What are the Components of a Good Corporate Governance Process for Chamas,SACCOs and Micro Finance Institutions?

Definition of Governance

This is the manner in which power is exercised in the management of economic and social resources for sustainable human development.

It refers to the manner in which the power of a corporation (separate entity from its owners) is exercised in the stewardship of the corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfaction of other stakeholders in the context of its corporate mission.

It means the establishment of an appropriate legal, economic and institutional environment that allows companies to thrive as institutions for advancing long-term shareholders’ value and maximum human-centered development while remaining conscious of their other responsibilities to stakeholders, the environment and the society in general.

 Five pillars of Good Governance

There must be an effective body responsible for governance that is separate and independent of management to promote these five basic tenets of Corporate Governance. These are namely:

  1. Accountability – leadership that must be ready to account,
  2. Efficiency and effectiveness  – hence leadership for results and not poked down in process,
  3. Probity and integrity  or Integrity and Fairness  – hence leadership that is honest, faithful and diligent; obedient to the cannons of Natural Law of Justice and Rule of Law,
  4. Responsibility – hence leadership that is capable, representative and conscious of its obligations,
  5. Transparent and open leadership – Leaders should accurately and timely disclosure of information relating to all economic and other activities of the corporation; be true stewards!

 Duties of the Board members and Senior Officers

Without being specific, these duties can be broadly  grouped into two categories, namely:

  1. The duty of care, skill and diligence,
  2. The duties of fiduciary.

The Cardinal rule  is that Board Members and Senior officers’ have a duty to act in the best interests of the  Corporate strictly.

Perspectives  of Governance Practices

There are three main perspectives: King III, WOCCU, and  Kenyan model.
a). King III Perspective

The governance of corporations can be on:

  1. a statutory basis or,
  2. a voluntary basis or,
  3. a combination of the both the statutory and voluntary.

Corporate Governance has its roots in the Europe and North America. However, after the sagas of Enron, Word.Com. the honor has returned to “cradle” of mankind Africa, specifically  South Africa; courtesy of the work done by the Institute of Directors in Southern Africa (IODSA). IODSA advocates the combination of voluntary and the statutory and voluntary bases in their publication titled the “King”.

The Statutory basis is also known as ‘comply or else’. There are legal sanctions for non-compliance. For example United States of America has chosen this by enacting Sarbanes-Oxley Act (SOX).

The combination of statutory and voluntary basis is also known as ‘comply or explain’. There is a code of principles and practices and in addition to certain governance issues that have been legislated.  For example the 56 countries in the Commonwealth, including South Africa and the 27 states in the EU including the United Kingdom have adopted this basis.

Since “King” became the benchmark in Corporate Governance. Wars of semantics have been fought. For example the United Nations’ code is   ‘adopt or explain’, the Netherland’s Code is ‘apply or explain’. The King Committee that drafted King III chaired by Mervyn E King, SC  on 1 September 2009 has adopted the code  from the ‘comply or explain’ to the ‘apply or explain’.

Because  the issue that are is that ‘comply or explain’ regime denoted mindless response to the earlier versions of King Code and its recommendations whereas the ‘apply or explain’ regime shows an appreciation for the fact that it is often not a case of whether to comply or not, but rather to consider how the principles and recommendations can be applied.

 b). World Council for Credit Unions (WOCCU) Perspective

The WOCCU has 3 approaches namely: External, Internal and Individual Governance.

  External Governance

All financial institutions, regardless of type, are expected to comply with these basic standards of transparency, auditing and financial reporting. Credit unions should comply with the International Credit Union Safety and Soundness Principles and their national legal and regulatory  frameworks.

 Internal Governance

Unlike for-profit entities, credit unions exist to  serve their members. Thus, credit unions must address this additional layer of governance related  to their democratic, member-driven nature. This includes a commitment to “one member, one vote,” as well as adherence to the International Credit Union Operating Principles and the role of the general assembly as the highest governing body. The supremacy of the General Meeting!

Individual Governance

In order to perform their collective duties, the individual board members and managers have an obligation to maintain ethical conduct and  professionalism and to speak with a single voice once board decisions have been made. Board  members are also expected to possess the skills and technical capacity necessary to fulfill their duties.

c). Kenyan perspective

Power Sharing in the SACCO. The centers of Power in a SACCO are: General Meeting (GM) (Annual or Special), Board members, Staff Members, Commissioner of Co-operative Development and Officials of SASRA.

To solve this challenge of too many centers of power the SACCO should adopt  the internationally acclaimed best practice of “ King III”, be global villager using the perspectives of WOCCU and  “home-made” using the KUSCO perspectives and comply with  REGULATIONS of 2010 SACCO and  Societies Regulatory Authority of Kenya  (SASRA).

Word of Wisdom

“Know the letters and listen  to silent voice of the spirit  of our Laws and Codes”

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5 thoughts on “What are the Components of a Good Corporate Governance Process for Chamas,SACCOs and Micro Finance Institutions?

  1. Innocent Bvunzwabaya - June 22, 2013 at 7:56 pm

    Very clearly explained.

    Reply
  2. Antony Wasena - June 22, 2013 at 9:14 pm

    Good work. Thank you.

    Reply
  3. Neddy k. - August 7, 2014 at 1:12 pm

    Awesome!!!!

    Reply
  4. Dennis - October 11, 2015 at 5:05 pm

    why has corporate governance acquired prominence in recent years

    Reply
  5. Sunday - July 8, 2017 at 12:10 pm

    Am very grateful for the explanation

    Reply

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