as a high return rate as they can be dropped and picked from the respondents easily. Secondary data will be obtained from published sources relevant journals and firms annual reports. This technique will augment the data collected to shed light on merging issues that impact management and governance of commercial state corporations in Kenya.
SELECTED REFERENCES
Colley, Jnr, et al (2005), Mc-Graw Hill, New York
Kothari, C.R (2004). Research methodology: Methods and Techniques, Kisha Prakasham. New Delhi
Monks, R.A.G, Minow, N (2011), Corporate Governance, 5th Ed, John Wiley & Sons, UK
King Report, The (2002) The King Report on Corporate Governance for South Africa, King
Committee on Corporate Governance, Institute of Directors in Southern Africa,
Parktown, South Africa
Jill Solomon, Aris Solomon (2004), Corporate Governance and Accountability, John Wiley & Sons, UK
Private Sector Corporate Governance Trust (1999), "Principles for Corporate Governance in Kenya, Nairobi
Ongore, V.,(2011), "Firm Ownership, Board, Managerial Discretion, and Performance: Empirical Evidence from Kenya" in Business Administration and Management Prime Journals Vol. 1(2) pp. 40-57
Mulili, B. (2011). Corporate Governance Practices in Developing Countries: The Case for Kenya. International Journal of Business Administration , 2 (1), 14-27.
Okeahalam, C., & Akinloade, O. (2003). A Review of Corporate Governance in Africa: Literature, Issues and Challenges. Global Corporate Governance Forum.
Ruin, J.E. (2001). Essentials of Corporate Management. Kuala Lumpur: MICG
Shleifer, A. & Vishny, R.W. (1997). A Survey of Corporate Governance. The Journal of Finance, 52 (2), 737-783. Accessed at http://dx.doi.org/10.2307/2329497 on 1/8/12
Tricker, Bob (2009), Corporate Governance: Principles, Policies, and Practices, Oxford, New York
