CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE

OF PUBLIC UNIVERSITIES IN UGANDA

BY
Akodo Robinah
Administato
E!MAIL" aobinah#$ahoo%&om
MA'ERERE UNIVERSITY BUSINESS SC(OOL
ABSTRACT
The study examined the relationship between Corporate Governance and Financial Performance in
four Public Universities in Uganda. The study was prompted by Institutional turbulences as a result
of adhoc policy and decision maing processes and poor financial performance of Public
Universities.
The study aimed at establishing the relationship between corporate governance! "oard roles!
contingency! board effectiveness and financial Performance of Public Universities. # cross
sectional and correlational study was conducted in four public Universities in Uganda. $tatistical
Pacage for $ocial $cientists %$P$$& was used and $pearman Correlation Coefficient and 'ultiple
(egression #nalysis to determine the magnitude of the relationship and prediction of financial
performance respectively were applied.
The findings revealed that corporate governance variables namely) board si*e! had a negative
effect on financial performance while policy and decision maing had a significant positive
relationship with financial performance. Corporate Governance had a significant positive
relationship with board roles! board roles had a significant positive relationship with board
effectiveness! and contingency had a significant positive relationship with board roles and
effectiveness.
There is need for Public Universities to formulate policies and mae decisions that can stand test of
time. Constitute manageable Council and $enate committees! understand their roles! manage
contingency and improve on board effectiveness to reali*e improved financial performance.
Key words: Corporate Governance, Contigency, effectiveness and financial performance
1
Ba&k)o*nd o+ th, st*d$
Corporate Governance has come to mean many things. Traditionally and at a
fundamental level, the concept refers to corporate decision making and control,
particularly the structure of the board and its working procedures. Hermes,
(!!"#. $enifer, (!!# defines Corporate Governance as a set of interlocking rules
by which corporations, shareholders and management govern their behaviour. %n
each country, this is a combination of a legal system that sets some common
standards of governance and systems of behaviour determined by firms
themselves.
Corporate Governance scandals and accounting failures such as &a'well in the
() and *nron in the (+ have been dominating business debates during the last
decade. ,n increasing and ethical problems are recogni-ed as symptoms of failing
Corporate Governance and systems of accountability and control in publicly
.uoted firms %gor, (!!"#.
(niversities and other Tertiary %nstitutions in (ganda are governed by (niversity
and /ther Tertiary %nstitutions ,ct !!1and an amendment ,ct !!0. The ,cts
empower (niversities to constitute governing boards1 councils, appointments
boards, senate and academic boards. The governing boards 2(niversity councils
monitor and control performance of (niversities and other Tertiary %nstitutions as
stipulated by ,ct !!1and an amendment ,ct !!0. The creation of a board of
3irectors is to monitor the performance of the firm ()osnik, 1456, 144!1
,merican 7aw %nstitute, 145#. %t is, therefore predicted that if the 8oard
performs its duties effectively, the value of the firm is predicted to increase and
the wealth of shareholders would be enhanced accordingly.
,ccording to )yambogo (niversity strategic plan !!92!6 a number of polices
were approved by council that include restructuring of staff, appointments,
salaries and benefits. These have caused academic staff unrest at )yambogo
(niversity. The academic staff took the issue to courts of 7aw, (3aily &onitor
:ewspaper, $uly !!;# which courts ruled in favour of the academic staff and
ordered management of )yambogo (niversity to reverse the earlier decision on
appointment letters. )yambogo (niversity council did not play its role to the
satisfaction of the academic staff instead the courts of law had to resolve the
matter. The legal costs paid by the (niversity in addition to the time lost, and
unrest caused disruptions in operations of (niversity.
There was turbulence caused by the non<academic staff of )yambogo (niversity
for fear that the (niversity management could delay issuing integration letters to
unfairly lay them off and replace them with other people, (=ed >epper :ews
paper +eptember 0!, !!9#.
&akerere (niversity council approved a new fees structure for the academic year
!!;2!!9 which were in the &akerere (niversity strategic plan !!;2!9 which
caused public outcry and Government had to intervene and stopped the increment
in fees, (3aily &onitor :ews paper ,ugust , !!;#. &akerere (niversity
8usiness +chool Council in !!0 as an affiliated %nstitute of &akerere (niversity
approved new fees structure which included computer and medical fees
recommended by &anagement in the strategic plan !!02!" and were to be paid
annually by all students. However, continuing students agitated and refused to pay

computer and medical fees. This caused unrest in the student community to the
e'tent of students disrupting lectures at &(8+ campus (3aily &onitor
>ublications /ctober 15, !!;#. &barara (niversity of +cience and Technology
has a debt of +hs "! million as compensation to former owners of (niversity %nn
buildings since 1454 which the (niversity Council and Top management have
failed to settle and instead continue to appeal to Government for their rescue
(&(+T ,nnual ?inancial reports 144! @ !!;# . The (niversity is under threat to
be sued, (=ed >epper :ews paper +eptember 11, !!9#. The (niversity Council
and Top management by now could have put up measures to generate funds to
clear the debt, therefore the continued indebtedness may cripple the financial
performance of the (niversity and may also retard the institutional life cycle. =ed
%n the =ed >epper :ews paper +eptember 11, !!9, Gulu (niversity ,cademic
+taff had a sit down strike protesting non< payment of +alary ,rrears and non
remittance to :++? (:++? ,nnual =eports !!;< !!9# and (=, ((=, ,nnual
financial reports !!; @ !!9# monies deducted from their salaries,. >ublic
(niversities continue to e'perience low revenue collections that do not match the
e'penditure figures, as evidenced in table 1.1below.
Tab-, .%." A&t*a- R,/,n*, and A&t*a- E01,ndit*, +o th, Finan&ia- Y,a
2334536
Uni/,sit$ A&t*a- R,/,n*, A&t*a- E01,ndit*, Vaian&,
)yambogo !,0";,09,66! ,0";,90,10 <,!!!,04;,0;0
Gulu 9,!;!,;0;,0! 9,;96,;","9 <;19,614,!19
&akerere ;",9;5,!;,!05 ;9,400,!66,!!! <,6",561,49
&barara 1,";9,6"0,;! 1,59;,4!,0"! <"!5,;"9,5!
So*&," Finan&ia- R,1ots 233456 o+ th, +o* Uni/,siti,s.
The .uestion that remains to be answered isA 3o councils function effectively in
setting up appropriate policies, decision making and monitoring the performance
of public (niversitiesB Therefore there is need to investigate the institutionsC
financial performance.
Stat,m,nt o+ th, 1ob-,m
,lthough council and senate in public (niversities e'ist, (niversities have
continued to e'perience governance problems such as fees determination
problems, payment schedules not respected, +tudent and staff unrest, staff welfare
problems, legal action against councils, which could be attributed to corporate
governance and institutional turbulence. %f corporate governance and institutional
turbulence remains unchecked, the (niversitiesC financial performance may be
crippled.
P*1os, o+ th, st*d$
The purpose of the study was to establish the relationship between corporate
governance and financial performance of public (niversities in (ganda.
R,s,a&h ob7,&ti/,s
a# To establish a relationship between Corporate Governance and board
roles.
b# To establish a relationship between board roles and board effectiveness.
0
c# To establish a relationship between board roles, board effectiveness and
contingence.
d# To establish a relationship between corporate governance and financial
performance.
e# To establish the relationship between corporate governance, board roles,
contingence, board effectiveness and financial performance.
R,s,a&h 8*,stions
a# Dhat is the relationship between corporate governance and board rolesB
b# Dhat is the relationship between board roles and board effectivenessB
c# Dhat is the relationship between board roles, board effectiveness and
contingenceB
d# Dhat is the relationship between corporate governance and financial
performanceB
e# Dhat is the relationship between board governance, board roles,
contingence, board effectiveness and financial performance of public
(niversitiesB
S&o1, o+ th, st*d$
G,o)a1hi&a- s&o1,
The study was conducted on :on profit making public (niversities namely
&akerere (niversity, )yambogo (niversity, &barara (niversity of +cience and
Technology and Gulu (niversity.
S*b7,&t s&o1,
The current study focuses on corporate governance in terms of board si-e, policy
and decision making. 8oard roles in terms of monitoring and control, access to
resources, strategi-ing and advices and counsel. 8oard effectiveness in terms of
skills and knowledge, committees, delegation and risk management. Contingency
in terms of management e'perience, institutional turbulence and institutional
lifecycle and financial performance in terms of revenue performance, e'penditure
performance and value for money for non @profit making institutions. The study
acknowledges other measures of corporate governance in profit making
organi-ations like transparency, disclosure, trust, accountability and the C,&*7
model as a measure of financial performance which are not part of current study
and have been largely researched on.
Si)ni+i&an&, o+ th, st*d$
i# The study benefits >ublic (niversities in effective corporate governance
on the e'isting knowledge.
ii# The study enhances on the e'isting body of knowledge.
iii# The study helps stakeholders in capacity building of certified training in
corporate governance.
Con&,1t*a- Fam,9ok
Fi) ." Con&,1t*a- Fam,9ok
"
So*&," A modi+i&ation o+ th, mod,- b$ Ga/in : G,o++,$ ;2334<%
Corporate governance enhances financial performance Gavin E Geoffrey, (!!"#.
Through board roles and board effectiveness, corporate governance also leads to
improved financial performance, while contingency moderates the link between
board roles and board effectiveness. Corporate governance enhances on the board
roles which further enhance on board effectiveness and financial performance of
organi-ations.
%f board roles are implemented well, it leads to board effectiveness and thereby
enhancing on organi-ational financial performance.
LITERATURE REVIE=
Co1oat, )o/,nan&,
Corporate governance is referred to the manner in which the power of an
organi-ation is e'ercised in the stewardship of the CorporationCs total portfolio of
assets and resources with the obFective of maintaining and increasing shareholders
value with the satisfaction of other stakeholders in the conte't of its corporate
mission (>rivate +ector Corporate Governance trust, (1444#. The committee on
the financial aspects of corporate governance (the Cadbury Committee#, defines
corporate governance as the system by which companies are directed and
controlled. Corporate Governance is both about ensuring accountability of
management in order to minimi-e downside risks to shareholders and about
enabling management to e'ercise enterprise in order to enable shareholders to
benefit from upside potential of firms )easey and Dright, (1440#, Tricker, (145"#.
GedaFlovic et al., (!!"# e'tend an agency perspective on governance to suggest
that particular blend of incentives, authority relations and norms of legitimacy in
founder firms interacts with the e'ternal environment to affect the nature and pace
of learning and capability development.
Gahra and ?ilatochev, (!!"# argues that corporate governance systems and
organi-ational learning are independent, and in some cases may substitute or
;
Contin),n&$
&anagement e'perience
%nstitutional turbulence
%nstitutional life cycle
Boad
E++,&ti/,n,ss
+kills E
)nowledge
Committees
3elegation
=isk management
Finan&ia-
P,+oman&,
=evenue collection
>erformance
*'penditure performance
*fficiency
Co1oat, Go/,nan&,
8oard si-e
>olicy E decision making
Boad Ro-,s
&onitor E Control
,ccess to =esources
+trategi-ing
,dvices E Counsel
complement each other. The decision making style of the board has been linked to
corporate performance >earce and Gahra, (1441#. >rior research has investigated
the immergence of corporate governance in developing economies in the conte't
of corporate governance reforms, =wegasira, (!!!# has e'amined ,frica.
)rambia and >saros (!!9#, investigated the implementation of Corporate
Governance principles in an emerging economy of Cyprus and the findings
indicated only a minimal impact unless it is supported by other initiatives. ?urther
noted that Cyprus was making serious endeavors to improve the corporate
governance of its listed companies.
+olomon et al., (!!!, !!0# argues that for developing countries to be
internationally competitive and attract foreign capital they need to adopt
Hcommonly accepted standards of corporate governance implies standards based
on the ,nglo<+a'on model. =wegasira (!!!# states that for the ,nglo< +a'on
model to be effective, company shares need to be owned by widely dispersed
owners.
The /rganisation of *conomic Co<operation and 3evelopment (/*C3#, (!!"#
provides the most authoritative functional definition of Corporate governanceA
HCorporate governance is a system by which business corporations are directed
and controlled. The corporate governance structure specifies the distribution of
rights and responsibilities among different participants in the corporation, such as
the board, managers, shareholders and other stakeholders and spells out the rules
and procedures for making decisions on corporate affairs. 8y doing this, it also
provides the structure through which the company obFectives are set and the
means of attaining those obFectives and monitoring performance.
Ditherell ,(!!"# noted that regional roundtables on corporate governance set up
in partnership with the world 8ank have allowed the /*C3 principles to become
a widely accepted global benchmark that is adaptable to varying social, legal and
economic conte'ts in individual countries.
%ndeed the out come of a survey by &ckinsey in collaboration with the Dorld
8ank in $une !!! attested to the strong link between corporate governance and
stakeholders confidence (&ark, !!!#.
Corporate governance is important because it promotes good leadership within the
corporate sector. Corporate governance has the following attributes1 leadership for
accountability and transparency, leadership for efficiency, leadership for integrity
and leadership that respects the rights of all stakeholders, %nstitute of Corporate
Governance of (ganda, (!!!#. 7ack of sound corporate governance has enabled
bribery, ac.uaintance and corruption to flourish and has suppressed sound and
sustainable economic decisions. +ome key pillars (>rivate +ector Corporate
Governance trust, (1444# on which good governance is framed include1
The institution must be governed with a framework which should provide an
enabling environment within which its human resources can contribute and bring
to bear their full creative powers towards finding solutions to shared problems.
=ossette,(!!# carried out the e'tent to which board composition affects team
processes, (orientation, communication, feedbacks, coordination, leadership and
monitoring#, board effectiveness and performance of the selected financial
institutions in (ganda.
9
&atama, (!!;# used three basic tenets of Corporate governance1 transparency,
disclosure and trust in relation to commercial bank financial performance in
(ganda which is a profit making organi-ation.
&asibo, (!!;# focused on the board structure and board process in relation to
state owned corporations set for divestiture and those listed on (ganda securities
e'change which are profit making.
%n line Gavin and Geoffrey (!!"#, the current study focuses on board si-e, policy
E decision making as indicators of Corporate Governance in relation to board
roles, contingency, board effectiveness and financial performance of public
(niversities in (ganda.
The concept of accountability though not listed in the scope of the study the
accountability concept cannot be overlooked when reviewing corporate
governance literature. ,ccountability relationships occur in every sector of the
society including the commercial sector (Dheelers, !!!#. Dhere there is
inade.uate accountability resources will be used inefficiently and ineffectively1
thus, inade.uate accountability can result in devastating conse.uences for
millions of people and compromising the operations of an organi-ation ()luver,
!!1#. ,ccountability is multifaceted and comple', at the heart of which is the
notion of one party rendering an account of the use of resources to another party.
Gray and $enkins (1440# have the opinion that accountability is an obligation to
present an account of and answer for the e'ecution of responsibilities to those
who entrusted those responsibilities, the principal2agent relationship )luver,
(!!1#. ,ccountability forms the basis of the trust in organi-ations, so when
accountability relationships are undermined then our trust in organi-ations is
damaged. Dhile accountability might at first seem to be easily defined the reality
is that it is a comple' multifaceted concept. &uch of the earlier researches
focused on accountability as measure of Corporate governance, this study is
focused on board si-e, policy and decision making.
Boad si>,
Dhen the board has adopted a clear view of its responsibilities in governing the
company, the directors can then move to discuss and agree the most effective way
of structuring the board. Consideration could be given to the si-e of the board
itself1 is the board too small or too large to ade.uately fulfill itCs re.uirements,
given the si-e and comple'ity of the organi-ationB The balance of the e'ecutive
and non<e'ecutive directors and whether independent directors are necessary is
another structural issue to consider. 7ikewise does the board have the optimal
skills mi' to deliver effective governance considering the nature of the company
governedB 3epending on the circumstances, the board may benefit from having a
member with industry e'perience, legal e'pertise or perhaps a director
representative of stakeholder. Gavin and Geoffrey, (!!"#.
8oard si-e defined as the total number of directors on a board (>anasian et al.,
!!0#, has been regarded as an important determination of effective Corporate
governance (8onn et al., !!"#. The optimal board si-e according to Goshi et al.,
(!!# includes both the e'ecutive directors and non e'ecutive directors.
?orbes and 3aniel (1444# argued that although board si-e is not truly a
demographic attribute, it is unlikely to have effect on board functioning. 3espite
6
the considerable amount of effort in research on board si-e for more than a decade
there is still lack of consensus among researchers on its relevancy. This
inconclusive nature in board si-e research .uality and e'perience of independent
directors on the board than sheer numbers of individuals ()eegen E Gilmour,
!!1#.
There has been considerable debate on whether large boards perform better than
smaller boards. 3aily (144;# argue that greater number of directors might increase
available e'pertise and resource pool while 8onn et al., (!!"# contends
e'panding the si-e of the 8oard provides an increased pool of e'pertise,
information and advice .uality not obtained from other corporate staff. %n
contrast, the difficulty inherent in coordinating the contributions of many
members can be comple', hindering them to use their knowledge and skills
effectively (?orbes E 3aniel 1444, *pstein et al., !!"#.
?rom agency perspective, increase in board increases the 8oardCs monitoring
capacity but costs that accrue from large boards may facilitate C*/ dominance
over board members. ?or instance large boards have difficulty in building the
interpersonal relationships that further cohesiveness, or maintain high board effort
norms owing to social loafing that e'ists in large boards (?orbes E 3aniel, 1444#.
+tudies such as 8onn et al., (!!"# have also supported previous authors and
concluded that when the board si-e is very large, the disadvantages such as lack of
cohesiveness, coordination difficulties and fractionali-ation are most severe and
they became less prevalent as board si-e decreases. %n contrast very small boards
cannot enFoy the advantages of the pool of e'pertise, information and advice of a
larger board and these benefits emerge when the board becomes larger. To date
there are still wide views on an optimal board si-e. ,ccording to 7eblanc E
Gillies (!!0#, an 5<11 persons board may be considered optimal. %n a recent
study by *pstein et al., (!!"#, a board of 4<10 members is typically right for most
companies but too small for large ones. Goshi et al., (!!# considered an average
of 19 directors (0 within and 10 outside directors# to be appropriate for larger
companies, though respondents in this study believed that 1 is the most effective
board si-e. The study by Connelly E 7impaphayom (!!0# revealed that the
average board si-e of insurance firms in Thailand was 1! but ranged from a low
number of " members to a high number of 19 members. The current study is
focused on 8oard si-e in terms of the number of (niversity Council and +enate
&embers as stipulated by the +tatute.
Po-i&$ and d,&ision makin)
The final function that a board needs to consider is its duty with respect to
delegating authority. Given the comple'ity of the business environment, it is
impossible for the board to be the sole decision making body in the company.
%nstead, each board needs to work on developing an appropriate method and level
of delegation of authority. /bviously this will again vary with the conte't facing
the board but, in all circumstances, the board needs to clearly articulate and
document the delegations it makes Gavin and Geoffrey, (!!"#.
Boad o-,s
8oard effectiveness occurs via the e'ecution of roles set that is conceptuali-ed by
different researchers in different ways Hung, (1445#, $ohnson et al, (1449#, 7ipton
5
and 7orsch, (144#. Dhat is clear is that the roles of the board have evolved over
time. 3efining a clear role set is difficult as different disciplines concentrate on
different areas of interest. >ettigrew, (144# identified si' themes of academic
research on the role of managerial elites such as chairpersons, presidents, Chief
e'ecutive /fficers (C*/s# and 3irectors. These include the study of interlocking
directorates and the study of institutional and societal power, the study of boards
and 3irectors, the composition and correlation of top management teams, studies
of strategic leadership, decision making and change, C*/ compensation and C*/
selection and succession. There are, however board roles that receive board
support Gavin and Geoffrey, (!!"# as e'plained below.
Monitoin) and &onto-
The first role of the board is controlling and monitoring management, a role made
necessary by the separation of ownership from control 8erle and &eans, (140#.
They added a separate strategi-ing role of the board. This role is normally
subsumed under HadvisingI role. The strategi-ing role is included for three
reasons1 the increasing performance pressures being applied by institutional
stakeholders 8lack, (144#, board perception of the importance of the strategi-ing
role Tricker, (145"# and recent legal precedent that places corporate goal setting
and strategic direction s.uarely within the boardCs charter 8a't, (!!#, Glaberson
and >owell, (145;#, )esner and $ohnson, (144!#.
Stat,)i>in)
The boardCs obFective in strategy formulation is to ensure that the strategy of the
company will lead to the long<term creation of shareholder wealth or other stated
maFor goals of the organi-ation. However, the level of board involvement will
vary from company to company. ?or e'ample, the board may see its role as
developing the strategic .uestions for management to answer, when another
approach sees the board setting broad obFectives for management to implement,
Gavin and Geoffrey, (!!"#.
A&&,ssin) ,so*&,s
,ll companies what ever their si-e or nature of business, need access to outside
resources if their businesses are to succeed. These resources vary enormously
from company to company, but fall into main categories, as information and
physical resources. 3eveloping business networks and working to promote the
reputation of the firm are two other important ways that a board can add value to
the company. 8y acting in an open, professional and ethical manner in their
dealings with people outside the organi-ation, board members also raise the
profile of the firm and enhance its reputation Garvin and Geoffrey, (!!"#.
Ad/i&, and &o*ns,-
The role 3irectors play in providing advice to the chief e'ecutive officer (C*/# is
a link between the direction of the company and the day to day implementation of
the direction which is the responsibility of the C*/. The board is a key source of
knowledge and e'perience for the organi-ation it governs. Therefore it is
important for the board to share its e'perience with management, particularly the
C*/, to serve the interests of the company Gavin and Geoffrey, (!!"#.
4
,dvising the C*/ is widely acceptable 7orsch and &aclver, (1454# and also
resource dependence perspective, which envisages a role for directors in
providing access to resources, including information >feffer, (146#.
Contin),n&$ ? boad o-,s and boad ,++,&ti/,n,ss
Dhile all boards are re.uired to undertake activities within the spectrum of this
roles set, they contend that each organi-ation will need a different emphasis
among these roles. Thus, there is need to e'plicitly incorporate a contingency
perspective Heracleous, (!!1#, 3onaldson and 3avis, (144"#, $ohnson et al ,
(1449#. +ince a particular board composition or behavior that is advantageous for
one corporation may prove Hinappropriate or even detrimental in anotherI
Heracleous, (!!1#. There is need to identify the control variables and gaps in
understanding how the board can impact on firm performance.
The particular contingencies that will impact on board roles @ corporate
performance would include organi-ational si-e 3aily and 3alton, (144#, 3alton
et al,. (1444#, diversity +iciliano, (1449#, management e'perience Coulson<
Thomas,(1440# industry turbulence, industry lifecycle, and firm lifecycle $ohnson,
(1446#. %t is these contingencies that moderate the relationship between board
roles and board effectiveness. Thus the current study includes e'ternal and
internal contingencies to moderate the relationship between board role e'ecution
and board effectiveness.
This study will use management e'perience, (niversity turbulence, (niversity
lifecycle as contingencies that will impact on board roles and corporate
performance.
Boad ,++,&ti/,n,ss
%ndividuals perceive effectiveness partially or in different ways. The social
constructionistCs conception, for instance, holds that there only Fudgments of
effectiveness, thus effectiveness are Fudgmental (Herman et al., 1446#. ,ccording
to Triscott, (!!"# effectiveness is about doing the right things to achieve the
results. %n terms of measurement, :ovick (1446# suggests that the current
approaches measure elements associated with effectiveness rather than
effectiveness rather than effectiveness itself. 8oard effectiveness can be
conceptuali-ed as a function of overall contribution of the board to the
organi-ation performance, standard of support provided by the organi-ation,
individual contribution of directors to organi-ation performance, board dynamics,
8oard performance evaluation and review Jan der Dalt and %ngley, (!!1#. Close
inspection of earlier literature revealed that board effectiveness is almost based on
individual e'perience $ackson E Holland, (1445#. ,ccording to Higgs E
3ulewic- (1445#, the issue of measuring team outcomes is a difficult one and the
literature abounds with debates around team performance, which mirror those
surrounding organi-ational performance. However, while there are various
definitions of group effectiveness, Huat E 3avid (!!1# argue that board
performance has been measured along the dimension of the boardCs ability to
perform its functions. %ndeed, an earlier study by ?orbes E 3aniel (1444# defined
board effectiveness as the boardCs ability to perform its control and service tasks
effectively. ?rom empirical perspective, 8ardwaFi E Juyyuri (!!0# found that
1!
overall Fudgments by respondents of board effectiveness were strongly related to
how effectively the boards were Fudged to perform various functions.
8asing on the above literature, it fairly holds that board performance has been
largely defined in terms of roles played by the 8/3s. These roles have been
identified from various perspectives including1 agency, service, resource
dependency, legal and strategic theories. However, some of these perspectives are
interrelated, for instance resource dependency, service and strategy, agency and
legal. (sing these perspectives, the following roles have been identified1
Ski--s and kno9-,d),
>resence and use of skills and knowledge has been identified as another important
dimension of board effectiveness. 8oard members must have the right mi' of
skills and knowledge. ?or instance, they should possess both functional
knowledge in traditional areas of business such as accounting, finance, legal or
marketing as well as industry specific knowledge that will enable members to
truly understand specific company issues and challenges. %n addition, board
members must have enough general knowledge to provide good input on all
topics of discussion, ask .uestions of all special interest until they are comfortable
enough to cast votes *spstein et al, (!!#. Thus, for boards to work effectively,
:icholson E Geoffrey (!!"# emphasi-e that board members must possess
necessary knowledge and skills, given the uni.ue nature of their tasks. +imilarly,
for a board to effectively perform the supervisory role, it should be composed in a
manner that enhances the presence of skills and knowledge :amisi, (!!#.
Committ,,s
+ignificant research effort has focused on the impact of committees, )lein ,
(1454#, most notably the audit committee )lein, (!!#, remuneration committee
Conyon and peak, ( 1454# and nominating committee Jafeas, (1444# with
findings that there is a link between the presence of board committees and board
effectiveness. , committee is a group of members to whom some specific role has
been delegated by a full board. Committees can be used to gather, review and
summari-e information and report back to the full board for decision or can be
delegated specific decision making powers, Gavin and Geoffrey, (!!"#.
D,-,)ation
The final function that a board needs to consider is its duty with respect to
delegation authority. Given the comple'ity of the business environment, it is
impossible for the board to be the sole decision< making body in the company.
%nstead, each board needs to work on developing an appropriate method and level
of delegation of authority. /bviously this will again vary with the conte't facing
the board but, in all circumstances, the board needs to clearly articulate and
document the delegations it makes Gavin and Geoffrey, (!!"#.
Risk mana),m,nt
=isk management includes the identification of all significant risks faced by the
company and ensuring that appropriate policies are in place to moderate the
impact of these risks )lein, (!!"#. This study will focus on council committees
like appointments board committee, staff welfare committee, students welfare
committee and ?inance tender and general purposes committee and the roles
11
delegated by council to the committees. ,ppropriate policies put in place to
moderate the impact of risks in public >ublic (niversities will be considered.
Finan&ia- 1,+oman&,
&easuring firm performance using accounting ratios is common in the Corporate
Governance literature 3emaet- and 7ehn, (145;#, ,ng et al, !!!#, in particular,
return on capital employed, return on assets, and return on e.uity. +imilarly,
economic value added can be as an alternative to purely accounting< based
methods to determine shareholder value by evaluating the profitability of a firm
after the total cost of capital, both debt and e.uity are taken into account
(Copeland et al, 144;#. /ther measures of financial performance in profit making
organi-ations are Capital ade.uacy, ,sset .uality, &anagement, *arnings and
7i.uidity which are commonly known as C,&*7 &odel.
The current study on >ublic (niversities as non profit making organi-ations will
measure ?inancial >erformance in terms of ,ctual revenue2budgeted revenue ratio
(=evenue Collection =atio#, ,ctual *'penditure2budgeted e'penditure ratio
(*'penditure =atio# and ,ctual revenue2 actual e'penditure (*fficiency <Jalue for
money ratio#.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and boad o-,s
Higgs 3. (!!0#,/verall leadership and control of the nonprofit entity fits within
an overall system of management, which includes the 8oard and stakeholders, the
relationship between the board and the stakeholders, the chief e'ecutive, (any#
other policy or consultative council of leadership stature, and operating managers
or functional heads within the entity. The Cadbury =eport (144# embraces the
interests of the stakeholders of the /rganisation and the interests of e'ternal
bodies with who the /rganisation is in a strategic funding or policy relationship.
&cConville, C. (!!1#, Company law leads to the conclusion that the board is
responsible for regulating the status of the Company. %ntuitive knowledge and
commonsense of lay board members would say that the board must regulate the
affairs of the :>/ entity to which the board has been appointed.
R,-ationshi1 b,t9,,n boad o-,s and boad ,++,&ti/,n,ss
8oard effectiveness depends on the e'ecution of a set of four board roles, namely
monitoring and controlling, strategi-ing, providing advice and counsel and
providing access to resources1 and firm performance positively impacted on board
effectiveness Gavin and Geoffrey, (!!"#. Cornforth Chris (!!1#, carried out a
survey of charity boards in *ngland and Dales and e'amined the what influence
board inputs, structures and processes have on 8oard *ffectiveness. The findings
suggested that board inputs and three process variables are important in
e'plaining board effectiveness, namelyA board members have the time, skills and
e'perience to do the Fob1 clear 8oard =oles and responsibilities1 the board and
management share a common vision of how to achieve their goals1 and the board
and management periodically review how they work together.
R,-ationshi1 b,t9,,n boad ,++,&ti/,n,ss and +inan&ia- 1,+oman&,
=utagi, (1446# defines financial performance as to how well an organi-ation is
performing. /ther researchers define performance of the organi-ation as the
e'tent to which an organi-ation achieves its intended outcome, :amisi,
(!!#.The general assumption among both researchers and practitioners is that
1
effective boards lead to effective organi-ation. ?rom either an internal long<term
profitability or e'ternal shareholder perspective, there is an indication that good
boards may be able to add value to the organi-ation, *pstein et al., (!!0#.
Herman and =en-, (!!!# asserts that little research on the relationship between
board effectiveness and organi-ational performance has been done. There was a
positive relationship between board effectiveness and organi-ational performance
Gahra, (1441#. &asibo, (!!;# and :amisi, (!!# revealed results that are
consistent with earlier studies above that there was a positive relationship between
board effectiveness and firm performance in listed profit making firms in (ganda.
%n non profit making organi-ations there were similar results that a positive
relationship e'isted between board effectiveness and organi-ational performance
$ackson E Holland, (1445# and Herman E =en- , (!!!#.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and +inan&ia- 1,+oman&,
Two broadly defined theories co< e'ist in the corporate governance literature. /ne
stresses the discipline of the market, claiming that threat of hostile takeovers and
leveraged buyouts in firms was sufficient to ensure full efficiency. Dhere
managers neglect to invest in those proFects that add value to the firm and itCs
shareholders but divert recourses to their own benefit, the financial markets act to
restore good governance. , number of mechanisms have been suggested, such as
removing senior managers in poorly performing firms >alepu, (1459#, &orch,
+hleifer and Jishney, 1455, 1454#1 demanding cash flow payments in the form of
debt service $ensen, 1459#1 and linking e'ecutive compensation to performance,
including e.uity and options $ensen, (1459#. &atama, (!!;# in the study of
Corporate Governance and financial performance on selected commercial banks,
obtained a positive relationship between Corporate Governance and financial
performance. &asibo, (!!;# researched on 8oard Governance and firm
performance of selected state owned corporations and in listed organi-ations on
(ganda +ecurities *'change, obtained a positive direct and indirect link between
8oard Governance and ?irm >erformance through 8oard *ffectiveness.
>iesses, (!!;#, carried out empirical research on Corporate Governance and firm
performance in an international perspective and obtained conflicting results on the
link between Corporate Governance and ?irm performance.
Con&-*sion
&any researches have been carried out on profit making organi-ation from within
and without on Governance and firm performance, little has been done on non
profit making organi-ations. The non profit sector is becoming increasingly
important in (nited )ingdom, for e'ample in the *ducation and health sectors. %n
many cases they compete with profit making organi-ations. This has interesting
implications for Corporate Governance and relative performance out comes
>iesse (1444#. $ust like (ganda the *ducation and health sectors are becoming
increasingly important. ?ew researchers have researched on a direct link between
Corporate Governance and financial performance. This therefore called for an
investigation into the relationship between Corporate Governance and financial
performance with the inclusion of a contingence variable as a moderating variable
in non profit making organi-ations in (ganda, with the focus on public
(niversities.
10
MET(ODOLOGY
R,s,a&h d,si)n
The =esearch study used cross sectional and analytical research designs. These
research designs were used to collect a snap shot of data and analysis of the
relationships between study variables.
St*d$ 1o1*-ation
The study population si-e of 1 constituted 41 council and 10! senate members
of " public (niversities namely1 &akerere (niversity,, &barara (niversity of
+cience and Technology, )yambogo (niversity and Gulu (niversity. The unit of
analysis was (niversities.
Sam1-, si>, and sam1-in) d,si)n
, sample si-e of 1" council members and senate members was used as
determined from )reFcie and &organ (146!# table.
>roportionate stratified and simple random sampling designs was used to select
the sample of 1" members as shown in Table 1 below.
Tab-, ." Po1*-ation and sam1-, si>,
Instit*tion Po1*-ation si>, Sam1-, si>,
Co*n&i- S,nat, Co*n&i- S,nat,
&akerere (niversity " 9; 1; "
)yambogo (niversity 14 1" 1
&(+T " 14 1; 1
Gulu 1 6 1" 15
TOTAL @. .A3 6B B4
+ourceA +econdary 3ata
So*&,s o+ data
The two sources of data were primary and secondary data. >rimary data was
obtained from primary source on Corporate Governance, board roles, board
effectiveness and contingency. +econdary source provided secondary data on
financial reports and number of council and senate members.
Data &o--,&tion m,thods
Kuestionnaires and abstraction methods were used in collecting data. +emi
structured .uestionnaires were used to collect primary data directly from the field.
,bstraction method was used to collect secondary data from financial reports.
M,as*,m,nt o+ st*d$ /aiab-,s
The independent variable which was corporate governance had to be measured in
terms of board structure 2 si-e and decision making. 8oard roles were measured in
terms of monitoring and control, access to resources, strategy and advice and
counsel. 8oard effectiveness was measured in terms of committees, risk
management, delegation, skills and knowledge. Contingency was measured in
terms of management e'perience (Coulson @Thomas, (1440#, institutional
turbulence, institutional life cycle ($ohnson, (1446#. ,ll indicators were subFected
to a four point likert scale of strongly agree, agree, disagree, and strongly
disagree. ?inancial performance as dependent variable was measured in terms of
the revenue collection performance ratio of actual revenue over budgeted revenue.
*'penditure performance ratio of actual e'penditure over budgeted e'penditure.
1"
Jalue for money was measured as a ratio of actual revenue over actual
e'penditure (efficiency#.
Va-idit$ and ,-iabi-it$ t,sts
Content validity inde' (CJ%# was used to measure the relevancy of the .uestions
used to measure the study variables of Corporate governance, board roles,
contingency, and board effectiveness. , four point scale of relevant, .uite
relevant, somewhat relevant and not relevant was used to collect the responses
from two e'perts in the area of study. , proportion of relevant and .uite relevant
was computed to get the CJ%Cs of the two e'perts. The CJ%Cs were !.946" and
!.;654. +ince the .uestions were relevant to the study variables.
The reliability tests performed using cronbach alpha coefficient to determine the
internal consistency of the likert scales used to measure the study variables
indicated alpha coefficients for all variables above !.9!.
Data 1o&,ssin) and ana-$sis
>rimary and secondary data was coded, edited and analy-ed using the +tatistical
>ackage for +ocial +ciences (+>++# version 1!. 3escriptive statistics and chi<
s.uare test was used to e'amine Corporate Governance, board roles and
contingence. Jariance analysis was performed to e'amine the level of financial
performance. +pearman correlation was used to measure the relationship between
Corporate Governance, board roles, board effectiveness and performance.
&ultiple regression was used to predict financial performance of public
(niversities in (ganda.
Th, -imitations o+ th, st*d$
The study involved council and senate members of the four public (niversities
with busy schedules. +everal appointments had to be made by the researcher in
collecting the .uestionnaires. Dith the permission of academic registrarCs,
(niversity bursarCs and (niversity secretaries of the four public (niversities over
6! L of the .uestionnaires were collected which took a period of over 0 months.
The researcher was patient enough in this regard. The combined effort of the
researcher and the research assistants enabled the collection of over 6!L of the
field .uestionnaires from the four public (niversities in (ganda. The study was
limited financially and time constrained due to the wide spread nature of public
(niversities. However the researcher used the limited resources available and
with research ,ssistants helping in collection of data. ?inancial reports from some
institutions were not easily accessible due their sensitivity. Therefore the
researcher had to write specific letters emphasi-ing confidentiality of the data
obtained to the (niversity 8ursarCs to allow access to the financial reports.
3espite the above limitations, the researcher collected sufficient data for the study
and was able to come up with results that answered the study research obFectives.
Findin)s o+ th, st*d$
Fa&to ana-$sis
?actor analysis using principle component analysis and varima' rotation methods
e'tracted components with eigen values greater than 1 that measured board roles,
contingency and board effectiveness. /nly items with correlation coefficients
greater than or e.ual to M!.0 were retained.
Boad o-,s
1;
?our components or factors constituting 66L variance of board roles were
e'tracted from 6 items. The four factors include1 strategi-ing (14.9!5L#, access
to resources (14."0L# 0# monitoring and control (15.405L# and advices and
counsel (15.;95L#. This confirms what Gavin and Geoffrey, (!!"# used as
measures of board roles.
Boad ,++,&ti/,n,ss
Three factors were e'tracted contributing ;6L of the variance of board
effectiveness. The three factors include1 skills and knowledge (0.940L#,#
3elegation (1.9!!L#, and =isk management (11.615L#. This is in conformity
with Gavin and Geoffrey, (!!"# study that used skills and knowledge, delegation
and risk management indicators to measure board effectiveness.
Contin),n&,
Three factors constituting 91.""L of total variance of contingence variable were
e'tracted from 00 items. The items include1 1# %nstitutional turbulence
(6.09L# , # %nstitutional lifecycle (0."66L#, 0# &anagement e'perience
(1!.909L#. This is in conformity with Gavin and Geoffrey, (!!"# model that
used institutional turbulence, institutional lifecycle and management e'perience
as measures of contingence.
R,-ationshi1 b,t9,,n St*d$ Vaiab-,s
+pearman correlation coefficient was used to determine the degree of relationship
between the study variables as shown in the table below.
Tab-, 2" S1,amanCs >,o od, &o,-ation mati0
*. Correlation is significant at the .05 level (2-tailed).
**. Correlation is significant at the .01 level (2-tailed).
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and boad o-,s%
. 2 A 4 6 D E B @
BOARD SIFE ;.< 1.!!!
POLICY & DECISION
MAKING (2)
-.155 1.!!!
BOARDROLES (3) .11N .0;5NN 1.!!!
BOARD FFECTIVENESS
(4)
.!4" .0""NN .";;NN 1.!!!
CONTIGENCY (5)
<.140 .15; .104 .;N 1.!!!
REVENUE
PERFORMANCE (6)
<.006NN .01N .110 .110 ."!N 1.!!!
EXPENDITURE
PERFORMANCE (7)
<.006NN .00NN .110 .110 ."!N 1.!!!NN 1.!!!
EFFICIENCY () <.45NN .0!5N .0"N .!44 .0"1NN <.!9" <.!9" 1.!!!
FINANCIAL
PERFORMANCE (!)
<.006NN .019N .110 ."11NN .0"N 1.!!!NN 1.!!!NN <.!9" 1.!!!
19
There was a significant positive relationship between Corporate Governance and
board roles (rO !.1, ><value P !.!;, r O !.0;5, ><value P !.!1# respectively in
terms of board si-e and policy and decision making constructs of Corporate
Governance as shown in table above. This implies that good Corporate
Governance in terms of board si-e, policy and decision making enhances on the
board roles by improving on monitoring and control, access to resources,
strategi-ing, advice and counsel.
R,-ationshi1 b,t9,,n boad o-,s and boad ,++,&ti/,n,ss%
=esults in table above indicate a significant positive relationship between board
roles and board effectiveness (r O !.";;, ><value P !.!1#. This implies that well
defined and streamlined board roles improved on the board effectiveness in terms
of knowledge and skills, committees, delegation and risk management.
R,-ationshi1 b,t9,,n boad o-,s and boad ,++,&ti/,n,ss 9hi-, &onto--in)
+o &ontin),n&,%
The partial correlation coefficient results indicated that there was a significant
positive relationship between board roles and board effectiveness while
controlling for contingence (r O !.;65, ><value P !.!1#. This implies that
contingency plays a positive role in moderating the link between board roles and
board effectiveness.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and +inan&ia- 1,+oman&,%
The +pearman correlation coefficient table indicates the following relationships1
There was a significant negative relationship between board si-e and financial
performance (r O <!.006, ><value P !.!1#. This implies that board si-e reduces on
the financial performance. >olicy and decision making had a significant positive
relationship with financial performance (r O !.019, ><value P !.!;#. This implies
that policy and decision making as measure of Corporate Governance enhanced
on financial performance of public (niversities.
There was a positive relationship between policy and decision making and
revenue performance, e'penditure performance and efficiency (value for money#
(r O !.01, ><value P !.!;, rO !.00, p<valueP!.!1, rO !.0!5, p<valueP!.!;#.
>roper policies and decision making, increased revenue performance, e'penditure
performance and efficiency (value for money#.There was a significant negative
relationship between board si-e and revenue performance, e'penditure
performance and efficiency (value for money# (r O <!.006, p<value P !.!1, r O
<!.006, ><value P !.!1, <!.45, p<valueP!.!1#. This implied that si-e of boards
reduced on the revenue, e'penditure and efficiency (value for money# of public
(niversities.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&,? boad o-,s? boad
,++,&ti/,n,ss and +inan&ia- 1,+oman&,%
&ultiple regression analysis was used to predict the financial performance of
public (niversities as shown in the regression model table 0 below1
Tab-, A" R,),ssion mod,- +o Co1oat, Go/,nan&,? boad o-,s?
&ontin),n&,? boad ,++,&ti/,n,ss and +inan&ia- 1,+oman&,%
Mod,- Unstandadi>,d
&o,++i&i,nts
Standadi>,d
&o,++i&i,nts
B Std % Eo B,ta T Si)
16
Constant 1.94 !.10 .0" !.!!!
Boad si>, <!.";9 !.19; <!."6 <".!;" !.!!!
Boad o-,s !.";; !.00 !.0; 0.196 !.!!!
Boad
,++,&ti/,n,ss
!.9;1 !.!;6 !.;"0 "."45 !.!!!
Po-i&$ : d,&ision
makin)
!."! !."01 !.090 0.96 !.!!!
Contin),n&$ !.;9 !.10 !."01 0.956 !.!!!
R! S8*a, G3%4@3? Ad7*st,d R! s8*a, G 3%4B4? FG 4%433? Si) G 3%333
There was a linear relationship between corporate Governance, board roles,
contingency, board effectiveness with financial performance (? O "."!!, +ig O
!.!!!#.
8oard si-e, policy and decision, board roles, contingency and board effectiveness
e'plained "5."L of financial performance of public (niversities.
8oard effectiveness (8eta O !.;"0# e'plained more to the financial performance,
followed by contingence (8eta O !."01#, policy and decision making (8eta O
!.090#, and board roles (8eta O !.0;#. This implied that increase in board
effectiveness, management of contingences, proper policies and decisions and
board roles led to increase in financial performance.
8oard si-e however, negatively impacted on the financial performance (8eta O
<!."6#. This implied that increase in the si-e of council and senate led to the
reduction of in financial performance of public (niversities.
=emoving the contingency variable in the regression model, indicated a reduction
in the financial performance of public (niversities as only ";.9L of the total
variance of the financial performance is e'plained as shown in the table ".1
below. 8oard si-e continued to impact negatively on firm performance
(8eta O <!."6# while board effectiveness (8eta O !."9;#, policy and decision
making (8eta O !.009# and board roles (8eta O !.01"# e'plained positively the
financial performance of public (niversities.
Tab-, 4" A R,),ssion mod,- +o Co1oat, Go/,nan&,? boad o-,s? boad
,++,&ti/,n,ss and +inan&ia- 1,+oman&,%
Mod,- Unstandadi>,d
&o,++i&i,nts
Standadi>,d
&o,++i&i,nts
T Si) B Std% Eo B,ta
Constant !.;9 !.1" !.456 !.!!!
Boad si>, <!."09 !.!1 <!."6 <0.!;" !.!!!
Boad o-,s !.049 !.";! !.01" 1.416 !.!!!
Boad ,++,&ti/,n,ss !."49 !.19; !."9; 0.;;! !.!!!
Po-i&$ : d,&ision
makin)
!."! !.01 !.009 .66 !.!!!
R! S8*a, G 3%4D@? Ad7*st,d R! S8*a, G 3%46D? FG A%BD6? Si) G 3%333
15
Tab-, 6" B*d),t,d and a&t*a- ,/,n*, and ,01,ndit*, +o th, +inan&ia- Y,a
2334536
Uni/,sit$ B*d),t,d
R,/,n*,
A&t*a-
R,/,n*,
B*d),t,d
E01,ndit*,
A&t*a-
E01,ndit*,
Vaian&,
)yambogo 1,6"0,45,6;! !,0";,09,66! 1,6"0,45,6;! ,0";,90,10 <,!!!,04;,0;0
Gulu 6,001,;9!,511 9,!;!,;0;,0! 6,001,;9!,511 9,;96,;","9 <;19,614,!19
&() ;",544,69",!!! ;",9;5,!;,!05 ;",544,69",!!! ;9,400,!66,!!! <,6",561,49
&barara 10,";,564,;;! 1,";9,6"0,;! 10,";,564,;;! 1,59;,4!,0"! <"!5,;"9,5!
+ourceA +econdary 3ata
?rom the above table ; all the four public (niversities had been spending more
funds than actual revenues into deficits.
DISCUSSION? CONCLUSION AND RECOMMENDATIONS
Dis&*ssion o+ +indin)s
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and boad o-,s%
+ignificant positive relationship was obtained between Corporate Governance and
board roles.
>olicy and decision making, board si-e had significant positive effect on board
roles. 8oard si-e, policy and decision making positively influence the roles played
by board members (council and senate#. The finding is in line with &asibo,
(!!;# whose findings were that good board governance positively enhances on
monitoring and strategy. The positive correlations imply that council and senate
members contribute positively to the monitoring and strategic issues of the
(niversity. This is consistent with 8onn et al., (!!"#.
Corporate Governance results indicated a significant positive perception across
the four public (niversities which implied that council and senate in the four
public (niversities are involved in policy and decision.
Council and senate members had no significant differences in perceptions with
regard to 8oard roles across the four public (niversities. Dhich implied that the
roles played by council and senate members in the four public (niversities is
similar.
R,-ationshi1 b,t9,,n boad o-,s and boad ,++,&ti/,n,ss
8oard =oles had a significant positive relationship with board effectiveness.
There were no significant differences in board effectiveness across the four >ublic
(niversities. This implied that council and senate members had applied similar
skills and knowledge, constituted similar committees to perform various
functions, delegated roles, formulated measures in the management of risks.
8oard roles had a significant positive relationship with board effectiveness. This
implied that &onitoring and Control, ,ccess to =esources by board members,
appropriate strategies , advices and counsel improved on the board effectiveness
in terms of the skills and knowledge applied by board members, committees
14
constituted by council and senate, delegation of roles and measures to manage
risk in the four public (niversities.
This is in line with Hung, (1445#, $ohnson et al.,(1449#, 7ipton and 7orsch,
(144#, who assert that 8oard effectiveness occurs via the e'ecution of roles set.
8lack, (144# revealed that the strategi-ing role increases performance pressures
being applied by institutional stakeholders. 8y acting in an open, professional and
ethical manner in their dealings with people outside the organi-ation, board
members raise the profile of the institution and enhance its reputation Gavin and
Geoffrey, (!!"#. Gavin and Geoffrey, (!!"# widely accepted that advice and
counsel is important to Top management in serving the interests of the institution
and this was supported by 7orsch and &aclever, (1454#.
R,-ationshi1 b,t9,,n boad o-,s? &ontin),n&$ and boad ,++,&ti/,n,ss
There was a significant positive relationship between board roles and board
effectiveness while controlling for contingence.
There was a significant positive relationship between board roles and board
effectiveness while controlling for contingence. Contingency in terms of
management e'perience, controlled institutional turbulence and institutional life
cycle played a positive role in improving the relationship between board roles and
board effectiveness. This is in line with Heracleous, (!!1#, 3onalson and 3avis,
(144"#, $ohnson et al., (1449# who e'plicitly affirmed that there is need to
incorporate a contingency perspective while undertaking various roles and the
need to identify the control variables and gaps in improving institutional
performance. ?urthermore the results were in conformity with +isiliano,(1449#,
Coulson Thomas, (1440# and $ohnson, (1446#.
R,-ationshi1 b,t9,,n boad ,++,&ti/,n,ss and +inan&ia- 1,+oman&,
There was a significant positive relationship between board effectiveness and firm
performance. This implied that effective boards positively impact on the financial
performance of the public (niversities. 8oard effectiveness in terms of proper
application of skills and knowledge, appropriate committees, delegation of roles
and management of risk enhance on the financial performance of public
(niversities. The findings are consistent with &asibo, (!!;# where a significant
positive relationship between board effectiveness and firm performance was
obtained. 8rown, (!!"# results revealed that better performance by boards was
associated with good performance of organi-ations. ?urther the results are
consistent with $ackson and Holland, (1445# whose findings showed that
improvement in board performance represent an important point of leverage in
improving organi-ational performance.
, study by :amisi, (!!;# revealed that board effectiveness was positively
correlated with performance of financial institutions of (ganda. )ale, (!!#
revealed that effective teams lead to improvement in organi-ational performance.
Jan der Dalt and %ngley, (!!1# revealed that board effectiveness contributes to
the organi-ational performance.
*pstein et al., (!!0# noted that from either an internal long<term profitability or
e'ternal shareholder perspective, there is an indication that good boards add value
to the organi-ation. ?urther Gahra, (1441# obtained a positive relationship
between board effectiveness and organi-ational performance. Herman and =en-,
!
(!!!# results were similar to all the above that a positive relationship e'isted
between board effectiveness and organi-ational performance.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&, and +inan&ia- 1,+oman&,
There was a significant relationship between Corporate Governance and financial
performance of public (niversities. (=esults are consistent with earlier ones
obtained by &asibo, (!!;# whose results showed a relationship between 8oard
Governance and firm performance. =esults are also in agreement with &ckinsey
.uarterly survey &ark (!!!#, that a link e'isted. ?urthermore &atama, (!!;#
obtained a positive relationship between Corporate Governance and financial
performance of selected commercial banks.
R,-ationshi1 b,t9,,n Co1oat, Go/,nan&,? boad o-,s? &ontin),n&,?
boad ,++,&ti/,n,ss and +inan&ia- 1,+oman&,
?inancial performance was significantly e'plained by Corporate Governance,
board roles, contingence and board effectiveness.
The multiple regression model indicated that "5."L of the financial performance
of public (niversities was contributed by Corporate governance, board roles,
contingence and board effectiveness. 8oard effectiveness contributed more to
financial performance followed by contingence, policy and decision making and
board roles. However board si-e had a negative effect on the financial
performance of public (niversities. =esults are also consistent with 8onn et al.,
(!!"# whose findings showed a negative relationship between board si-e and
performance of $apanese firms. =esults above are consistent with &asibo, (!!;#
who established that good Governance, board effectiveness and board process
positively e'plained firm performance and also found out that increase in board
si-e reduces on the firm performance. ?urthermore, the results are in line with
Gavin and Geoffrey, (!!"# who established that corporate governance, board
roles, contingency and board effectiveness led to improved firm performance.
Con&-*sions
?indings on the relationship between Corporate Governance variables and board
roles, indicated significant positive relationship. 8oard si-e, policy and decision
making as aspects of Corporate Governance had a positive effect on the board
role. The public (niversities had no optimal number of members on senate and
council that were monitoring, controlling, strategi-ing, providing advice and
counsel.
>olicy and decision making in public (niversities is important in contributing to
financial performance.
8oard roles significantly influenced board effectiveness and this meant that board
roles were important in determining the effectiveness of boards. This means that
for council and senate to be effective they must pay attention to their roles.
Contingency in terms of management e'perience, institutional turbulence and
institutional lifecycle significantly and positively influenced the impact on board
roles and board effectiveness. >ublic (niversities therefore re.uire use of
contingency measures to improve on the effectiveness of council and senate.
The si-e of council and senate of public (niversities significantly reduced on the
financial performance. This means that public (niversities have board si-es that
1
attract high costs of maintaining boards in terms of sitting allowances, mileage
and retainer fees.
The conclusion drawn from the findings between board effectiveness and
financial performance is that boards (council and senate# do contribute to
performance of public (niversities they direct and control. This is possible
through performing board roles and managing contingence.
7astly Corporate Governance positively contributes to financial performance of
public (niversities through board roles, contingence and board effectiveness.

R,&omm,ndations
The study on corporate governance and financial performance of public
(niversities in (ganda was carried out. %n line with the findings and conclusions
of the study the following were recommended1
?rom the findings on the effect of board si-e on financial performance which was
negative and for council and senate to be effective in performing their roles, there
is need to review the membership of council and senate to avoid having large
boards.
/n the effect of policy and decision making on board roles, it is recommended
that council and senate should set up policies that can stand the test of time
whereby different view points, ideas and opinions from all the stakeholders are
considered.
Council and +enate should avoid rubberstamping of top managementCs
recommendations on policy issues. %nstead thorough discussions on the
recommendations through sub<committees of council should be made.
R,&omm,ndations on boad o-,s in&-*d,1
Council and senate should set measurable obFectives that permit monitoring and
control of public (niversity performance this can be achieved through discussing
thoroughly their strategic plans.
Council members of the (niversity must formerly evaluate the performance of the
top (niversity e'ecutives. The students, academic and administrative staff should
evaluate the performance of the (niversity management on the set obFectives
according to the strategic plan.
%nclude both the internal and e'ternal board members on the intranets to enable
them have access to information within the (niversity. ,llow them access to
online and physical library resources within the (niversity.
8oards should be given improved facilitation in form of retainer and sitting and
mileage allowances.
They should provide fre.uent advices and counsel to the top management of the
(niversity.
Council and senate should be involved at strategic planning process of the
(niversity to improve on their roles as board members which are in line with the
mission and vision of the (niversity.
Council and senate must ensure that the (niversities meet their legal obligations
like remittance of staff benefits to :++?, :%C.
Council and senate should provide advice and counsel to top management of the
(niversities on critical issues from an informed point of view if they are to
perform their roles effectively in order to have a significant impact on the
(niversity performance. (niversities should consider formation of advisory
boards independent of council to complement on the role of advice and counsel.
Contin),n&, as an im1otant mod,atin) +a&to o+ boad o-,s and boad
,++,&ti/,n,ss sho*-d b, mana),d as +o--o9sH
To manage institutional turbulence like employee strikes or unrest, council and
senate should understand and make effective polices and decisions regarding
employee benefits and retirement plans. Good policies on terminal, medical and
long service award. ,t the time of appointment of each employee one should have
0
all policies of the (niversity as part of the appointment package which is not the
case now. Council and senate should put in place incentive schemes that provide
significant rewards for outstanding performance, for instance rewards to best
performing employee, students and provision of interest free loans to staff.
Council should appoint employees at top management level who posses vast
management e'perience.
R,&omm,ndations on boad ,++,&ti/,n,ssH
Council should be constituted by members with re.uired skills and knowledge in
order to provide technical e'pertise and also be able to direct and control the
public (niversities. >erformance appraisal tools should be designed to evaluate
annually the performance of council and senate members.
?or effective performance of council there is need to delegate to its sub
committees some duties for instance appointments of employees to appointments
board, disciplinary to disciplinary sub committee and issues of benefits to staff
welfare committee and students welfare committee.
Council should have in place risk management procedures that encompass
financial, operational and environmental risk.
S*)),st,d A,as o+ +*th, ,s,a&h
The current study was conducted on public (niversities in (ganda which are
funded by government, therefore there is need for a similar study to be carried out
in private (niversities for comparison purposes.
, similar study could be carried out in ,nglican church of (ganda, Catholic
church of (ganda and (ganda &uslim supreme council in (ganda since they
have governing boards that manage their income generating proFects.
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5