08-10-2008-ORSEA-Paper,2008 Akodo

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Ba&k)o*nd o+ th, st*d$

Corporate Governance has come to mean many things. Traditionally and at a

fundamental level, the concept refers to corporate decision making and control,particularly the structure of the board and its working procedures. Hermes,

(!!"#. $enifer, (!!# defines Corporate Governanceas a set of interlocking rules

by which corporations, shareholders and management govern their behaviour. %neach country, this is a combination of a legal system that sets some common

standards of governance and systems of behaviour determined by firms

themselves.Corporate Governance scandals and accounting failures such as &a'well in the

) and *nron in the + have been dominating business debates during the last

decade. n increasing and ethical problems are recogni-ed as symptoms of failing

Corporate Governance and systems of accountability and control in publiclyuoted firms %gor, (!!"#.

niversities and other Tertiary %nstitutions in ganda are governed by niversity

and /ther Tertiary %nstitutions ct !!1and an amendment ct !!0. The cts

empower niversities to constitute governing boards councils, appointmentsboards, senate and academic boards. The governing boards 2niversity councils

monitor and control performance of niversities and other Tertiary %nstitutions asstipulated by ct !!1and an amendment ct !!0. The creation of a board of

3irectors is to monitor the performance of the firm ()osnik, 1456, 144!

merican 7aw %nstitute, 145#. %t is, therefore predicted that if the 8oardperforms its duties effectively, the value of the firm is predicted to increase and

the wealth of shareholders would be enhanced accordingly.

ccording to )yambogo niversity strategic plan !!92!6 a number of polices

were approved by council that include restructuring of staff, appointments,salaries and benefits. These have caused academic staff unrest at )yambogo

niversity. The academic staff took the issue to courts of 7aw, (3aily &onitor

:ewspaper, $uly !!;# which courts ruled in favour of the academic staff andordered management of )yambogo niversity to reverse the earlier decision on

appointment letters. )yambogo niversity council did not play its role to the

satisfaction of the academic staff instead the courts of law had to resolve thematter. The legal costs paid by the niversity in addition to the time lost, and

unrest caused disruptions in operations of niversity.

There was turbulence caused by the nonepper :ews

paper +eptember 0!, !!9#.

&akerere niversity council approved a new fees structure for the academic year!!;2!!9 which were in the &akerere niversity strategic plan !!;2!9 which

caused public outcry and Government had to intervene and stopped the increment

in fees, (3aily &onitor :ews paper ugust , !!;#. &akerere niversity8usiness +chool Council in !!0 as an affiliated %nstitute of &akerere niversity

approved new fees structure which included computer and medical fees

recommended by &anagement in the strategic plan !!02!" and were to be paid

annually by all students. However, continuing students agitated and refused to pay


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computer and medical fees. This caused unrest in the student community to the

e'tent of students disrupting lectures at &8+ campus (3aily &onitor

>ublications /ctober 15, !!;#. &barara niversity of +cience and Technologyhas a debt of +hs "! million as compensation to former owners of niversity %nn

buildings since 1454 which the niversity Council and Top management have

failed to settle and instead continue to appeal to Government for their rescue(&+T nnual ?inancial reports 144! @ !!;# . The niversity is under threat to

be sued, (=ed >epper :ews paper +eptember 11, !!9#. The niversity Council

and Top management by now could have put up measures to generate funds toclear the debt, therefore the continued indebtedness may cripple the financial

performance of the niversity and may also retard the institutional life cycle. =ed

%n the =ed >epper :ews paper +eptember 11, !!9, Gulu niversity cademic

+taff had a sit down strike protesting non< payment of +alary rrears and nonremittance to :++? (:++? nnual =eports !!;< !!9# and = (= nnual

financial reports !!; @ !!9# monies deducted from their salaries,. >ublic

niversities continue to e'perience low revenue collections that do not match the

e'penditure figures, as evidenced in table 1.1below.Tab-, .%." A&t*a- R,/,n*, and A&t*a- E01,ndit*, +o th, Finan&ia- Y,a2334536

Uni/,sit$ A&t*a- R,/,n*, A&t*a- E01,ndit*, Vaian&,

)yambogo !,0";,09,66! ,0";,90,10


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So*&," A modi+i&ation o+ th, mod,- b$ Ga/in : G,o++,$ ;2334olicy E decision making

Boad Ro-,s &onitor E Control

ccess to =esources

+trategi-ing

dvices E Counsel


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complement each other. The decision making style of the board has been linked to

corporate performance >earce and ahra, (1441#. >rior research has investigated

the immergence of corporate governance in developing economies in the conte'tof corporate governance reforms, =wegasira, (!!!# has e'amined frica.

)rambia and >saros (!!9#, investigated the implementation of Corporate

Governance principles in an emerging economy of Cyprus and the findingsindicated only a minimal impact unless it is supported by other initiatives. ?urther

noted that Cyprus was making serious endeavors to improve the corporate

governance of its listed companies.+olomon et al., (!!!, !!0# argues that for developing countries to be

internationally competitive and attract foreign capital they need to adopt

commonly accepted standards of corporate governance implies standards based

on the nglo


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&atama, (!!;# used three basic tenets of Corporate governance transparency,

disclosure and trust in relation to commercial bank financial performance in

ganda which is a profit making organi-ation.&asibo, (!!;# focused on the board structure and board process in relation to

state owned corporations set for divestiture and those listed on ganda securities

e'change which are profit making.%n line Gavin and Geoffrey (!!"#, the current study focuses on board si-e, policy

E decision making as indicators of Corporate Governance in relation to board

roles, contingency, board effectiveness and financial performance of publicniversities in ganda.

The concept of accountability though not listed in the scope of the study the

accountability concept cannot be overlooked when reviewing corporate

governance literature. ccountability relationships occur in every sector of thesociety including the commercial sector (Dheelers, !!!#. Dhere there is

inadeuate accountability resources will be used inefficiently and ineffectively

thus, inadeuate accountability can result in devastating conseuences for

millions of people and compromising the operations of an organi-ation ()luver,!!1#. ccountability is multifaceted and comple', at the heart of which is the

notion of one party rendering an account of the use of resources to another party.Gray and $enkins (1440# have the opinion that accountability is an obligation to

present an account of and answer for the e'ecution of responsibilities to those

who entrusted those responsibilities, the principal2agent relationship )luver,(!!1#. ccountability forms the basis of the trust in organi-ations, so when

accountability relationships are undermined then our trust in organi-ations is

damaged. Dhile accountability might at first seem to be easily defined the reality

is that it is a comple' multifaceted concept. &uch of the earlier researchesfocused on accountability as measure of Corporate governance, this study is

focused on board si-e, policy and decision making.

Boad si>,

Dhen the board has adopted a clear view of its responsibilities in governing the

company, the directors can then move to discuss and agree the most effective way

of structuring the board. Consideration could be given to the si-e of the boarditself is the board too small or too large to adeuately fulfill its reuirements,

given the si-e and comple'ity of the organi-ationB The balance of the e'ecutive

and non


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and 7orsch, (144#. Dhat is clear is that the roles of the board have evolved over

time. 3efining a clear role set is difficult as different disciplines concentrate on

different areas of interest. >ettigrew, (144# identified si' themes of academicresearch on the role of managerial elites such as chairpersons, presidents, Chief

e'ecutive /fficers (C*/s# and 3irectors. These include the study of interlocking

directorates and the study of institutional and societal power, the study of boardsand 3irectors, the composition and correlation of top management teams, studies

of strategic leadership, decision making and change, C*/ compensation and C*/

selection and succession. There are, however board roles that receive boardsupport Gavin and Geoffrey, (!!"#as e'plained below.

Monitoin) and &onto-

The first role of the board is controlling and monitoring management, a role made

necessary by the separation of ownership from control 8erle and &eans, (140#.They added a separate strategi-ing role of the board. This role is normally

subsumed under advisingI role. The strategi-ing role is included for three

reasons the increasing performance pressures being applied by institutional

stakeholders 8lack, (144#, board perception of the importance of the strategi-ingrole Tricker, (145"# and recent legal precedent that places corporate goal setting

and strategic direction suarely within the boards charter 8a't, (!!#, Glabersonand >owell, (145;#, )esner and $ohnson, (144!#.

Stat,)i>in)

The boards obFective in strategy formulation is to ensure that the strategy of thecompany will lead to the long


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dvising the C*/ is widely acceptable 7orsch and &aclver, (1454# and also

resource dependence perspective, which envisages a role for directors in

providing access to resources, including information >feffer, (146#.

Contin),n&$ ? boad o-,s and boad ,++,&ti/,n,ss

Dhile all boards are reuired to undertake activities within the spectrum of this

roles set, they contend that each organi-ation will need a different emphasisamong these roles. Thus, there is need to e'plicitly incorporate a contingency

perspective Heracleous, (!!1#, 3onaldson and 3avis, (144"#, $ohnson et al ,

(1449#. +ince a particular board composition or behavior that is advantageous forone corporation may prove inappropriate or even detrimental in anotherI

Heracleous, (!!1#. There is need to identify the control variables and gaps in

understanding how the board can impact on firm performance.

The particular contingencies that will impact on board roles @ corporateperformance would include organi-ational si-e 3aily and 3alton, (144#, 3alton

et al,. (1444#, diversity +iciliano, (1449#, management e'perience Coulsonresence and use of skills and knowledge has been identified as another important

dimension of board effectiveness. 8oard members must have the right mi' of

skills and knowledge. ?or instance, they should possess both functional

knowledge in traditional areas of business such as accounting, finance, legal ormarketing as well as industry specific knowledge that will enable members to

truly understand specific company issues and challenges. %n addition, board

members must have enough general knowledge to provide good input on all

topics of discussion, ask uestions of all special interest until they are comfortableenough to cast votes *spstein et al, (!!#. Thus, for boards to work effectively,

:icholson E Geoffrey (!!"# emphasi-e that board members must possessnecessary knowledge and skills, given the uniue nature of their tasks. +imilarly,

for a board to effectively perform the supervisory role, it should be composed in a

manner that enhances the presence of skills and knowledge :amisi, (!!#.

Committ,,s

+ignificant research effort has focused on the impact of committees, )lein ,

(1454#, most notably the audit committee )lein, (!!#, remuneration committee

Conyon and peak, ( 1454# and nominating committee Jafeas, (1444# withfindings that there is a link between the presence of board committees and board

effectiveness. committee is a group of members to whom some specific role has

been delegated by a full board. Committees can be used to gather, review andsummari-e information and report back to the full board for decision or can be

delegated specific decision making powers, Gavin and Geoffrey, (!!"#.

D,-,)ation

The final function that a board needs to consider is its duty with respect to

delegation authority. Given the comple'ity of the business environment, it is

impossible for the board to be the sole decision< making body in the company.

%nstead, each board needs to work on developing an appropriate method and levelof delegation of authority. /bviously this will again vary with the conte't facing

the board but, in all circumstances, the board needs to clearly articulate and

document the delegations it makes Gavin and Geoffrey, (!!"#.

Risk mana),m,nt

=isk management includes the identification of all significant risks faced by the

company and ensuring that appropriate policies are in place to moderate theimpact of these risks )lein, (!!"#. This study will focus on council committees

like appointments board committee, staff welfare committee, students welfare

committee and ?inance tender and general purposes committee and the roles

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effective boards lead to effective organi-ation. ?rom either an internal longiesse (1444#. $ust like ganda the *ducation and health sectors are becoming

increasingly important. ?ew researchers have researched on a direct link between

Corporate Governance and financial performance. This therefore called for aninvestigation into the relationship between Corporate Governance and financial

performance with the inclusion of a contingence variable as a moderating variable

in non profit making organi-ations in ganda, with the focus on public

niversities.

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MET(ODOLOGY

R,s,a&h d,si)n

The =esearch study used cross sectional and analytical research designs. Theseresearch designs were used to collect a snap shot of data and analysis of the

relationships between study variables.

St*d$ 1o1*-ationThe study population si-e of 1 constituted 41 council and 10! senate members

of " public niversities namely &akerere niversity,, &barara niversity of

+cience and Technology, )yambogo niversity and Gulu niversity. The unit ofanalysis was niversities.

Sam1-, si>, and sam1-in) d,si)n

sample si-e of 1" council members and senate members was used as

determined from )reFcie and &organ (146!# table.>roportionatestratified and simple random sampling designs was used to select

the sample of 1" members as shown in Table 1 below.

Tab-, ." Po1*-ation and sam1-, si>,

Instit*tion Po1*-ation si>, Sam1-, si>,

Co*n&i- S,nat, Co*n&i- S,nat,

&akerere niversity " 9; 1; "

)yambogo niversity 14 1" 1

&+T " 14 1; 1

Gulu 1 6 1" 15

TOTAL @. .3 6 4

+ourceA +econdary 3ata

So*&,s o+ data

The two sources of data were primary and secondary data. >rimary data was

obtained from primary source on Corporate Governance, board roles, boardeffectiveness and contingency. +econdary source provided secondary data on

financial reports and number of council and senate members.

Data &o--,&tion m,thods

Kuestionnaires and abstraction methods were used in collecting data. +emistructured uestionnaires were used to collect primary data directly from the field.

bstraction method was used to collect secondary data from financial reports.

M,as*,m,nt o+ st*d$ /aiab-,sThe independent variable which was corporate governance had to be measured in

terms of board structure 2 si-e and decision making. 8oard roles were measured in

terms of monitoring and control, access to resources, strategy and advice and

counsel. 8oard effectiveness was measured in terms of committees, riskmanagement, delegation, skills and knowledge. Contingency was measured in

terms of management e'perience (Coulson @Thomas, (1440#, institutionalturbulence, institutional life cycle ($ohnson, (1446#. ll indicators were subFected

to a four point likert scale of strongly agree, agree, disagree, and strongly

disagree. ?inancial performance as dependent variable was measured in terms of

the revenue collection performance ratio of actual revenue over budgeted revenue.*'penditure performance ratio of actual e'penditure over budgeted e'penditure.

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Jalue for money was measured as a ratio of actual revenue over actual

e'penditure (efficiency#.

Va-idit$ and ,-iabi-it$ t,sts

Content validity inde' (CJ%# was used to measure the relevancy of the uestions

used to measure the study variables of Corporate governance, board roles,

contingency, and board effectiveness. four point scale of relevant, uiterelevant, somewhat relevant and not relevant was used to collect the responses

from two e'perts in the area of study. proportion of relevant and uite relevant

was computed to get the CJ%s of the two e'perts. The CJ%s were !.946" and!.;654. +ince the uestions were relevant to the study variables.

The reliability tests performed using cronbach alpha coefficient to determine the

internal consistency of the likert scales used to measure the study variables

indicated alpha coefficients for all variables above !.9!.

Data 1o&,ssin) and ana-$sis

>rimary and secondary data was coded, edited and analy-ed using the +tatistical

>ackage for +ocial +ciences (+>++# version 1!. 3escriptive statistics and chiublishing, 7ondon.

Connelly, ?. E 7impaphayon,. >. (!!0#. 8oard characteristics and firm >erformanceA*vidence from the life insurance industry in Thailand, Chullongkorn niversity,

and %nstitute of 8usiness dministration.

Connelly, ?. and 7impaphayon,. >. (!!0#. 8oard Charateristics and firm >erformanceA*vidence from the life insurance %ndustry in Thailand, Chulalongkom niversity

and %nstitute of 8usiness administration.

Cornforth,Chris (!!1#, Dhat &akes 8oards *ffectiveB n e'amination of the

relationshipsCoulson Thomas, C$ (1440# Developing Directors: #uilding an effective #oardroom

Team, &cGrraw Hill.

3aily. C.& (144;#. n *mpirical *vamination of the =elationship between C*/s and

3irectors. The $ournal of 8usiness +trategies 1, :o. 1 ( +pring 144;#A;!


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7eblanc, =. (!!0#. The coming =evolution in Corporate Governance. "vey #usiess

3ournal +ept 2/ct !!0.

7ipton . & E 7orsch , $ D (144# ! modest proposal for improved corporateGovernanceI, 8usiness 7awyer, Jolume "5.

7ipton, & and 7orsch, $ D. (144# &odest >roposal for improved Corporate

GovernanceB,#usiness 6awyer, "5, ;4awns or potentatesA The reality of mericansCorporate 8oards, Harvard 8usiness +chool >ress, 8oston, &

&ace (1459#, 3irectors , &yth and reality, Harvard 8usiness +chool >ress, 8oston.

&ace, &.7.G (1461#, 3irectorsA &yth and =eality, 3ivision of research, Graduate school

of 8usiness dministration, Harvard niversity, 8oston.&akerere niversity +trategic plans !!02!"< !!;2!9.

&ark T (!!!#. +urveys =eveal %nvestors will pay for good governance &ckinsey

Kuarterly survey , Dorld 8ank and )orea Qonsei niversity.

&barara niversity of +cience and Technology nnual ?inancial reports 144! @ !!;&cConville, C. (!!1# Company 6aw3ublin, =ound Hall.

:amisi =.:.(!!#. 8oard of 3irectors Composition, Team processes and /rgani-ationalperformance of selected financial institutions in ganda. npublished =esearch

3issertation submitted in partial fulfillment for the award of a degree at &akerere

niversity.:amisi. =.:. (!!#. 8oard of 3irectors Composition, Team >rocesses and

/rgani-ational performance of selected financial institutions in ganda.

npublished =esearch 3issertation submitted in partial fulfillment for the award

of a degree at &akerere niversity.:ichoson.G.$.E Geoffrey.G.C . (!!"#. 8reakthrough board performanceA how to harness

your boards intellectual capital (1#. Corporate governance Jol. :o 1 pp;osition paper presented at Dorkshop HC%=esearch and practice genda based on human :eeds and social responsibility,

*uropean %nstitute of cognitive sciences and engineering (*=%+C/# " venue

*dovard 8erlin, 010!! Toulouse, ?rance.:++? nnual financial reports !!; @ !!9.

/*C3 (!!"# /*C3Principles of corporate governance, >aris /*C3.

/*C3, (1446#, Globali.ation and 'mall and edium 0nterprises (+&*s#, Jol 1A

synthesis =eport, >aris /rgani-ation for *conomic Coanasian, C., C., >revost,. .)., E 8habra, H,. (!!0#. 8oard Composition and ?irm

>erformance. The case of the 3ey =eport and >ublicly listed Canadian ?irm, fromConcordia niversity dministration, 3epartment of ?innce.

>earce, $. and ahra, +. (1441#, The relative power of C05s and #oards of

Dirctors: !ssociations with Corporate performance5, +trategic &anagement$ournal Jolume 1.

>ettigrew, .& (144#, n studying managerial elites , +trategic &anagement $ournal,

volume 10.

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>feffer , $ E +alancik, G.= (1465#, The e'ternal control of /rgani-ationsA resource

3ependence >erspective, Harper and =ow, :ew Qork.

>feffer, $ (1460#, 'i.e, composition and function of hospital boards of Directors: a studyof organi.ation1 environment lin&age,dministration +cience Kuarterly. Jolume

15.

>iesses (!!;#, Corporate Governance and ?irm >erformance in an %nternational>erspective conflicting *mpirical *vidence.

=ossette, :.: (!!#. 8ord of 3irectors Composition, Team processes and organi-ational

performance of finanacial %nstitutions in ganda &8 3issertation( npublished# &8+, &akerere niversity, )ampala.

=utagi . = (1446#, >erformance of parastatal /rgani-ations in ganda.

=wegasira .) (!!!#, Corporate Governance in *merging Capital &arketsA whither

fricaB Corporate GovernanceA n international review, ;, ark, C. (!!# conceptual framework for corporate

governance reform in south )orea, Corporate governwnceA n internationalreview, 1!, 4< "9.

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Jefas, : (1444#, The nature of #oard nominating committees and their role in CorporateGovernance, 3ournal of #usiness finance and !ccountingJolume 9.

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+tructure 3ecisions of Chinese 7isted ?irmsS, Corporate Governance: !n"nternational Review, 1!, , 6;

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08-10-2008-ORSEA-Paper,2008 Akodo