Corporate governance and performance in the heritage insurance company limited

Abstract

Apart from many research work done on governance and performance, this project examines the link between corporate governance and company performance. Corporate governance is not a new concept in the business world today. It has been generally agreeable from many studies in the recent past that companies that have corporate governance systems in place also exhibit good performance. Thus corporate governance is increasingly being recognized as an important aspect of an efficient and effective board of directors, enhancing investment performance. This study involves an extensive literature review of corporate governance aspects including meaning of corporate governance from different perspectives such as economic view, company’s perspective, public policy perspective and stakeholder view; pillars of good corporate governance; corporate governance theories; corporate governance principles, code of best practice and guidelines; role of board of directors. The literature also attempts to link the various corporate governance principles to organizational performance. Some results of previous studies that have sought to link corporate governance aspects to performance are also reviewed here. A case study had been carried out on The Heritage Insurance Company Limited to have an indepth analysis of the underlying linkage between good governance practices and organizational performance. The research used a scorecard methodology to allow evaluation of corporate governance principles and practices. Various corporate governance variables and selected performance indicators as prescribed in performance matrix given by the Government of Kenya had been used to establish the link. The results had shown that the Company has a strong governance system in place and a correspondingly steady growth in their performance even in hard times of premium undercutting, and economic downturn. The impact had also been seen when the Company implemented one of the accounting guidelines which is deemed unpopular during hard 6 times that ended in decline in profits. Thus there is a link between the corporate governance practices and organizational performance. Apart from time constraint, only a selected set of corporate governance variables and performance indicators were used. At the time of the interview, there were also other intervening factors to the Company being studied such as the ongoing mergers and acquisitions within their business group. Therefore, a clearer picture may be established through further investigation by looking at other intervening variables that may impact on performance.