Board Practices, Internal Controls, Enterprise Risk Management and Performance of Government Owned Entities in Kenya

Abstract

There is growing public debate on the role of the boards in government owned entities due to their poor performance, corporate scandals, and increased incidences of corruption cases. Good board practices, internal controls including enterprise risk management provide the essential link for enhancing performance in government owned entities. However, research findings on their impact have been contradictory and mixed. Despite these challenges, improving transparency, accountability, and adherence to governance frameworks can positively influence performance. It is crucial to address governance issues in government owned entities to mitigate resource mismanagement and corruption, leading to better overall performance. The objective was to determine relationships amongst board practices, enterprise risk management, internal controls and performance of government owned entities. The hypotheses were: board practices do not significantly influence performance, enterprise risk management does not significantly intervene in the relationship between board practices and performance, internal controls do not have significant intervention effect to the relationship between board practices and performance, the board practices, internal controls, and enterprise risk management do not jointly affect performance. The study was based on agency, resource dependency, transactional cost, stakeholders’, and stewardship theories. Agency theory is the main anchoring theory. The theory advocates for strong oversight mechanism such as independent boards to monitor management activities effectively leading to enhanced performance. Resource dependency theory suggests that entities can enhance their performance through linkages with external environment for resources such as skills, markets, and capital. Study used positivism philosophy of research. Independent and intervening variables were measured through their respective indicators using semi-structured questionnaires. Performance data were derived from annual reports from government department based in the ministry of public service. The data on board practices, internal controls, enterprise risk management and performance were gathered from 153 properly completed questionnaires out of the 157 returned, representing 65.38 % of the entire population of 234 government owned entities. Descriptive statistics, correlation, and CB-SEM together with the AMOS application version 26.0 were used as tools of analysis. The findings established that board practices have significant and positive effect on performance of government owned entities as depicted by R² value of 61.9% indicating that independent variable accounted for about 62% change in dependent variable, performance. The enterprise risk management intervening influence on the relationship between board practices and organizational performance is positive and significant. Internal controls positively significantly intervened in the relationship between board practices and performance. Study also established that board practices, enterprise risk management and internal controls jointly positively significantly impacted performance in government owned entities. In conclusion, the study established that implementing good board practices, internal controls, and enterprise risk management as an integrated system of assurance and oversight promotes accountability and transparency leading to enhanced organizational performance. Government owned entities should prioritize the implementation of effective board practices to enhance their overall performance. Research highlights necessity of improving board practices in public sector institutions by ensuring transparency and accountability, implementation of enterprise risk management system and internal controls. It emphasizes importance of gender diversity and inclusivity, effective audit committees in government owned entity’s boards to enhance organizational performance. Future research should focus on companies in the private sector and include other aspects of board practices like chief executive officer duality roles and board induction programs.