Influence of Diversification Strategy on Corporate Governance at the Simba Corporation Limited

Abstract

Fierce global competition demonstrates the need for an expanded paradigm to understand how competitive advantage and firm performance is achieved. Using diversification strategy, companies may be able to utilize all its capabilities or resources, and be able to attract new business from market segments not catered for earlier. However, absence of corporate governance control will lead managers to pursue strategies that may deviate from the interest of the shareholders thus the need for effective implementation of corporate governance in all organizations whether public or private. Thus corporate governance is increasingly being recognized as an important aspect of an efficient and effective board of directors, enhancing investment performance. The objective of the study was to determine the influence of diversification strategy on corporate governance at the Simba Corporation Limited. The research design used was a case study. The study used primary data which was collected using an interview guide. The respondents were the head of departments for strategy and business development, and the executive directors. The data obtained was analyzed using content analysis. The study found out that ownership structure, board structure, board size and institutional investors influence the corporation diversification strategy and corporate governance. Ownership structure ensures that there is enhanced corporate governance quality as various stakeholders expectations have to be proactively managed. Managers undertake sound business decisions for the corporation through implementation of ethics policies, monitoring and control frameworks that are technology and risk based have been put in place by the shareholders. The board of directors was found to be made up of both internal and external members. Diversification strategy of the corporation was sanctioned by the board and therefore the ultimate effect of diversification strategy pursued by the organization is shouldered by the board. Non-executive members were found to have upheld the corporate governance framework that ensures the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders. The study found out that the corporation smaller board was effective since they experience fewer communication and coordination problems and this has helped the corporation pursue corporate governance and diversification strategy. The study recommends that recommends that in order to have proper monitoring by independent directors, the corporation should require additional disclosure of financial or personal ties between directors (or the organizations they work for) and the company. Further the non-executive directors need to be trained on internal corporate governance mechanisms.