Frameworks Underpinning Corporate Governance: Evidence on Ugandan Perceptions

• Author: Simeon Wanyama,Christine Helliar,Bruce Burton
• DOI: http://doi.org/10.1111/j.1467-8683.2009.00730.x
• Date: 01 March 2009
• Published date: 01 March 2009

Frameworks Underpinning Corporate

Governance: Evidence on Ugandan Perceptions

Simeon Wanyama, Bruce Burton*, and Christine Helliar

ABSTRACT

Manuscript Type: Empirical

Research Question/Issue: This paper sets out to investigate perceptions about corporate governance practices in the

developing African nation of Uganda. The study employs interview and questionnaire analysis to examine the part played

by a range of factors in supporting effective governance.

Research Findings/Results: The f‌indings suggest thatpervasive corruption and weaknesses in underlying frameworks have

hampered attempts to improve practice. The results indicate that the mere emergence of detailed governance codes in

developing countries does not necessarily mean that de facto practices will improve.

Theoretical Implications: The results suggest that corporate governance standards in developing countries may appear on

paper to be broadly similar to those in developed countries. However, a widespread perception exists that Ugandan

frameworks are not yet strong enough to support what might normally be considered to be “good” practice. Sound

corporate governance is seen as being a multi-faceted notion, with a range of political and social frameworks requiring

strengthening before meaningful improvements can be made.

Practical Implications: The evidence indicates that attempts to improve governance standards in a particular nation require

more than the simple publication of codes of best practice. Root and branch changes in a wide-range of contextual factors,

including at political and cultural levels, are required to provide the conditions in which meaningful improvements in

corporate governance will occur.

Keywords: Corporate Governance, Africa, Business Ethics, Stakeholders, Government

INTRODUCTION

Professionals and academics have searched extensively

for explanations of recent large-scale f‌inancial failures.

Although most of this attention has been devoted to promi-

nent cases in the world’s richest nations, developing coun-

tries have not been immune from such diff‌iculties, with

Uganda alone experiencing four major bank failures in 1999

(Wanyama, Burton and Helliar, 2006). Clearly, poor corpo-

rate governance practices could be a cause of or a contribu-

tory factor to these scandals and governments and private

sector organizations in many countries have made efforts to

promote high standards of behavior. This renewed interest

in improving corporate behavior is ref‌lected in the emer-

gence of numerous governance guidelines and codes (see

Laing and Weir, 1999; Monks and Minow, 2004; Solomon,

2007). The particular importance of a robust corporate gov-

ernance regime in developing countries is evident in the fact

that several recent studies have suggested that a strong

system is necessary to encourage inward investment and

nourish long-term economic growth (Johnson, Boone,

Breach and Friedman, 2000; Lynham, Taylor, Dooley and

Naidoo, 2006; Visser, McIntosh and Middleton, 2006).

A recent analysis of Nigeria by Okike (2007:188) reports

that while efforts to improve governance standards in Africa

are “commendable,” endemic corruption still exists and any

improvements in practices will be dependent on strong

enforcement mechanisms; de jure codes of conduct alone

will not be suff‌icient to bring about necessary changes.

However, although the following sections of the present

study indicate an increased research focus on governance

issues in developing countries, this fundamental point – the

extent to which inadequate structures mean that detailed

rules in themselves will fail to make any substantive differ-

ence – has not featured to any meaningful degree in the

empirical work. It is this latter issue, and the lack of focus

thereon to date, that provides the motivation for this study’s

*Address for correspondence: Dr. Bruce Burton, School of Accounting & Finance,

University of Dundee, Dundee, DD1 4HN, UK. E-mail: b.m.burton@dundee.ac.uk

159

Corporate Governance: An International Review, 2009, 17(2): 159–175

© 2009 Blackwell Publishing Ltd

doi:10.1111/j.1467-8683.2009.00730.x

primary research question i.e., whether, in a developing

country where detailed governance rules have been intro-

duced, concerns about underlying frameworks and struc-

tures are suff‌icient to suggest that de facto governance

standards will not improve simply because new regulations

have come into force.

Using data collected from interviews and questionnaires

administered to a number of stakeholder groups in Uganda

– a developing country that has attempted to overhaul the

regulation of corporate governance – this study suggests that

the underlying political, economic, accounting, social, and

ethical frameworks are seen as having a major inf‌luence on

corporate behavior. Given weaknesses therein, the publica-

tion of guidelines alone will not signif‌icantly reduce the

extent of corporate abuses. The descriptive results are then

used as the basis for induction regarding a possible model of

governance practice determinants in developing countries.

This approach is common in studies in this area (see e.g.,

Klapper and Love, 2004; Boubakri, Cosset and Guedhami,

2005; Hamann, Kapleus, Mackenzie, Holleson and Sonnen-

berg, 2005). The choice of an African context ref‌lects the fact

that, as Visser et al. (2006:17) note, while “signif‌icant atten-

tion” has been given to the topic of governance by scholars

in recent years, work of this nature focusing on Africa has

been “scant” in comparison.

The paper is structured as follows. The next section pro-

vides detailed background about Uganda’s recent political

history and how this has shaped modern regulatory struc-

tures, as well as outlining why Uganda represents a suitable

context for an exploration of corporate governance in

developing countries. The third section outlines the various

frameworks underpinning the study before the fourth

section details the research methods employed. The

f‌ifth section discusses the empirical f‌indings while the f‌inal

section summarizes the results and offers some concluding

thoughts.

THE UGANDAN CONTEXT AND THE

FOCUS OF THE STUDY

Politics and Government

Uganda is a land-locked country located in the Eastern part

of Africa. The nation is surrounded by Kenya to the east,

Tanzania to the south, Sudan to the north, the Democratic

Republic of Congo to the west, and Rwanda to the

southwest.

Uganda has had a turbulent political history since gaining

independence from colonial rule in 1962. At the time of

independence, Uganda had a federal system of government;

however, in 1966 Milton Obote, the then Prime Minister,

forcefully abolished all kingdoms and created the Republic

of Uganda. Idi Amin eventually overthrew Obote in a mili-

tary coup on January 25, 1971, and ruled Uganda until he

himself was overthrown in April 1979. After the overthrow

of Amin there were successive short-lived governments led

by Professor Yusuf Lule (for 2 months), Godfrey Binaisa (11

months), and Paul Muwanga (4 months).

Obote was returned to power in 1980 following elections

and was sworn in as President for the second time on

December 11, 1980. He was subsequently overthrown for the

second time on July 27, 1985. Tito Okello was sworn in as

President, only to be forcefully removed from off‌ice on

January 26, 1986, by a group led by Yoweri Kaguta Musev-

eni. Museveni became President of Uganda and has been in

power since that time.

Uganda has a judicial system that is divided into: the

Supreme Court; the Court of Appeal; the High Court; the

Commercial Court; and the Magistrates Courts. Corpora-

tions and statutory entities are regulated and supervised by

a range of bodies. Private companies are regulated by the

Registrar General’s off‌ice (Companies Act, 1964). However,

other government agencies such as the Uganda Revenue

Authority, the National Environment Management Author-

ity, and the Institute of Certif‌ied Public Accountants of

Uganda (ICPAU) have an interest in the running of corpo-

rations in the form of regulatory and supervisory powers in

their respective areas of concern.

State-owned enterprises are regulated by the respective

ministries under which they operate as specif‌ied in the

respective Parliamentary Statutes and Acts that set up the

entities. The Registrar General has regulatory powers over

all corporations, whether private or public, unless specif‌i-

cally excluded from his jurisdiction. Other institutions that

are involved in monitoring private and state-owned enter-

prises include the off‌ice of the Auditor General, the Inspec-

tor General of Government (IGG), and the Ministry of Ethics

and Integrity.

Economy, Markets and Investment Environment

Uganda has been trying to market itself as a suitable desti-

nation for foreign direct investment, with a reasonable

measure of success, in the context of strong economic

growth and rapid expansion of the service sector (OECD,

2007). To this end the Uganda InvestmentAuthority was set

up by an Actof Parliament in 1991 to encourage and facilitate

investment in Uganda. Its stated mission is:

To market Uganda’s investment opportunities and to

ensure that Uganda becomes the best investment destina-

tion through provision of quick and quality facilitation

services to all prospective investors to the country.1

In addition to the Uganda Investment Authority, Uganda has

a Capital Markets Authority, which is responsible for regu-

lating capital markets in Uganda,plus the Uganda Securities

Exchange (USE), responsible for regulating the companies

listed on the Ugandan Stock Exchange and the Uganda

Manufacturers Association whose stated objective is to

“promote, protect and coordinate”industrialists in Uganda.2

Most Ugandan businesses are either sole-proprietorships

or family owned, while others are privately-owned.3Accord-

ing to the OECD (2007), in 2006 90 per cent of the country’s

non-farming workers were employed in “micro” and

“small” enterprises. However, two forms of limited liability

companies (private limited liability companies and public

limited liability companies) are also mandated in the 1964

Companies Act (as are partnerships, via the Partnership Act

of 1950). Most foreign investors setting up a business in

Uganda do so via the private liability route, although the law

specif‌ically recognizes “Foreign Branch” entities for f‌irms

160 CORPORATE GOVERNANCE

Volume 17 Number 2 March 2009 © 2009 Blackwell Publishing Ltd