| dc.description.abstract | Corporate governance is about structures and institutions by which rights and obligations
among different participants in corporate world such as the board, management, shareholder
and other stakeholders are spelt to ensure equity and fair play. Through strengthening of
these structures, institutions are able to promote corporate fairness, transparency and
accountability
Corporate governance is one of the hottest issues of the 21st century’s management practices.
The Board Room issues stand in the focal point of corporate management and leadership
priorities since the Enron Scandal (2001) and the Sarbanes-Oxley Act (2002). A proper
governance framework is of fundamental importance in enhancing the economic performance
not only in individual firms but also in promoting the level of welfare in society.
In Kenya, the Insurance industry is regulated by the Insurance Act, Cap 487 of the Laws of
Kenya. This act has defined how insurance companies should be set up, managed and
controlled. However, just like other industries, regulation has not ensured the highest
standard of governance.
Three areas of governance were examined in the study. These were the independent body
responsible for governance, separate from management, the principles of corporate
governance and the mission and responsibility of the board of directors.
The objective of this study was to establish the corporate governance practices adopted by
insurance companies in Kenya. Insurance companies play a major role in the economy as
they are crucial economic agents and financial market stabilizers. Through their core
business, insurance companies ensure transfer of business risks for many activities that could
not work smoothly otherwise and participate at several degrees to the social welfare of the
population.
The research methodology adopted was a cross sectional survey, where questionnaires were
sent to all the 41 insurance companies. 25 companies responded giving a response rate of
61%.
The study revealed that although corporate governance principles are practiced by a majority
of the industry players, there was no uniformity. Furthermore, there was neither a legal
requirement to publish a statement of corporate governance in the company annual report and
accounts nor any guidelines from the regulator on how governance in insurance companies
should be handled. The study also found that only 33% of the companies studied had an
independent body responsible for corporate governance. All companies studied held regular
Board meetings with the most common frequency being quarterly. The role of the Board was
clearly defined; and was found to be more strategic in nature and quite distinct from the day
to day role of management. A few companies however reported that the chairman was also
involved in day to day management matters.
In order for the industry to uniformly and consistently adopt best practice in corporate
governance, the researcher recommends that a review of the Insurance Act to incorporate
specific guidelines on corporate governance.
The study was limited to insurance companies only due to cost and time constraints. 25
companies out of 41 participated, giving a response rate of 61%. A number of companies
were not willing to participate in the study despite the effort put by the researcher to persuade
them to do so.
In future, it is suggested that further research could be carried out to establish whether there is
better governance in insurance companies that are not composite compared to composite
ones, or to determine whether the ownership structure has any impact on governance. It
would also be useful to carry a similar study in 2-3 years to determine whether governance
has improved following the directive from the Commissioner of Insurance that all company
directors under go corporate governance training effective January 2009. There has also been
a further requirement to restrict the shareholding of insurance companies to 25% and below
for any one shareholder. This is effective January 2010. This too will further improve
corporate governance within insurance companies. | en |
