BOARD OF DIRECTORS FUNCTIONS AND FINANCIAL

PERFORMANCE OF PRIVATE COFFEE COMPANIES

IN TANZANIA. A CASE OF KADERES PEASANTS

DEVELOPMENT COMPANY LIMITED IN

KAGERA, TANZANIA.

BY

JULIUS JASTINE KAMANA

2013/FEB/WKD/MAF/M1213

A RESEARCH DISSERTATION SUBMITTED TO NKUMBA UNIVERSITY

IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR

THE AWARD OF THE DEGREE OF MASTERS OF

SCIENCE IN ACCOUNTING AND FINANCE

i

OF NKUMBA UNIVERSITY

OCTOBER, 2014

DECLARATION

I, Julius Jastine Kamana, declare that this study is my original

work and has never been presented to any Institution or

University for both professional and academic purposes. Where the

work of others have been, due acknowledgements has been done.

Signed…………………………………….. Date……………………………….

JULIUS JASTINE KAMANA

ii

APPROVAL

I certify that, Mr. Julius Jastine Kamana has carried out

research on Board of Directors functions and Financial

Performance of Private Coffee Companies in Tanzania, using

Kaderes Peasants Development Company Limited in Kagera, Tanzania

as a case study under my supervision.

Signed……………………………...………. Date…………………….……….

Ms. IRENE NABUTSALE (SUPERVISOR)

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DEDICATION

This dissertation is dedicated to the memory of my beloved mother

and my father who has always shown me the way. You’re my heroes.

To my wife who has been by my side and has encouraged, and

advised me all along.

To my sisters, brothers and all lecturers of Nkumba University

who have had to sacrifice two years’ worth of weekends to allow

me study.

To the many, and lasting friends I have made among my classmates

during this endeavor.

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ACKNOWLEDGEMENT

I wish to thank my supervisor Mrs. Nabutsale Rachael for

generously giving me her time to avail me constructive ideas and

guidance throughout this dissertation.

I would also like to acknowledge and thank Kaderes Peasant

Development Company Limited in Kagera, Tanzania for the support

and important information they have provided me which has been

the foundation of this thesis.

I thank Nkumba University lecturers for sharing their knowledge

and insight with me during the 2 years study period of the

degree.

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Thank you very much.

TABLE OF CONTENTDECLARATION...................................................iiAPPROVAL.....................................................iiiDEDICATION....................................................ivACKNOWLEDGEMENT................................................vTABLE OF CONTENT..............................................viLIST OF TABLES.................................................xLIST OF ABBREVIATIONS.........................................xiABSTRACT.....................................................xii

CHAPTER ONE:INTRODUCTION.......................................1Background of the study........................................1Statement of the Problem......................................6

vi

Purpose of Study...............................................8Objectives of the Study........................................8Research Questions of the Study................................8Research Hypotheses............................................8Scope of the Study.............................................9Setting of the Study..........................................10Significance of the study.....................................11Arrangement of the Report.....................................11

CHAPTER TWO:STUDY LITERATURE..................................13Introduction..................................................13Literature survey.............................................13Literature Review.............................................15

CHAPTER THREE:METHODOLOGY.....................................43Introduction..................................................43Research design...............................................43Demographic statistics of respondents.........................44Gender of respondents.........................................44Age of respondents............................................44Highest level of education attained...........................45Position of respondent........................................46Study population..............................................46Study population..............................................46Sampling procedure............................................47Census Sampling Technique.....................................47Data collection procedure.....................................48Data collection methods.......................................48The self administered questionnaires (SAQ):...................48Interview.....................................................49

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Review of related literature..................................49Data collection instruments...................................50The self administered questionnaire (SAQ).....................50Interview guide...............................................50Validity and Reliability of Instrument........................51Data processing...............................................52Data analysis.................................................52Measurement of variables......................................53Limitation of the study.......................................53

CHAPTER FOUR: HOW BOARD OF DIRECTORS HAVE ENSURED AVAILABILITY OFFINANCIAL RESOURCES IN KADERES PEASANTS DEVELOPMENT COMPANY LIMITED.......................................................55Introduction..................................................55The roles and duties of Board of Directors....................55Whether the Board size is adequate for the company............56Whether the Board of Directors act responsibly in the best interest of the company.......................................57Whether BODs apply corporate governance principles............58Whether the Board of Directors ensures that financial resources are available.................................................60Whether BODs effectively manage the organization's financial resources.....................................................61Table 4.6: Whether BODs effectively manage the organization's financial.....................................................61Whether the BODs exercise all the powers of the company to acquire funds.................................................62Table 4.7: Whether BODs exercise all the powers of the company to..............................................................62Whether financial resources are always available in the company..............................................................63Whether the financial resources are always adequate...........64

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Whether financial resources are always availed in time........65

CHAPTER FIVE: HOW BOARD OF DIRECTORS HAVE CARRIED OUT BUDGET FORMULATION, APPROVAL AND MONITORING IN KADERES PEASANTS DEVELOPMENT COMPANY LIMITED...................................66Introduction..................................................66Whether the annual budgets are properly formulated in KPDL. . . .66Whether Annual budgets formulated are based on the BODs overall goals or objectives...........................................67Whether departmental budgets are regularly prepared...........68Whether previous year annual budget performance reports are used for future planning...........................................70Whether the figures incorporated in the budgets are realistic. 71Whether Annual budgets are adequately approved by the Board. . .72Whether the board approves budgets within the timeframe set. . .73Whether the proper procedures of annual budget approval are followed......................................................74followed......................................................74Regular preparations of annual budget monitoring..............76

CHAPTER SIX: HOW BOARD OF DIRECTORS SELECT, SUPPORT, AND REVIEW THE PERFORMANCE OF THE COMPANY CEOS IN KADERES PEASANTS DEVELOPMENT COMPANY LIMITED...................................78Introduction..................................................78Whether there is proper selection of CEOs by the Board........78Whether CEOs are adequately qualified.........................79Whether CEOs are selected according to the set procedures.....80Whether there is proper appointment of CEO to the company.....82Whether the CEOs are adequately appointed.....................83Whether CEOs are appointed according to the set procedures. . . .84Whether there are regular reviews of CEOs.....................85

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Whether there is adequate review of CEO Performance by Board of Directors.....................................................86Review of CEO performance.....................................87Testing Hypothesis............................................88

CHAPTER SEVEN: WAYS AND MEANS OF IMPROVING THE ROLE OF BOARD OFDIRECTORS IN CORPORATE FINANCIAL PERFORMANCE................90Introduction..................................................90Availability of financial Resources...........................90Budget formulation, approval and monitoring...................91Selection, Appointment and Review of the Company’s CEO performance...................................................94Corporate Financial Performance...............................99

CHAPTER EIGHT:SUMMARY, CONCLUSIONS AND RECOMMENDATIONS.......100Introduction.................................................100Summary of findings..........................................100Conclusion...................................................103Recommendations..............................................104REFERENCES...................................................106APPENDIX 1...................................................110SELF ADMINISTERED QUESTIONNAIRE (SAQ)........................110APPENDIX B: INTERVIEW GUIDE..................................116APPENDIX III: INFERENTIAL STATISTICS.........................118APPENDIX IV:FREQUENCY TABLES.................................122

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LIST OF TABLESTable 3.1: Gender of respondentsTable 3.2: Age of respondentsTable 3.3: Highest level of education attainedTable 3.4: Position of respondentTable 4.1Roles and duties of Board of Directors………………………………Table 4.2: The Board size is adequate for the companyTable 4.3: Interest of the company and its shareholdersTable 4.4: Whether BODs apply corporate governance principlesTable 4.5: BODs ensure that financial resources are availableTable 4.8: Whether financial resources are always available in the company Table 4.9: Whether the financial resources are always adequateTable 4.10: Whether financial resources are always availed in timeTable 5.1: Whether annual budgets are properly formulated in KPDLTable 5.2: Whether annual budgets formulated are based on the BODs overall goals or objectives Table 6.3: Whether Departmental budgets are regularly preparedTable 5.4: Previous year’s annual budget performance reportsTable 5.5: Whether figures incorporated in the budgets are realisticTable 5.6: Whether annual budgets are adequately approved by the BoardTable 5.7: Whether the board approves budgets within the timeframe setTable 5.8: Whether proper procedures of annual budget approval are

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Table 5.9: Whether there is proper monitoring of annual budgets by theboard Table 5.10: Whether annual budget monitoring reports are regularly prepared Table 6.1: Whether proper selection of CEOs by the BoardTable 6.2: Whether CEOs are adequately qualifiedTable 6.3 Whether CEOs are selected according to the set proceduresTable 6.4: Whether there is proper appointment of CEO to the companyTable 6.5: Whether the CEOs are adequately appointedTable 6.6: Whether CEOs are appointed according to the set proceduresTable 6.7: Whether there are regular review of CEOsTable 6.8: Whether there is adequate review of CEO Performance by Board of Directors Table 6.9: Review of CEOs performanceTable 6.10: Coefficients

LIST OF ABBREVIATIONS

ACCA Association of Chartered Certified

Accountants

BOD Board of Directors

CEOs Chief Executive Officers

KPDC Kaderes Peasants Development Company

Limited

SAQS Self Administered Questionnaire

SPSS Statistical Package for Social

Scientists

xii

TSHS Tanzania Shillings

PSCGT Private Sector Corporate Governance Trust

SHE Social, Health and Environmental

ABSTRACT

The study is about the Board of Director’s functions and

financial performance of private coffee companies in Tanzania. It

focused on Kaderes peasants Development Company Limited in

Kagera, Tanzania. The study was based on the following

xiii

objectives: (i) To examine how Board of Directors ensure

availability of financial resources in Kaderes Peasants

Development Company Limited (ii) To examine how Board of

Directors carry out formulation, approval and monitoring of

annual budgets in Kaderes Peasants Development Company Limited

and (iii) To establish how Board of Directors select, support,

and review the performance of the company CEOs in Kaderes

Peasants Development Company Limited.

The study used a total population of 70 respondents comprising of

Board of Directors and clients of Kaderes Peasants Company

Limited in Kagera, Tanzania. A sample size of 70 was selected

using census sampling technique. A cross sectional survey

research design was employed and both quantitative and

qualitative methods of data collection were used. Primary data

was analyzed in SPSS program version 18 and revealed a

significance between variables at P<0.001 for inferential

statistic .i.e. correlation and regression analysis.

The study findings revealed that Board of directors have not

satisfactorily ensured availability of financial resources,

formulation, approval and monitoring of annual budgets were not

properly carried out and the selection, support and review of the

CEO’s performance was not properly carried out.

The study recommends that the Board of Directors as major

stakeholders in the activities of the Company should ensure thatxiv

there are adequate financial resources for efficient and

effective operations of the company, proper formulation, approval

and monitoring of annual budgets, ensure proper selection,

support and review of CEO’s performance.

xv

CHAPTER ONE

INTRODUCTION

Background of the study

This study is about Board of Directors functions in financial

performance of private Coffee companies in Tanzania. It focuses

on Kaderes Peasants Development Company limited as a case study.

Coffee was introduced in Tanzania in the early 20th century as an

estate crop, but eventually became a smallholder crop. The area

planted with coffee expanded significantly during the 1970s and

the 1980s when prices were favorable. Approximately 70 percent of

coffee produced in Tanzania is Arabica, with most of this grown

in high altitude regions such as Mount Kilimanjaro. Robusta trees

are most commonly grown near Lake Victoria at a lower altitude.

Most Tanzanian coffee is grown by small farmers, with 95 percent

of the country's coffee farmers cultivating smaller than five

acres. Often the quality of this coffee is not high enough to be

sold on premium markets. Additionally, the yields of a typical

coffee tree in Tanzania are comparatively low. These factors

combine to make coffee a difficult business for Tanzanian

1

farmers. The highest grades of coffee are grown on Mount

Kilimanjaro and Mount Meru. These coffees are sold under the name

Arusha, Moshi, and Kilimanjaro (Kenneth David, 2001)

Tanzanian Arabica coffees are grown on the slopes of Mount

Kilimanjaro and Mount Meru in the Northern areas, under the shade

of banana trees, truly an exotic location for this east African

coffee, also in Southern Highlands of Mbeya and Ruvuma regions

where coffee is both intercropped with bananas and some areas are

pure stand. Arabica coffee makes up to 70% of total country

production. Robusta coffee is grown in the western areas along

Lake Victoria in Kagera region. This constitutes 30% of the total

coffee production in Tanzania.

 The coffee industry of Tanzania is the 19th largest producer of

coffee in world. In 2006, Tanzania produced over fifty-five

million pounds of coffee Exports of coffee bring in over $60

million dollars each year to the Tanzanian economy. While coffee

has a long history in East Africa, it was not widely grown in the

territory comprising modern day Tanzania until the early 1900s.2

It is estimated that total area under coffee is 265,000 hectares

for both Arabica and Robusta. Average production is for the past

five years (2004/05 – 2008/09) is 51,777 tons of clean coffee.

98% of arabicas are wet processed and they dominate the Tanzanian

coffees exported to the specialty coffee market. Since the mid-

1990s, the country’s coffee industry has been in a state of

stagnation or decline. The reasons for this are diverse. Falling

world coffee prices, low productivity, high costs of production,

aging of coffee growers, among others.

This study is important because of the need to ensure proper

financial performance in the coffee industry by creating and

maintaining value through proper resource allocation and decision

making in order to improve on the peasants’ standard of living.

The sample study is significant because Kaderes peasants

developments company limited is one of the largest and the

leading indigenous coffee processing and exporter in Tanzania.

Kaderes Peasants Development (KPD) is a coffee co-operative local

company that was established in 2002 by peasants from where it

derived its name Kaderes Peasants and therefore fully registered

3

in 2005 as required by the Company Act of 2002 with its mission

being eradicating poverty of the peasants, and producing high

quality coffee. It is one of the largest and the leading

indigenous coffee processing and exporter in Tanzania. KPD is now

an independent company which does not only buy and export

farmers’ coffee, but also offer a service and training program to

improve the productivity and quality standards of the coffee.

The company is located in Karagwe District in Tanzania. Karagwe

is one of the 8 districts of Kagera region, that is, Karagwe,

Misenyi, Bukoba rural, Bukoba urban, Muleba, Biharamulo, Chato

and Ngara. The company is located in the North Western Corner of

Tanzania and borders with the Republic of Uganda in the North,

the Republic of Rwanda in the West, the districts of Ngara and

Biharamulo in the South and the districts of Bukoba and Muleba in

the East. It’s dedicated to facilitate the Peasants and Farmers

of Karagwe from four administrative divisions of Kituntu/Mabira,

Kaisho/Murongo and Bugene/Nyaishozi and Nyabiyonza.

4

Gavin et al (2004) define financial performance as financial

soundness of a company. It is a general measure of a firm's

overall financial health over a given period of time, and can be

used to compare similar firms across the same industry or to

compare industries or sectors in aggregation. Measures of

financial performance taken into consideration include: Reduced

operating costs, increased sales and customer loyalty, increased

productivity and quality, increased access to capital and

earnings. Cadburys (1992) states that financial performance is a

monetary measure of tasks against targets, the performance of

business organizations is affected by their strategies and

operations in market and non-market environments.

According to Krambia and Psaros (2006), good corporate financial

performance is as a result of good corporate financial

management. Corporate financial management is the application of

financial principles within a corporation to create and maintain

value through decision-making and proper resource management.

Corporate financial management is concerned with setting goals,

planning how to achieve them, and, perhaps most importantly,

5

deciding the best way to pay for them. It involves the process

through which the corporation creates value through its capital

allocation and acquisition decisions. Managers of any company are

expected to forecast financial needs and opportunities, assess

the value of these opportunities, and implement a strategy for

achieving the company's financial goals. Major corporate finance

decisions include capital budgeting decisions, valuation

analysis, financing decisions, risk management, and dividend

policy.

The Cadbury Committee (1992) states that BOD are top most elected

representative of shareholders engaged in directing the affairs

of the company on its behalf. They act in the best interest of

shareholders. Kosnik (1987) refers to BOD as agents, trustees or

managing partners. BODs are people responsible for laying down

matters of principle and of accounting, statistical and

management procedures. They are liable for negligence, breach of

trust and misfeasance in either of their capacities as agents or

trustees or as both.

6

Boards are critical members of an organization. At the

shareholders Annual General meeting dated December 1995, the

shareholders of appointed its first BOD especially to oversee the

company’s operations, guide behavior, policies formulations,

planning, budget approval, and monitor performance.

According to Kaderes Peasants Development Policy and Regulation

Manual (1995), the company’s BOD was set to achieve the following

objectives:

1. To ensure the availability of adequate financial resources

2. Ensuring selecting, appointing, supporting, policy

formulation and reviewing the performance of the Chief

Executive.

3. To ensure formulation, approval and monitoring of annual

budgets

4. Accounting to the stakeholders for the organization’s

performance

This study examines the extent to which the above first three

(3) objectives have been achieved by Kaderes Peasants

Development Company limited.

7

Statement of the Problem

In spite of the above well stated objectives of the Board of

directors, various reports reveal that the board is not doing

its work well. As a result, Kaderes Peasants Development

Company limited has continued to have problems in its corporate

financial performance.

According to Kaderes Peasants Development Company limited’s

financial report (2010/2011), Mkinga who was the manager at that

time complained about the deteriorating financial position of the

company. He attributed this to the failure of the key players who

are the members of the board of directors to solicit adequate

financial resources for the company. This has affected the smooth

running of the company’s operations.

Nkubana (2012) reports on non compliance of corporate governance

principles of the company by the board of directors. He blamed

the members of the board of directors for poor selection,

appointment, lack of support, poor policy formulation and lack of

adequate review on the performance of the Chief Executive of the

8

company. He further criticized the Board of Directors for

performing duties without clear policies and procedures or

guidelines. As a result, several resolutions made in various

meetings have not been implemented.

Rugaimukama audit report (2011/12) reports on poor formulation of

budgets which have made it difficult to compare actual

performance against budgeted as an effective tool for controlling

performance. This was attributed to non participation of other

members of staff in budget formulation. The report further

revealed that budget approval process is not followed by the

board of directors as there are no clear budget approval

procedures.

In a related development, Mudaki (2012) decried about lack of

strategic planning as there were no business plans and

operational budgets of the company. This had lead to poor

monitoring of annual budgets for example, the company lost Shs

500,000,000 during financial year 2011/2012 as this could not be

effectively monitored since there were no clear monitoring

guidelines.

9

According to Manyama (2009) at a KPD PLC on business assessment

and strategies development, there were many problems identified

such as lack of common understanding and consensus building among

senior managers on business strategic development goal and

objectives. For example the difference in opinion about the

business profitability position and performance; that the

business was over geared as a result of overdrafts and bank loans

and that cost of products were not scientifically proven hence

cost of products and services were not based on actual cost. In

the same report, it was indicated that lack of strategic

planning, business planning and operational budgets had impeded

on achieving desirable financial performance.

Thus from the foregoing reports, it is apparent that corporate

financial performance deficiencies have persisted in Kaderes

peasants Development Company limited.

Purpose of Study

The purpose of the study is to examine the role of Board of

Directors in corporate financial performance of private limited

10

companies in the coffee industry focusing on Kaderes peasants

Development Company limited as a case study.

Objectives of the Study

The following are the objectives of the study are:

a) To examine how Board of Directors ensure availability of

financial resources in Kaderes Peasants Development Company

Limited.

b) To examine how Board of Directors carry out formulation,

approval and monitoring of annual budgets in Kaderes Peasants

Development Company Limited.

c) To establish how Board of Directors select, support, and

review the performance of the company CEOs in Kaderes

Peasants Development Company Limited.

Research Questions of the Study

The following are the research questions of the study:

a) How does Board of Directors ensure availability of financial

resources in Kaderes Peasants Development Company Limited?

11

b) How does Board of Directors carry out formulation, approval

and monitoring of annual budgets in Kaderes Peasants

Development Company Limited?

c) How does Board of Directors select, support, and review the

performance of the company CEOs in Kaderes Peasants

Development Company Limited.

Research Hypotheses

The study is set to test the following hypotheses:

H1o: There is no significant relationship between Board of

directors and corporate financial performance in KADERES Peasants

Development Company Limited.

H1A: There is significant relationship between Board of

directors and corporate financial performance in KADERES Peasants

Development Company Limited.

Scope of the Study

The study focused on board of directors and corporate financial

performance of private companies of coffee industry in Tanzania,

using Kaderes peasants Development Company limited as a case

study. The study specifically looked at availability of financial

12

resources; formulation, approval and monitoring of annual

budgets; and selection, support and review of performance of the

company CEOs. The study covered a period of three (3) years

running from financial year 2010/11 to 2012/2013.

Setting of the Study

Kaderes Peasants Development Company Limited (KPD) is located in

Karagwe District in Tanzania. Karagwe is one of the 8 districts

of Kagera region, that is, Karagwe, Misenyi, Bukoba rural, Bukoba

urban, Muleba, Biharamulo, Chato and Ngara. It is located in the

North Western Corner of Tanzania and borders with the Republic of

Uganda in the North, the Republic of Rwanda in the West, the

districts of Ngara and Biharamulo in the South and the districts

of Bukoba and Muleba in the East. It’s dedicated to facilitate

the Peasants and Farmers of Karagwe from four administrative

divisions of Kituntu/Mabira, Kaisho/Murongo and Bugene/Nyaishozi

and Nyabiyonza.

13

Kaderes Peasants Development Company Limited (KPDC) is a coffee

co-operative local company that was established in 2002 by

peasants from where it derived its name Kaderes peasants and

therefore fully registered in 2005 as required by the Company Act

of 2002 with its mission being eradicating poverty of the

peasants, and producing high quality coffee. It is one of the

largest and the leading indigenous coffee processing and exporter

in Tanzania. KPD is now an independent company which does not

only buy and export farmers’ coffee, but also offer a service and

training program to improve the productivity and quality

standards of the coffee.

Significance of the study

The study is significant to different stakeholders in the

following ways:

KPD Company Limited Management

14

The study findings and recommendations would guide the company

management to a new planning paradigm that would further change

strategies employed in improving corporate governance principles

and financial performance evaluation.

Government agencies

The Government agencies may make use of the study findings and

recommendations in establishing suitable policies and

interventions in the coffee industry.

Academicians and other researchers

The findings, conclusions and recommendations would be of

practical significance to academicians and researchers as it

would pave way for those who would be interested in this field

to learn from and expand upon the research. It would add on the

already existing literature in the coffee industry, about Board

of directors and corporate financial performance.

Arrangement of the Report

This study was arranged in eight chapters. Chapter one contains

an introduction to the study, background of study, problem

statement, study objectives, scope of the study, the setting of

the study, hypotheses, research questions, purpose of the study

and the significance of the study.

Chapter two the study literature, this contains two sections,

namely: literature survey and literature review.15

Chapter four present findings on how Board of Directors has

ensured availability of financial resources in Kaderes peasants

Development Company Limited.

Chapter five present findings on how Board of Directors have

carried out budget formulation, approval and monitoring in

Kaderes Peasants Development Company limited.

Chapter six present findings on how Board of Directors have

selected, supported and reviewed the performance of the company

CEOs in Kaderes Peasants Development Company limited.

Chapter seven presents the harmonization of the Board of

directors and corporate financial performance in Kaderes

Peasants Development Company limited.

Chapter eight presents the summary, conclusions and

recommendations of the study.

16

CHAPTER TWO

STUDY LITERATURE

Introduction

This chapter is made up of three sections, that is, literature

survey, literature review, and the conceptual framework. The

purpose of literature survey is to show what others have covered

about the problem, gaps left and how the current study intends to

fill these gaps. The chapter also reviews literature outside

Tanzania with the aim of establishing the models being applied

elsewhere.

Literature survey

A survey of literature on Board of directors and corporate

financial performance in the coffee industry reveals that many

studies have been carried in the coffee industry but none of them

has come up to explore the role of Board of Directors in

Corporate financial performance of private limited companies in

the coffee industry. For instance:

Kalimanzira (2009) studied about “Tanzania’s Coffee Sector:

Constraints and Challenges in a Global Environment”. The study findings

17

revealed that key constraints in the coffee sector are: an

complicated tax code with tax rates that are too high and in some

cases regressive; the excessive involvement of the state, which

discourages and weakens the private sector; the mandatory nature

of the coffee auction, which ought to be reconsidered; over

borrowing of funds; among others. The study recommended that: the

government with its people at heart could first, stop any

deductions (taxes) on the peasants’ earnings and declare borrowed

funds to the coffee industry as a start-up fund to facilitate

smooth running of the industry; allow private companies and

individuals buy coffee at a price competitive with that in

neighboring Burundi and Uganda; let the state completely pull out

of the coffee industry; among others. Kalimanzira in his study

was silent about formulation, approval, and monitoring of

budgets; and selecting, supporting, and reviewing the performance

of CEOs. The current study intends to fill this gap.

Ngaga (2010) carried out a study on “Improving efficiency and

performance in coffee producer organisations in Tanzania, using

co-operatives and self help groups as a case study”. The study

18

revealed that the efficiency and performance of producer

organisations have a major impact on farmers’ access to credit,

inputs and the level of returns. The cooperatives are faced with

such problems as poor governance, huge debts and structural

problems that have plagued the coffee co-operatives. The study

recommended that: there is need to address problems such as poor

governance, huge debts and structural problems that plague coffee

co-operatives by reviewing the co-operative Act to amend sections

that can improve the governance, transparency, and accountability

of co-operatives management. Co-operatives also need to be de-

politicised and be seen as economic entities. Debts should either

be written off or rescheduled. Furthermore, there is need for

training of society officials, carry out awareness campaigns to

sensitize members on their rights and obligations, policies and

strategies that encourage amalgamation of cooperatives to bigger

economical units are required. Ngaga in his study ignored

important aspects of budget formulation, approval, and

monitoring; and selecting, supporting, and reviewing the

performance of CEOs. The current study intends to fill this gap.

19

Literature Review

The problem of board of directors and corporate financial

performance is not unique to Tanzania only. Others outside

Tanzania have researched on it.

To examine the problem, the researcher focused on the following

themes:

a) Board of directors roles

b) Business Financing

c) CEO selection, support and reviewing performance

d) Budget formulation, approval and monitoring.

Board of Directors Roles

Baxt (2002) states that BODs principle’s duties are to act

responsibly in the best interest of the company and its

shareholders, Flowing from this function is the obligation to

account to the shareholders for the performance of the company.

The performance of the company is a direct reflection and

attribution of the performance of BODs. Director’s responsibility

and accountability are the two sides of the same coin of BODs

duties.

20

Conger (1998) argues that the BOD has to obtain timeouts and

periodic information about all operating activity results for

review and assessment in relation to predetermined goals and

objectives. This is required to assess the effectiveness of

management, including the CEO and the board itself, and provides

the basis for formulating feedback to management and stakeholders

in three areas of sustainable development within the overall

performance. The board should present a balanced and

understandable assessment of the company’s position and

prospects. The directors should report that the business is going

concern, with supporting assumptions or qualifications as

necessary. They should explain in the annual report their

responsibility for preparing accounts and there should be a

statement by the auditors about director’s responsibility.

The board should install and review annually a sound system of

internal control to safeguard shareholders investment and the

company assets. The board should establish an audit committee of

at least three independent non executive directors (NEDs).At

least one member of the committee should have recent relevant

21

financial experience. The annual report should contain statement

of how the company applied corporate governance principles. The

accounts should explain their policies including any

circumstances justifying departure from the best practices

(Conger, 1998).

Gavin et al (2004) assert that Board effectiveness occurs via the

execution of roles set that is conceptualized by different

researchers in different ways. What is clear is that the roles of

the board have evolved over time. Defining a clear role set is

difficult as different disciplines concentrate on different areas

of interest. Pettigrew et al (1992) identified six themes of

academic research on the role of managerial elites such as

chairpersons, presidents, Chief executive Officers (CEOs) and

Directors. These include the study of interlocking directorates

and the study of institutional and societal power, the study of

boards and Directors, the composition and correlation of top

management teams, studies of strategic leadership, decision

making and change, CEO compensation and CEO selection and

22

succession. There are, however board roles that receive board

support as explained below.

Board size

When 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 size of the board itself; is

the board too small or too large to adequately fulfill its

requirements, given the size and complexity of the organization?

The balance of the executive and non-executive directors and

whether independent directors are necessary is another structural

issue to consider. Likewise does the board have the optimal

skills mix to deliver effective governance considering the nature

of the company governed? Depending on the circumstances, the

board may benefit from having a member with industry experience,

legal expertise or perhaps a director representative of

stakeholder.

Board size defined as the total number of directors on a board

(Panasian and Bhara, 2003), has been regarded as an important

23

determination of effective corporate governance. The optimal

board size according to Goshi et al (2002) includes both the

executive directors and non executive directors.

Forbes and Daniel (1999) argued that although board size is not

truly a demographic attribute, it is unlikely to have effect on

board functioning. Despite the considerable amount of effort in

research on board size for more than a decade there is still

lack of consensus among researchers on its relevancy.

There has been considerable debate on whether large boards

perform better than smaller boards. Daily and Dalton (1992) argue

that greater number of directors might increase available

expertise and resource pool while Nicholson (2004) contends

expanding the size of the Board provides an increased pool of

expertise, information and advice quality not obtained from other

corporate staff. In contrast, the difficulty inherent in

coordinating the contributions of many members can be complex,

hindering them to use their knowledge and skills effectively.

From agency perspective, increase in board increases the Board’s

monitoring capacity but costs that accrue from large boards may

24

facilitate CEO dominance over board members. For instance large

boards have difficulty in building the interpersonal

relationships that further cohesiveness, or maintain high board

effort norms owing to social loafing that exists in large boards

(Forbes & Daniel, 1999). Studies such as Nicholson (2004) have

also supported previous authors and concluded that when the board

size is very large, the disadvantages such as lack of

cohesiveness, coordination difficulties and fractionalization are

most severe and they became less prevalent as board size

decreases. In contrast very small boards cannot enjoy the

advantages of the pool of expertise, 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

size. Goshi et al (2002) an 8-11 persons’ board may be considered

optimal. In a recent study by Nicholson (2004), a board of 9-13

members is typically right for most companies but too small for

large ones. Epstein et al (2002) considered an average of 16

directors (3 within and 13 outside directors) to be appropriate

for larger companies, though respondents in this study believed

that 12 is the most effective board size. The study by Connelly &

25

Limpaphayom (2003) revealed that the average board size of

insurance firms in Thailand was 10 but ranged from a low number

of 4 members to a high number of 16 members.

Policy and decision making

The final function that a board needs to consider is its duty

with respect to delegating authority. Given the complexity of the

business environment, it is impossible for the board to be the

sole decision making body in the company. Instead, each board

needs to work on developing an appropriate method and level of

delegation of authority. Obviously this will again vary with the

context facing the board but, in all circumstances, the board

needs to clearly articulate and document the delegations it makes

(Gavin et al, 2004).

Contingency, board roles and board effectiveness

While all boards are required to undertake activities within the

spectrum of this roles set, they contend that each organization

will need a different emphasis among these roles. Thus, there is

need to explicitly incorporate a contingency perspective, since a

particular board composition or behavior that is advantageous for

26

one corporation may prove “inappropriate or even detrimental in

another”. There is need to identify the control variables and

gaps in understanding how the board can impact on firm

performance (Heracleous, 2001).

The particular contingencies that will impact on board roles –

corporate performance would include organizational size,

management experience, industry turbulence, industry lifecycle,

and firm lifecycle. It is these contingencies that moderate the

relationship between board roles and board effectiveness. Thus

the current study includes external and internal contingencies to

moderate the relationship between board role execution and board

effectiveness (Dalton and Daily, 1992).

Board effectiveness

Herman et al (1997) states that individuals perceive

effectiveness partially or in different ways. The social

constructionist’s conception, for instance, holds that there only

judgments of effectiveness, thus effectiveness are judgmental.

Effectiveness is about doing the right things to achieve the

results. In terms of measurement, Kosnik (1990) suggests that the

27

current approaches measure elements associated with effectiveness

rather than effectiveness rather than effectiveness itself. Board

effectiveness can be conceptualized as a function of overall

contribution of the board to the organization performance,

standard of support provided by the organization, individual

contribution of directors to organization performance, board

dynamics, Board performance evaluation and review. Close

inspection of earlier literature revealed that board

effectiveness is almost based on individual experience. The

issue of measuring team outcomes is a difficult one and the

literature abounds with debates around team performance, which

mirror those surrounding organizational performance. However,

while there are various definitions of group effectiveness.

Huat and David (2001) argue that board performance has been

measured along the dimension of the board’s ability to perform

its functions. Indeed, an earlier study by Forbes & Daniel (1999)

defined board effectiveness as the board’s ability to perform its

control and service tasks effectively. From empirical

perspective, Brown (2004) found that overall judgments by

28

respondents of board effectiveness were strongly related to how

effectively the boards were judged to perform various functions.

Basing on the above literature, it fairly holds that board

performance has been largely defined in terms of roles played by

the BODs. These roles have been identified from various

perspectives including; 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. Using these perspectives, the

following roles have been identified;

Skills and knowledge

Presence and use of skills and knowledge has been identified as

another important dimension of board effectiveness. Board members

must have the right mix of skills and knowledge. For 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. In

addition, board members must have enough general knowledge to

29

provide good input on all topics of discussion, ask questions of

all special interest until they are comfortable enough to cast

votes Espstein et al, (2002). Thus, for boards to work

effectively, Hay et al (1987) emphasize that board members must

possess necessary knowledge and skills, given the unique nature

of their tasks. Similarly, for a board to effectively perform the

supervisory role, it should be composed in a manner that enhances

the presence of skills and knowledge.

Committees

According to Gavin and Geoffrey (2004), significant research

effort has focused on the impact of committees most notably the

audit committee, remuneration committee, and nominating committee

with findings that there is a link between the presence of board

committees and board effectiveness. A 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 summarize

information and report back to the full board for decision or can

be delegated specific decision making powers.

30

Delegation

The final function that a board needs to consider is its duty

with respect to delegation authority. Given the complexity of the

business environment, it is impossible for the board to be the

sole decision- making body in the company. Instead, each board

needs to work on developing an appropriate method and level of

delegation of authority. Obviously this will again vary with the

context facing the board but, in all circumstances, the board

needs to clearly articulate and document the delegations it makes

(Gavin and Geoffrey, 2004).

Risk management

Risk 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 Klein, (2004).

This study will focus on committees like budget and pricing board

committee, procurement committee, advertising committee and the

roles delegated by board to the committees. Appropriate policies

put in place to moderate the impact of risks in the industry will

be considered.

31

Financial Performance

Measuring firm performance using accounting ratios is common in

the Corporate Governance literature Demaetz and Lehn, (1985), in

particular, return on capital employed, return on assets, and

return on equity. Similarly, 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 equity are taken into

account Zahra and Pearce (1989) Other measures of financial

performance in manufacturing firms are Market share and Sales

growth.

Measuring the company’s profitability

Pandey (1999) states that most growing businesses ultimately

target increased profits, so it's important to know how to

measure profitability. The key standard measures are:

Gross profit margin - how much money is made after direct

costs of sales have been taken into account or the

contribution as it is also known.

32

Operating margin - this lies between the gross and net

measures of profitability. Overheads are taken into account,

but interest and tax payments are not. For this reason, it is

also known as the EBIT (earnings before interest and taxes)

margin.

Net profit margin - this is a much narrower measure of

profits, as it takes all costs into account, not just direct

ones. All overheads, as well as interest and tax payments, are

included in the profit calculation.

Return on capital employed - this calculates net profit as a

percentage of the total capital employed in a business. This

allows you to see how well the money invested in your business

is performing compared with other investments you could make

with it, like putting it in the bank.

Corporate Governance

Soldan (2001) defines governance as the existence of key actors

inside the chain which are responsible for the division of labour

between the firms, and for the capacities of individual

participants to upgrade their operations or functions.

33

The Organisation of Economic Co-operation and Development (OECD)

(2004) provide the most authoritative functional definition of

Corporate Governance: “Corporate 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. By doing this, it also provides the structure

through which the company objectives are set and the means of

attaining those objectives and monitoring performance.”

Corporate governance is referred to as the manner in which the

power of an organization is exercised in the stewardship of the

Corporation’s total portfolio of assets and resources with the

objective of maintaining and increasing shareholders value with

the satisfaction of other stakeholders in the context of its

corporate mission (Private Sector Corporate Governance trust,

(1999). The committee on the financial aspects of corporate

governance (the Cadbury Committee), defines corporate governance

34

as the system by which companies are directed and controlled.

Corporate Governance is both about ensuring accountability of

management in order to minimize downside risks to shareholders

and about enabling management to exercise enterprise in order to

enable shareholders to benefit from upside potential of firms

(Keasey and Wright, 1993).

Corporate governance is important because it promotes good

leadership within the corporate sector. Corporate governance has

the following attributes; leadership for accountability and

transparency, leadership for efficiency, leadership for integrity

and leadership that respect the rights of all stakeholders,

Institute of Corporate Governance of Uganda, (2000). Lack of

sound corporate governance has enabled bribery, acquaintance and

corruption to flourish and has suppressed sound and sustainable

economic decisions.

All companies whatever their size 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.

35

Developing 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. By acting in an open, professional

and ethical manner in their dealings with people outside the

organization, board members also raise the profile of the firm

and enhance its reputation (Garvin and Geoffrey, 2004).

Ensuring Availability of Financial Resources

Garvin and Geoffrey (2004) argue that all companies regardless of

their size or nature of the 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. Developing

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. By acting in an open, professional and ethical

manner in their dealings with people outside the organization,

36

board’s members also raise the profile of the firm and enhance

its reputation.

The acquisition (or rising) of financial resources and effective

allocation of these financial resources within a firm in order to

enable it achieve its predetermined objectives remains key board

role to an organization. According to Hinrichs and Tay (1996),

the task of raising finances rests with the board, through

delegated to head of finance (Finance manager).Once the board has

raised the required funds, they have to ensure that the funds are

committed into long term and short requirements of the firm.

Today’s business environment is characterized by external forces

of stiff corporate competition, technological changes, volatility

in inflation and interest rates and global economic uncertainty

all of which have an increasing impact on the business

performance and survival. The board must have the flexibility to

adapt to the changing external business environment, and

effectively and efficiently invest in those assets that in

enhance success and ultimately the overall success of the economy

in which the business operates. Therefore, through efficiently

37

acquiring, financing and managing assets, financial management

contributes to the economy as a whole.

The BODs may exercise all the powers of the company to borrow

money and to mortgage or bind its undertaking and property or

may part thereof, and to issue other securities for any debt,

liability or obligation of the company or any third party,

provided that the amount for the time being remaining un

discharged in respect of moneys borrowed or secured by the

directors as aforesaid (apart from temporary loans obtained from

the company’s bankers in the ordinary course of business) shall

not at any time, without the prior sanction of the company in

annual general meeting, exceed one-half of the amount of the

issued share capital plus the amount of the share premium account

(if any) or of the stated capital (Leblanc, 2003).

Budget Formulation, approval and Monitoring

Budgeting is a process involving planning, in financial terms, of

a comprehensive a coordinated framework for guiding the

periodical, spending and control of funds in order to achieve the

desired performance efficiency, effectiveness and equity

38

(Pandey,1999). Saleemi (2008) defines a budget “As a plan of

action expressed in quantitative terms, financial and/or

quantitative statement prepared and approved prior to a defined

period of time. It may include income, expenditure and employment

of capital”.

Aduka (2006) describes budgeting as a process of preparing, in

financial terms, a meaningful time-based course of action for

achieving management expectation. He adds that budgeting is

recognized and has received reputation as one of approaches that

fundamentally and comprehensively assist management in stating

and communicating its goals. That is provides a frame work for

implementing a planned course of action using the available

resources and therefore provides means of controlling the

performance of individuals, units within an enterprise, and of

the enterprise, and of the enterprise as a whole, so that desired

results are achieved.

Sharp and Slinger (1970) note that the budget provides a yard

stick onto which financial performance of an organization is

measured, it helps in identifying the variance between the

39

planned and actual activities and charting ways of dealing with

them. The budget is a vehicle of bringing the action of different

parts of the organization together in a reconciled plan. The

various managers have to make coordinated decisions so as to

reduce costs, avoid duplication of efforts and wastage of

resources, and above all minimize organizational conflict.

Budgets serve as useful tools for motivating in any organization.

The objectives of the firm set out what is to be achieved and the

budget specifies the costs of these activities. Managers and

employees, if have participated in preparing the budget, they

would feel strong obligation to achieve its specification.

Welsch (2001) claims that a budget provides an important tool

for the control and evaluation of sources and the uses of

resources. Using the accounting system to enact the will of the

governing body, administrators are able to execute and control

activities that have been authorized by the budget and to

evaluate financial performance on the basis of comparisons

between budgeted and actual operations. Thus, the budget is

implicitly linked to financial accountability and relates

40

directly to the financial reporting objectives established by

the organization.

Pandey (1999) added that budgeting focuses on the determination

of what should be done, how the goals may be reached, and what

individuals and units are to assume responsibility and be held

accountable. These observations are also implied in a number of

works by others such as Philip G. Young (2003) and Johnston

(1982). Indeed, according to World Bank (1992), budgeting is

potentially capable of leading to any level of performance, which

may be effective, beyond expected effectiveness, or even in

effective. Johnston (1982) notes that as having observed that

budgeting can be conducted in such a way that the stated targets

are too unrealistic, or too high to attain using the available

resources, be the human, material or financial. He argued that

high and unattainable targets put pressure on employees.

Employees view such targets as impossible to achieve and this may

cause a depressing effect on their morale.

According to Hyder and Miller (1986), once employees know that

the targets are unrealistic and unattainable, they tend not to

41

put serious efforts to achieve them, thereby registering in

effective performance. Budgets are important because: it compels

planning. It sets clear guidelines on how financial, material and

human resources can be utilized and achieve specific targets; the

budget help to improve communication and coordination among the

management and employees; they are also used to evaluate the

performance of business enterprise; and finally, a helps to

clarify authority and responsibilities of the departmental;

managers and employees.

Hilton (2000) added that the set budgetary targets may also be

too unrealistically low to provide any meaningful challenge to

employees. He noted that the achievement of such targets does not

require any normal or even special effort and therefore employees

do not feel motivated to perform as expected. In the end, the

desired performance is not achieved. Greg Harrison (2003) have

for long time observed that budget may also come up with targets

which are so unclear and ambiguous that they confuse the

implementation process. Unclear targets will make budgeting lead

to ineffectiveness performance because implementation will not be

42

systematic. In absence clear targets, employees lack a proper

direction and something to aim at. This leads to confusion of

what should be done. Employees can not clearly tell what they are

expected to do and achieve. They finally fail to achieve desired

performance as effectively as projected.

Shapiro (1989) views budgeting as a tool that tends to reflect

what top management expects to achieve. In so doing, budgeting

wins management support, confidence, acceptance and support,

which all combine to make budgeting an important vessel for

pushing for desired performance. This observation implies that

budgeting produces a program of action that must represent the

expectations of management if it is gainful management support

and lead to effective performance. This is because management

will facilitate it and ensure that subordinates carry out their

assigned tasks to attain desired performance.

Budget may be prepared for the business as a whole for

departments, for functions such as sales and production or for

financial and resource items such as cash, capital expenditure,

manpower, purchases et cetera. BODs are entrusted with budget

43

management and control. This refers to the whole process right

from budgeting or budget planning, implementation and control

(Hinrichs and Tay, 1996).

A budget planning also identifies grounds for approving and

justifying allocations made. It also specifies who is responsible

for authorizing spending (Aucoin, 1990). In effect, as all these

are being put into effect, budget implementation takes place.

However, although none of the for-cited authors mentions it, as

budget implementation gets underway, it impacts on achievement of

desired performance. As such, the manner in which the budget is

planned and implemented determines the extent to which desired

performance is achieved. Organizations where funds are spent

without regard to budgets, the likelihood of failing to achieve

the desired performance is high.

Supervision involves ongoing checks on expenditures to ensure

funds are spent on the every programs and activities for which

they are realized. As such, effective supervision minimizes waste

and unnecessary spending. It also guards against spending outside

44

the budget. It therefore facilitates the achievement of desired

performance, be it in the form of effectiveness, efficiency and

equity.

The board reviews strategic issues on a regular basis and

exercises control over the performance of each operating business

within the group by agreeing budgetary targets and monitoring

performance against targets. Certain matters are specifically

reserved for approval by the board and the board has overall

responsibility for the group system of internal control and risk

management.

These matters include strategic plans, annual budgets, review of

operating and financial performance, individual appraisal of

significant new projects, safety and governance compliance. All

business units and functions are required to develop formal

succession plans which are reviewed annually by the board. This

evaluation process includes the board as well as the various

committees which they have formed. Each year the directors

complete a comprehensive survey and the results are collated and

assessed against previous results. Following a review of results,

45

a prioritized action plan is drawn up to implement improvements.

The performance of individual directors also evaluated taking

into account factors such as attendance, objectivity in decision

making, experience and ability to contribute effectively to board

meeting. Formal evaluations of a company’s CEO by its board of

directors are becoming increasingly common place. The process

should involve three stages: establishing evaluation targets at

the start of the fiscal year, reviewing performance at midyear,

and assessing results at the end of the year.

According to Hilton (2000), assessing CEO is one of the board’s

primary governance responsibilities and is critical to the

success of the chief executive and to the organization as a

whole. Three stages encompasses assessment of the chief

executive’s responsibilities, job expectations and annual goals;

captures the board’s perception of the executive strengths,

limitations and overall performance, and foster growth and

development of the chief executive and the organization. The CEO

is responsible to the board for the overall management and

performance of the company. The CEO should manage the company in

46

accordance with strategy, plans and policies approved by the

board to achieve the agreed goals. The board has to obtain

timeouts and periodic information about all operational activity

results for review and assessment in relation to predetermined

goals and objectives. This is required to assess the CEOs

effectiveness and provides a basis of reporting back to

shareholders and other stakeholders in the three areas of

sustainable development-the economic are, social/health area and

environmental area-within the overall business environment.

CEOs Selection, Support and Review of Performance

The selection of the CEO has profound impact on the success of

the enterprise and is the exclusive responsibility of the board

of directors. When seeking a new CEO, the board must fully

understand the prevailing dynamics of the company’s situation and

objectively assess how well personal attributes of each CEO

candidate meet the requirements of the role. Because corporations

evolve as their competitive environments change, the leading

candidate for the CEO position at one stage in the life cycle of

the enterprise may well be ill-suited at another stage. If the

47

board fails to grasp how these changes affect the role

requirements, it makes a seemingly obvious selection that in fact

fails to serve the requirements of the position.

The level of objectivity with which the board approaches

selection of a new CEO often suffers because of a long

association with presumptive their apparent. The selection of CEO

therefore should constitute stand-alone, discrete process. Except

for the initial selection of the CEO for a start-up company, CEO

selection is always in the context of choosing a successor. For

going concerns that have reached steady-state operations,

succession planning should contribute the first step in the

process of CEO selection.

The question invariably arises as to whether the board should

focus on so –called internal candidates; usually loyal and

diligent long-term employees who naturally might feel that they

should be considered for the top job. Undoubtedly, these

executives will have demonstrated an ability to work effectively

as a member of the team of the outgoing CEO. An inside candidate

has the following advantages: being well known to decision

48

making; having probably managed his or her career path with the

top spot in mind; being generally predict table behavior and

attitude towards others; and possessing substantial knowledge of

the inner workings of the enterprise. Nonetheless, in insider is

also saddled with certain disadvantages, including; having his or

her weakness likewise well known to the selection; the inevitable

presence of adversaries within the organization who may work

subtly to tarnish the performance of new CEO.

Outside candidates likewise bring their own set of advantages and

disadvantages such as: a reputation and perhaps mystique built

entirely independently the enterprise; and standards of

performance that are discrete and inevitably differ from though

not necessarily in conflict with, those of the prospective

employer, yielding the possibility of fresh standard for success.

Conversely, the outside candidate is burdened as well with

inherent disadvantages such as: initial board skepticism of the

candidate’s ability to lead the enterprise as a result of the new

CEO’s lack of understanding and appreciation of the subtleties of

its history and culture; and in many cases the absence of strong

49

relationships with both major vendors and customers and perhaps a

narrow window within which to build them.

Board of Directors must weigh carefully all the nuances that

surrounds the insider versus outsider succession issue. CEO’s

evaluation is one of the very important duties of the board.

Evaluation, as a process, should be used to identify how the CEO

is currently performing, so that planning for the future

including corrective actions can occur. The purpose of evaluation

is more like introspection and neither to be critical nor to act

in a policing role. Performance evaluation is a flexible and

dynamic process that includes the act of setting goals and

standards for performance. These goals need to be measurable and

achievable. Regular evaluation will help ensure accountability

and effectiveness of the CEO.

According to Cadburys (1992), the following guidelines could be

used for CEO evaluation: establish task standards for example

through financial ratios; establish functional standards such as

communication skills, financial management, and organization

50

climate; conduct an evaluation through an open, frank and

positive discussion.

Formal evaluations of a company’s CEO by its board of directors

are becoming increasingly common place. The process should

involve three stages: establishing evaluation targets at the

start of the fiscal year, reviewing performance at midyear, and

assessing results at the end of the year. Just before the start

of the company’s fiscal year. The CEO and his or her direct

reports should work with the board to develop annual strategic

plan establishing the company’s long-term and short term

objectives. Finding the right objectives is a critical part of

the process. This should include financial and non-financial

objectives. These can further be defined clearly in three levels

of performance for each objectives-poor, acceptable and

outstanding. Once the objectives are defined, the CEO must

translate them into a set of personal performance targets and

specify how his or her progress will be measured against each.

The CEO then shares these targets and metrics with a committee of

the board-normally, compensation or board governance committee

51

that ideally consists solely of outside directors. This committee

makes recommendation to the full board, resolving any differences

between the perceptions of the CEO and the outside directors

regarding objectives. This committee also establishes financial

rewards that will result from meeting the targets. Committee

members must collaborate with the CEO to ensure that targets are

realistic but challenging. When the CEO and committee members

agree on objectives and measures, the committee presents them to

the full board for discussion and final approval. The mid-year

review-which is like any mid-year employee review, is a chance

for the board to assess whether the CEO is on a course to meet or

exceed objectives and, if no to determine where the problem lies.

The midyear review encourages directors to act before minor

problems become major ones and ensures that the objectives as

originally framed are still relevant. Such reviews may need to

occur more frequently than once a year in industries where

products and market conditions change rapidly.

52

The final stage of the CEO’s evaluation should take place at the

end of the fiscal year, when the board’s compensation committee

compares the executive’s actual performance against targets and

determines the compensation it will recommend to the full

complement of outside directors. Typically, this stage starts

with the CEO completing a written self-evaluation that gauges his

or her performance over the year. Individual outside board

members should also complete a short questionnaire assessing the

CEO’s performance.

The committee should also collect and consider pertinent outside

information, such as perceptions of the CEO by the investment

community and by its most valued customers. Using all this

material as background, the committee should then prepare its

recommendation, and outside directors should meet to discuss and

approve a final compensation package. The board should give the

CEO a written evaluation, as committing thoughts to paper force

deeper reflection and greater clarity. It also gives CEO’s

something concrete that they can review at their leisure after

meeting. Written proposals also ensure that every director is

heard-not merely those who are the most vocal.

53

Corporate Governance and Financial Performance

Two broadly defined theories co- exist in the corporate

governance literature. One stresses the discipline of the market,

claiming that threat of hostile takeovers and leveraged buyouts

in firms was sufficient to ensure full efficiency. Where managers

neglect to invest in those projects that add value to the firm

and its shareholders but divert recourses to their own benefit,

the financial markets act to restore good governance. A number of

mechanisms have been suggested, such as removing senior managers

in poorly performing firms (Krambia et al. 2006); demanding cash

flow payments in the form of debt service; and linking executive

compensation to performance, including equity and options.

Managers and owners of companies showing efforts and intention to

implement good corporate governance will increase market

credibility. Subsequently, they will collect funds at lower cost

and lower risk. It can be argued that better corporate governance

will lead to higher performance. Some empirical evidences support

this argument, Cadburys, (1992) investigated the relationship

between corporate performance and good corporate governance in

54

Korea. They find positive relationship between corporate

performance and corporate governance.

Keasey and Wright (1993) studied firm’s performance from 27

developed countries. They find evidence that there is higher

valuation of firms in countries with better protection of

minority shareholders. Parallel with this study, Heracleous,

(2001) use firm-level data from 14 emerging stock markets and

document that corporate governance provisions matter more in

countries with weak legal environments. They also find that

better corporate governance is highly correlated with better

operating performance and higher market valuation.

Conceptual Frame Work

From the foregoing literature review, this study has developed

the following conceptual framework within which to understand

issues regarding Board of Directors functions and corporate

financial performance in the coffee industry in Tanzania. Board

of Directors functions, as independent variable enhances

55

corporate financial performance, as a dependent variable. Linking

the two are internal moderating factors.

This conceptual framework is shown in the diagram 2.1 below. As

indicated in the diagram, a number of board functions such as

CEOs selection, support, CEOs performance review, and budgeting

impacts on corporate performance levels such as adequate

financing, efficiency and effectiveness of operations among

others. For the BODs to effectively carry out these roles they

require a number of key ingredients such as high level of

experience, qualification, communication skills, ethical conduct,

among others.

Figure 2.1: The Conceptual Framework

56

Independent Variables

Dependent Variables

57

Corporate Financial

Performance

Adequate financing

Proper budgeting

Efficiency and

effectiveness of

operations

Proper selection of

CEOs

Corporate Financial

Performance

Financing

Budgeting Process

Selection of CEOs

Performance

review

Support

Moderate Factors Board of Directors

experience

Communication to

shareholders

Ethical conduct

Board of Directors

qualification

Remuneration and rewards

Source: Researcher, 2014

CHAPTER THREE

METHODOLOGY

Introduction

This chapter presents the procedures that were followed in

conducting the study. These include, research design, population

of the study area, sample and sampling techniques, data

collection instruments, as well as the techniques that were used

to analyze data. It also indicates the problems anticipated in

the study.

Research design

A research design is what holds a research together and shows all

the major parts of the research project, the sample of

population, measures and methods used. This study used a case

study research design. Case studies have the advantage of

providing manageable study area which is representative of other

similar areas. The advantages of case studies are that they

emphasize detailed contextual analysis of the subject under

58

study. The researcher employed both quantitative and qualitative

research approaches. These research approaches intend to collect

a snap shot of data and help in the analysis of the relationships

between study variables

59

Demographic statistics of respondents

The main purpose of this part was to analyze the background

information of the respondents in relation to their age, gender

(sex), marital status and level of education. The information was

presented by the use of tabulation.

Gender of respondents

Table 3.1 below shows the gender ratio of the respondents. The

table reveals that out of 70 respondents, who were randomly

selected to answer the questionnaires, 52 of respondents were

males and 18 of them were females. This means that on this basis,

74.3% of the respondents on the questionnaires were males while

25.7% of the respondents were females.

Table 3.1: Gender of respondents

Frequenc

y Percent

Valid

Percent

Cumulative

Percent

Vali

d

Male52 74.3 74.3 74.3

Female 18 25.7 25.7 100.0 Total 70 100.0 100.0

Source: Primary data

60

Age of respondents

According to the below, the data reveals that the majority of the

respondents were aged 31 years to 40 years, who made the total of

40% of the total respondents. Other age group individuals

comprised of 24(34.3%) were between 20 – 30 years, 9(12.9%) were

between 41 – 50 years, 9(12.9%) between 51 - 70 years.

Table 3.2: Age of respondents

Frequency Percent

Valid

Percent

Cumulativ

e Percent

Vali

d

20 - 30

years24 34.3 34.3 34.3

31 - 40

years28 40.0 40.0 74.3

41 - 50

years9 12.9 12.9 87.1

51 - 70

years9 12.9 12.9 100.0

Total 70 100.0 100.0

Source: Primary data

61

Highest level of education attained

The table 3.3 below describes the qualification of the

respondents. This implies that 16(22.9%) acquired certificates,

28(40%) acquired diplomas, 21(30%) possess bachelor’s degree and

5(7.1%) posses master's degree in business administration.

Table 3.3: Highest level of education attained

Frequency Percent

Valid

Percent

Cumulativ

e Percent

Vali

d

Certificate16 22.9 22.9 22.9

Diploma 28 40.0 40.0 62.9 Degree 21 30.0 30.0 92.9 Masters 5 7.1 7.1 100.0 Total 70 100.0 100.0

Source: Primary data

Position of respondent

The table above reveals the position of the respondents. Out of

seventy respondents, 16(22.9%) were member of BODs, 26(37.1%)

were managerial staff and 18(25.7%) were senior staff and

62

10(14.3%) were junior staff. This reveals that managerial staffs

involved in the study apply vital information to the study.

Table 3.4: Position of respondent

Frequenc

y Percent

Valid

Percent

Cumulativ

e Percent

Vali

d

Members of BoD16 22.9 22.9 22.9

Managerial

staff26 37.1 37.1 60.0

Senior Staff 18 25.7 25.7 85.7 Junior staff 10 14.3 14.3 100.0 Total 70 100.0 100.0

Source: Primary data

Study population

A population of 85 respondents was used. These included

shareholders, Board of directors, management staff and other

staff members as shown in the table 3.1 below:

Table 3.1 Study Population

Category PopulationShareholders 20Board of directors 10Management 25Other staff 30Total 85Source: Primary Data

63

Sample size

According to Sekaran (2004), the sample size larger than 30 and

less than 500 respondents is appropriate for most studies. Also

Leon (1983) who says that for a large population a sample size of

30 and above is adequately considered to be a large sample.

Sampling procedure

The researcher selected the sample size using census sampling

technique as shown in table 3.2 below:

Table 3.2 Sample Size

CategorySamplesize

percentages

Sampling techniques

Shareholders 20 28.6 CensusBoard of directors 10 14.3 CensusManagement 25 35.7 CensusOther staff 15 21.4 CensusTotal 70 100

Source: Primary Data

Census Sampling Technique

A census is a study of every unit, everyone or everything in a

population. It is known as a complete enumeration, which means a

complete count Joshua (1998). When a population has been

identified a decision needs to be made by taking a census sample

is a more suitable option. This method was used because it64

provides a true measure of the population (no sampling error). It

also provides a benchmark data that may be obtained for future

studies, and further provides detailed information about small

sub-groups within the population that would have been neglected.

Data collection procedure

The researcher acquired an introduction letter from the School of

Business Administration of Nkumba University, which was presented

to administration of Kaderes Peasants Development Company Limited

seeking for permission to access necessary information for the

study.

Data collection methods

During collection of data, multiple methods were used to collect

data because there is no single method of data collection which

could guarantee 100 percent accurate data. Both primary and

secondary data collection methods were used to collect relevant

data as shown below

The self administered questionnaires (SAQ):

A Self- administered Questionnaire with close ended and open-

ended questionnaire using Likert scale of measurement was used to

65

collect data from respondents. The scale range from SD-for

strongly disagree, D-for disagree, NS- not sure, A - for agree

and SA - for strongly agree. The questionnaires were selected

because they are easy to administer, and for literate respondents

it allows them to give their views without fear. The researcher

physically delivered the questionnaires to the selected

respondents and picked them after two weeks, this enabled the

respondents to fill them at their own convenience. Some questions

were open-ended while the majorities were closed-ended. According

to Grooros (1985), questionnaires are popular with researchers

because information can be obtained fairly, easily and the

questionnaire responses are easily coded. However, the major

weaknesses of questionnaires is that they do not provide detailed

information to the problem and this is why they were

substantiated with review of related literature on available

literature on Board of Directors functions and Financial

performance.

Interview

Face to face interviews were held by the researcher with those

respondents who were identified purposely essential to the66

provision of explanations to the topic under study. The

questions for the interview were both structured and none

structured. The structured interviews were used to ensure

reliability and consistency of the information given by different

respondents on similar issues; while the none-structured

interviews were used to capture detailed information on

particular issues of concern. Interviews were used to get

information from managers and clients. The interviews lasted for

about 15 minutes.

Review of related literature

Most of the relevant literature held by Kaderes Peasants

Development Company Limited was reviewed. The researcher was

interested in important documents such as final accounts, audit

reports, financial accounts, published materials, audited

accounts, text books, Newspapers, among others.

67

Data collection instruments

The self administered questionnaire (SAQ)

A self administered questionnaire was developed as per appendix

I with basically close ended questions. A questionnaire was

used for purposes of analyzing different viewpoints of

different respondents on the same issue, to increase the

validity and objectivity of the research results.

Questionnaires were used to collect data from clients and

staff. This is because questionnaires are believed to be

convenient for this category of respondents.

Interview Guide

The researcher also used interview guide to collect data .The

interview guide was preferred because most respondents did not

have fixed places where questionnaires could be delivered and

picked later. This method was preferred because it generates a

wide range of responses and hence facilitates the collection of

rich data. The interview guide easily collected data from the

primary source which was used to collect first hand information

68

for this study; secondary data collection was also be used to

collect information that is already in existence.

Validity and Reliability of Instrument

Validity

Omagor (1986) define validity as the accuracy and meaningfulness

of inferences, which are based on the research results; Validity

is about to what extent data of research and methods for

collection of data is considered to be exact, right and accurate.

Validity of instruments was ascertained by discussing the

questionnaire draft with the supervisor.

The following formula was used to test validity index:

CVI= Number of items regarded relevant by the judges

Total number of items in the questionnaire

Reliability

69

Reliability is a measure of degree to which a research instrument

yields consistent results or data after repeated trials

(Omagor,1986). Reliability is whether the instruments of research

are neutral and if they would give the same results in a

different study on the same subject. The reliability of

instruments was established basing on the preliminary results

derived from the pilot study. The study instruments were set for

the pilot run.

The reliability of the questionnaire was established using

CRONBACH Alpha Coefficient

α=K

K−1(1−

∑σ2kσ2

)

Where;α= Reliability, Alpha Coefficient (CRONBACH)

K = Number of items in the instrument

∑σ2k = Variance of individual itemsσ2 = Variance of the total instrument

∑ = Summation

70

Any cronbach alpha greater than 0.6 will show that the

instruments used in data collection were consistent and reliable.

Data processing

Data collected from the field was put together, carefully

examined, organized, sorted, edited, coded and tabulated with the

aim of checking errors to enable reliable analysis. Then the data

was entered into the Statistical Package for Social Scientist

(SPSS), which summarizes the data in the form of frequency table

but simple and cross-tabulations.

Data analysis

Analysis of quantitative and qualitative data was used after

summarization of data. They were analyzed to make meaningful

interpretations of the results. The data analysis used both

descriptive and inferential statistical measures such as central

tendency, dispersion, and measures of relationships such as

correlation and regression analysis were used.

71

Measurement of variables

The relationship between board of director’s functions and

financial performance was evaluated using Pearson’s correlation

coefficient using the Statistical Package for Social Scientists

(SPSS)

Limitation of the study

1. Time

The study required a lot of time and yet the researcher had other

commitments like taking tests and examinations at the University

during the same period. However this was handled by making a time

table and strictly following it. Most respondents shall be busy

because of the nature of their work. This was solved by

scheduling appointments with them at their own most appropriate

time

2. Secrecy

The study area is perceived as sensitive by many organizations

because it involves matters of secret information that should not

be revealed. This was be overcome by assuring the respondents of

72

their anonymity and proving them that the study will be strictly

for academic purposes.

3. Finance

The researcher incurred many financial expenses related to

collecting data from the field yet there are limited financial

resources at his experience. This was overcome by developing a

budget which the researcher followed.

Ethical consideration

The researcher assured the respondents of confidentiality of the

information that was obtained from the field. Ethics letter was

submitted to the respondents to re-assure them of confidentiality

of the information they provide

73

74

CHAPTER FOUR

HOW BOARD OF DIRECTORS HAVE ENSURED AVAILABILITY OF

FINANCIAL RESOURCES IN KADERES PEASANTS

DEVELOPMENT COMPANY LIMITED.

Introduction

This chapter presents findings of the first objective which

sought to examine how Board of Directors has ensured availability

of financial resources in Kaderes Peasants Development Company

Limited.

The roles and duties of Board of Directors

The board of directors is appointed to act on behalf of the

shareholders to run the day to day affairs of the business.

Understanding their roles and responsibilities should be first

task when appointed. Respondents were asked whether the roles and

duties of Board of Directors are clearly stated and their

responses were; 8(11.4%) strongly disagreed, 10(14.3%) disagreed,

40(57.1%) agreed and 12(17.1%) strongly agreed. The table below

presents the findings.

75

Table 4.1: Roles and duties of Board of Directors

Frequency Percent

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree8 11.4 11.4 11.4

Disagree 10 14.3 14.3 25.7 Agree 40 57.1 57.1 82.9 Strongly Agree 12 17.1 17.1 100.0 Total 70 100.0 100.0

Source: Primary data

Table 4.1 above indicates that 42(64.2%) of the total respondents

were in agreement that the roles and duties of Board of Directors

are clearly stated. However, 18(25.7%) of the respondents were in

disagreement. This reveals that some roles and responsibilities

are not clearly stated and this has contributed to poor financial

performance in Kaderes Peasants Development Company. Thus, the

board of directors, including the general manager or CEO (chief

executive officer), must have well defined roles and

responsibilities to ensure good financial performance.

Whether the Board size is adequate for the company

76

On the question of whether the board size is adequate in Kaderes

Peasants Development Company, 11(15.7%) of the total respondents

strongly disagreed, 11(15.7%) disagreed, 7(10%) were not sure,

32(45.7%) agreed and 9(12.9%) strongly agreed. The table below

presents the findings.

Table 4.2: The Board size is adequate for the company

Frequency Percent

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree11 15.7 15.7 15.7

Disagree 11 15.7 15.7 31.4 Not sure 7 10.0 10.0 41.4 Agree 32 45.7 45.7 87.1 Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

Source: Primary data

In table 4.2 above, the majority 48(68.6%) of the total

respondents were in agreement that the Board size is adequate in

Kaderes Peasants Development Company. This implies that the board

has enough members to handle all the duties and responsibilities

of the company. However, 22(31.4%) of the respondents were in

disagreement. This was attributed to lack of knowledge because

77

interview with some respondents and review of some documents

revealed that the board has enough members to handle the

operations of the company.

Whether the Board of Directors acts responsibly in the best interest of the company

The Board of Directors is responsible for seeing that the Company

keeps the promises described in the company’s mission and values

statements, and for assuring that the company is accountable for

acting within the laws governing the operations of organization

and interests of stakeholders.

When respondents were asked whether the Board of Directors act

responsibly in the best interest of the company and its

shareholders, their responses were; 14(20%) strongly disagreed,

17(24.3%) disagreed, 31(44.3%) agreed and 8(11.4%) strongly

agreed. The table 4.3 below presents the findings.

78

Table 4.3: Interest of the company and its shareholders

Frequency Percent

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree14 20.0 20.0 20.0

Disagree 17 24.3 24.3 44.3 Agree 31 44.3 44.3 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

Source: Primary data

From table 4.3 above, 39(55.7%) of the total respondents were in

agreement that board of directors act responsibly in the best

interest of the company and its shareholders. This implies that

the Board of Directors has acted within the laws governing the

operations of the company and interests of stakeholders. However,

31(44.3%) of the respondents were in disagreement. This means

that some board members have failed to act responsibly to reach

the interest of the company and stakeholders.

Whether BODs apply corporate governance principles

Corporate governance essentially involves balancing the interests

of many stakeholders in a company. Respondents were asked whether

the Board of Directors apply corporate governance principles in

79

performing their duties and their responses were; 5(7.1%)

strongly disagreed, 6(8.6%) disagreed, 7(10%) were not sure,

41(58.6%) agreed and 11(15.7%) strongly agreed. The table below

presents the findings.

Table 4.4: Whether BODs apply corporate governance principles

Frequency Percent

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree5 7.1 7.1 7.1

Disagree 6 8.6 8.6 15.7 Not sure 7 10.0 10.0 25.7 Agree 41 58.6 58.6 84.3 Strongly Agree 11 15.7 15.7 100.0 Total 70 100.0 100.0

Source: Primary data

Findings in table 4.4 above indicates that 59(84.3%) of the total

respondents generally agreed that BODs apply corporate governance

principles in performing their duties. This implies the company

has a system of rules, practices and processes which are applied

to attain its objectives. The principles encompass practically

every sphere of management, from action plans and internal

controls to performance measurement and corporate disclosure.

80

However, 11(15.7%) of the respondents were in disagreement. This

implies that not all corporate governance principles are applied

to attain company objectives.

Whether the Board of Directors ensures that financial resources

are available

Respondents were asked whether the Board of Directors ensure that

financial resources are available in the company and their

responses were; 17(24.3%) of the total respondents strongly

disagreed, 17(24.3%) disagreed, 24(34.3%) agreed and 12(17.1%)

strongly agreed as indicated in the table below.

Table 4.5: BODs ensure that financial resources are available

Frequency

Percen

t

Valid

Percent

Cumulative

Percent

Valid Strongly

Disagree17 24.3 24.3 24.3

81

Disagree 17 24.3 24.3 48.6 Agree 24 34.3 34.3 82.9 Strongly Agree 12 17.1 17.1 100.0 Total 70 100.0 100.0

Source: Primary data

From table 4.5 above, 36(51.4%) of the total respondents were in

agreement that BODs have ensured that financial resources are

available in the company. This implies that there are funds

available for use to ensure that the company’s operations are

effectively and efficiently handled. However, 34(48.6%) of the

respondents were in disagreement. This implies that that the

company does not have enough funds to carry on its activities.

Thus the company needs to improve on its income sources in order

to operate efficiently and effectively.

Whether BODs effectively manage the organization's financial

resources

Financial Management is the operational activity of a business

that is responsible for obtaining and effectively utilizing the

funds necessary for efficient operation. When respondents were

82

asked whether the BODs effectively manage the company’s financial

resources, their responses were; 13(18.6%) of the total

respondents strongly disagreed, 17(24.3%) disagreed, 5(7.1%) were

not sure, 30(42.9%) agreed and 5(7.1%) strongly agreed as

indicated in the table below.

Table 4.6: Whether BODs effectively manage the organization's

financial

resources

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree13 18.6 18.6 18.6

Disagree 17 24.3 24.3 42.9 Not sure 5 7.1 7.1 50.0 Agree 30 42.9 42.9 92.9 Strongly Agree 5 7.1 7.1 100.0 Total 70 100.0 100.0

Source: Primary data

In table 4.6 above, 40(57.1%) of the total respondents were in

agreement that BODs effectively manage the company's financial

resources. This reveals that there is efficient and effective

management of money (funds) in such a manner as to accomplish the

objectives of the company. It is also an indication that the

83

company follows proper financial policies and procedures to

ensure proper financial management. However, 30(42.9%) of the

respondents were in disagreement. This discloses that the Board

of Directors of the company the company does not follow proper

financial policies and procedures to ensure proper financial

management. There is need to emphasize proper compliance with the

company’s financial policies and procedures still has to improve

its financial management.

Whether the BODs exercise all the powers of the company to acquire fundsOn the question whether Board of Directors exercise all the

powers of the company to acquire funds, 5(7.1%) of the total

respondents strongly disagreed, 5(7.1%) disagreed, 6(8.6%) were

not sure, 44(62.9%) agreed and 10(14.3%) strongly agreed. The

table below indicates the findings.

Table 4.7: Whether BODs exercise all the powers of the company to acquire funds

Frequenc

y

Percen

t

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree5 7.1 7.1 7.1

Disagree 5 7.1 7.1 14.3

84

Not sure 6 8.6 8.6 22.9 Agree 44 62.9 62.9 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0

Source: Primary data

Basing on findings in table 4.7 above, 60(85.7%) of the total

respondents were in agreement that Board of Directors exercise

all the powers of the company to acquire funds. This implies that

the board of directors is responsible for the effective

management of the financial affairs of the company. However,

10(14.3%) of the respondents were in disagreement. This implies

that some Board of Directors does not exercise the powers of the

company to acquire funds for the company.

Whether financial resources are always available in the company

Respondents were asked whether the financial resources are always

available in the company and their responses were; 26(37.1%)

strongly disagreed, 18(25.7%) disagreed, 10(14.3%) were not sure,

9(12.9%) agreed and 7(10%) strongly agreed. The table below

presents the findings.

85

Table 4.8:Whether financial resources are always available in thecompany

Frequenc

y

Percen

t

Valid

Percent

Cumulative

Percent

Valid Strongly

Disagree26 37.1 37.1 37.1

Disagree 18 25.7 25.7 62.9 Not sure 10 14.3 14.3 77.1 Agree 9 12.9 12.9 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0

Source: Primary data

Finding in table 4.8 above indicates that 54(77.1%) of the total

respondents were in disagreement that financial resources are

always available in the company. This means that the company

sometimes runs short of financial resources to efficiently and

effectively handle its operations. Interview with some

respondents revealed that the company has little sources of

generating income, with their limited financial resources;

company cannot command the capital necessary for extensive

operations. However, 16(22.9%) of the respondents were in

agreement that the company has tried to create sources to acquire

adequate funds.

86

Whether the financial resources are always adequate

Respondents were asked whether the financial resources are always

adequate in KPD company and their responses were; 19(27.1%)

strongly disagreed, 34(48.6%) disagreed, 5(7.1%) were not sure,

2(2.9%) agreed and 10(14.3%) strongly agreed. Table 4.9 below

presents the findings.

Table 4.9: Whether the financial resources are always adequate

Frequency PercentValidPercent

CumulativePercent

Valid

Strongly Disagree 19 27.1 27.1 27.1

Disagree 34 48.6 48.6 75.7 Not sure 5 7.1 7.1 82.9 Agree 2 2.9 2.9 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0Source: Primary data

Findings in table 4.9 above presents that 58(82.9%) of the total

respondents were in disagreement that financial resources are

always adequate in KPD company. This means that the company still

has few sources of generating income to support its operations;

this has resulted into setbacks in achieving the company’s and

stakeholders’ objectives and goals. Thus, adequate financial

87

resources must be allocated by top management to ensure that the

company plan is implemented effectively. Financial resources need

to be identified and reviewed regularly in each area where

company objectives and targets are to be achieved. However,

12(17%) of the respondents were in agreement that financial

resources are always adequate in KPD Limited. This implies that

sometimes the company has enough cash to support its operations.

Whether financial resources are always availed in time

On the question whether financial resources are always availed in

time, 22(31.4%) of the total respondents strongly disagreed,

22(31.4%) disagreed, 19(27.1%) agreed and 7(10.0%) strongly

agreed as indicated in the table 4.10 below.

Table 4.10: Whether financial resources are always availed in

time

Frequency

Percen

t

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree22 31.4 31.4 31.4

Disagree 22 31.4 31.4 62.9 Agree 19 27.1 27.1 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0

88

Source: Primary data

Table 4.10 above shows that 44(62.9%) of the total respondents

were in disagreement that financial resources are always availed

in time. This implies that the operations of the company are at

times at a standstill due to inadequate funds for spending.

However, 26(37.1%) of the respondents were in agreement. This

reveals that adequate funds are at times available for the smooth

running of the company’s operations.

CHAPTER FIVE

HOW BOARD OF DIRECTORS HAVE CARRIED OUT BUDGET

FORMULATION, APPROVAL AND MONITORING IN KADERES

PEASANTS DEVELOPMENT COMPANY LIMITED.

Introduction

This chapter presents findings in respect of the second objective

which sought to examine how Board of Directors have carried out

budget formulation, approval and monitoring in Kaderes Peasants

Development Company limited (KPDL).

89

Whether the annual budgets are properly formulated in KPDL

An annual budget is any budget that is prepared for a 12-month

period. It outlines both the income and expenditures that are

expected to be received and paid over the coming year. On the

question whether the annual budgets are properly formulated in

Kaderes Peasants Development Company limited, 14(20.0%) of the

total respondents strongly disagreed, 17(24.3%) disagreed,

6(8.6%) were not sure, 26(37.1%) agreed and 7(10%) strongly

agreed. The table below indicates the findings.

Table 5.1: Whether annual budgets are properly formulated in KPDL

FrequencyPercen

tValid

PercentCumulativePercent

Valid

Strongly Disagree 14 20.0 20.0 20.0

Disagree 17 24.3 24.3 44.3 Not sure 6 8.6 8.6 52.9 Agree 26 37.1 37.1 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0Source: Primary data

90

According to table 5.1 above 39(55.7%) of the total respondents

were in agreement that annual budgets are properly formulated.

This implies that annual budgets have helped KPDL to accurately

project the future cash flows and effectively manage the funds.

This further reveals that these budgets have helped the company

to plan for the upcoming year and make the necessary adjustments

in cash flow to cover expenses. However, 31(44.3%) of the

respondents were in disagreement. This implies that there are

times when the annual budget is not properly formulated and hence

poor management of funds as well as poor management of the

company’s operations.

Whether Annual budgets formulated are based on the BODs overall

goals or objectives.

When respondents were asked whether the annual budgets formulated

are based on the BODs overall goals or objectives, 12(17.1%) of

the total respondents strongly disagreed, 10(14.3%) disagreed,

37(52.9%) agreed and 11(15.7%) strongly agreed. Table 5.2 below

presents the findings.

91

Table 5.2: Whether annual budgets formulated are based on the

BODs

overall goals or objectives

FrequencyPercen

tValid

PercentCumulativePercent

Valid

Strongly Disagree 12 17.1 17.1 17.1

Disagree 10 14.3 14.3 31.4 Agree 37 52.9 52.9 84.3 Strongly Agree 11 15.7 15.7 100.0 Total 70 100.0 100.0Source: Primary data

From table 5.2 above, 48(68.6%) of the total respondents were in

agreement that annual budgets formulated are based on the BODs

overall goals or objectives. This indicates that the top

management, particularly the CEO, is responsible for formulating

and approving the final budget that meets the company’s

objectives and goals, which then becomes the guidebook for

company’s operations. However, 22(31.4%) of the respondents were

in disagreement. This implies that sometimes formulated annual

budget go beyond the company’s objectives and goals to personal

ambitions.

92

Whether departmental budgets are regularly prepared

Departmental budget is a tool used to predict income and expenses

of a department to get the goal. It analyzes cost and the firm’s

income to meet expenses. It manages performance over time. On the

question whether the departmental budgets are regularly prepared,

12(17.1%) of the total respondents strongly disagreed, 15(21.4%)

disagreed, 5(7.1%) were not sure, 24(34.3%) agreed and 14(20.0%)

strongly agreed as indicated in the table 6.3 below.

Table 6.3: Whether Departmental budgets are regularly prepared

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree12 17.1 17.1 17.1

Disagree 15 21.4 21.4 38.6 Not sure 5 7.1 7.1 45.7 Agree 24 34.3 34.3 80.0 Strongly Agree 14 20.0 20.0 100.0 Total 70 100.0 100.0

Source: Primary data

Table 6.3 above indicates that 43(61.4%) of the total respondents

were in agreement that departmental budgets are regularly

prepared. This means that there are regular departmental budgets

93

projecting the income and expenses of a specific department in

order to achieve financial goals of the company. However,

37(38.6%) of the respondents were in disagreement. This means

that some departmental budgets do not allow the company to

properly project and analyze the company costs and expenses.

Thus, most departmental budgets should enable management to

measure its financial performance over time by making proper

projections.

Whether previous year annual budget performance reports are used

for future planning

Respondents were asked whether previous year’s annual budget

performance reports are used for future planning and their

responses were; 10(14.3%) strongly disagreed, 7(10%) disagreed,

7(10%) were not sure, 36(51.4%) agreed and 10(14.3%) strongly

agreed.

Table 5.4: Previous year’s annual budget performance reports

Frequenc

y

Percen

t

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree10 14.3 14.3 14.3

Disagree 7 10.0 10.0 24.3

94

Not sure 7 10.0 10.0 34.3 Agree 36 51.4 51.4 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0

Source: Primary data

Table 5.4 above indicates that 53(75.7%) of the total respondents

were in agreement that previous year’s annual budget performance

reports are used for future planning. This means that previous

annual budget is used to set out the strategy and action plan for

the company operations. This includes a clear financial picture

of where the company stands - and expects to stand - over the

coming year. However, 17(24.3%) of the respondents were in

disagreement. this discloses that sometimes previous annul

budgets performance are not used when implementing new fiscal

annual budgets in the company.

Whether the figures incorporated in the budgets are realistic

Drafting an effective budget with realistic figures is a key way

to help company turn its dreams for business success into

reality. When respondents were asked whether the figures

incorporated in the company’s budget are realistic, their

responses were; 26(37.1%) of the total respondents strongly

95

disagreed, 18(25.7%) disagreed, 6(8.6%) were not sure, 11(15.7%)

agreed and 9(12.9%) strongly agreed. Findings are indicated in

the table 5.5 below.

Table 5.5: Whether figures incorporated in the budgets are

realistic

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree26 37.1 37.1 37.1

Disagree 18 25.7 25.7 62.9 Not sure 6 8.6 8.6 71.4 Agree 11 15.7 15.7 87.1 Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

Source: Primary data

Basing on findings in table 5.5 above, 50(71.4%) of the

respondents were in disagreement that figures incorporated in the

budget are realistic. This implies that there is poor budgeting

and management of the company funds. This has contributed to the

poor health of the company in terms of financial management

leading to poor financial performance. However, 20(28.6%) of the

respondents were in agreement that some departments issue budgets

96

with realistic figures leading to improved budgeting and

financial performance.

Whether Annual budgets are adequately approved by the Board

When respondents were asked whether the annual budgets are

adequately approved by the Board, their responses were; 51(72.9%)

agreed and 19(27.1%) strongly agreed as indicated in the table

5.6 below.

Table 5.6: Whether annual budgets are adequately approved by the Board

Frequency

Percen

t

Valid

Percent

Cumulative

Percent

Valid Agree 51 72.9 72.9 72.9

Strongly

Agree19 27.1 27.1 100.0

Total 70 100.0 100.0

Source: Primary data

From table 5.6 above, 70(100%) of the total respondents were in

agreement that annual budgets are adequately approved by the

Board. This implies that once budgets are approved by the Board,

these budget parameters are used to develop resource requirements

97

and provide a framework for matching revenues and expenditures to

achieve a balanced budget. The review of existing literature

revealed that budget approval by the Board has also helped the

company in controlling excessive misuse of funds. The board

reviews the budget and removes all the unwanted or luxurious

items and hence proper financial performance of the company.

Whether the board approves budgets within the timeframe set

On the question whether the board approved budgets within the

timeframe set by the company, 9(12.9%) of the total respondents

strongly disagreed, 9(12.9%) disagreed, 6(8.6%) were not sure,

8(11.4%) agreed and 38(54.3%) strongly agreed. The table

Table 5.7: Whether the board approves budgets within the

timeframe set

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree9 12.9 12.9 12.9

Disagree 9 12.9 12.9 25.7

98

Not sure 6 8.6 8.6 34.3 Agree 8 11.4 11.4 45.7 Strongly Agree 38 54.3 54.3 100.0 Total 70 100.0 100.0

Source: Primary data

From table 5.7 above, 52(74.3%) of the total respondents were in

agreement that the board approved budgets within the timeframe

set by the company. This implies that the budget process

culminates in the approval of the budget by the Board of

Directors in the month of May. The budget for the next fiscal

year beginning July 1st is then submitted to all departments at

the end of June each year. Approving a budget in given time has

enabled the company to bring about an overall improvement in the

working efficiency and it has also promoted division of work and

specialization, which has increased proper financial management

and performance within and out of all departments.

Whether the proper procedures of annual budget approval are

followed

On the question of whether the proper procedures of annual budget

approval are followed by the company’s executive, 11(15.7%) of

the total respondents strongly disagreed, 10(14.3%) disagreed,99

7(10%) were not sure, 37(52.9%) agreed and 5(7.1%) strongly

agreed. Table 5.8 below presents the findings.

Table 5.8: Whether proper procedures of annual budget approval

are

followed

Frequenc

y

Percen

t

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree11 15.7 15.7 15.7

Disagree 10 14.3 14.3 30.0 Not sure 7 10.0 10.0 40.0 Agree 37 52.9 52.9 92.9 Strongly Agree 5 7.1 7.1 100.0 Total 70 100.0 100.0

Source: Primary data

Findings in table 5.8 above reveals that 49(70%) of the total

respondents were in agreement that proper procedures of annual

budget approval are followed. This implies that the finance

department conducts the initial reviews of the annual budgets

before approval. They analyze the proposed expenditures, the

assumptions used to prepare the revenue forecast, and analyze

significant variances from previous year's financial budget.

Their goal is to make sure that the budget is reasonable and

100

achievable. However, 21(30%) of the respondents were in

disagreement. This implies that sometimes BODs approves a budget

without consulting other departments. Thus, the BODs should

cooperate with all departments when formulating, approving and

monitoring budget to ensure appropriate financial performance in

the company.

Whether there is proper monitoring of annual budgets by the Board

Monitoring budget accuracy is the responsibility of all managers.

On the question whether there is proper monitoring of annual

budgets by the Board, their responses were; 13(18.6%) strongly

disagreed, 11(15.7%) disagreed, 4(5.7%) were not sure, 33(47.1%)

agreed and 9(12.9%) strongly agreed as indicated in the table

below.

Table 5.9: Whether there is proper monitoring of annual budgets by the board

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree13 18.6 18.6 18.6

Disagree 11 15.7 15.7 34.3 Not sure 4 5.7 5.7 40.0 Agree 33 47.1 47.1 87.1

101

Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

Source: Primary data

Table 5.9 above shows that 46(65.7%) of the total respondents

were in agreement that there is proper monitoring of annual

budgets by the Board. This indicates the Board of Directors

monitors and evaluates actual results against approved budgets to

guide current and future decision-making and hold managers and

staff accountable for performance. However (34.3%) of the total

respondents were in disagreement. This implies that sometime the

company does not comply with policies and procedures of

monitoring annual budget. The company should monitor the extent

to which budget estimates match actual results. This helps the

company ensure financial control and identify where change is

required.

The findings above in table 5.9 are line with (Markus, 2009)

argument in his report titled “measuring budget performance”, he

states that effective monitoring of budget performance requires

that managers are provided with relevant, timely and accurate

102

information appropriate to their level of responsibility. It also

requires managers to provide clear and consistent feedback in a

timely manner about underlying causes and effects of budget

variations, as well as planned actions to manage variations for

which they are accountable.

Regular preparations of annual budget monitoring

Regular monitoring of expenditure is essential, not just to

verify expenditure against target but also to identify changing

patterns or circumstances that need corrective action.

Respondents were asked whether the annual budget monitoring

reports are regularly prepared and their responses were;

13(18.6%) strongly disagreed, 10(14.3%) disagreed, 6(8.6%) were

not sure, 33(47.1%) agreed and 8(11.4%) strongly agreed as

indicated in the table below.

Table 5.10: Whether annual budget monitoring reports are

regularly

prepared Frequenc Percen Valid Cumulativ

103

y t Percent e Percent

Vali

d

Strongly

Disagree13 18.6 18.6 18.6

Disagree 10 14.3 14.3 32.9 Not sure 6 8.6 8.6 41.4 Agree 33 47.1 47.1 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

Source: Primary data

According to table 5.10 above, 47(67.1%) of the total respondents

were in agreement that annual budget monitoring reports are

regularly prepared in Kaderes Peasants Development Company. This

means that there are procedures in place to monitor progress

against budget and objectives at regular intervals (generally

monthly). Only 23(32.9%) of the respondents were in disagreement,

this means that annual budget monitoring reports are not

regularly prepared in Kaderes Peasants Development Company. Thus,

monitoring of expenditure against budget should be regularly

undertaken at an overall level by the authorities in charge.

104

CHAPTER SIX

HOW BOARD OF DIRECTORS SELECT, SUPPORT, AND REVIEW THE

PERFORMANCE OF THE COMPANY CEOS IN KADERES PEASANTS DEVELOPMENT

COMPANY LIMITED.

Introduction

This chapter presents findings in respect of the third objective

which sought to establish how Board of Directors select, support,

and review the performance of the company CEOs in Kaderes

Peasants Development Company Limited.

Whether there is proper selection of CEOs by the Board

Selecting the right CEO is critical to the success of the

organization. Respondents were asked whether there is proper

selection of CEOs by the Board of directors and their responses

were; 9(12.9%) strongly disagreed, 14(20%) disagreed, 6(8.6%)

were not sure, 38(54.3%) agreed and 3(4.3%) strongly agreed as

indicated in the table below.

105

Table 6.1: Whether proper selection of CEOs by the Board

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree9 12.9 12.9 12.9

Disagree 14 20.0 20.0 32.9 Not sure 6 8.6 8.6 41.4 Agree 38 54.3 54.3 95.7 Strongly Agree 3 4.3 4.3 100.0 Total 70 100.0 100.0

Source: Primary dataFindings in table 6.1 above indicates that 47(67.1%) of the total

respondents were in agreement that there is proper selection of

CEOs by the Board of directors. This implies that the Board has

the responsibility to undertake a carefully planned search

process when the position of CEO is vacant. The responsibility of

selecting the chief executive officer has the single greatest

impact on the organization’s development and effectiveness.

However, 23(20.9%) of the respondents were in disagreement but

this was attributed to lack of knowledge. The review of some

company documents revealed that the Board of directors is

required to establish clear objectives and clarify expectations

for at least the first year of the new chief executive’s service,

106

delineate Board functions as distinct from those of the CEO and

staff, and provide an adequate compensation package and other

employment terms.

Whether CEOs are adequately qualified

On the question whether CEOs are adequately qualified for

efficiency and effective performance of their duties and

responsibilities, their responses were; 16(22.9%) strongly

disagreed, 13(18.6%) disagreed, 8(11.4%) were not sure, 25(35.7%)

agreed and 8(11.4%) strongly agreed. Table 6.2 below presents the

findings.

Table 6.2: Whether CEOs are adequately qualified

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree16 22.9 22.9 22.9

Disagree 13 18.6 18.6 41.4 Not sure 8 11.4 11.4 52.9

107

Agree 25 35.7 35.7 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

Source: Primary data

According to table 6.2 above, 41(58.5%) of the total respondents

were in agreement the CEOs are adequately qualified. This means

that the Company employs only CEOs with certified education

qualifications, the BODs also consider CEO with more conventional

skills associated with managing and leading profitable companies.

However, 29(41.4%) of the respondent were in disagreement. This

means that some CEOs are employed without thorough check and test

of their qualifications and skills. Thus, a company should look

for a person who will be passionate about the company’s

operations.

Whether CEOs are selected according to the set procedures

When respondents were asked whether the CEOs are selected

according to the set procedures, 6(8.6%) of the total respondents

strongly disagreed, 4(5.7%) disagreed, 11(15.7%) were not sure

and 49(70%) strongly agreed. Findings are revealed in the table

below.

108

Table 6.3: Whether CEOs are selected according to the set

procedures

Frequenc

y

Percen

t

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree6 8.6 8.6 8.6

Disagree 4 5.7 5.7 14.3 Not sure 11 15.7 15.7 30.0 Agree 49 70.0 70.0 100.0 Total 70 100.0 100.0

Source: Primary data

According to table 6.3 above, 60(85.7%) of the total respondents

were in agreement that CEOS are selected according to the set

procedures. This means that there is effective and efficient

policies and procedures followed when the Company selecting new

Chief Executive Officer. The company focus on the education

qualifications, experience in service, skills and knowledge upon

the new task or company. However, 10(14.3%) of the respondents

were in disagreement. This indicates that some CEOs are appointed

without following the right procedures of the organization and

some are seconded by top government officials. Thus, all CEOs

109

should be selected, appointed and reviewed by the Board of

Directors of the organization to enhance successful performance.

Whether there is proper appointment of CEO to the company

Respondents were asked whether there is proper appointment of CEO

to the company and their responses were; 15(21.4%) strongly

disagreed, 15(21.4%) disagreed, 5(7.1%) were not sure, and

19(27.1%) agreed and 16(22.9%) strongly agreed. Table 6.4 below

indicates the findings.

Table 6.4: Whether there is proper appointment of CEO to the

company

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree15 21.4 21.4 21.4

Disagree 15 21.4 21.4 42.9 Not sure 5 7.1 7.1 50.0 Agree 19 27.1 27.1 77.1 Strongly Agree 16 22.9 22.9 100.0

110

Total 70 100.0 100.0

Source: Primary data

Findings in table 6.4 above indicates that 40(57.1%) of the total

respondents were in agreement that there is proper appointment of

CEO in Kaderes Peasant Development Company. This implies that

there are correct processes followed so that every applicant is

given every opportunity to put the appropriate information

forward, and then the Board of Directors chooses the right person

suited to the position. However, 30(42.8%) of the respondents

were in disagreement. This reveals that applicants sometimes are

not short-listed according to their capacity to meet the

essential selection criteria. Thus, the BODs should not make a

decision to appoint CEO after all available information has been

considered.

Whether the CEOs are adequately appointed

Respondents were asked whether the CEOs are adequately appointed

and their responses were; 6(8.6%) strongly disagreed, 6(8.6%)

disagreed, 2(2.9%) were not sure, 52(74.3%) agreed and 4(5.7%)

strongly agreed as indicated in the table below.

111

Table 6.5: Whether the CEOs are adequately appointed

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree6 8.6 8.6 8.6

Disagree 6 8.6 8.6 17.1 Not sure 2 2.9 2.9 20.0 Agree 52 74.3 74.3 94.3 Strongly Agree 4 5.7 5.7 100.0 Total 70 100.0 100.0

Source: Primary data

Table 6.5 above shows that 58(82.9%) of the total respondents

generally agreed that the CEOs are adequately appointed. This

means that the Company follows the set policies and procedures

when appointing new CEOs. Board of directors is confident that

with this kind of appointment is building on its existing

strengths that will ensure future sustainability and growth.

However 12(17.1%) of the respondents were in disagreement. This

reveals that sometimes CEOs are appointed on favor and errand of

the board of directors without abiding with CEO appointment

procedures.

112

Whether CEOs are appointed according to the set procedures

When respondents were asked whether CEOs are appointed according

to the set procedures and their responses were; 9(12.9%) strongly

disagreed, 8(11.4%) disagreed, 6(8.6%) were not sure, 34(48.6%)

agreed and 13(18.6%) strongly agreed. Table below indicates the

findings.

Table 6.6: Whether CEOs are appointed according to the set

procedures

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree9 12.9 12.9 12.9

Disagree 8 11.4 11.4 24.3 Not sure 6 8.6 8.6 32.9 Agree 34 48.6 48.6 81.4 Strongly Agree 13 18.6 18.6 100.0 Total 70 100.0 100.0

Source: Primary data

Basing on the findings in table 6.6 above, 53(75.4%) of the total

respondents were in agreement that CEOs are appointed according

to the set procedures. This means that there is formal, rigorous

and transparent procedure for the appointment of new chief

113

executive officers. However, 17(24.3%) of the respondents were in

disagreement. This means that sometimes CEOs are appointed

without following the set policies and procedures.

Whether there are regular reviews of CEOs

The review of the chief executive officer’s performance is a

critical responsibility of the Board in fulfilling its

stewardship role of the organisation.  Because the CEO is

entrusted with the delegated authority of the Board, it is

imperative that the Board devote sufficient time and focused

attention to the effectiveness of their delegate and employee.

Table 6.7: Whether there are regular review of CEOs

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree25 35.7 35.7 35.7

Disagree 22 31.4 31.4 67.1 Not sure 8 11.4 11.4 78.6 Agree 15 21.4 21.4 100.0 Total 70 100.0 100.0

114

Source: Primary data

Basing on the findings in table 6.7 above, 47(67.1%) of the total

respondents were in disagreement that the CEOs are regularly

reviewed. This means that Board of Directors neglect to conduct

constructive and timely review of CEO performance. Review of

existing literature revealed that there is still a lack of

improvement focus from management and missed opportunities to

identify how the CEO can effectively use their skills and

expertise in achieving organisational goals. Though, 23(32.8%) of

the respondents were in agreement. Ideally, performance review of

the CEO should aim to be a process that contains formative

aspects that result in the ongoing provision of support for the

CEO and fosters the development of a collaborative relationship

between the Board and the CEO.

Whether there is adequate review of CEO Performance by Board of

Directors

The performance of CEOs is a collaborative effort, guided by a

common understanding about the work of organization and what they

should be doing. When respondents were asked whether the Board of

Directors adequately reviewed the performance of CEOs, their

115

responses were; 9(12.9%) strongly disagreed, 6(8.6%) disagreed,

4(5.7%) were not sure, 38(54.3%) agreed and 13(18.6%) strongly

agreed. Table 6.8 below presents the findings.

Table 6.8: Whether there is adequate review of CEO Performance by

Board of Directors

Frequenc

y

Percen

t

Valid

Percent

Cumulativ

e Percent

Vali

d

Strongly

Disagree9 12.9 12.9 12.9

Disagree 6 8.6 8.6 21.4 Not sure 4 5.7 5.7 27.1 Agree 38 54.3 54.3 81.4 Strongly Agree 13 18.6 18.6 100.0 Total 70 100.0 100.0

Source: Primary data

From table 6.8 above, the majority (78.6%) of the respondents

were in agreement that the Board of Directors adequately review

the performance of CEOs. This means that satisfactorily review of

CEOs’ performance has offered an excellent opportunity to

highlight the features and successful system of the company that

may be used as a benchmark for improving performance. However,

(21.4%) of the respondents were in disagreement. This means that

116

the BODs sometime are reluctant to review the CEO's key

objectives to ensure they are appropriate measures of the CEO's

performance.

Review of CEO performance

It is the board’s responsibility to ensure that a CEO performance

review happens, since the board has the ultimate responsibility

for the strategy and performance of an organisation. Therefore,

CEO evaluation process should be built around a number of leading

practice principles.

Table 6.9: Review of CEOs performance

Frequenc

y Percent

Valid

Percent

Cumulative

Percent

Vali

d

Strongly

Disagree15 21.4 21.4 21.4

Disagree 13 18.6 18.6 40.0

Not sure 7 10.0 10.0 50.0

Agree 35 50.0 50.0 100.0

Total 70 100.0 100.0

Source: Primary data

Findings in table 6.9 above show that 42(60%) of the total

respondents were in agreement that the performance of CEOs is

reviewed in accordance with the set procedures. This means that117

CEOs are reviewed to promote better board and CEO relations which

results into appropriate and productive collaboration; setting an

example of accountability for the company as a whole signaling

that performance management is a core culture of the

organisation. However, 28(40%) of the respondents were in

disagreement. This implies that CEO performance sometimes is not

reviewed according to set procedures. This has limited the BOD to

have greater objectivity about CEO remuneration. Therefore, CEO

performance evaluation process should be built around a number of

leading practice principles.

Testing Hypothesis

‘There is significant relationship between the role of Board of

Directors and Corporate Financial Performance at Kaderes Peasants

Development Company Limited. The hypothesis was tested with a

multiple regression analysis;

The multiple regression model with all the three independents

variables produced R² = 0.988, F=1764.878, p < .0000. As can be

seen in Table 6.10, the availability of financial resources,

[β= .548, t-statistic = 3.521, p<0.001] and budget formulation,

118

approval and monitoring [β= .0674, t-statistic =.3.684, p<0.000]

had positive regression weights, indicating that budget

formulation, approval and monitoring on these scales have higher

ability of ensuring effective corporate financial performance in

Kaderes Peasant Development Company Limited after controlling

other variables in the model and selection, appointment and

review of the company’s CEO performance scale weight was

significant [β= 971, t-statistic = 6.080, p<0.000] indicating

that proper selecting, appointing and review CEO performance

enhance corporate finance performance of Kaderes Peasants

Development Company Limited.

119

Table 6.10: Coefficients

Model

Unstandardized

Coefficients

Standardize

d

Coefficient

s

T Sig.B

Std.

Error Beta

1 (Constant) .350 .336 3.930 .000

Financial

resources

.548 .139 .445 3.521 .001

Budget

formulation

.674 .183 .603 3.684 .000

Appointment of

CEO

.971 .160 .827 6.080 .000

R=0.994, R Square=0.988, Adjusted R Square=0.987, F=1764.878

a. Dependent Variable: Financial performance

120

CHAPTER SEVEN

WAYS AND MEANS OF IMPROVING THE ROLE OF BOARD OF

DIRECTORS IN CORPORATE FINANCIAL PERFORMANCE

Introduction

This chapter presents ways and means of improving the role of

Board of Directors in corporate financial performance of private

limited companies.

Availability of financial Resources

In line with Cadburys (1992) argument that cash has advantages

over credit in all economic conditions, and that a large cash

reserve could generate enough interest income to add to the

121

business' profit margin. Kaderes Peasants Development Company

should ensure the same. He further explains that a lack of

financial resources can cause initiatives to fail and sometimes

end up doing more harm than good. Make sure you obtain management

commitment from the outset and secure adequate resources.

Otherwise you should reconsider embarking on the action.

Resources should not be allocated as the cost of a once-off

campaign. Whilst these have an immediate effect it is usually

short-lived and can cause apathy along the lines of "what's the

point? We do it for a week then that's it for another year!" The

idea is to invest in an on-going behavioural change programme

that will become second nature.

In line with Leblancs (2003) argument that corporate governance

is the way in which organisations are directed, controlled and

led, Kaderes Peasants Development Company needs to follow his

suggestion in order to ensure good financial performance. It

defines relationships and the distribution of rights and

122

responsibilities among those who work with and in the

organisation, determines the rules and procedures through which

the organisation’s objectives are set, and provides the means of

attaining those objectives and monitoring performance.

Importantly, it defines where accountability lies throughout the

organisation.

Budget formulation, approval and monitoring

Considering Greg Harrisons (2003) advice that top management

looks at the consolidated budget and decides whether the revenue

and profit forecasts are in line with the goals they set for the

upcoming year, Kaderes Peasants should adopt the same idea to

improve on its financial performance. If projected profit is

below what they expected, the company either needs to determine

ways to generate additional revenues or make spending cuts to

improve the bottom line profit. The analysis provided by the

finance department is extremely useful in helping them identify

the areas that need further explanation from the divisional

managers or expenses that just seem too high and can be cut.

123

The advice of Demaetz and Lenn (1985) that top management has to

weigh the consequences of major budget cuts should be adopted by

Kaderes Peasants Development Company for better financial

performance. Cutting marketing expenditures for example can have

an adverse effect on future revenues. Top management has the

difficult task of making sure each department has the resources

it needs to function effectively while keeping total expenses low

enough that the company can maintain profitability.

In line with what Hyder and Miller (1986) suggest that internal

reporting processes follow the monthly financial close and

typically involve the finance area preparing or releasing details

of actual results against budget to line management for

evaluation and explanation, Kaderes Peasants development should

do the same for better financial management. Results of this

process are summarized and provided to senior management to

assist decision-making at the organisation level, and to the

Department of Finance and Deregulation to enable whole of

organization reporting. It is important that results of senior

124

management’s review and analysis of budget performance are

communicated to relevant operational managers.

Nicholson (2010) in his book titled “improving efficiency and

performance” clearly states that effective monitoring of budget

performance requires that managers are provided with relevant,

timely and accurate information appropriate to their level of

responsibility. It also requires managers to provide clear and

consistent feedback in a timely manner about underlying causes

and effects of budget variations, as well as planned actions to

manage variations for which they are accountable.

Kaderes Peasants Development Company should consider the views

put forward by Philip Young (2003) who reported that the

effectiveness of internal financial reporting is likely to be

enhanced when reports are prepared for each level of budget-

accountability and summarized appropriately for each level of

management. When output and organisational accountabilities

differ (for example, where a manager has both branch and output

responsibilities), budget-to-actual financial reports should be

125

designed to enable the assessment of budget accuracy against both

accountabilities.

The ideas of Herman (2000) who stated that reviewing actual

results against budget estimates on a regular basis monthly for

most organisations using a process that is understood across the

organisation is critical to effective monitoring and reporting of

budget performance should be adopted by Kaderes Peasants

development company. Careful design of financial reports is

fundamental to effective review and analysis of budget versus

actual information. For example, financial reports should be

easily understood, user-friendly and relevant. Better practice

organizations provide managers with details of actual results

against budgets within three days of the close of each period.

Standardising reporting across the organisation is ideal and is

made easier when managers source actual and budget data directly

from the same financial system.

126

Selection, Appointment and Review of the Company’s CEO

performance

Baxt (2002) clearly explained that an appointment of directors is

the ultimate control as to the composition of the board of

directors’ rests with the shareholders, who can always appoint,

and more importantly, sometimes dismiss a director, the

shareholders can also fix the minimum and maximum number of

directors. However, the board can usually appoint (but not

dismiss) a director to his office as well. A director may be

dismissed from office by a majority vote of the shareholders,

provided that a special procedure is followed. The procedure is

complex, and legal advice will always be required.

Baxt (2002) further explains that recruiting, supervising,

retaining, evaluating and compensating the manager. Recruiting,

supervising, retaining, evaluating and compensating the CEO or

general manager are probably the most important functions of the

board of directors. Value-added business boards need to

aggressively search for the best possible candidate for this

position.  Actively searching within your industry can lead to

the identification of very capable people. Don’t fall into the127

trap of hiring someone to manage the business because he/she is

out of work and needs a job. Another major error of value-added

businesses is under-compensating the manager. Managerial

compensation can provide a good financial payoff in terms of

attracting top candidates who will bring financial success to the

value-added business.

Demaetz (2005) argues that the Board is responsible for policy

determination, goal-setting, financial solvency, helping in the

development of financial support for programs, and the overall

success of the organization. The Board has delegated the

responsibility for implementation of policy to the chief

executive officer (CEO), on whom it must rely for information and

assistance in the development of policy. The Board accomplishes

the aims of the organization through staff and standing and

special committees, advisory councils and task forces. The BODs

acts as the official spokesperson for the organization on

relevant substantive and policy matters.

All Board members, officers, and staff work closely and

coordinate activities, always bearing in mind that they have a128

common commitment to achieving the goals of the organization of

which they are a part. Accordingly, Board members approach policy

matters from a perspective of what is in the best interest of the

overall organization rather than from a single perspective. It is

expected that Board members will support organization products

and services.

There should be no ambiguity between the roles and

responsibilities of the CEO with the position of the elected

President, and the Board as a whole should provide assistance

when Board members overstep prerogatives or misunderstand their

roles.

Support of the chief executive is the function of the entire

Board. Responsibilities of the Board include preparation of a

clear position description that outlines the responsibilities of

the Chief Executive Officer and a periodic systematic and fair

evaluation to strengthen performance. The company delegates the

responsibility for CEO evaluation to the Executive Committee.

129

The annual goals and objectives should be mutually discussed and

agreed upon and should serve as the basis for performance

evaluations. The Executive Committee and chief executive should

agree on the process of formal performance reviews. The primary

purpose of performance evaluations is to help the CEO perform

more effectively. Compensation increases and contract renewal

decisions should not be the primary purpose for conducting the

evaluation. The Executive Committee also makes recommendations

for compensation increases and contract renewal to the company.

The Company’s business is managed under the direction of the

Board of Directors. The Board delegates to the Chief Executive

Officer, and through that individual to other senior management,

the authority and responsibility for managing the Company’s

business. The Board’s role is to oversee the management and

governance of the Company and to monitor senior management’s

performance.

The transition from one CEO to another is a critical moment in a

company’s history. A smooth transition is essential to maintain

the confidence of investors, business partners, customer and

130

employees, and provides the incoming CEO with a solid platform

from which to move the company forward. A properly designed and

executed succession plan is at the center of any successful

transition.

Establish Board Ownership, Involvement and Oversight: More than at any other

time in history, stakeholders today expect a company’s board of

directors to have a command of the entire CEO succession process.

An explicit, ongoing program for managing this critical

responsibility should be chartered into the bylaws with a board

committee given explicit oversight duties. Care must be taken to

ensure that the directors do not assign this duty to a sole

individual or entity, whether it is the CEO, the chairman or a

search firm. The real current of understanding must run more

deeply than simply acknowledging who owns the process and why. It

comes from knowing how to best navigate the interpersonal

dynamics between the board and the CEO and among the directors

themselves.

Hilton (2000) states that CEO should set succession Time Frames;

Boards of directors must ensure that the companies they serve

131

have the ability to sustain excellence in CEO leadership by

ensuring a seamless transfer from one leader to the next. Given

the complexity of the role of the CEO, comprehensive preparation

of internal candidates should begin at least five years in

advance of an anticipated transition. A succession conceived and

completed in too short a time does not allow for a change of

direction or recovery from mistakes. For this reason, CEO

succession planning must begin immediately following the

installment of a new CEO. The planning must be a constant,

ongoing process that is managed as closely and attentively as any

of the company’s critical business issues.

Goshi (2002) in his book titled “Board Structure, Executive

Compensation and Firm Performance” states that several timing

aspects must be considered: the expected departure date of the

incumbent CEO; the time it might take to develop internal talent

for the role; whether (and how long) the outgoing CEO should

remain on the board; when to involve a search firm; and the time

of the transition from one CEO to the next. Since boards

generally meet only a few times a year, it may be helpful to

132

think of a succession process in terms of the number of board

meetings until the expected transition rather than in terms of

months or years.

Conger (2008) argues that CEO should prepare for emergencies; an

emergency succession plan ensures the continuous coverage of

executive duties and safeguards the interests of the company’s

stakeholders, reputation and value-creating activities. It also

provides guidelines for the board when it must appoint an interim

CEO. Yet, 40 percent of the directors we surveyed claim that they

are not prepared for an emergency succession in the event of a

sudden, unexpected or unplanned departure of their company’s top

leader.

An absence of leadership is, among other things, an embarrassing

indication of poor board governance. Moreover, it has an

immediately damaging effect on the company’s market position and

share value. Boards never know when they may have to implement an

emergency CEO succession plan. For this reason, boards should

always be thinking about a succession plan.

133

When a company is blindsided by the sudden departure (or loss due

to tragic circumstances) of its CEO, boards must react

immediately, though calmly and decisively. They must assure the

public, customers and employees that new leadership will soon be

in place, either permanently or on an interim basis. A good plan

considers multiple contingencies, looks at the top three levels,

includes a communication plan and process steps.

Corporate Financial Performance

Corporate financial performance is a subjective measure of how

well a firm can use assets from its primary mode of business and

generate revenues. This term is also used as a general measure of

a firm's overall financial health over a given period of time,

and can be used to compare similar firms across the same industry

or to compare industries or sectors in aggregation. There are

many different ways to measure financial performance, but all

measures should be taken in aggregation. Line items such as

revenue from operations, operating income or cash flow from

operations can be used, as well as total unit sales. Furthermore,

the analyst or investor may wish to look deeper into financial

134

statements and seek out margin growth rates or any declining

debt.

135

CHAPTER EIGHT

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

Introduction

This chapter presents the summary of findings from the field,

basing on the study objectives; it also presents the conclusion

and recommendations to improve the role of Board of Directors to

enhance corporate financial performance in private limited

companies.

Summary of findings

The study focused on the role of Board of Directors and corporate

financial performance in Kaderes Peasants Development Company

Limited, a descriptive study design was used and both qualitative

and quantitative techniques were used. The findings from the

study were as follows:

Findings on how Board of Directors ensure availability of

financial resources in Kaderes Peasants Development Company

Limited.

The study reveals that Board of directors was in- charge to

ensure availability of financial resources in Kaderes Peasants

136

Development Company Limited. It was revealed that there is money

available to a company for spending in the form of cash, liquid

securities and credit lines, these findings were discussed in

table 4.5 and it was found that the company has to improve its

income sources. Thus, a company before going into business, an

entrepreneur needs to secure sufficient financial resources in

order to be able to operate efficiently and sufficiently well to

promote company success.

Findings reveals that Kaderes Peasants Development Company

Limited still has diminutive sources of generating income for its

operations; this has resulted into setbacks in improving

company’s and stakeholders’ objectives and goals, the findings of

which were discussed in table 4.9 where 82.9% of the total

respondents disagreed. Thus, adequate financial resources must be

allocated by top management to ensure that company plan is

implemented effectively. Financial resources need to be

identified and reviewed regularly in each area where company

objectives and targets are to be achieved.

137

Findings on how Board of Directors carry out formulation,

approval and monitoring of annual budgets in Kaderes Peasants

Development Company Limited.

The findings from the study indicate that annual budget is any

budget that is prepared for a 12-month period in Kaderes Peasants

Development Company Limited. Annual budget outlines both the

income and expenditures that are expected to be received and paid

over the coming year. Findings reveal that annual budgets help

the company to plan for the upcoming year and make the necessary

adjustments in cash flow to cover expenses. Annual budgets have

helped organizations to accurately project the future cash flows

and effectively manage the funds; these findings were discussed

in table 5.1. The Board of Directors implements budgets and

present it to the Executive Officers for review and approval.

Findings in table 6.3 indicate that 61.4% of the respondents were

in agreement that departmental budgets are regularly prepared in

Kaderes Peasants Development Company Limited, there is regular

departmental budget projecting the income and expenses of a

specific department in order to achieve its financial goals.

138

Thus, the departmental budget enables management to measure its

financial performance over time.

Findings on how Board of Directors selects, appoint, and review

the performance of the company CEOs in Kaderes Peasants

Development Company Limited.

Findings reveal that the Board of Directors select, appoint and

review the performance of the Company CEOS, the Board has the

responsibility to undertake a carefully planned search process

when the position of CEO is vacant. The responsibility of

selecting the chief executive officer has the single greatest

impact on the organization’s development and effectiveness,

Findings in table 6.1 above indicates 67.1% of the respondents

agreed that Kaderes Peasants Development Company has proper

selection of CEOs by the Board.

Study finding reveals that there is proper appointment of CEO at

Kaderes Peasant Development Company, there are presence of

correct processes followed so that applicant is given every

opportunity to put the appropriate information forward, the Board

of Directors chooses the right person suited to the position,

these findings were discussed in table 6.4, the BODs make a

139

decision to appoint CEO until all available information has been

considered.

Conclusion

The study was conducted at the Kaderes Peasants Development

Company Limited and examined how the Board of Directors enhances

corporate financial performance in private limited companies; as

a result, the following conclusion was drawn:

Availability of financial resources

It was found out that even though the Board of Directors ensures

that financial resources are available in the company, the

findings reveal that are still low. The company still has

miniature sources of generating income for its operations; this

has resulted into setbacks in improving company’s and

stakeholders’ objectives and goals. Thus, adequate financial

resources must be allocated by top management to ensure that

company plan is implemented effectively. Financial resources need

to be identified and reviewed regularly in each area where

company objectives and targets are to be achieved.

140

Budget formulation, approval and monitoring

Most figures incorporated in the budget (s) are not realistic;

there was an indication that executive officers exaggerate

figures when formulating budget (s) with an ambition of

embezzling funds and assets of the company, Board of Directors

and stakeholders have to prevent fund malpractice when

implementing annual budgets to enhance financial performance in

all departments of the company.

Selection, appointment and review of the CEO performance

The Board of Directors are neglect to conduct constructive and

timely evaluations of CEO performance, there is still a lack of

improvement focus from management and missed opportunities to

identify how the CEO can effectively use their skills and

expertise in achieving organisational goals Ideally, performance

review of the CEO should aim to be a process that contains

formative aspects that result in the ongoing provision of support

for the CEO and fosters the development of a collaborative

relationship between the Board and the CEO.

Recommendations

141

Board of Directors:

Since the Board of Directors are the major stakeholders in the

activities of the Company, they should ensure regular monitoring

of the financial resources, budget, and appointing effective CEO

to ensure that the activities concerned with corporate financial

performance from the company activities are remitted in a timely

manner to enable planning and implementation of service delivery.

Audits

Regular checks in the department’s financial management system

should be done to ensure that expenditures are backed with

supportive evidence of vouchers and receipts of payments

attached, and to ensure that there are proper internal controls

that control misuse of revenues collected by the department.

Staff

The company members always believed that the entire board should

be entrusted with full accountability for CEO succession

planning. Over the years, member have to discover that greater

success in succession is dependent upon the presence of a lead

director who personally orchestrates the way in which board

142

ownership for this process is defined and managed, in partnership

with the CEO.

Areas of further research

The study focused on Board of Directors functions and financial

Performance of Kaderes peasants Development Company Limited in

Kagera, Tanzania. Therefore the future research should be

conducted on how financial transparency and accountability has

ensured performance of both private and public sectors in East

African Community.

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148

APPENDIX 1

SELF ADMINISTERED QUESTIONNAIRE (SAQ)I am Kamana Julius Jastine, a student of Nkumba University

carrying out research about the role of Board of Directors in

Corporate financial performance of private limited companies,

using Kaderes Peasants Development Company limited as a case

study. You have been selected as one of the respondents and I am

kindly requesting you for your responses through this

questionnaire. This information is purely for academic purpose

though recommendations there from may be beneficial to the

industry. Your responses will be treated with utmost

confidentiality.

Thank you for your cooperation

SECTION A: BACKGROUND INFORMATION

Please tick in the appropriate box or in the line space provided

1. Sex

Male Female

2. Age

20-30 years 31-40 years 41-50 years 51-70 years

above 70 years

3. Highest level of education so far attained

Certificate

149

Diploma level

Under graduate degree

Others (please specify)……………………………………………………………

4. Position of respondent

Members of Board of Directors

Managerial staff

Senior staff

Junior staff

Other please specify…………………………………….

Read the following statements in section B C D and E below and indicate your level of

agreement by ticking one of the given statements. Please note that:

SD-Strongly disagree, D-Disagree, N-Not sure, A-Agree, and SA-Strongly agree.

SECTION B: AVAILABILITY OF FINANCIAL RESOURCES

1. The roles and duties of Board of directors are clearly stated

SD D N

A SA

150

2. The Board size is adequate for the company

SD D N

A SA

3. BODs act responsibly in the best interest of the company and

its shareholders

SD D N

A SA

4. BODs apply corporate governance principles in performing their

duties

SD D N

A SA

5. BODs ensure that financial resources are available in the

company

SD D N

A SA

6. . BODs effectively manage the organization’s financial

resources

151

SD D N

A SA

7. BODs exercise all the powers of the company to acquire fundsfor the company

SD D N

A SA

8. . Financial resources are always available in the company

SD D N

A SA

9. Financial resources are always adequate in the company

SD D N

A SA

10. Financial resources are always availed in time.

SD D N

A SA

152

SECTION C: BUDGET FORMULATION, APPROVAL, AND MONITORING

11. Annual budgets are properly formulated

SD D N

A SA

12. Annual budgets formulated are based on the BODs overall

goals/objectives

SD D N

A

13. Departmental budgets are regularly prepared.

SD D N

A SA

14. Previous year’s annual budget performance reports are usedfor future planning

SD D N

A SA

15. Figures incorporated in the budget(s) are realistic

SD D N

A SA

16. Annual budgets are adequately approved by the Board.

SD D N

A SA

153

17. The board approves budgets within the time frame set by the

company

SD D N

A SA

18. Proper procedures of annual budget approval are followed

SD D N

A SA

20.There is proper monitoring of annual budgets by the Board

SD D N

A SA

21.Annual budget monitoring reports are regularly prepared

SD D N

A SA

SECTION D: SELECTION, APPOINTMENT AND REVIEW OF THE

COMPANY’S CEO PERFORMANCE:

22. There is proper selection of CEOs by the Board.

SD D N

A SA

23. The CEOs are adequately qualified

154

SD D N

A SA

24. CEOs are selected according to the set procedures

SD D N

A SA

25. There is proper appointment of CEOs of the company.

SD D N

A SA

26. The CEOs are adequately appointed

SD D N

A SA

27. CEOs are appointed according to the set procedures

SD D N

A SA

28. The CEOs are regularly reviewed

SD D N

A SA

29. The Board of directors adequately reviewed the performance

of CEOs.

155

SD D N

A SA

30. The performance of CEOs is reviewed in accordance with the

set procedures.

SD D N

A SA

31. What do you think are some of the challenges facing corporate financial performance of the company?

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

…………………………………

32. Suggest some of the solutions the above challenges of the company

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

……………………………………………………………………………………………………………………………………………………………………………

…………………………………

156

Thank you for your cooperation

157

APPENDIX B

INTERVIEW GUIDE

1. What is corporate governance?

2. Do you have an appropriate corporate governance policy

3. How does the board of directors ensure that financial resources

are available?

4. How are annual budgets approved?

5. How are annual budgets formulated?

6. Why is the performance evaluation of CEO essential? How is it

done in this company?

7. How do the BODs in this company conduct CEO selection, support

and evaluation?

8. How does your organization measure financial performance?

9. BODs have a pivotal role in the financial performance of the

company. Do you agree? If yes, what role does it play to ensure

this is achieved?

10. What are the achievements and failures of your organizations

BODs?

158

11. How does the Board ensure that management makes effective

decisions in an efficient and timely manner?

12. How does the Board maintain an effective relationship with

its shareholders and creditors?

13. What parameters would you set to gauge the effectiveness of

your Board?

14. How does the board evaluate your company’s CEO strengths,

weaknesses, objectives, personal plans and performance?

15. How does budgeting help enhance organizational objectives

attainment?

16. How does the board carry out its financing role to the

organization?

17. How does the board carry out its accountability role? Does

the reporting provide the company with sufficient information to

assess the impact and effectiveness of strategies employed by the

board?

18. What actions has the Board been taking in case deviation

from plans is encountered?

159

Thank you

160

APPENDIX III

INFERENTIAL STATISTICS

Correlations

1 .988** .983** .963**.000 .000 .000

70 70 70 70.988** 1 .990** .981**.000 .000 .000

70 70 70 70.983** .990** 1 .985**.000 .000 .000

70 70 70 70.963** .981** .985** 1.000 .000 .000

70 70 70 70

Pearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)NPearson CorrelationSig. (2-tailed)N

financialresources

BudgetFormulation

AppointmentofCEO

financialPerformance

financialresources

BudgetFormulation

AppointmentofCEO

financialPerformance

Correlation is significant at the 0.01 level (2-tailed).**.

Model Summary

.988a .977 .976 .21191Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), AppointmentofCEO,financialresources, BudgetFormulation

a.

ANOVAb

123.522 3 41.174 916.893 .000a2.964 66 .045

126.486 69

RegressionResidualTotal

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), AppointmentofCEO, financialresources, BudgetFormulationa. Dependent Variable: financialPerformanceb.

161

Coefficientsa

Model

Unstandardized Coefficients

Standardized Coefficients

t Sig.BStd. Error Beta

1 (Constant) .350 .336 3.930 .000Financial resources

.548 .139 .445 3.521 .001

Budget formulation

.674 .183 .603 3.684 .000

Appointment of CEO

.971 .160 .827 6.080 .000

a. Dependent Variable: Financial performance

Hypothesis 1

Model Summary

Model R R SquareAdjusted RSquare

Std. Errorof theEstimate

1 .991(a) .981 .980 .17233a Predictors: (Constant), financialPerformance, BudgetFormulation, AppointmentofCEO

162

ANOVAb

103.031 3 34.344 1156.405 .000a1.960 66 .030

104.991 69

RegressionResidualTotal

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), financialPerformance, BudgetFormulation,AppointmentofCEO

a.

Dependent Variable: financialresourcesb.

Coefficientsa

-.409 .063 -6.515 .000.867 .124 .851 7.005 .000.525 .149 .491 3.530 .001

-.323 .092 -.355 -3.521 .001

(Constant)BudgetFormulationAppointmentofCEOfinancialPerformance

Model1

B Std. Error

UnstandardizedCoefficients

Beta

StandardizedCoefficients

t Sig.

Dependent Variable: financialresourcesa.

Hypothesis Two

Model Summary

.994a .989 .988 .12984Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), financialPerformance,financialresources, AppointmentofCEO

a.

163

ANOVAb

99.997 3 33.332 1977.095 .000a1.113 66 .017

101.110 69

RegressionResidualTotal

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), financialPerformance, financialresources,AppointmentofCEO

a.

Dependent Variable: BudgetFormulationb.

Coefficientsa

.223 .054 4.138 .000

.492 .070 .501 7.005 .000

.229 .119 .218 1.927 .058

.253 .069 .283 3.684 .000

(Constant)financialresourcesAppointmentofCEOfinancialPerformance

Model1

B Std. Error

UnstandardizedCoefficients

Beta

StandardizedCoefficients

t Sig.

Dependent Variable: BudgetFormulationa.

Hypothesis 3

Model Summary

.994a .988 .987 .13072Model1

R R SquareAdjustedR Square

Std. Error ofthe Estimate

Predictors: (Constant), financialPerformance,financialresources, BudgetFormulation

a.

ANOVAb

90.469 3 30.156 1764.878 .000a1.128 66 .017

91.597 69

RegressionResidualTotal

Model1

Sum ofSquares df Mean Square F Sig.

Predictors: (Constant), financialPerformance, financialresources,BudgetFormulation

a.

Dependent Variable: AppointmentofCEOb.

164

Coefficientsa

.205 .056 3.693 .000

.302 .086 .324 3.530 .001

.232 .121 .244 1.927 .058

.370 .061 .434 6.080 .000

(Constant)financialresourcesBudgetFormulationfinancialPerformance

Model1

B Std. Error

UnstandardizedCoefficients

Beta

StandardizedCoefficients

t Sig.

Dependent Variable: AppointmentofCEOa.

APPENDIX IV

FREQUENCY TABLES

SECTION A: BIO DATA OF RESPONDENTS

Sex

Frequency PercentValidPercent

CumulativePercent

Valid

Male 52 74.3 74.3 74.3

Female 18 25.7 25.7 100.0 Total 70 100.0 100.0

Age165

Frequenc

y PercentValid

PercentCumulativePercent

Valid

20 - 30 years 24 34.3 34.3 34.3

31 - 40 years 28 40.0 40.0 74.3

41 - 50 years 9 12.9 12.9 87.1

51 - 70 years 9 12.9 12.9 100.0

Total 70 100.0 100.0

Highest level of education attained

Frequenc

y PercentValid

PercentCumulativePercent

Valid

Certificate 16 22.9 22.9 22.9

Diploma 28 40.0 40.0 62.9 Undergraduate

degree 21 30.0 30.0 92.9

Masters 5 7.1 7.1 100.0 Total 70 100.0 100.0

Position of respondent

Frequenc

yPercen

tValid

PercentCumulative Percent

Valid

Members of BoD 16 22.9 22.9 22.9

Managerial staff 26 37.1 37.1 60.0

Senior Staff 18 25.7 25.7 85.7 Junior staff 10 14.3 14.3 100.0

166

Total 70 100.0 100.0

SECTION B: AVAILABITY OF FINANCIAL RESOURCES

The roles and duties of Board of Directors are clearly stated

Frequenc

y PercentValid

PercentCumulativePercent

Valid Strongly Disagree 8 11.4 11.4 11.4

Disagree 10 14.3 14.3 25.7 Agree 40 57.1 57.1 82.9 Strongly Agree 12 17.1 17.1 100.0 Total 70 100.0 100.0

The Board size is adequate for the company

Frequenc

y PercentValid

PercentCumulativePercent

Valid Strongly Disagree 11 15.7 15.7 15.7

Disagree 11 15.7 15.7 31.4 Not sure 7 10.0 10.0 41.4 Agree 32 45.7 45.7 87.1 Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

BODs act responsibly in the best interest of the company and its shareholders

Frequency PercentValid

PercentCumulativePercent

Valid Strongly 14 20.0 20.0 20.0167

Disagree Disagree 17 24.3 24.3 44.3 Agree 31 44.3 44.3 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

BODs apply corporate governance principles in performing their duties

Frequency PercentValidPercent

CumulativePercent

Valid Strongly Disagree 11 15.7 15.7 15.7

Disagree 10 14.3 14.3 30.0 Not sure 7 10.0 10.0 40.0 Agree 31 44.3 44.3 84.3 Strongly Agree 11 15.7 15.7 100.0 Total 70 100.0 100.0

BODs ensure that financial resources are available in the company

Frequency PercentValid

PercentCumulativePercent

Valid

Strongly Disagree 17 24.3 24.3 24.3

Disagree 17 24.3 24.3 48.6 Agree 24 34.3 34.3 82.9 Strongly Agree 12 17.1 17.1 100.0 Total 70 100.0 100.0

168

BODs effectively manage the organization's financial resources

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 13 18.6 18.6 18.6

Disagree 17 24.3 24.3 42.9 Not sure 5 7.1 7.1 50.0 Agree 30 42.9 42.9 92.9 Strongly Agree 5 7.1 7.1 100.0 Total 70 100.0 100.0

BODs exercise all the powers of the company to acquire funds

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 5 7.1 7.1 7.1

Disagree 5 7.1 7.1 14.3 Not sure 6 8.6 8.6 22.9 Agree 44 62.9 62.9 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0

Financial resources are always available in the company

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 26 37.1 37.1 37.1

Disagree 18 25.7 25.7 62.9 Not sure 10 14.3 14.3 77.1 Agree 9 12.9 12.9 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0

Financial resources are always adequate in the company

Frequenc Percen Valid Cumulativ

169

y t Percent e PercentValid

Strongly Disagree 19 27.1 27.1 27.1

Disagree 34 48.6 48.6 75.7 Not sure 5 7.1 7.1 82.9 Agree 2 2.9 2.9 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0

SECTION C: BUDGET FORMULATION, APPROVAL ANF MONITORING

Financial resources are always availed in time

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 22 31.4 31.4 31.4

Disagree 22 31.4 31.4 62.9 Agree 19 27.1 27.1 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0

Annual budgets are properly formulated

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 14 20.0 20.0 20.0

Disagree 17 24.3 24.3 44.3 Not sure 6 8.6 8.6 52.9 Agree 26 37.1 37.1 90.0 Strongly Agree 7 10.0 10.0 100.0 Total 70 100.0 100.0

Annual budgets formulated are based on the BODs overall goals orobjectives

Frequenc Percen Valid Cumulativ

170

y t Percent e PercentValid

Strongly Disagree 12 17.1 17.1 17.1

Disagree 10 14.3 14.3 31.4 Agree 37 52.9 52.9 84.3 Strongly Agree 11 15.7 15.7 100.0 Total 70 100.0 100.0

Departmental budgets are regularly prepared.

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 12 17.1 17.1 17.1

Disagree 15 21.4 21.4 38.6 Not sure 5 7.1 7.1 45.7 Agree 24 34.3 34.3 80.0 Strongly Agree 14 20.0 20.0 100.0 Total 70 100.0 100.0

Previous year’s annual budget performance reports are used for future planning

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 10 14.3 14.3 14.3

Disagree 7 10.0 10.0 24.3 Not sure 7 10.0 10.0 34.3 Agree 36 51.4 51.4 85.7 Strongly Agree 10 14.3 14.3 100.0 Total 70 100.0 100.0

Figures incorporated in the budgets (s) are realistic

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 26 37.1 37.1 37.1

171

Disagree 18 25.7 25.7 62.9 Not sure 6 8.6 8.6 71.4 Agree 11 15.7 15.7 87.1 Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

Annual budgets are adequately approved by the Board

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Agree 51 72.9 72.9 72.9

Strongly Agree 19 27.1 27.1 100.0 Total 70 100.0 100.0

The board approves budgets within the time frame set by thecompany

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 9 12.9 12.9 12.9

Disagree 9 12.9 12.9 25.7 Not sure 6 8.6 8.6 34.3 Agree 8 11.4 11.4 45.7 Strongly Agree 38 54.3 54.3 100.0 Total 70 100.0 100.0

172

Proper procedures of annual budget approval are followed

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 11 15.7 15.7 15.7

Disagree 10 14.3 14.3 30.0 Not sure 7 10.0 10.0 40.0 Agree 37 52.9 52.9 92.9 Strongly Agree 5 7.1 7.1 100.0 Total 70 100.0 100.0

There is proper monitoring of annual budgets by the board

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 13 18.6 18.6 18.6

Disagree 11 15.7 15.7 34.3 Not sure 4 5.7 5.7 40.0 Agree 33 47.1 47.1 87.1 Strongly Agree 9 12.9 12.9 100.0 Total 70 100.0 100.0

173

SECTION D: SELECTION, APPOINTMENT AND REVIEW OF THE COMPANY’S CEO PERFORMANCE

Annual budget monitoring reports are regularly prepared

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 13 18.6 18.6 18.6

Disagree 10 14.3 14.3 32.9 Not sure 6 8.6 8.6 41.4 Agree 33 47.1 47.1 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

There is proper selection of CEOs by the Board

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 9 12.9 12.9 12.9

Disagree 14 20.0 20.0 32.9 Not sure 6 8.6 8.6 41.4 Agree 38 54.3 54.3 95.7 Strongly Agree 3 4.3 4.3 100.0 Total 70 100.0 100.0

The CEOs are adequately qualified

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 6 8.6 8.6 8.6

Disagree 6 8.6 8.6 17.1 Not sure 2 2.9 2.9 20.0 Agree 52 74.3 74.3 94.3 Strongly Agree 4 5.7 5.7 100.0 Total 70 100.0 100.0

CEOs are selected according to the set procedures

Frequenc Percen Valid Cumulativ

174

y t Percent e PercentValid

Strongly Disagree 6 8.6 8.6 8.6

Disagree 4 5.7 5.7 14.3 Not sure 11 15.7 15.7 30.0 Agree 49 70.0 70.0 100.0 Total 70 100.0 100.0

There is proper appointment of CEOs of the company

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 15 21.4 21.4 21.4

Disagree 15 21.4 21.4 42.9 Not sure 5 7.1 7.1 50.0 Agree 19 27.1 27.1 77.1 Strongly Agree 16 22.9 22.9 100.0 Total 70 100.0 100.0

The CEOs are adequately appointed

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 16 22.9 22.9 22.9

Disagree 13 18.6 18.6 41.4 Not sure 8 11.4 11.4 52.9 Agree 25 35.7 35.7 88.6 Strongly Agree 8 11.4 11.4 100.0 Total 70 100.0 100.0

CEOs are appointed according to the set procedures

Frequenc

yPercen

tValidPercent

Cumulative Percent

Vali Strongly 9 12.9 12.9 12.9

175

d Disagree Disagree 8 11.4 11.4 24.3 Not sure 6 8.6 8.6 32.9 Agree 34 48.6 48.6 81.4 Strongly Agree 13 18.6 18.6 100.0 Total 70 100.0 100.0

The CEOs are regularly reviewed

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 25 35.7 35.7 35.7

Disagree 22 31.4 31.4 67.1 Not sure 8 11.4 11.4 78.6 Agree 15 21.4 21.4 100.0 Total 70 100.0 100.0

The BODs adequately reviewed the performance of CEOs

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 9 12.9 12.9 12.9

Disagree 6 8.6 8.6 21.4 Not sure 4 5.7 5.7 27.1 Agree 38 54.3 54.3 81.4 Strongly Agree 13 18.6 18.6 100.0 Total 70 100.0 100.0

The performance of CEOs is reviewed in accordance with the set procedures

Frequenc

yPercen

tValidPercent

Cumulative Percent

Valid

Strongly Disagree 15 21.4 21.4 21.4

176

Disagree 13 18.6 18.6 40.0 Not sure 7 10.0 10.0 50.0 Agree 35 50.0 50.0 100.0 Total 70 100.0 100.0

177