a) Driving forces/factors behind keen interest in corporate governance.
Increasing corporate fixtures e.g collapse of sugar factories, financial institutions, manufacturing
concerns etc.
Increasing fraudulent and corrupt behaviour e.g money laundering bribery, abuse of corporate
power etc. e.g golden berg scandal, bad debt crisis in the banking sector, fraudulent claims in
insurance sector.
A growing demand by stakeholders for transparency, accountability as the world embraces
wider issues of democratization and good governance. This has increased shareholders activism.
Powerful and dominant BOD that manipulates shareholders and other stakeholders of the firm. The
BOD perceive most shareholders as illiterate to understand fully issues in the business sector.
Structures that demand academic and professional gratifications e.g some boards never demand basic
qualifications of the board members. Shareholding and influencing are used as a benchmark to get a
seat in the board.
The growth of multi-nationals and transnational firms.
The global governance revolution resulting from globalization of firms and economic
liberalization. Separation of ownership from control.
b) Advantages of good corporate governance
Protection of investors rights.
Enhances corporate performance, capital formation and maximization of shareholders
wealth (promotes corporate growth).
Promotes standards of self regulation.
Greater investor?s confidence and access to capital
Less risk of costly litigation and substantial compensation payouts.
Efficient and responsible use of capital by companies
Greater loyalty from customers and employees
Creates mechanism that selects, monitor and replaces the managers in a timely
manner. Enhanced corporate image
c) Guidelines/principles of corporate governance as issued by CMA
Audit committees – consisting of at least 3 independent non-executive directors who shall report
to the board.
The committee has written terms of reference which deal clearly with its authority and duties
Directors remuneration – their package should be competitive and comparable to similar firms so
as to retain the best directors and to ensure decisions made are not affected by inadequate
Supply of information – relevant, accurate and timely information should always be provided.
Directors – the BOD should assume a primary role of fostering the long term business of the
corporation consistent with their fiduciary responsibility to shareholders.
Board balance – the composition of the BOD should be as such that at least a 3rd of the members are
non-executive directors.
Appointment to the board – a formal and transparent system of appointment should be in place. Reelection
of directors – this should happen at least every 3 years and no director should be allowed to
continue serving if this contribution has declined.
Remuneration committee – the BOD should appoint a remuneration committee consisting of
independent non-executive directors with a mandate to recommend to the board the remuneration of the
executive directors and structure of their compensation package.
Kavungya answered the question on April 17, 2021 at 13:08
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