Effect Of Government Appointment Offboard Of Directors On Performance In Selected State Owned Corporations In Nairobi Kenya.

Abstract

Although the Government of Kenya laid down elaborate general principles to govern State Owned Entities (SOE) and enable them run as business, from the outset, not everything has been going on according to plan owing to the political nature of appointment of Board members. With the law being silent on the criteria of appointment of BOD, a loophole was created through which unqualified, inexperienced and corrupt people found their way to the Boards of SOE. The firm performance of most SOEs started declining in the year 1980s, a status that continued to the extent that it reached 0.3% in the 1990s. For instance, in the year 2013, 15% of the total public employees work for SOE but at a very high cost to the economy due to mismanagement by the Board of Directors. Many SOEs are a drain on the taxpayer virtually depending on the state to be bailed out. The poor firm performance of the SOES was at times perceived to be a result of or attributable to political nature of appointment of Board members. The appointed BOD members are less qualified and have no experience in running such entities, leading decline in firm performance of these SOE, a serious threat to the economy. There is gross mismanagement and outright abuse of office by the BOD of these SOEs. In making the appointments, the guiding principle was not based on criteria with regard to basic considerations; experience and minimum academic qualifications. With the law being silent on the criteria of appointment of BOD, a loophole emerged through which unqualified, inexperienced and corrupt people find their way to the Boards of SOE. Academic literature, studies, journals, and theories indicate that the firm performance of SOEs is attributable to; criteria for appointment of BOD, Board Effectiveness, Diversity in Appointment of BOD, and Government supervision. Various studies have been conducted globally, regionally, and locally on firm performance of, criteria for appointment of BOD, Board Effectiveness, Diversity in Appointment of BOD, and Government. However, there is scanty information on the firm performance of SOEs in Kenya as being attributable to; criteria for appointment of BOD, Board Effectiveness, and Government supervision jointly. This was the knowledge gap that the present study has endeavored to fill. The target population was 110senior Management staff. Middle level managers and lower cadre management staff of the selected SOEs in Nairobi Kenya was obtained using purposeful sampling, by the aid of a pre-designed questionnaire. This was analyzed using descriptive statistics as well inferential statistics. A computer package namely Statistical Package For Social Sciences (SPSS) was used to analyze the data. The study revealed that the firm performance was moderate in Kenyan GOEs. So, the BOD does not play an active role in promoting the effectiveness of the firm performance in these GOEs. It was established that; Board effectiveness had medium effect on performance of SOEs; the criteria for selection of BOD highly influences the firm performance; and the Government supervision highly influences the firm performance. The study recommends theBoards should ensure that they create an enabling organization culture to ensure that there is a diverse range of skills such as accountancy, management, among others and experience within the Board composition. In addition, the regulatorybodies should examine whether there is a link between the Board composition and skills mix with its overall performance as seen by profitability over the years, or lack of it in case of losses. There is need for consultation between the appointing authority and the Board on members’ appointments prior identification, selection and appointment of Board members by Government and finally that there is an interview process for Board members to ensure suitability to serve on the Board. Key words: Board of Directors Performance & Board Selection