Effect of government appointment of board 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.