Corporate governance practices adopted by Insurance companies in Kenya
Rukaria, Naomi K
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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.