Investigating factors which influence the practice of corporate governance within the Kenyan corporate sector

This thesis examines the compatibility of Kenya’s (Anglo-American-originated) CG code with the country’s institutional environment. Its inspiration arises from researcher’s observation that Kenyan firms continue to experience various CG challenges despite the adoption of an international code of CG practices. The study is further motivated by analysis of existing literature, which identifies three important gaps in literature addressed in this thesis, namely: (a) scanty understanding concerning the applicability of foreign CG codes within LDCs institutional environments, (b) limited literature on CG in the context of Africa, and (c) insufficient qualitative CG research notwithstanding mixed results from quantitative studies. A multi-method approach was utilised in gathering data including: twenty-one interviews with representative CG stakeholders, field observations of six listed firms’ AGMs, and archival evidence (annual reports and corporate websites, records of AGM proceedings, official documents and policy publications). The study then employs thematic and content analysis to investigate factors which influence the practice of Kenya’s CG code within the corporate sector. This thesis’s findings demonstrate that despite the merits of the Anglo-American governance model, the present code of CG practice in Kenya is incompatible with the country’s institutional environment. Analysis of data establishes the source of this incompatibility as arising from various ambits including: highly concentrated ownership structure of firms, absence of shareholder activism, powerful traditional norms and culture, outdated corporate statutes and weak regulatory environment, and uncertainties within the country’s economy. Contrary to expectations following adoption of Kenya’s CG code, this thesis finds that Kenyan firms continue to experience severe CG challenges. These include erosion of shareholder wealth, bankruptcy risk, and conflicts between firms and local communities. This thesis makes as least two contributions to the theory and practice of corporate governance in developing countries, such Kenya. Firstly, it develops and tests a theoretical framework for examining the practice of CG in Kenya. The framework demonstrates that to understand the way CG codes are practiced in a developing country, requires awareness of factors which characterised the development of the code(s) along with the country-specific implementation process. Secondly, by providing empirical evidence of the incompatibility of the Anglo-American CG model in Kenya, the study reveals how the actions of CG practitioners are defined by a powerful institutional environment, including traditional customs and culture, notwithstanding the existence of explicit CG regulations developed internationally (e.g. in western countries). This was also found to be the principal cause for variance between the provisions of the CG code and actual practice. Finally, this thesis provides both immediate and long-term suggestions for policy. Immediate policy intervention may include a review of conflicting corporate sector regulations and adequate resourcing of relevant regulatory bodies. Long-term policy consideration should focus on reviewing the current CG code with due regard to the ‘ecosystem’ of firms to avoid tensions occasioned by the institutional environment; including conflicts with non-shareholding constituencies.