Social implications – The paper has demonstrated that lack of proper corporate governance
procedures and oversight could provide a recipe for criminal exploitation to perpetuate crimes such as
money laundering in a corporation. This could have far-reaching implications not only for individuals
corporations but also local communities in form of job losses), governments and markets.
Originality/value – The originality of this paper is manifested that there are no comparable studies
undertaken in its purview. It is, therefore, a must-read for both academic and policy purposes.
Keywords Corporate governance, Corporate failure, Money laundering
Paper type Research paper
1. What is corporate governance?
Corporate governance provides a framework for legitimate distribution of powers
across varied stakeholder constituencies in a corporation. The investor, otherwise
known as “the shareholder”, provides capital but does not take part in the day-to-day
management of the company. The executives are responsible for running the
corporation on behalf of the shareholders (investors), and the shareholders are
responsible for providing capital. In both cases, the purpose of this corporate
governance structure is to ensure that the two constituent parties are able to
complement each other in promoting corporate objectives without overlapping each
other’s distinctive roles. The survival of a corporation is dictated, in part, by either the
success or failure of its corporate governance procedures and their effectiveness. A
well-devised corporate governance framework should ensure that the board is not only
accountable to various stakeholder constituencies but also promotes transparency
through a proper disclosure and dissemination of information across various
stakeholder constituencies. For instance, if investors are not satised with internal
corporate governance mechanisms such as the company’s level of disclosure, they will
have misgivings about it and how it is managed. This could subsequently precipitate an
environment for investors to withdraw their capital otherwise known as capital ight.
Arguably, corporate governance mechanisms (depending on how effective they are)
have the potential to inuence the health and future survival of a corporation. The
effectiveness of corporate governance mechanisms is also of signicant importance in
enhancing the stability of nancial markets. For example, the East Asian nancial crisis
saw the economies of Thailand, Indonesia, South Korea, Malaysia and Philippines being
severely affected by the withdrawal of capital by investors after property assets
collapsed (Stigliz, 2002). Lack of proper corporate governance mechanisms was
responsible for the nancial institutions’ failure to withstand sudden changes in asset
portfolios in the above economies. It was evident that corporate governance systems of
the developing countries were weak largely due to corruption, in particular cronyism
and nepotism. In Uganda, for instance, top positions in the majority of corporations tend
to be given to people who have strong political connections in the ruling government.
This situation has also been prominent in Kenya and presumably replicated in other
countries across Africa as well. This begs the question whether “these people” are the
best qualied to ll the higher corporate positions they occupy or whether corruption
could have a hand in inuencing corporate failure in some countries?
To appraise the effect of corporate governance mechanisms in either facilitating the
success or failure of corporations, one needs to examine the process in which a
corporation is constituted. A corporation is constituted, by virtue of its Articles and
Memorandum of Association, to allow different constituent parties to complement each