Corporate Governance

Corporate Governance practices are important components in the management and control of an organization affairs. It is concerned with the rules and procedures for making decisions on corporate affairs and provides the structure through which the company objectives.

Over the last three decades, corporate governance has become an interesting topic of discussion worldwide and the history is well documented. The African continent has not been left behind and corporate governance has assumed highest propositions.

Corporate governance is a set of relationships between company, directors, shareholders and other stakeholder’s as it addresses the powers of the directors and of controlling shareholders over minority interest, the rights of employees, rights of creditors and other stakeholders. Other scholars have defined corporate governance as both the promise to repay a fair return on capital invested and the commitment to operate a firm efficiently given investment.

Corporate governance is important because it promotes good leadership within the corporate sector. Corporate governance has the following attributes; leadership for accountability and transparency, leadership for efficiency, leadership for integrity and leadership that respect the rights of all stakeholders.

Performance may be defined as the reflection of the way in which the resources of a company are used in a form which enables it to achieve its objectives.

The Board of Directors of an organization is a key mechanism to monitor manager’s behavior and advise them. The largely shared wisdom regarding the optimal board size that the higher the number of directors sitting on the board the less the performance. This leans on the idea that communication, coordination of tasks and decision-making effectiveness among a large group of people is harder and costlier than it is in smaller groups. Limiting board size to a particular level is widely believed to improve the performance of the firm at all levels. Benefits arising from increased monitoring by larger boards are outweighed by poorer communication and cumbersome decision-making. A big board is likely to be less effective in substantive discussions of major issues among themselves in monitoring management.

Globalization and liberalization of financial markets, corporate governance scandals and increasing demands of stakeholders for accountability and transparency of organizations, brought the roles and tasks of Board of Directors to the center of corporate governance debate. Having a Board of Directors that is dominated by outsiders may help to mitigate the agency problem by monitoring and controlling the opportunistic behavior of  management.