Current state of affairs of formal corporate governance in Africa through an analysis of key corporate governance performance indicators of Nigerian, Egyptian, Moroccan and Kenyan companies

Details

Supervisors

Peirce, Robert

Faculty

Louvain School of Management

Degree label

Master [120] en Ingénieur de gestion

Abstract

“The debate over how companies are best governed is at least as old as companies themselves”(Economist, 2009). Corporate governance is today one of the management topics most discussed” (Dewji & Miller, 2013). Africa, the most underdeveloped continent, has a long way to go. Indeed its economy is often perceived as highly corrupted, its governments are instable and its population is the poorest in the world. Corporate governance should be considered as part of the solution to improve the African situation. Indeed, corporate governance will inter alia facilitate investment in Africa. Asongu (2012) mentions: “Investment and finance undoubtedly remain key determinants of growth and development in the African continent”. Therefore, we chose to develop our thesis on African corporate governance situation. To do so, we followed the next problematic: What is the current state of affairs of ‘formal’( ) corporate governance in Nigeria, Egypt, Morocco and Kenya in terms of Board of Directors independence, Board Committees and Transparency & Disclosures practices? In fact, to assess formal corporate governance in Africa, we build a corporate governance matrix with twelve indicators. An indicator assesses if a certain aspect of corporate governance is respected. As described by our problematic, it was difficult to assess the whole concept of formal corporate governance in Africa. Therefore, we decided to concentrate our efforts on: o Certain corporate governance indicators, which are focused on Board of Director independence, Board of director committees and transparency & disclosure. o The four biggest stock markets in Africa (ex-South Africa), which are Nigeria, Egypt, Morocco and Kenya. o Ten biggest companies per country in terms of free-float market capitalisation. According to our matrix, we assessed forty companies. For each company, we obtained a corporate governance score. The main goal of this thesis was to analyse this score and tried to understand it. Therefore, we analyse the impact of external variables on our corporate governance score. Our external variables were Country, Sector, Ownership Structure and Free-Float. We used a statistical analysis (means comparison, multiple linear regression and cluster analysis) to understand which variables were significant and which were not. It appeared that the variables Country and Free-Float were considered as significant whereas Ownership Structure and Sector were removed. First, these results confirm that formal corporate governance is influenced by the environment where companies are located. For instance, regulation system, cultures, tradition and general corruption will influence formal corporate governance standards. Secondly, these results confirm that “good” corporate governance seems to be associated with a free market where diversified companies are the main actors. Indeed, our companies’ scorings increase when companies free-float percentage increases. Our study insists on the fact that the conception of formal corporate governance developed by our given countries is quite different. Indeed, following our scoring matrix, the average score on formal corporate governance varies strongly depending on the country where companies are located. Our study points out similarities in corporate governance scoring between on the one part Kenya (77%) and Nigeria (62%) and on the other part Morocco (16%) and Egypt (36%). In our discussions, we tried to understand how to explain these similarities and differences. It seems that colonial influence, French or British, plays a significant role in the formal corporate governance development. In fact, British Empire had in mind to develop in depth the economic situation and free-trade of its colonies or protectorates whereas French Empire with its “Colbertism” policy enabled the ruling class to take up interests in every economic strategic position and to promote a strong economic protectionism. Kenya and Nigeria were under British influence, Morocco was under French influence whereas Egypt had a dual position being a British protectorate but ruled by “civil law” which is typically coming from French tradition. Moreover, the regulation system which is usually associated to colonial influence( ), affects formal corporate governance. Indeed, Nigeria and Kenya following “Common law” principles have a better scoring than their peers. By contrast, our study shows that it is difficult to draw conclusions about global African corporate situation. Indeed, lack of available information and critical situations in certain countries made the task difficult. Nevertheless, our study allows a better understanding of the main African economies concerning formal corporate governance situations.