Corporate governance practices in housing finance company of Kenya

Abstract

Corporate governance is about putting in place the structure, processes and mechanisms by which business and affairs of the company or firm are directed and managed, in order to enhance long term shareholder value through accountability of managers and enhancing firm performance. In other words, through such structure, processes and mechanisms, the well-known agency problem - the separation of ownership (by shareholders) and control (by managers) which gives rise to conflict of interests within a firm may be addressed such that the interests of the managers are more aligned with those of shareholders. The Organization for Economic Cooperation and Development (OECD), which in 1999 published its Principles of Corporate Governance, offers a more detailed, definition of corporate governance as the internal means by which corporations are operated and controlled, which involve a set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company. In the current and past century corporate lapses have been blamed on lack of good practice corporate governance. Globalisation has enlarged the operating business area of companies. Research on corporate governance has gained some momentum after several large companies collapsed around the world in the beginning of 2000s. These collapses were typically caused by accounting fraud and bribery among other things. Scandals had many effects to the governance practices in many companies, but also they accelerated the development of a legislation of corporate governance. The study objective was to establish and explain the corporate governance practices in Housing Finance Company of Kenya. This objective was tested using a case study design. The findings from the study indicated that HFCK has good corporate governance practices as recommended by the various banking industry stakeholders. The Board of HFCK is responsible for the overall management of the bank and is committed to ensuring that its business and operations are conducted with integrity and in compliance with the law, internationally accepted principles and best practices in corporate governance. A study can be done in future on mapping the impact of corporate governance practices on the key business drivers of the company. A different research design can be used in future studies. A survey on corporate governance practices across the banking sector can be conducted. This will help to address the limitations of using case study methodology. Further study can be carried out to determine the correlation between good governance and employee motivation at HFCK. The presence of employees makes it possible to have governance body separate from the management, which is a major pillar of corporate governance. Also a study can be conducted on whether there is any relationship between good corporate governance and good customer service. Nowadays one of the key business drivers is good customer service and hence the need to have this coming right from the governance level and therefore the need to test the relationship. Other studies on corporate governance could be done using other forms of research designs like a survey. This will illuminate the similarity of corporate governance practices across organisations and also help to inform the level of implementation of best practice corporate governance within and across sectors.