Corporate Governance as a Strategic Tool to Improve Performance of Listed Companies in Kenya

Abstract

Corporate challenges such as fraud, declining performance and collapse have impelled the opinion that the practice of good governance is the ultimate solution to firms. It is for this reason that the concept of corporate governance has gained a lot of popularity over the last decade. Increasingly, organizations are now focusing on corporate governance as just not mere meeting statutory obligations, but as an imperative business strategic tool to improve their performance, attain sustainable growth and long-term competitive advantage. Most of the studies done on the value of corporate governance have been conducted in the developed world. This study therefore aimed at contributing to the knowledge of this subject matter but specifically in regard to the listed companies in Kenya. The study objectives were to: determine the extent to which listed companies in Kenya have integrated corporate governance guidelines into their corporate strategies; and to determine the effectiveness of corporate governance as a strategic tool to improve performance of listed companies in Kenya. To meet these study objectives, a descriptive census survey was used. The study population comprised of 63 companies which were listed at Nairobi Securities Exchange as at December 31, 2014. Questionnaires were used to collect primary data and were sent to at least one person who was either a shareholder, director, senior manager or company secretary of each of the targeted companies. 39 questionnaires were completed and returned, representing a response rate of 62%. Secondary data used was mostly from the published audited financial statements. Data collected was analyzed and findings presented in form of graphs, pie charts and tables. It was observed that most of the companies listed at the Nairobi Securities Exchange were implementing corporate governance guidelines issued by the Capital Markets Authority. In addition, most of the companies had incorporated corporate governance practices into their corporate strategies resulting to improved performance. The study therefore found that corporate governance was an effective strategic tool to improve performance of listed companies in Kenya. These research findings have made a contribution to the theory and practice in regard to the value of corporate governance in general and specifically on the use of corporate governance as a strategic tool to improve performance of listed companies. Based on the results of the study, it is recommended that the Capital Markets Authority should ensure strict compliance of corporate governance guidelines by the listed companies in order to enhance productivity and therefore attract more investors into the market. Similarly, listed companies should dedicate adequate resources to ensure compliance with good governance practices for improved corporate performance. This study recommends that further research be carried out targeting the small owner-managed companies as well as other organizations in Kenya to enable generalization of findings.