An analysis of group corporate governance functions in non-banking financial institutions: a case study of First Mutual Holdings ltd.

Abstract

The study is an analysis of group corporate governance in the non-banking financial services sector using a case study of First Mutual Holdings Ltd. For purposes of this research, a group of companies was defined as companies connected to each other through common shareholding, or where one company is a subsidiary of another. The intension was to establish the function of the Holding Company as a shareholder of the Subsidiaries and how in that capacity, it may ensure effective governance of its Subsidiaries. A review of contemporary literature revealed that there is little focus on group corporate governance hence a number of challenges as governance of group companies is by its nature multifaceted. This is in view of the fact that Holding Companies create Subsidiaries to achieve strategic objectives, hence the need to align Subsidiaries to the vision and goals of the Holding Company. However, from a legal perspective, Subsidiaries are separate legal entities and the Board of Directors of the Subsidiary has authority to manage the affairs of the Subsidiary. As such, establishing how best to balance this is key. An interpretivist paradigm was adopted due to the nature of the study and subsequently the study followed an inductive approach. Qualitative data was collected from 15 participants. All participants were from First Mutual Ltd group companies. The researcher also reviewed company documents such as Board Charters, Committee Terms of Reference, company policies as well as annual reports to add to the data. Content analysis was employed to analyse the data from which conclusions were made. The study showed that the functions of the Board of Directors of the Holding Company and the Subsidiaries are similar in terms of strategy formulation, monitoring, accountability and policy making hence a point of convergence. On the same token, a point of divergence was noted with regards to the extent and manner in which the Holdings and Subsidiary Boards performed these functions. A recommendation to come up with a group governance framework was made with the key issues for consideration highlighted in order to bridge the gap. The key recommendation being that that the Holding Company should provide direction on how the relationships and exercise of power within the group should be structured. The study therefore contributed to the existing literature by adding knowledge on striking a balance between treating group companies as separate legal entities and alignment of the corporate vision throughout the group hence the research objective was achieved