CORPORATE GOVERNANCE MECHANISMS

CORPORATE GOVERNANCE MECHANISMS

A project synopsis

By

Aggrey Ndombi
 CORPORATE GOVERNANCE MECHANISMS

INTRODUCTION
Corporate governance has become an increasingly important issue for organizations for two main
reasons. Firstly, the need to separate ownership management control of organizations; which means
most organizations operate with a hierarchy or chain of governance. This chain represents all those
groups that influence on an organization’s purpose through their direct involvement in either
ownership or management of the organization. This coordination and management chain will vary
from organization to organization. Secondly, there has been an increasingly tendency to make
organizations more visibly accountable and or responsive not to those owners and managers in the
governance chain but to a wider range of stakeholders including the community at large (Johnson G et
al 2006).

According to Keasey et al. (1997) corporate governance can be referred to as “the structures,
processes, cultures and systems that engender the successful operation of the organisations”. It has
also been expouned that it is more than just board processes and procedures. It involves the full set of
relationships between a company’s management, it’s board, its shareholders and its stakeholders, such
as its employees and the community in which it is located (Witherell 2000, p. 25). In a broader sense
consequently, the main corporate governance themes that are currently receiving attention are:
adequately separating management from the board to ensure that the board is directing and supervising
management, including separating the chairperson and chief executive roles; Ensuring that the board
has an effective mix of independent and non-independent directors; and establishing the independence
of the auditor and therefore the integrity of financial reporting, including establishing an audit
committee of the board.

Practically, it is about supervising and holding to account those who direct and control the
management and also putting checks and balances in place to prevent abuses of authority and ensure
the integrity of all organizational operations. Corporate governance mechanisms and controls are
designed to reduce the inefficiencies that arise from moral hazard and adverse selection. For example,
to monitor managers' behavior, an independent third party (the external auditor) attests the accuracy of
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information provided by management to investors. An ideal control system should regulate both
motivation and ability (Wikipedia, 2010). Internal corporate governance controls monitor activities
and then take corrective action to accomplish organizational goals. Therefore governance framework
should give a comprehensible and logical description to who the organization is there to serve and how
its purpose and priorities should be decided and effectively delivered. This relationship shows how an
organization should function and distribute power among different stakeholders. This paper will
discuss a number of issues relating to corporate governance mechanisms and there implication on
revenue collection operations and corporate performance at the Kenya Revenue Authority and explore
other possible mechanism that the authority may adopt to deliver on its mandate.

STATEMENT OF THE PROBLEM

Holding the balance between economic and social goals and between individual and communal goals
are key concerns of Corporate Governance. The governance framework should be there to encourage
the efficient use of resources and equally to require accountability for the stewardship of those
resources. Consequently, the aim should be to align as nearly as possible the interest of individuals,
corporations and society.

For governments to match in performance with the growth and expectations of its constituents, it must
dramatically increase its fiscal depth without incurring costly recurring overheads. Proper governance
framework for revenue collection agencies will positively impact the attainment of country’s goals. In
Kenya, the Kenya Revenue Authority (KRA) established in 1995 as a semi-autonomous government
agency responsible for revenue administration i.e. assessing, collecting and accounting for all revenues
in accordance with specific laws, advising the Minister for Finance on matters relating to revenue
administration and performing such other functions in relation to revenue as the Minister may direct.

KRA continues to implement modern processes as well as quality management systems that may lead
to improved service delivery and communication with taxpayers. These interventions without proper
and elaborate governance mechanism and controls will not effectively deliver on its setup mandate. It
is with this view that these study seeks to explore authority’s corporate governance mechanisms and
their effects on revenue collection operations and performance in general.
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OBJECTIVE OF THE STUDY

The overall objective of this study is to explore corporate governance mechanisms and controls of
KRA and their effects on revenue collection administrative operations and general performance.

Specific objectives of the study

The specific objectives of this study are to;

i. Explore corporate governance principles and controls and there relevance to a public
corporation.
ii. Determine the implication of the corporate governance principles and controls towards the
authority’s processes and operations
iii. Find out the challenges faced and possible solutions in the Authority’s corporate governance
system
iv. To design a possible conceptual model that can be used for governance in revenue collection
agencies

RESEARCH QUESTIONS
This study will attempt to answer the following questions;

i. What are corporate governance principles and controls that can be relevant in Revenue
collection agencies
ii. What are the effects of effective and efficient corporate governance principles and controls
v. What are the challenges faced in the KRA’s corporate governance system
iii. What conceptual model can be adopted to deal with the governance hurdles that have been
highlighted

SIGNIFICANCE OF THE STUDY

The findings of this study was useful in generating practical knowledge in the governance process of a
revenue collection agency which would in turn assist policy makers and implementers in designing
more meaningful intervention strategies that would enhance better use of available resources and also
meet the expectations of all stakeholders. The findings of the study will serve as useful source of
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reference for future researchers interested in basing their studies in other sectors that have embraced
good corporate governance mechanisms and controls.

DELIMITATION AND LIMITATIONS OF THE STUDY

The study only considered public corporations. The researcher selected KRA because of personal
interest in the stated problem as Kane (1995) correctly notes that the ideal research is one that is
directly related to researcher’s interest and that which allows development of immediate rapport.

ASSUMPTIONS OF THE STUDY

The study assumes that the respondents co-operate with the researcher and that the issues under study
are the most significant. The study further assumes that even though the corporation under study has in
recent years been successful in its operation, there is still more room for improvement through well
thought and practical governance framework.

CONCEPTUAL FRAMEWORK
The framework will focus on;
• Internal corporate governance controls
• External corporate governance controls
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REFERENCES
Johnson G, Schole K and Whittington R, (2006) 7th Ed, Exploring corporate strategy), Practice Hall,
Dess,Lumpkin, Elsnel (2008) 4th Ed, Strategic Management Mcgraw hill
Wikipedia (2010), http://en.wikipedia.org/wiki/Corporate_governance#Mechanisms_and_controls
Keasey, K., Thompson, S., Wright, M. (1997), "Introduction: the corporate governance problem:
competing diagnoses and solutions", in Keasey, K., Thompson, S., Wright, M. (Eds),Corporate
Governance: Economic and Financial Issues, Oxford University Press, Oxford, pp.1-17.