Towards an Indirect Agency Theory

Forty years after development of the original agency theory by Jensen and Mecklin, firms have evolved and created convoluted structures in order to subsist the turbulent environment that the business world has become. Consequently, the 21st Century has seen emergence of corporates with webs of direct and indirect interests in form of ownership and other interests. This paper reviews the original agency theory, its consequent developments and the extent to which it applies to firms with indirect ownership. I use the case of collective investment schemes to demonstrate that the agency theory in its initial postulations explicates the agency problems in firms with direct ownership but fails to explain the agency intricacies in firms with indirect ownership and interests. As such I propose an indirect agency theory that provokes thought on the problems, entitlements and reactions of indirect stakeholders to corporate governance lapses

Code of Governance for Kenya’s Occupational Retirement Benefit Schemes

Empirical studies on governance recommend the need to develop codes of governance to guide managerial behaviour and enhance institutional management. In this vein, various codes of governance such as the Cadbury Code and the Kings Code have been developed to steer governance in the corporate world. On the other hand the Organisation for Economic Co-operation and Development (OECD) and International Organisation of Pension Supervisors (IOPS) have issued guidelines with regard to governance in the pension fund industry. This paper develops a code of governance for Kenyan retirement benefit schemes. Multiple approaches namely document review, interviews with regulators and service providers (fund managers, actuaries, custodians and administrators) and survey with trustees and members of retirement benefit schemes are used to draw inferences and develop the code. The study uses the population of service providers and a sample of 314 trustees and 1106 members. Qualitative data is transcribed and recorded in to coherent themes to address the study objective. Data reduction was carried out by use of Exploratory Factor Analysis (EFA) while factor extraction was done using the Maximum Likelihood approach available in SPSS 21. Principal Components Analysis (PCA) was used to extract maximum variance from the data set with each component thus reducing the large number of variables to in to smaller set of variables. The results yield eleven blocks that are used to build the code of governance. The blocks are;   compliance with regulatory framework, information control systems, decision taking, managing conflicts of interest, monitoring, oversight and performance management, documentation of trustee responsibilities, risk management, transparency and accountability, competence of trustees, trustees’ responsibilities to members and providing relevant information to members. Trustees are urged to use these blocks and the factors that loaded on them to construct customized code of governance for their retirement benefit schemes. Regulators are also urged to use the code while developing pension governance regulations. Keywords: code of governance, pension governance, retirement benefit schemes

Critical Success Factors for a Micro-Pension Plan: An Exploratory Study

A journal article by Dr. Amos Njuguna, the assistant Dean Chandaria School of Business in USIU - AfricaMicro-pension plans are meant to insulate low income earners against old-age poverty. The formulation of such plans requires a delicate balance between economic viability, generation of adequate returns and customized features for the participants. This study sought to determine the pragmatic models for implementation of micro-pension plans, regulatory issues surrounding their operations, challenges to implementation and the strategies that can address the challenges. The data, collected from 1083 informal sector participants, 30 Micro-finance institutions and 20 Savings and Credit Cooperative Societies in Kenya was analyzed by use of factor analysis and visual binary approaches. The study concludes that the ideal micro-pension scheme needs to address governance, administrative, design and efficiency issues to succeed and recommends a multi-model implementation of micro-pension plans in addition to a separate set of regulations to govern the micro-pension plans.Research was sponsored by the Retirement Benefits Authority in Kenya

An investigation of financial and operational efficiency of pension funds in Kenya

Pension funds are the principal sources of retirement income for millions of people in the world. Pension funds are also important contributors to the gross domestic product (GDP) of countries. This study focuses on pension funds in Kenya. Retirement income accounts for 68 percent of the total income of retirees in Kenya, while pension assets account for 30 percent of Kenya’s GDP. It is therefore important that pension funds be managed effectively, not only in Kenya, but also in other countries. The primary objective of the study is to investigate ways of enhancing pension fund efficiency by establishing the determinants of such efficiency. More specifically, the study explores the effect that the organisational culture, regulations, investment strategy, ethics, risk management, design, size and the age profile of members of pension funds exert on the efficiency of these funds. A sample of 749 pension funds was drawn from the Kenyan Retirement Benefits Authority (RBA) register. The sample selection was based on the criterion that these pension funds should have been in existence within the period 2001 to 2008. Seven hundred and forty-nine (749) questionnaires were mailed to the trustees of these pension funds. Three hundred and sixty-two (362) usable questionnaires were returned, which translated into a response rate of 48.3 per cent. Except for financial efficiency, self-constructed instruments based on secondary literature reviews were used to measure the variables in the hypothesised model to improve pension fund efficiency. Appropriate steps were taken to ensure the validity and reliability of these measuring instruments. The empirical results revealed that leadership, governance, regulations, design, membership age and size of funds had no significant influence on operational efficiency of these funds. The results further showed that the membership age, design, regulations and operational efficiency of pension funds exerted no significant influence on their financial efficiency. The results also revealed that the membership age, size and design of pension funds did not influence how these funds were led by their leadership. iv The empirical results however showed that smaller pension funds were perceived to exhibit better financial efficiency, while pension funds with membership aged 31 - 40 were perceived to be better governed compared to other age groups. Finally, in rigorous structural equation analyses, no significant relationships were found between fund regulations (independent variable), on the one hand, and fund governance and leadership (dependent variables), on the other hand. Use of simple linear regression however disclosed a significant positive relationship between the afore-mentioned independent variable and dependent variables

Competition In The Financial Services Sector: A Case Of Kenyan Annuities Market

A paper presented by Dr. Amos Njuguna During the First Annual Management Research Conference at USIU - Africa in 2014Competition in the financial services sector influences information, allocation and cost efficiency. The annuity market segment of insurance companies is particularly important as it is characterized by “entry and permanent lock in” of consumers to the firms thus creating permanent contractual claims. This study examines the annuity industry in Kenya using the Structure Conduct Performance (SCP) paradigm and sought to determine the market concentration, provide a behavioral explanation of how firms acquire and sustain market power and establish how the concentration affects conduct and performance of the annuity providers in Kenya. A mixed design is applied where secondary data is collected from the 8 firms offering annuity products in Kenya between 2009 and 2011. Focus group discussions are then conducted with key industry informants to explain the results. Market concentration is measured using the concentration ratio (C4) and the Herfindahl-Hirschman Index (HHI). A SCP model for the annuity market segment is then conceptualized. The findings point to a highly concentrated industry with HHI indices averaging 98% in the three years to 2011. Evidence generated shows that market power in the market is enabled by regulation, irreversible long term nature of the products, collusion between pension administrators and the players, lack of close substitutes to annuities and absence of differentiation – factors which have led to tendency for mergers and strategic partnerships, low returns for the annuitants, information asymmetry, low bargaining power of the consumers, diseconomies of scale and lack of innovation. The study recommends a raft of competition policy measures that include separation of annuity provision and pension administration duties, disclosure of critical information to regulators and consumers and the regulation of merger and acquisition transactions to minimize abuse of dominant positions by firms. These policies should be augmented by prudential regulations and credit rating for annuity providers

Determinants of Pension Governance: A Survey of Pension Plans in Kenya

A journal article by Dr. Amos Njuguna, the assistant Dean Chandaria School of Business in USIU - AfricaPension governance is acknowledged as a vital characteristic of a proficient private pension system as it determines the investment performance, operational efficiency and the security of pension benefits. Empirical literature shows that despite the legal and industry inventiveness, pension governance lapses continue across countries. This paper investigates the determinants of pension plan governance in Kenya and recommends measures that can strengthen it. The sample consists of 362 pension plans in Kenya. Statistical tests are conducted by use of Pearson correlations, regressions, Scheffé tests and Analyses of variance (ANOVA) to determine the effect that pension regulations, pension plan design, membership age, number of members in the pension plan and plan leadership, have on pension governance. Empirical results show that pension governance is influenced by pension regulations, leadership, and membership age. The pension plan design and number of members do not have significant influence on how the pension plans are governed

Strategies to Improve Pension Fund Efficiency in Kenya

A dissertation Submitted in fulfilment of the requirements for the degree of Doctor in Business Administration in the Faculty of Business and Economic Sciences of the Nelson Mandela Metropolitan University. Promoter: Prof CA ArnoldsPension funds are the principal sources of retirement income for millions of people in the world. Pension funds are also important contributors to the gross domestic product (GDP) of countries. This study focuses on pension funds in Kenya. Retirement income accounts for 68% of the total income of retirees in Kenya, while pension assets account for 30% of Kenya’s GDP. It is therefore important that pension funds be managed effectively, not only in Kenya, but also in other countries. The primary objective of the study is to investigate ways of enhancing pension fund efficiency by establishing the determinants of such efficiency. More specifically, the study explores the effect that the organisational culture, regulations, investment strategy, ethics, risk management, design, size and the age profile of members of pension funds exert on the efficiency of these funds. A sample of 749 pension funds was drawn from the Kenyan Retirement Benefits Authority (RBA) register. The sample selection was based on the criterion that these pension funds should have been in existence within the period 2001 to 2008. Seven hundred and forty-nine (749) questionnaires were mailed to the trustees of these pension funds. Three hundred and sixty-two (362) usable questionnaires were returned, which translated into a response rate of 48.3 per cent. Except for financial efficiency, self-constructed instruments based on secondary literature reviews were used to measure the variables in the hypothesised model to improve pension fund efficiency. Appropriate steps were taken to ensure the validity and reliability of these measuring instruments. The empirical results revealed that leadership, governance, regulations, design, membership age and size of funds had no significant influence on operational efficiency of these funds. The results further showed that the membership age, design, regulations and operational efficiency of pension funds exerted no significant influence on their financial efficiency. The results also revealed that the membership age, size and design of pension funds did not influence how these funds were led by their leadership. The empirical results however showed that smaller pension funds were perceived to exhibit better financial efficiency, while pension funds with membership aged 31 - 40 were perceived to be better governed compared to other age groups. Finally, in rigorous structural equation analyses, no significant relationships were found between fund regulations (independent variable), on the one hand, and fund governance and leadership (dependent variables), on the other hand. Use of simple linear regression however disclosed a significant positive relationship between the afore-mentioned independent variable and dependent variables

Mt Kenya Gardens: Risk Considerations in Business Financing

A case study done on Mt Kenya Gardens by Dr. Amos Njuguna, the assistant Dean Chandaria School of Business in USIU – Africa.As Gerald and Rosemary Muthomi held their quarterly meeting with Mr. Mutuku; their long serving marketing manager on 4th January 2001.Looking at market data for the previous quarter, they realized that the time had come to expand the business as demand for the previous quarter outweighed their capacity by 25%. From their vast experience in the horticultural industry, the couple had discerned that to increase capacity, they had to upgrade the technology used in the primary value addition process in addition to acquiring two distribution trucks; an investment that would cost them Sh. 20 million. The impasse however was the means to raising the funds as they had already overstretched their internal resources. Do we borrow the money from the bank or scout for a strategic equity partner? Rosemary asked Gerald as the meeting with Mr. Mutuku came to an end

Determinants of Pension Fund Efficiency in Kenya: An Exploratory Study

This paper investigates the determinants of the operational and financial efficiency of pension funds in Kenya. A sample of 362 pension schemes was drawn from the Kenyan Retirement Benefits Authority (RBA) register. The empirical results show that pension governance, leadership and regulations do not significantly influence the operational and financial efficiency of pension funds. The results do however reveal that pension regulations influence the leadership and governance practices of the pension schemes. Moreover, the schemes with more middle-aged members (31-40 years) are perceived to be better governed. Lastly, the results reveal fund size to be an important determinant of the financial efficiency of the pension funds