New corporate governance that improves lives

Corporate governance is concerned with the way in which organisations are led ‘from the top’, that is, how power, strategic decision-making and accountability are exercised by an organisation’s apex decision making organ in delivering good performance and outcomes. In commercial or for-profit corporations, the apex structure is typically referred to as a board of directors, whereas the same may be known as a governing council or board of trustees in public sector entities and third sector organisations, composed of a blend of executive and non-executive members. Irrespective of the context and sector, the role of board members remains crucial in providing collective leadership, steering strategic thinking and executive actions, as well as ensuring adequate systems are in place to monitor performance, probity, mitigate risks, guard against wastage and/or fraud, and promote accountability, transparency, sustainability and ethics.

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In turn, well-governed and performing organisations hold immense potential that can power national economic growth while bringing positive social change in a country. All too often however, traditional corporate governance and board thinking have focused on satisfying financial providers (mainly shareholders) and putting their welfare on a pedestal, with limited and meaningful consideration for other important stakeholders, including employees, customers, or the natural environment. Executives are also given free rein on the basis of narrowly defined compensation schemes and their actions are not sufficiently subject to rigorous board oversight, save for technical and often symbolic compliance with rules and codes. Similarly, non-commercial state-owned or third sector entities become captured by the whims of political and/or financial priorities, at the detriment of who or what really matters e.g. employees, community, service delivery, environment and the wider public or collective interests.

Our research on the role of corporate governance codes - guidelines meant to strengthen and enact greater oversight and accountability - show their often limited reach in enacting fundamental change at the top. Codes, typically based on so-called ‘international best practices’, do not sufficiently consider the context in which these are implemented and over-emphasise technical compliance, side-stepping important questions about the role of the board in delivering vision, tone at the top, organisational culture and wider economic/social considerations. Within our work in the African context, we advocate the case for locally developed and joined-up code development and board membership that emphasises organisational purpose, social, environmental and ethical outcomes and genuine conditions for effective oversight. Our current efforts focuses on translating extant research into knowledge exchange and collaboration activities with Africa-based professional bodies (The Institute of Certified Secretaries of Kenya; The Institute of Directors of Ghana).

Our knowledge exchange partnership with The Institute of Certified Secretaries of Kenya is seeking to develop policy recommendations on how to enhance corporate governance practices within Kenya’s state-owned enterprises (SOEs). In many developing countries, such as Kenya and several others in sub-Saharan Africa, SOEs constitute a major part of the public sector by virtual of employing nearly half of the existing public sector workforce. SOEs also account for account for a large part of the total public sector assets and liabilities. In Kenya, for instance, SOEs outnumber listed companies by nearly five to one. The SOEs are also funded by the government with taxpayers’ money. Thus, when SOEs are efficiently governed and are able to generate surplus revenue, such proceeds can assist the government to meet its obligations, including provision of public goods and services to the citizens.

However, inefficient and poorly governed SOEs lead to the haemorrhaging of vast public resources as they have to depend almost perennially on the National Treasury for funding. This in turn prevents citizens from receiving essential services such as safe drinking water, good quality education, security; or even critical infrastructure such as roads and bridges. These occurrences can also impede social progress and contribute to social inequality, while many boards seem unable or unwilling to challenge the status quo. As our research shows, this previously overlooked sector in corporate governance debates, has considerable potential to shore up government finances and contribute to improved citizens lives. We are thus aiming that the new governance recommendations that we are seeking to co-develop with The Institute of Certified Secretaries of Kenya, and other key SOE stakeholders such as governance professionals and board members and policymakers, will have a positive impact across wider spheres of the Kenyan society.

In addition, we have an ongoing collaborative partnership with The Institute of Directors of Ghana together with other academic partners and representatives of industry and policy bodies, is to contribute to the development of a national code in Ghana. Notably, the corporate governance codes previously adopted across several African countries have been criticised for being too western-centric and therefore lacking compatibility with the contextual realities and corporate governance priorities of those countries. Again by emphasising notions of shared purpose, principles, social mission, local needs, and what board oversight entails, we are aiming to develop an approach to organisational governance that recognises a wider constituency of stakeholder groups, including employees who provide their labour and community that provides the raw materials and other natural resources. In other words, a form of corporate governance that improves lives.

The road to this change is of course not an easy one. But already, various political institutions in Africa (e.g. African Union; African Peer Review Mechanism) have recognised the need for African-led and inspired governance solutions. We are therefore confident that having a system of corporate governance that inspires organisations to add value to society, while they need to ensure a sustainable financial ‘bottom line’, can provide sustained improvement to the quality of lives of many people in both Kenya and Ghana.