Poor corporate governance dims growth prospects for firms

By Dhahabu Writer

Companies with poor corporate governance and bad leadership practices will find it difficult to attract investors in an era where commercial credit is getting more expensive.

Dr Larry Okumbe, the chief executive of the Centre for Corporate Governance (CCG) said investors are reluctant to invest in companies with questionable management record and where the safety of their funds is not assured.

“Investors, customers and other enlightened stakeholders are increasingly shunning companies with poor corporate governance practices and this is very costly for business and retards overall growth in any economy,” said Dr Okumbe.

Speaking today at the opening of a five-day corporate governance training organised by the Centre for Corporate Governance (CCG) at the Whitesands Hotel in Mombasa, Dr Okumbe said failure to observe and entrench best practices in corporate governance and leadership had put a strain on many companies in both public and private sectors.

The training, aimed at empowering directors, senior managers and public leaders with critical, practical and experiential corporate governance and leadership skills, is being attended by over 60 directors, CEOs and public leaders from various companies and institutions in Kenya and Uganda.

Dr Okumbe said boards of Directors, chairmen, CEOs, county executives as well as public leaders and shareholders should play a more active role in ensuring that good corporate governance and ethical leadership practices are inculcated and entrenched in their institutions.

He said that weaknesses in the three centres of power in organisations – shareholders, management and Boards of Directors – are to blame for increased failures by companies and organisations in the inculcation of best practices in corporate governance and ethical leadership.

In many cases, he said, the boards either condone malpractices or remain completely oblivious of what the company executives do in their companies.

“Corporate governance doesn’t fail, it is the people in the management and governance who fail in their fiduciary duties and fundamental responsibilities,” Dr Okumbe stresses.

Dr Okumbe reiterates that good corporate governance is critical to business sustainability as it cultivates stability, increases value to shareholders and builds strong brand reputation.

The corporate governance training comes in the wake of company failures in Kenya involving banks and retail chain Uchumi. Three mid-tier banks – Dubai, Imperial and Chase Bank – went down in quick succession in what was blamed on breach of corporate governance ideals and Central Bank’s prudential guidelines on insider lending.

“All these are issues related to corporate governance,” he said. “If boards, executives and shareholders undertook their respective duties more diligently, corporate failures related to poor governance and bad leadership would be significantly reduced.”