Critical Perspectives on Accounting

Analysing corporate governance and accountability practices from an African neo-

patrimonialism perspective: Insights from Kenya
--Manuscript Draft--

Manuscript Number: YCPAC-D-18-00024R5

Article Type: SI: African Accounting

Keywords: corporate accountability; corporate governance; neo-patrimonialism; Africa, less

developed countries,

Corresponding Author: Subhan Ullah, PhD, CPA

University of Hull
Hull, East Yorkshire UNITED KINGDOM

First Author: Danson Kimani, PhD

Order of Authors: Danson Kimani, PhD

Subhan Ullah, PhD, CPA

Devendra Kodwani, PhD

Pervaiz Akhtar, PhD

Abstract: This paper examines corporate governance (CG) and corporate accountability
practices in the African context, by focusing on the case of Kenya. Our data comprises
a combination of 29 semi-structured interviews, field observations and archival
evidence. We reveal how western-originated CG and accountability reforms are
constrained or subverted by a vigorous neo-patrimonial regime. The Kenyan corporate
sector has well defined legal-rational structures, including an elaborate corporate
sector regulatory framework, professionals (i.e. accountants and auditors) and
corporate boards. In contrast, however, informal and patronage networks interfere with
the nomination and work of non-executive board members, thereby hindering the
possibility of an independent monitoring of executive management. A conflictual and
inadequately resourced regulatory framework plays a more symbolic than an effective
regulative role in enforcing CG and accountability practices. We also find a widespread
rent-seeking culture that significantly hinders the exercise of corporate accountability.
Furthermore, external auditor independence is problematic due to conflicts of interests
and the auditors’ dependence on advisory fees, thereby favouring a clientelist
association with auditee firms. Overall, our findings reveal that CG and accountability
practices, while ostensibly present in Kenya, are largely ineffective due to the influence
of neo-patrimonial realities on the mind-set and actions of corporate actors.

Response to Reviewers: Kindly refer to our attached response letter to the editor comments.

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Title Page (including Author Details)

Analysing corporate governance and accountability practices from an

African neo-patrimonialism perspective: Insights from Kenya

Dr Danson Kimani
Lecturer in Accounting
Essex Business School
University of Essex, United Kingdom

Dr Subhan Ullah*
Associate Professor in Accounting
Nottingham University Business School,
University of Nottingham, United Kingdom

Professor Devendra Kodwani

Open University Business School, Faculty of Business and Law
The Open University
United Kingdom

Professor Pervaiz Akhtar

University of Aberdeen Business School,
University of Aberdeen, UK

*Corresponding author:

Nottingham University Business School, University of Nottingham

Email: [Link]@[Link]
Manuscript (without Author Details) Click here to view linked References

Analysing corporate governance and accountability practices from an

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2 African neo-patrimonialism perspective: Insights from Kenya
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7 Abstract
8
9 This paper examines corporate governance (CG) and corporate accountability practices in the
10 African context, by focusing on the case of Kenya. Our data comprises a combination of 29
11
12 semi-structured interviews, field observations and archival evidence. We reveal how western-
13 originated CG and accountability reforms are constrained or subverted by a vigorous neo-
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15
patrimonial regime. The Kenyan corporate sector has well defined legal-rational structures,
16 including an elaborate corporate sector regulatory framework, professionals (i.e. accountants
17 and auditors) and corporate boards. In contrast, however, informal and patronage networks
18
19 interfere with the nomination and work of non-executive board members, thereby hindering
20 the possibility of an independent monitoring of executive management. A conflictual and
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22
inadequately resourced regulatory framework plays a more symbolic than an effective
23 regulative role in enforcing CG and accountability practices. We also find a widespread rent-
24 seeking culture that significantly hinders the exercise of corporate accountability.
25
26 Furthermore, external auditor independence is problematic due to conflicts of interests and
27 the auditors’ dependence on advisory fees, thereby favouring a clientelist association with
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29
auditee firms. Overall, our findings reveal that CG and accountability practices, while
30 ostensibly present in Kenya, are largely ineffective due to the influence of neo-patrimonial
31 realities on the mind-set and actions of corporate actors.
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38 Keywords: accounting; corporate governance; financial transparency; neo-patrimonialism;
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40 Africa, less developed countries
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 1. Introduction
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2 Over the last 20 years or so, many less developed countries (hereafter ‘LDCs’) have adopted
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4 western-originated corporate governance (CG) and corporate accountability reforms (e.g.
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(role of external auditing and International Financial Reporting Standards - IFRSs), with a
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7 view to enhance corporate sector efficiency and subsequently drive economic growth (Ntim,
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9 Opong, & Danbolt, 2012). These reforms have often been adopted at the behest of western
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11 advisors and international institutions such as the World Bank (Siddiqui, 2010; Alawattage,
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13 Alsaid, & Ali, 2017). Yet, evidence suggests that the enactment of these CG and
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15 accountability practices have hardly led to meaningful improvements (see, for example, Bakre
16 & Lauwo, 2016; Nakpodia & Adegbite, 2018). Some of the explanations provided for this
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18 phenomenon are that the reforms are too western-centric, neo-liberal and inappropriate to the
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20 contextual realities of LDCs (Uddin & Choudhury, 2008; Adegbite & Nakajima, 2012).
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23 Several studies have sought to articulate the features and nature of these contextual realities,
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25 including those related to the African LDC context. For example, the lack of effective CG and
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accountability practices has been attributed to: concentrated/familial ownership of firms
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28 (Young, Peng, Ahlstrom, Bruton, & Jiang, 2008), inadequately trained or skilled accounting
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30 practitioners (Wanyama, Burton, & Helliar, 2009), weak regulatory regimes (Adegbite,
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32 2015), rampant corruption (Bakre & Lauwo, 2016), and near-absent shareholder engagement
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34 (Uche, Adegbite, & Jones, 2016). At the same time, there remains an impetus within many
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36 LDCs to persist with the implementation of these reforms, even if this appears to lead to mere
37 selective, symbolic or ritualistic displays of adoption (Soobaroyen and Mahadeo, 2008), since
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39 these displays potentially help to placate the continuing pressures from supranational
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41 institutions (WB/IMF), global professional organisations (e.g. IFAC; AACA) and foreign
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43 investors. Notwithstanding a handful of studies in the African context (see Lassou & Hopper,
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45 2016; Alawattage and Alsaid, 2017; Hopper, Lassou, & Soobaroyen, 2017), we argue that
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there needs to be a better appreciation and conceptualisation of these contextual realities that:
48 (i) impede the embedding of CG and accountability practices within LDCs but yet (ii)
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50 somewhat favour the continuation of an appearance of adoption or continued commitment to
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52 implement western governance and accountability reforms.
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55 Informed by the above, we are drawn to the neo-patrimonialist perspective (Eisenstadt, 1973;
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57 Kelsall, 2011). Christopher Clapham defines neo-patrimonialism as:
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 a form of organization in which relationships of a broadly patrimonial type pervade a
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2 political and administrative system which is formally constructed on rational-legal
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4 lines. Officials hold positions in bureaucratic organizations with powers which are
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formally defined, but exercise those powers, so far as they can, as a form not of public
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7 service but of private property. (Clapham, 1985, p. 48).
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10 According to Hopper (2017, p. 226), neo-patrimonialism “aids corruption and renders official
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12 and formal systems of accountability redundant, except arguably to present a veneer of
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14 accountability to gain legitimacy from external parties”. Prior studies have adopted a neo-
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patrimonial framing in Africa to analyse the implications of implementing government
17 accounting practices and reforms in a context where resourcing and spending decisions are
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19 often underpinned by cultural, tribal and party political arrangements (see Lassou & Hopper,
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21 2016; Lassou, 2017). In the present paper, we therefore seek to further these lines of inquiry
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23 by exploring the interplay between private business/corporate imperatives and practices (e.g.
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25 accountability to shareholders, markets and financial providers, corporate governance,
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external audit and other accountability processes) and the neo-patrimonial features of African
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28 systems (Taylor, 2014).
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31 We motivate our interest in this line of inquiry in that well-documented instances of corruption
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33 and nepotism in the public sector generally imply the involvement of private sector actor(s)
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35 in terms of being the ‘other’ side of the corrupt transaction/dealing, and hence contributing to
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nepotism and cronyism. In addition, political actors typically seek resources from the private
38 sector (political donations, employment for their kin). In this way, neo-patrimonial influences
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40 shift from the public to the private sector, albeit such influences may vary due to the existence
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42 of other pressures (e.g. foreign ownership/investment, the need to maintain market
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44 competitiveness and reputation, and implications for a firm’s cost of capital). In light of the
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46 above observations, we therefore seek to address the following research question: How do
47 neo-patrimonial dynamics interplay with CG and corporate accountability practices in an
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49 African LDC context?
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52 To address this research question, the paper focuses on the contemporary case of Kenya for
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54 the following reasons. Firstly, Kenya is one of the major African economies and arguably key
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56 to the success of the East African region, with significant potential for growth and prosperity
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considering its existing location and vast resources (Waweru, 2014). Yet, the
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59 private/corporate sector’s outcomes continue to be disappointing in terms of unfulfilled
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 potential (African Development Bank Group, 2019). There are frequent reports of weak CG
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2 and accountability practices within Kenya’s corporate sector, despite the implementation of
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4 the revised code of CG practices that was introduced in 2015 and IFRSs (Outa & Waweru,
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2016; Outa, Eisenberg & Ozili, 2017). Furthermore, corruption has permeated many sectors
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7 of the economy and there is an escalating culture of bribery (Pring & Vrushi, 2019). It is also
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9 commonplace for private sector actors to provide vast resources to finance electoral
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11 campaigns in Kenya (Mathenge & Wanga, 2017; Wanga, 2020). Consequently, Kenya ranks
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13 poorly at position 141 out of 183 in the 2019 corruption perceptions index, compared to other
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15 countries where neo-patrimonialism-based accounting research has been conducted (i.e.
16 Benin: 83, Ghana: 85) (Transparency International, 2019). This high level of corruption is a
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18 “constitutive feature” of neo-patrimonialism (Kelsall, 2011, p. 76) and Kenya’s position in
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20 corruption rankings, relative to other African countries, potentially points to the existence of
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22 different systems and/or dynamics of neo-patrimonialism on the continent (Lassou, Hopper,
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24 Tsamenyi, & Murinde, 2019).
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Secondly, existing neo-patrimonial research in Africa has focused on West African countries
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28 (i.e. Benin and Ghana) (see Lassou & Hopper, 2016; Lassou, 2017; Lassou, Hopper,
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30 Tsamenyi & Murinde, 2019). We argue that the socio-cultural context does vary considerably
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32 across African countries. Some of the cultural differences between Kenya and two of the
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34 previously studied West African countries (Benin and Ghana) relate to the fact that leadership
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36 in many Kenyan tribes has not been hereditary but rather, revolved around individuals
37 nominated or elected by respective tribes (Igboin, 2016; Cappelen & Sorens, 2018). This
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39 therefore makes it very unlikely for one or few individuals/families to amass immense power
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41 or resources over an extended duration of time, as espoused in the traditional concept of
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43 patrimonialism. Furthermore, unlike Ghana, Nigeria and Benin, where traditional rulers (i.e.
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45 kings and chiefs) still wield significant influence, this traditional framework of leadership is
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rare in Kenya (Awinsong, 2017). Notwithstanding, such traditional structures of leadership
48 are noted in the literature as key enablers of neo-patrimonial systems (Lassou & Hopper,
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50 2016; Hopper, 2017). Cognisant of the determining role of cultural arrangements in neo-
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52 patrimonialism (Beekers & Van Gool, 2012; Woods, 2012; Mkandawire, 2015; Hopper,
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54 2017), the present study thus addresses the scant understanding of how contextual realities of
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56 LDCs constrain the workings of western-originated CG models and corporate accountability
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practices. It relies on a qualitative approach involving 29 semi-structured interviews with key
59 corporate sector stakeholders. Field observations were also carried out and archival evidence
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 collected including annual reports, records of AGM proceedings, regulatory and policy
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2 reports, media reports, and information published on the websites of various listed firms and
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4 regulatory bodies.
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6 Our study seeks to makes two important contributions to literature. First, it enriches the
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8 burgeoning literature on critical accounting and governance research within LDCs, and Africa
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10 in particular (Nyamori, Abdul-Rahaman, & Samkin, 2017; Soobaroyen, Tsamenyi, & Sapra,
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12 2017), by shedding light on neo-patrimonialism as one of the underlying factors influencing
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14 the implementation of CG and accountability reforms adopted in Kenya. Second, we build
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on, and simultaneously extend, prior critical work (such as Bakre & Lauwo, 2016; Lassou &
17 Hopper, 2016; Alawattage & Alsaid, 2017) which examine the introduction of corporate
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19 governance and accounting reforms in other LDCs.
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22 The rest of the paper is organised as follows. The next section provides a discussion of
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24 Kenya’s context, including the governance and accounting reforms adopted by Kenya.
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Section 3 presents the paper’s theoretical framework and critique of extant literature. Section
27 4 explains the data and methodological approach utilised in this research. Section 5 presents
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29 the results and discussion. Lastly, section 6 concludes the paper and outlines avenues for
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31 future research.
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34 2. Corporate Governance and Corporate Accountability reforms in Kenya
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37 2.1 Corporate governance code and regulations
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39 Reforms that set the stage for the introduction of CG reforms in Kenya began in the mid-
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41 1980s. For instance, in 1984, the International Finance Corporation (IFC) and the Central
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43 Bank of Kenya (CBK) published a joint report that recommended the establishment of a
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45 formal regulatory body to supervise and develop capital markets in Kenya. Eventually, with
46 the support of various foreign donor agencies, including financial assistance from the United
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48 States Agency for International Development (USAID; US$775,000), the Kenyan
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50 government established the Capital Markets Authority in 1990 (The Office of Economic and
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52 Institutional Reform, 1994). The Nairobi Securities Exchange (NSE) was subsequently
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54 registered in 1991 as a limited private company.
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Kenya nonetheless continued to experience corporate sector crises in the periods following
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58 the establishment of the Capital Markets Authority and Nairobi Securities Exchange. These
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60 developments led to calls for the need to develop a code of CG practices to protect shareholder
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 interests and encourage foreign investments. The World Bank and the International Monetary
1
2 Fund, for instance, recommended reforms to promote higher levels of accountability and
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4 transparency (Mwaura, 2007). There was also interest by various stakeholders to participate
5
in the development of Kenya’s CG code. These stakeholders included the donor community,
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7 professional accounting associations and the government of Kenya, through the Capital
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9 Market Authority (CMA) and Nairobi Securities Exchange (Gatamah, 2002). However, the
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11 Kenyan CG development process was viewed with suspicion by a majority of the local public.
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13 As Karugor Gatamah further added, there was “fear that good CG practices [were] an
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15 imposition by the donor community to facilitate enhanced dominance of the market by the
16 foreign community [and] to facilitate rent-seeking by foreigners in the process of
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18 liberalisation and privatisation” (Gatamah, 2002, p. 50-51).
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21 Notwithstanding, Kenya’s first official CG code was adopted in 2002 and overseen by the
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23 CMA. The CMA is also responsible for issuing licences to capital market players such as
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25 listed firms and stockbrokers and overseeing capital market operations. Kenya’s CG code of
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2002 was based on the ‘comply or explain’ principle, and included various provisions relating
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28 to: (a) the board of directors; (b) role of board chairman and the Chief Executive Officer; (c)
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30 shareholders rights; (d) accountability and audits; and (e) public disclosure (Capital Markets
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32 Authority of Kenya, 2002). The CG code of 2002 was later replaced with the revised CG code
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34 in 2015 (entitled, the Code of Corporate Governance Practices for Issuers of Securities to the
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36 Public, 2015) (Capital Markets Authority of Kenya, 2017).
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38 In addition to the provisions contained in the CG code of 2002, the 2015 CG code requires
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40 companies to disclose in their annual reports: directors’ remuneration policies, including a
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42 breakdown of senior executives/board members’ compensation; investors with substantial
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44 shareholdings; and exposure on directors’ aggregate loans. The CMA further recommended
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46 enforcement of the CG code by various bodies, including the registrar of companies, the
47 CMA, the Nairobi Securities Exchange and the judiciary. However, the two main challenges
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49 for these enforcement bodies included the lack of clarity in terms of areas of authority, and
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51 the conflicting requirements of different regulators, which highlighted coordination and
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53 communication problems within Kenya’s regulatory framework (Outa & Waweru, 2016).
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56 2.2 Company law and Kenyan governance issues
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58 The current Companies Act in Kenya was enacted in 2015 to succeed the previous statutes,
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60 which were based on the United Kingdom’s Companies Act of 1948. Several other laws and
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 regulations have also undergone extensive revisions in the recent past, including the CMA
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2 Act (in 2013), the Banking Act (in 2015) and the State Corporations Act amendments in 2015
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4 (Outa & Waweru, 2016). Schedule six of the Companies Act 2015 stipulates the requirements
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and general framework for financial reporting for registered companies, and the NSE ensures
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7 their compliance as a listing requirement on the main market. Furthermore, the Institute of
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9 Certified Secretaries of Kenya (ICS) conducts regular stakeholder consultations and promotes
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11 good CG by assisting listed companies in areas such as board induction, board development,
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13 board evaluation, risk management and strategic planning. The ICS continues to conduct
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15 training of company secretaries on various boardroom procedures (such as minutes writing,
16 management of meetings, and other corporate secretarial services) (Institute of Certified
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18 Secretaries of Kenya, 2019). In addition to these reforms, the CMA has set up an online
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20 Whistle-blower Portal where suspicious corporate activities can be directly reported to the
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22 regulatory bodies.1
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25 It is often believed that the firm-level CG reforms introduced in Kenya need to be underpinned
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by strong formal institutions at the national level. Such institutions, including a robust
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28 judiciary and strong investor protection laws, are required to support effective firm-level CG
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30 and accountability practices. Unfortunately, Kenya ranks very poorly across several country-
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32 level governance measures, including the Transparency International Corruption Perception
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34 Index and the World Bank Global Governance Indicators. In Figure 1 below, we present
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36 various governance indicators for Kenya, including measures for political stability,
37 government effectiveness, regulation quality, the rule of law, voice and accountability, control
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39 for corruption, strength of investor protection index (World Bank, 2017), and the
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41 Transparency International Corruption Perception Index 2018 (Transparency International
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43 Corruption Perception Index, 2018). The current ranking of Kenya across all these
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45 accountability-related indices certainly raises questions about the rule of law, regulatory
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quality and capacity of enforcement institutions. Nonetheless, the above ranking systems have
48 been faulted for being oblivious of cultural differences across the world, which influence how
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50 the notions of ‘corruption’ and/or ‘good governance’ are constructed by people within and
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52 between countries (de Maria, 2008). Furthermore, the use of these global indices in
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54 underpinning ‘aid allocation decisions’ by LDCs donor partners (Mkandawire, 2015; Bakre,
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56 Lauwo, & McCartney, 2017) may in fact incentivise countries with neo-patrimonial systems
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The URL of the Whistle-Blower Portal is:
60 [Link]
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 to implement ‘good governance reforms’ merely as a façade to maintain the flow of donor aid
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2 (see also Bach, 2011; Lassou, 2017).
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Besides, Kenya also faces various other socio-economic challenges including underdeveloped
6 infrastructure and volatile markets. Such challenges are observed in the literature to be
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8 impediments to business as well as obstacles to effective CG practices (Mwaura, 2007; Ntim
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10 & Soobaroyen, 2013). However, there has been little evidence on how these issues interplay
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12 with CG and corporate accountability practices in the corporate sector.
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15
[Insert Figure 1 here]
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17 In Figure 2 below, we also present an integrated framework of internal and external forces
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19 that have influenced the development of CG and accountability reforms adopted in Kenya.
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22 [Insert Figure 2 here]
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Our analysis section will further elucidate the issues discussed in this section, together with
26 the way they impact firm CG and accountability practices in Kenya.
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29 2.3 Accounting standards and external audit
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31 Kenya has adopted various accounting reforms to enhance CG and accountability practices in
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33 the corporate sector. Table 1 below highlights the key events that have contributed to the
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35 development of Kenya’s CG code and other accounting reforms.
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38 [Insert Table 1 here]
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Kenya formally adopted International Financial Reporting Standards (IFRSs) in December
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42 1999 without modifications, with the aim of improving financial reporting quality and
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44 transparency within the corporate sector. Prior to IFRSs adoption, the Institute of Certified
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46 Public Accountants Kenya (ICPAK) was responsible for the development and implementation
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48 of accounting and auditing standards in Kenya (Barako, Hancock & Izan, 2006). The Nairobi
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50 Securities Exchange (NSE) enforces IFRSs implementation for all companies whose
51 securities are traded in Kenya. The accounting literature documents that firms adopting IFRSs
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53 enjoy several benefits, including enhanced stock turnover and liquidity, and comparability of
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55 annual report information, compared with firms that do not (Barth, Landsman, Lang &
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57 Williams, 2018). In 2010, Kenya also introduced IFRSs for small and medium-sized entities.
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59 The recent Companies Act of 2015 also offers more flexibility for SMEs by exempting them
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 from audit, while annual filing of financial statements with the registrar of companies is still
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2 required. Since February 2014, commercial public sector organisations in Kenya have also
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4 implemented IFRSs and partially adopted the International Public Sector Accounting
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Standards (IPSASs) (Government of Kenya, 2015).
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8 The external audit industry in Kenya is primarily a self-regulated one with minimal oversight
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10 at the national level. Auditors are expected to comply with the quality assurance guidelines
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12 and professional code of ethics of the Institute of Certified Public Accountants of Kenya
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14 (ICPAK) (The Institute of Certified Public Accountants of Kenya, 2015). In order to
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encourage compliance with the IFRSs, the ICPAK introduced the Financial Reporting (FiRe)
17 Awards in 2002 (The Institute of Certified Public Accountants of Kenya, 2018). Actual
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19 compliance, however, remains low at the firm level, despite the early adoption of IFRSs at
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21 the national level (Outa, Eisenberg & Ozili, 2017), and some evidence that listed companies
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23 do exhibit a relatively higher degree of IFRS compliance compared to private firms (Mathuva
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25 & Chong, 2018).
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3. Literature review
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30 3.1 Theoretical framework
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32 Neo-patrimonialism as a concept emerged in the 1960s–1970s to explain social and economic
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34 developments in sub-Saharan Africa (see Eisenstadt, 1973) and is drawn from classic notions
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36 of patrimonialism, whereby the right to rule is ascribed to a person (so-called ‘big man’) rather
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than to an office (Bach, 2011). In this way, leaders occupy office less to perform a public
39 service than to acquire personal wealth and status (Beekers & Van Gool, 2012; Hopper, 2017).
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41 The power of neo-patrimonial leaders tends to be “erratic and incalculable” and occasionally,
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43 the exercise of such power goes beyond the provisions laid down by existing laws (Lassou &
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45 Hopper, 2016, p.44). Arguably, during the post-colonial era, many LDCs (including African
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47 countries) failed to bring robust institutional reforms that could support economic and social
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development, and instead, this led to hybrid institutions that largely retained patrimonial2
50 power structures rather than deriving authority from legal-rational systems. The consequence
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57 2
Weber proposed patrimonialism as a typology of how power is legitimised in social relations, whether through
58 patriarchal authority of an individual or the impersonal authority of a bureaucracy (Weber, 1968a, p.1006).
59 Weber further notes that a ruler need not to possess any special qualifications to rule as personal loyalty and
60 fidelity of the ruled are the sources of power (Weber, 1968b, p.227).
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 for many countries was a lack of economic development and weakened political frameworks
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2 (Eisenstadt, 1973).
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In contemporary terms, one can conceive of neo-patrimonialism as a broader phenomenon
6 encompassing relationships of loyalty and dependency that are embedded in formal political
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8 and administrative systems, and as a result, the divide between private and public interests
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10 becomes an intentionally blurred one (Bach, 2011; Bratton & van de Walle, 1994). One
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12 important feature of neo-patrimonial systems is the continued display and pretence (a façade)
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14 of legal-bureaucratic norms and structures (to maintain legitimacy) which co-exists with
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relations of authority based on interpersonal rather than impersonal interactions (Bach, 2011).
17 According to Bach (2011), the dualism involving patrimonial relationships and formal
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19 bureaucratic structures can lead to a wide array of empirical situations in different contexts.
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21 In this regard, Taylor (2014) argues that while neo-patrimonialism focuses on the case of the
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23 public and/or elected official, these relationships may, to a varying extent, be reflected at
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25 every level of society (e.g. companies and businesses). In this way, corporate actors are
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involved in instances of patronage, clientelism, the pursuit of illicit rents and corruption,
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28 “where an ethic of responsibility or civic-mindedness scarcely can exist” (Taylor, 2014, p. 7).
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31 Neo-patrimonial contexts usually lack a clear boundary between indigenous governance
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33 systems and legal-rational bureaucratic governance regimes (Cammack, 2007; Hopper, 2017).
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35 Indigenous governance systems comprise of traditional power structures that regulate social
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interactions within a society over extended periods of time and hence become culturally
38 embedded (Mkandawire, 2015). Indigenous governance systems are characterised by, among
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40 others, patron-client relations and informal institutions such as ethnic and/or tribal loyalty,
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42 cronyism and nepotism (Lassou & Hopper, 2016; Lassou, 2017). These features serve as a
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44 basis for decisions and actions of people living in neo-patrimonial contexts and tend to stand
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46 in the way of adopted formal institutions. For instance, in the context of our study, the
47 appointment of directors based on their tribal/ethnic connection (informal institution) would
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49 clash with CG regulations (formal institution), requiring board appointments to be made on
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51 the basis of individual competence, in adherence to CG requirements. Furthermore, while
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53 awarding procurement tenders to a CEO’s kinsmen (informal institution) may seem
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55 appropriate from the perspective of their community, this practice would be against the arm’s
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57 length principle (formal institution). These examples depict the tensions that exist within neo-
58 patrimonial contexts. Notwithstanding, literature suggests that people living in neo-
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60 patrimonial contexts tend to be more accustomed to the indigenous ways of life which
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 underpin the informal institutions, and predate the legal rational bureaucracy (Woods, 2012).
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2 This may thus explain why informal institutions tend to be more prevalent relative to formal
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4 institutions (i.e. legal rational bureaucracy).
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6 Cammack (2007) criticises foreign development agencies for failing to consider the
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8 underlying institutional environments of African countries when implementing reforms. The
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10 author observes that donors come with externally constructed notions that, because African
11
12 countries show “signs of a modern, democratic state—i.e., they hold elections and have
13
14 democratic-style institutions, such as parliament, […] judiciary, which many assume will
15
16
function as in the West”, then the objectives of the former will be achieved (Cammack, 2007,
17 p.599). Cammack (2007) refers to this as ‘delusion’, since the presence of such institutions
18
19 often tends to be symbolic or ritualistic in nature, and there is no guarantee that they will be
20
21 effective in achieving their intended impact. In a similar vein, Lassou (2017) mobilised the
22
23 neo-patrimonialism perspective to investigate government accounting reforms in two African
24
25 contexts - Benin and Ghana (i.e. “Francophone vs Anglophone” countries, see Lassou,
26
Hopper, Tsamenyi, & Murinde, 2019, for a detailed analysis of the two contexts).
27
28 Consequently, Lassou (2017) found that both countries have adopted detailed accounting
29
30 reforms, yet substantive improvement in public sector accounting practices is still evidently
31
32 absent, hence the author concluded that such reforms play a more symbolic role as a façade
33
34 of government accountability. The author further adds that formal accounting regulations are
35
36 subverted by neo-patrimonial influences, including corruption and deep-rooted clientelist
37 relations and patronage networks whose modus operandi is often incongruous with the former
38
39 (Lassou, 2017). This discussion explains how the underlying neo-patrimonial contexts of
40
41 LDCs may potentially neutralise the meaningfulness of CG and accountability reforms.
42
43
44 Nevertheless, the concept of neo-patrimonialism and its consequences remains contested. For
45
46 instance, Kelsall (2012) argues that countries can achieve development despite the rent-
47 seeking behaviour associated with neo-patrimonialism. Referring to the economic
48
49 development of East Asian and some African countries, the author argues that, “clientelism
50
51 and rent-seeking are not necessarily inimical to development” (Kelsall, 2012, p.681). There
52
53 are other studies in which the economic and political developments of former-Soviet bloc
54
55 countries have been examined using the neo-patrimonialism perspective (e.g. Laruelle, 2012).
56
57 Contrariwise, Hopper (2017) argues that neo-patrimonialism leads to the disregard of formal
58 structures of governance in favour of a more powerful traditional order, while still maintaining
59
60 an image of compliance and adherence to legal-rational expectations of accountability and
61
62
11
63
64
65
 transparency. The above conflicting positions concur, however, that rent-seeking behaviour
1
2 is central to all forms of neo-patrimonialism (e.g. Kelsall, 2012; Hopper, 2017). The key
3
4 determining factor that makes some neo-patrimonial contexts more economically prosperous
5
than others is because rent-seeking is more “centralised and oriented to the long term”,
6
7 (Kelsall, 2011, p. 84), as against a decentralized and short-horizon approach to rent
8
9 management (Cammack & Kelsall, 2011). Notwithstanding, our paper argues that any form
10
11 of rent-seeking behaviour by corporate executives puts shareholder value at risk and impedes
12
13 firm efficiency (Ntim & Soobaroyen, 2013; Bakre & Lauwo, 2016; Nakpodia and Adegbite,
14
15 2018). Hence, aspects such as clientelism and/or rent-seeking may pre-dispose firm
16 executives to engage in accounting and reporting misrepresentations with a view to conceal
17
18 contraventions from accounting rules or CG code’s provisions (Rezaee, 2005).
19
20
21 The above discussion of neo-patrimonialism to explain economic and social development has
22
23 been conducted largely at the macro level. To the best of our knowledge, this concept has
24
25 hardly been considered in relation to CG and accountability practices at the firm level. Yet,
26
considering that CG is essentially about acquiring and using authority to govern corporate
27
28 affairs, there is a potential link to Weber’s proposition on power structures (see, Weber,
29
30 1968a; 1968b). For instance, the responsibilities and conduct of board of directors and other
31
32 corporate professionals (i.e. accountants and auditors) are specified in corporate regulatory
33
34 frameworks. This expectation, in a legal-rational sense, means that only
35
36 directors/professionals with the necessary skills, training and knowledge are appointed and
37 operate in line with rational bureaucratic structures (Weber, 1968a). However, the literature
38
39 suggests that directors in LDCs contexts may put the interests of their kin (i.e. “family/clan”)
40
41 ahead of other shareholders (Uddin & Choudhury, 2008, p. 1029-30), thus demonstrating how
42
43 formal CG provisions are superseded by informal relations (Woods, 2012), or (as per Lassou,
44
45 2017) neo-patrimonial logic. As a result, widespread corruption in many African countries is
46
47
noted to be a major hindrance to professional conduct by accounting and auditing practitioners
48 (Hopper, 2017), thus undermining corporate decision-making, control and accountability.
49
50
51 In neo-patrimonial settings, formal institutions are required to facilitate and regulate the
52
53 conduct of business, and although these are present, they are usually weak and lack
54
55 independence to oversee market operations (Lassou, Hopper, Tsamenyi, & Murinde, 2019).
56
57 In the context of our study, such formal institutions comprise corporate sector regulatory
58 bodies, capital market laws, and accounting and corporate governance regulations. Thus, the
59
60 neo-patrimonialism perspective will allow us to understand how Kenya’s context (comprising
61
62
12
63
64
65
 of powerful indigenous governance systems and other informal institutions) constrains
1
2 effective CG and accountability practices at the firm level. Furthermore, the neo-patrimonial
3
4 lens can help to shed light on why CG and accountability practices remain weak despite the
5
presence of boards of directors, accounting professionals, and corporate sector laws and
6
7 regulations. Consequently, the present study seeks to extend current understanding about the
8
9 implications of neo-patrimonialism in the corporate sector and insofar as its regulatory
10
11 framework is concerned. This is a departure from prior research, which has focused on the
12
13 public sector and related accounting reforms (Lassou & Hopper, 2016; Lassou, 2017).
14
15
16
3.2 Empirical literature and propositions
17 In terms of prior work relating to CG reforms and the role of boards in Africa, Okpara (2011)
18
19 showed that transparency is still a challenge in Nigeria despite firms having seemingly
20
21 independent boards. For instance, the author notes that many “shareholders […] are only
22
23 allowed to speak during AGMs if they are known to side with the board of directors” (Okpara,
24
25 2011, p.195). Similarly, Soobaroyen & Mahadeo (2012) reported that the presence of
26
independent non-executive directors did not always improve board accountability in
27
28 Mauritius due to the inter-connected nature of the business elite. The above evidence brings
29
30 into question prior (quantitative-led) literature which argues that board independence has a
31
32 positive impact on firm transparency (e.g. Ullah, Ahmad, Akbar, & Kodwani, 2018). In
33
34 addition, Hearn, Strange, & Piesse (2017) observe that corporate boards in many African
35
36 countries tend to comprise more members of the social elite (i.e. government officials,
37 military chiefs and other influential members of society). Separately, it has been observed that
38
39 respect for age in African culture makes it very difficult for board members to challenge the
40
41 authority of elderly executives and directors, thereby hindering the exercise of board
42
43 accountability (Nakpodia & Adegbite, 2018). From a neo-patrimonialism perspective, the
44
45 perception of age as a sign of authority bestows a social hierarchy in corporate boardrooms
46
47
and supplants the formal roles of the individual directors (Mkandawire, 2015). Furthermore,
48 the appointment of influential societal members has the potential to engender and perpetuate
49
50 neo-patrimonial relations within the corporate sector, whereby director appointments are
51
52 limited to a specific minority or connected groups rather than strictly based on merit and value
53
54 to the company. In this regard, we examine the following proposition:
55
56
57 Proposition 1: In a neo-patrimonial-led business context, the extent to which merit-
58 based appointments occur is limited or non-existent, thereby impeding the effective
59
60 and rational-legal functioning of corporate boards.
61
62
13
63
64
65
 Hoskisson, Eden, Lau, & Wright (2000) observe that many LDCs suffer from various
1
2 challenges, such as widespread corruption and rent-seeking activities, and lax property rights
3
4 protection. The authors attribute these features to weak regulatory environments within LDCs.
5
Politically connected corporate executives have also been found to use their political influence
6
7 to ‘entrench their corrupt activities’ (Nakpodia & Adegbite, 2018). For instance, Nakpodia &
8
9 Adegbite (2018) observe that certain politicians, such as the President, Vice-President,
10
11 Governors, and Deputy Governors in Nigeria, enjoy full ‘political immunity’, which means
12
13 that they cannot be held accountable for their actions while such persons sit on boards.
14
15 Klapper & Love (2004) also argue that widespread corruption and the culture of secrecy that
16 it entails, exacerbates the level of information asymmetry amongst market players, leading to
17
18 a weak CG climate. Other studies on Nigeria also attribute a prevalence of corruption and
19
20 poor CG practices to the limited role of enforcement bodies, since the latter are often
21
22 compromised and ignore violations of capital market regulations (Adegbite, 2012; Adegbite
23
24 & Nakajima, 2012; Adegbite, Amaeshi, & Nakajima, 2013; Bakre & Lauwo, 2016).
25
26 Paradoxically, the neoliberal reforms advocated by supranational institutions to improve CG
27 and accountability within LDCs, including privatisation and fair value accounting, have been
28
29 found to aggravate ‘corruption and lack of accountability’ in Nigeria (Bakre & Lauwo, 2016).
30
31 The evidence reviewed above is consistent with literature suggesting that neo-patrimonialism
32
33 encumbers the formal structures of governance while at the same time serving as a hotbed for
34
35 corruption (Beekers & Van Gool, 2012; Mkandawire, 2015; Hopper, 2017). In this regard, we
36
37
examine the following proposition:
38
39 Proposition 2: In a neo-patrimonial-led business context, formal institutions tasked
40
41 with regulating CG and accountability practices fail to act or have little impact, since
42
43 their effectiveness is neutralised by powerful informal institutions.
44
45
46 Siddiqui (2010), in a study of Bangladesh, further observes that poorly trained accounting and
47 auditing professionals contribute to weak CG and accountability practices. Similar concerns
48
49 have also been raised regarding the competence of auditors and accountants in Kenya, noting
50
51 that many universities lack “financial and manpower capacity”, while teaching materials also
52
53 “lack adequate focus on current international accounting and auditing practices” (World
54
55 Bank, 2010, p.12). These observations suggest that many accounting graduates in similar
56
57 LDCs contexts could be lacking adequate know-how and the experience required to discharge
58 their duties effectively. Furthermore, Bakre (2007) found that the Institute of Chartered
59
60 Accountants of Nigeria (ICAN) did not “investigate or sanction” its members accused of
61
62
14
63
64
65
 violating professional codes of conduct. Another challenge noted in the literature as hindering
1
2 effective CG and accountability practices is the lack of auditor independence. This is often
3
4 caused by the desire to please audit clients to sustain business within LDCs embryonic
5
corporate sectors, where clientele is limited and/or there are conflicts of interests (Rezaee,
6
7 2005; Uddin & Choudhury, 2008). In this regard, we examine the following proposition:
8
9
10 Proposition 3: In a neo-patrimonial-led business context, accounting reforms and
11
12 professions are constrained from operating as reliable institutions to foster
13
14 accountability and transparency due to conflict of interests and weak oversight.
15
16 In the following section, we discuss the data collection procedures and research methodology
17
18 utilised in this study.
19
20
21 4. Methodology
22
23
24 4.1 Research design and data collection
25
26 Over the past 30 years, with the emergence of principles-based (‘comply-or-explain’) CG
27
codes around the world, researchers have predominantly conducted index-based (and
28
29 positivist) studies3 to capture whether there is adherence to CG and accountability regulations,
30
31 and if there are any implications for firm performance (e.g., Klapper & Love, 2004; Ntim &
32
33 Soobaroyen, 2013). However, recent and inconclusive evidence on the CG-performance
34
35 relationship has led to calls for further methodological scrutiny in CG and accountability
36
37 research (Wintoki, Linck, & Netter, 2012; Ullah, Akhtar, & Zaefarian, 2018), with researchers
38 suggesting the use of alternative or mixed methodological approaches (e.g., Filatotchev &
39
40 Wright, 2017). Quantitative studies do not typically uncover complex and dynamic issues,
41
42 and often find spurious correlations between CG/accountability and firm-specific outcomes,
43
44 such as transparency or firm valuation (Wintoki, Linck, & Netter, 2012). This study therefore
45
46 attempts to explore underlying CG and accountability issues in a neo-patrimonial environment
47
48
by relying on a qualitative methodology.
49
50 However, access to primary data on CG and accountability practices is a significant challenge
51
52 in LDC contexts (Claessens & Yurtoglu, 2013; Filatotchev & Wright, 2017). Consistent with
53
54 the scope of our research, we adopted an interpretive qualitative research method. Our
55
56
57
58 3
Since the 1992 publication of the Cadbury Report in the UK, many studies have attempted to examine the
59 impact of compliance on firm-specific attributes, such as operating and stock performance, risk-taking
60 behaviours, etc.
61
62
15
63
64
65
 interview data were triangulated (Yin, 2011, p.81-82) with qualitative field observations and
1
2 archival evidence - including data from annual reports, records of AGM proceedings,
3
4 regulatory and policy reports, media reports, and information published on the websites of
5
various listed firms and regulatory bodies. The use of triangulation and methodological
6
7 pluralism in accounting research “has the potential to provide a synergy of being mutually
8
9 informative and permit a richer portrayal of organizational reality, revealing unique
10
11 organisational issues or dynamics” (Hoque, Covaleski, & Gooneratne, 2013, p.1188).
12
13 Furthermore, collecting data from multiple sources (i.e. archival documents, face-to-face
14
15 interviews, participant observations) helps in understanding the ‘multi-level complexities of
16 a phenomenon’, increases the trustworthiness of empirical evidence, and contributes to
17
18 ‘theoretical refinements’ (Filatotchev & Wright, 2017; Hoque, Covaleski, & Gooneratne,
19
20 2013, p. 1189). The multiple sources of data proved extremely useful in capturing the
21
22 experiences and meanings constructed by the research participants concerning neo-
23
24 patrimonial influences on CG and accountability practices in Kenya.
25
26
Twenty-nine semi-structured interviews were carried out in two phases by the first co-author
27
28 (an anonymised classification of the interviewees is provided in Table 2). As reported in Table
29
30 3, a wide range of key stakeholders was identified to gain an overarching understanding of
31
32 CG and accountability issues. The participants included senior executives of Kenyan listed
33
34 firms and representatives of regulatory bodies namely, the CMA, ICPAK, ICPSK, and the
35
36 NSE. These representatives are or have been, influential policy developers and implementers;
37 hence, their views offer insights into the current regulatory reforms and on-going CG and
38
39 accountability debate in Kenya. We also interviewed a journalist, a CG trainer, and an
40
41 academic from a Kenyan public sector university. Interviewing senior executives/board
42
43 directors and officials in regulatory bodies was facilitated by the professional networks and
44
45 local connections of the first co-author. These interviewees were able to express their opinions
46
47
relating to the role and effectiveness of CG and corporate accountability reforms implemented
48 in Kenya. We refer to our interview questions in the appendix (see Table 4).
49
50
51 Eight of the interviews were conducted between May and June 2013, and the other 21 between
52
53 April and June 2015. On average, each interview lasted about an hour and was held at the
54
55 premises of each interviewee’s organisation. The interviewees were offered the opportunity
56
57 to express their opinions in loosely guided conversations (O’Dwyer, 2004). Our interview
58 protocol, presented in the appendix, covered a wide range of accounting, accountability and
59
60 governance issues relating to: the effectiveness of boards of directors, bribery and corruption,
61
62
16
63
64
65
 the professionalism of accounting practitioners, auditor independence, and the effectiveness
1
2 of the corporate sector regulatory framework. Twenty-five of the interviews were tape-
3
4 recorded and later transcribed. Notes were taken for the other four interviews after the
5
participants expressed objections to being tape-recorded. The interviews were conducted in
6
7 both English and Swahili (translated into English where relevant) and transcribed. Lastly,
8
9 detailed written notes were taken regarding observations made during the field research.
10
11 These comprised both reflective notes about the researcher’s personal experiences during the
12
13 fieldwork, along with handwritten notes taken during six Annual General Meetings (AGMs)
14
15 observed during the second phase of the research fieldwork. Discussing the significance of
16 field observations in complementing interview findings, Hoque, Covaleski, & Gooneratne
17
18 (2013, p. 1175) argue that “people in organizations have different backgrounds, sets of
19
20 experience and motivations […] they interpret problems differently, have different frames of
21
22 reference and see different options and solutions [and therefore] representing this complexity
23
24 in text is not easy”.
25
26
[Insert Table 2 here]
27
28
29 [Insert Table 3 here]
30
31
32 While negotiating for access to the AGMs, it was made clear that, due to ethical concerns and
33
34 difficulties in seeking consent by participants, AGM proceedings could not be tape-recorded,
35
36
and the observing co-author resorted to taking handwritten notes.
37
38 4.2 Approach to data analysis
39
40 The data analysis process was iterative in nature and began by conducting an analysis of
41
42 various documents and archival evidence. This assisted us in identifying potential interview
43
44 participants, as well as designing an appropriate interview protocol (Saunders, Lewis, &
45
46
Thornhill, 2009, p.146; Yin, 2011, p.29). Subsequently, the interview transcripts and field
47 observation notes were merged with the documentary data and archival evidence and analysed
48
49 using the NVivo 11 qualitative data analysis software. Inspired by the procedures adopted in
50
51 prior empirical research (e.g., O’Dwyer, 2004; Belal, Cooper, & Khan, 2015; Nakpodia &
52
53 Adegbite, 2018), our data analysis steps included data reduction, data display, and
54
55 construction of meanings. During the data reduction stage, an open coding process (O’Dwyer,
56
57
2004) was initially followed whereby (first-order) codes were assigned to the data.
58 Comparable/similar codes were then categorised together to form second-order codes, which
59
60
61
62
17
63
64
65
 were later merged further into the high-level themes discussed in section 5 of this paper (see
1
2 also Yin, 2011).
3
4
5
A second coder also independently coded the data and a comparison of the coding outcome
6 demonstrated a high degree of inter-coder reliability, thereby enabling us to enhance the
7
8 reliability and validity of the findings reached (Saunders, Lewis, & Thornhill, 2009; Yin,
9
10 2011). Lastly, the iterative process adopted in this paper enabled us to immerse in the data
11
12 and reflect on the meanings constructed by the participants regarding various neo-patrimonial
13
14 issues that impact on CG and accountability practices in Kenya. The next section presents the
15
16
key findings of the study.
17
18 5. Results and discussion
19
20 This section presents and discusses the study’s findings. Relevant excerpts are also included
21
22 in the discussion to emphasise interviewees’ accounts and lived experiences, to illuminate
23
24 how CG and accountability practices (including regulations) are implemented within the
25
26 purview of Kenya’s neo-patrimonial context.
27
28 5.1 Neo-patrimonial influences on the appointment and composition of boards
29
30 Many interviewees expressed the strong and unequivocal opinion that, irrespective of the new
31
32 CG reforms, poor director nomination practices have persisted and weaken board
33
34 effectiveness (e.g., Interviewees: SEK13, SEK 14, RRB2, SEK6, J1, UAA1). Our
35
36 conversations with various corporate insiders painted a picture of board appointments being
37
38
decided on the basis of tribal relations, kinship and cronyism, as illustrated below:
39
40 Board appointments in this country are influenced by the tribe majority of the people
41
42 sitting on a particular board come from […] this may go unnoticed by the general
43
44 public because we are all deeply immersed in this problem but, as someone who has
45
46 worked in corporate Kenya all my life and also understands its boardroom intricacies,
47
48
suitable candidates are occasionally overlooked because they come from the wrong
49 tribe (SEK6).
50
51
52 Another interviewee further noted:
53
54 About three or four years ago, I was serving on the board of one of the listed companies
55
56 and our Chair brought one of his business associates and the nominations committee
57
58 happily endorsed that person […] having a nominations committee is one thing, but
59
60 its members being able to effectively execute their roles is another (SEK14).
61
62
18
63
64
65
 The nomination practices exemplified above reveal a neo-patrimonial character since tribal
1
2 or kin relations are seen as a key factor determining who can be appointed to the board of
3
4 directors. This suggests that other, and better qualified, individuals are overlooked during such
5
appointments because they are not affiliated with the appointing authorities. Consistent with
6
7 these observations, Amoako-Agyei (2009) argues that African people have a strong sense of
8
9 community and prefer work in coalitions, which comprise of people with shared communal
10
11 and/or familial values. Such a basis of appointment helps to sustain a culture of patronage and
12
13 clientelism and these are key constitutive features of neo-patrimonialism (Cammack, 2007;
14
15 Kelsall, 2011; Kelsall, 2012), while potentially excluding competent, but demographically
16 dissimilar, individuals. Moreover, the appointment of directors based on the patron-client
17
18 relationship or tribal affiliation does little to improve board independence and while these
19
20 directors may be labelled, and ‘appear’, as independent, they potentially come more as
21
22 ‘outside friends’ and less as ‘external monitoring experts’.
23
24
Our analysis also revealed that many corporate boards have directors who are over the age
25
26 limit (seventy years) as recommended by the CG code (Capital Markets Act, 2015, Principle
27
28 2.5) (e.g. see, Kimani, 2016). When this issue was raised with our interviewees, they indicated
29
30 how impossible (and somewhat ‘unfair’) it would be to exclude corporate founders (or their
31
32 close relatives) following the listing of family-owned companies on the stock market. These
33
34 sentiments are aptly captured in one of the interviewee’s comments:
35
36 For many listed companies which were established by the controlling families, most
37
38 have older members of those families serving on boards…and the founding patriarch
39
40 would feel discriminated against based on age if you ask them to exit from the
41
42 leadership of a company which he created (J1).
43
44 Consistent with the evidence above, Behuria (2019) observes that the Africanisation policies
45
46 implemented in post-independence Kenya resulted in the emergence of an indigenous
47
48 capitalist class dominated by politically connected families. These domestic capitalists are
49
50 noted in the literature as wielding significant power and influence that helps in protecting their
51
52 interests, without facing sanctions from the authorities (Gray & Whitfield, 2014), hence
53
undermining the corporate sector enforcement systems. Kimani (2016) also avers that many
54
55 Kenyan listed firms are controlled by a handful of families.
56
57
58 In particular, for companies where family patriarchs sit on the board, it can be extremely
59
60 difficult to safeguard independence of opinion amongst directors. Typically, younger
61
62
19
63
64
65
 members of the board are not expected to contradict the views of the older and more
1
2 (culturally) senior members (Adu-Amoah, Tsamenyi, & Onumah, 2008; Kimani, 2016).
3
4 Similarly, Amoako-Agyei (2009, p. 333) argues that in the African context, “advanced age is
5
inherently equated with authority, business wisdom…and experience [and] an older person
6
7 automatically holds a certain level of superiority, regardless of rank, title, or education”. The
8
9 dominance of this ‘informal institution’ hence presents another avenue where neo-
10
11 patrimonialism (i.e. age-determined authority) interplays with legal rational authority (i.e.
12
13 director responsibilities formally prescribed in the CG code). Insights from a neo-
14
15 patrimonialism perspective suggest that this “marriage of tradition and modernity”
16 (Mkandawire, 2015, p. 3), or hybridity (as per Beekers & Van Gool, 2012; Hopper, 2017)
17
18 often favours the status-quo and discourages opportunities for challenge, accountability and
19
20 transparency around business decisions at the board level. As a result, we find support for
21
22 Proposition 1.
23
24
25 5.2 Neo-patrimonial influences on the regulatory framework of corporate governance
26
Insights from interviewees also uncovered various weaknesses that impede the ability of the
27
28 local regulatory framework to support the development of CG reforms. For instance, some
29
30 highlighted that while there are several bodies in charge of overseeing adherence to various
31
32 legal and regulatory requirements, there were many areas of contention between these
33
34 different agencies. This phenomenon is illustrated by the quotation below:
35
36
37
We see conflicts in regulatory requirements, where one regulator asks you to do one
38 thing and the other regulator threatens to penalise you if you do it […] there is need to
39
40 harmonise the regulatory framework because some agencies do more or less similar
41
42 work […]and hopefully remove the grey areas in regulation (SEK1).
43
44
45 The above interviewee’s remark is corroborated by a previous World Bank report concerning
46
47
the state of accounting and auditing in Kenya which noted that:
48
49 The CBK and IRA issue prudential requirements that […] prevail over IFRS […]
50
51 Accounting differences do arise between the banking and insurance sectors, such as
52
53 in loan-loss provisioning of banks and calculation of technical reserves in the
54
55 insurance sector. Such differences lead to inconsistencies in application of accounting
56
57
regulations across banks and insurance companies, limiting transparency and
58 comparability (ROSC, 2010, p. 13).
59
60
61
62
20
63
64
65
 The presence of several regulators with duplicative functions provides a delusive perception
1
2 of a robust regulatory framework but in fact, their presence has a counter impact on the quality
3
4 of regulation. This is consistent with neo-patrimonial contexts which do have institutional
5
features for the sake of appearances, but where there is little interest on whether/how such
6
7 institutions work (see, Bakre, Lauwo, & McCartney, 2017; Lassou, 2017). For instance,
8
9 Cammack (2007, p. 599) argues that exhibiting “signs of a modern state”, i.e. having the
10
11 above-mentioned regulatory institutions, does not necessarily mean that they will work as
12
13 expected or that CG practices will improve (see also Wanyama, Burton, & Helliar, 2009;
14
15 Lassou & Hopper, 2016; Lassou, 2017). Rather, these institutions are merely seen as formal
16 devices projecting a positive external image to the outside observer.
17
18
19 Moreover, our analysis revealed that lax behaviour on the part of regulatory bodies also
20
21 contributes to poor CG practices. The regulators do little, if anything, even when incidents of
22
23 malpractice are evident and well publicised. The excerpts below summarise the interviewees’
24
25 views regarding the corporate sector’s regulatory landscape in Kenya:
26
27 Bodies like the registrar of companies and even ICPAK do little to encourage
28
29 compliance with CG regulations […] the companies registry is a mess […] the
30
31 ICPAK has done nothing when their own members […] are found to have
32
33 engineered fraud within companies (SEK12).
34
35
36
Another interviewee added,
37
38 The capital markets regulatory authority is not very strict. They should be
39
40 penalizing wrongdoers or coming up with various strategies and schemes to ensure
41
42 that we are complying with CG practices […] but you only see them when there
43
44 has already been a problem (SEK4).
45
46 To put the deficient state of the regulatory infrastructure into perspective, Gatamah (2002),
47
48 cited in Okeahalam (2004, p. 367), reports that the “Registrar of Companies does not have the
49
50 resources, technology or capacity to effectively monitor the more than 20,000 companies”
51
52 registered in Kenya. This evidence is further supported by prior studies, which find that LDCs
53
54 regulatory environments are generally weak compared to those in developed economies (La
55
56 Porta, Lopez-de-Silanes, Shleifer, & Vishny, 2000; Claessens & Yurtoglu, 2013), although
57 no country has a flawless regulatory environment, including “the richest countries which have
58
59 sophisticated regulators commanding ample resources” Chang (2007, p.102). While there are
60
61
62
21
63
64
65
 inherent regulatory weaknesses in virtually all jurisdictions, the additional constraints
1
2 presented by neo-patrimonialism mean that CG regulatory regimes within LDCs are
3
4 comparatively weaker, thus rendering them inadequate to support the development of
5
effective CG and accountability practices (see, Cammack, 2007; Woods, 2012; Lassou, 2017).
6
7
8 Moreover, we argue that the International Federation of Accountants (IFAC) and other
9
10 development partners should take cue concerning the existence of weak legal/regulatory
11
12 environments within LDCs (Claessens & Yurtoglu, 2013), not to mention powerful neo-
13
14 patrimonial systems (see Kelsall, 2011; Mkandawire, 2015; Hopper, 2017). In this regard, the
15
16
existence of corporate statutes and enforcement bodies within LDCs should not be taken to
17 mean that international CG systems (i.e., Anglo-American governance) and other western
18
19 innovations (i.e., the IFRSs and IASs) can ‘function the same way they do in the West’
20
21 (Cammack, 2007, p.599). We thus conclude this discussion in support of Proposition 2.
22
23
24 5.3 Neo-patrimonial influences on accounting and accountability practices
25
26 5.3.1 Bribery and corruption
27
28 Bribery and corruption emerged as another significant feature of neo-patrimonialism in Kenya
29
30 that stands in the way of leveraging the potential benefits of accounting and accountability
31
32 practices. As explained in the analysis below, bribery and corruption permeate the Kenyan
33
34 corporate sector where firm managers and accounting professionals are seen to be heavily
35
36
involved in acts of bribery. For instance, an Ernst & Young (EY) report invited managers of
37 Kenyan firms to complete a survey about corruption in the corporate sector and concluded
38
39 that:
40
41 90% of the managers perceived bribery/corrupt practices as happening widely in
42
43 business […] 23% agreed that one of these three things happened within their firm:
44
45 (a) revenues being recorded before they should…(b) customers being required to buy
46
47
unnecessary stock…[and] (c) underreporting of costs to meet short-term financial
48 targets [while] 41% of companies often report financial performance better than it is
49
50 (EY, 2015, p. 5-12).
51
52
53
The events reported in the above EY report have the potential to cause ‘market distortions’
54 (Kelsall, 2011), subsequently impeding the economic development of a country. The
55
56 prevalence of corruption as demonstrated above is consistent with the culture of neo-
57
58 patrimonialism (see Cammack & Kelsall, 2011; Woods, 2012; Lassou, 2017). For instance,
59
60 neo-patrimonial systems are noted to suffer from a widespread culture of “corruption,
61
62
22
63
64
65
 predation and theft” (Cammack & Kelsall, 2011, p.90), while at the same time exhibiting
1
2 subversion of formal institutions (Woods, 2012; Lassou, 2017), such as existing accounting
3
4 and auditing standards (Hopper, Lassou, & Soobaroyen, 2017). Moreover, the indigenous
5
capitalist elites found in many African countries such as Kenya (see Behuria, 2019), are also
6
7 noted to serve as key enablers of clientelism and rent-seeking practices (Mkandawire, 2015).
8
9
10 In addition, the Institute of Certified Public Accountants of Kenya (ICPAK), the body that
11
12
regulates the accounting profession, has also openly decried widespread corruption as a major
13 hindrance to financial accountability and transparency within the corporate sector. The CEO
14
15 of ICPAK was quoted in a leading daily stating that:
16
17
18
Fraudulent accounting is a national disaster in Kenya […] we need the input of every
19 stakeholder including the police, the National Intelligence Service and the Ethics and
20
21 Anti-Corruption Commission to curb the vice (Ngugi, 2015).
22
23
24 This, however, is unsurprising, given that corruption affects all sectors of the country’s
25
26 economy (Kimani, 2016). Indeed, according to Transparency International’s Corruption
27
28
Perception Index (2019), Kenya ranks as one of the most corrupt countries globally.
29 Consistent with the documentary evidence reported above, our interviewees narrated that the
30
31 elevated levels of corruption in the country adversely affects the quality of the work performed
32
33 by accounting practitioners (e.g., Interviewees: CGT1, J1, RB1, RB5, SEK5). There was also
34
35 an unequivocal opinion that accounting professionals operate in an intimidating climate where
36
37 they feel coerced to play along in order to protect their jobs and/or even their lives. These
38
39
views are aptly reflected in one of the interviewee’s quote below:
40
41 Corrupt individuals do not neglect anything to ensure that they leave no trail, including
42
43 bribing the accountants of various firms to cover their actions (RRB9).
44
45
46 The events presented in the evidence above are consistent with Barkemeyer, Preuss, & Lee
47
48
(2015) observation that companies exposed to corruption are less likely to be transparent. This
49 analysis helps us to see why it is difficult to sustain effective accounting and accountability
50
51 practices in neo-patrimonial-led business contexts. As an instance, and to borrow the words
52
53 of Cieslewicz (2014, p.519), “corruption has many consequences for accounting…for
54
55 accountants, corruption means being put in situations where one is expected to conceal and
56
57 explain away questionable activities…at a minimum, corruption requires the cooking of
58
59
financial records”.
60
61
62
23
63
64
65
 The above analysis is also consistent with extant literature which observes that exposing
1
2 corruption in neo-patrimonial contexts such as Africa is tantamount to putting oneself in
3
4 harm’s way (Hopper, 2017). We further argue that firms that abstain from corruption in neo-
5
patrimonial-led business contexts, run the real risk of losing out on business contracts, hence
6
7 not generating enough wealth for the shareholders. Managers and directors may also view
8
9 bribes/incentives paid to secure business contracts as a firm survival tactic in highly corrupt
10
11 business environments. Thus, firms are potentially left with few options except for partaking
12
13 in corruption to secure business and guarantee their survival. This view is supported by an
14
15 Ernst & Young (2015, p.21) report that ranked Kenya top in Africa—and second globally—
16 in terms of corruption, noting that “bribery/corrupt practices happen widely in business”. This
17
18 also suggests that corruption has become ‘embedded’ (Whiteman & Cooper, 2000) as a way
19
20 of doing business in Kenya, despite being a punishable criminal offence under the law. In this
21
22 context, the adoption of global accounting standards mainly serves as a façade to external
23
24 parties, while allowing internal actors to do what they wish with little enforcement constraints.
25
26
5.3.2 Lack of auditor independence
27
28 The lack of auditor independence emerged as another major area of accounting weakness
29
30 within Kenya’s corporate sector. To begin with, several interviewees provided accounts that
31
32 suggested that external auditors had close—and occasionally questionable—relationships
33
34 with the firms they audited. For instance, one interviewee narrated that:
35
36
37
You see, we don’t have many big companies [in Kenya] […] we are still a small
38 country […] the auditors may therefore avoid situations that could lead to fallouts with
39
40 their clients. Sometimes, they may have to dance to the tune of their clients in order
41
42 to sustain business (RRB2).
43
44
45 Another interviewee added that:
46
47 We don’t have many consultants who can provide the advice we would receive from
48
49 a multinational firm like Deloitte, PWC, or KPMG […] so, when we go for
50
51 competitive bidding, we may find that our current auditor has the lowest quote […]
52
53 what else can we do? (SEK13).
54
55
56 Interviewees’ accounts suggested that Kenya is a relatively small market for audit firms.
57 Consistent with these interviewees’ observations, the archival evidence shows that
58
59 approximately 98% of the total registered firms in Kenya are small-and medium sized entities
60
61
62
24
63
64
65
 (Omondi, 2015) that are also exempt from mandatory external audit (Herbling, 2017).
1
2 Additionally, Herbling (2017) notes that “the Big Four have effectively locked mid-tier global
3
4 consultancy firms in Kenya out of the lucrative listed [firms] auditing market”, which the
5
former dominates. When the indigenous firms are included, the ensuing competition leaves
6
7 several audit firms with a limited market for both audit work and other non-audit services (i.e.
8
9 consultancy and tax advisory). This paper thus argues that auditor objectivity and
10
11 independence is inherently imperilled, considering that Kenya’s CG code and company
12
13 statutes do not prohibit the provision of non-audit services to firms by their auditors, a factor
14
15 that is documented in literature as potential cause of financial statement fraud (see Rezaee,
16 2005).
17
18
19 Furthermore, one interviewee made an interesting observation concerning the growing
20
21 number of corporate collapses in Kenya4, as captured in the quote below:
22
23
24 We have seen companies that were being audited by the big four audit firms collapsing
25
26
overnight and, after scrutinising their affairs, the investigators revealed massive
27 financial improprieties within those companies [one company] went technically
28
29 insolvent about five years ago, but it had been audited all this time and the auditors
30
31 had been giving it a clean bill of health […] what were those auditors doing? (CGT1).
32
33
34 Our analysis further revealed that disciplinary procedures against errant auditors usually take
35
36
a long time to be concluded. For instance, three of the top four global audit firms have pending
37 investigations for abetting accounting fraud in five of Kenya’s largest firms (The Institute of
38
39 Certified Public Accountants of Kenya website, 2015). Notwithstanding, the Institute of
40
41 Certified Public Accountants of Kenya, the body that regulates the activities of auditors and
42
43 accountants in Kenya, is noted to have only “closed six cases involving its members since
44
45 2014” while another 8 are still outstanding since that time, not to mention 6 more cases that
46
47
emerged in the year 2019 (see, Business Daily Africa, 2019). Instances like these
48 investigations illustrate the counteracting nature of neo-patrimonial regimes and how they
49
50 render formal systems of accountability (in this case, external audit) ineffective.
51
52
53
54
55 4
The interviewee’s sentiments are corroborated by a report that observed that, shareholders in eight Kenyan
56 companies lost about Kenya shillings 264.3 billion (approx. 24 billion US dollars at 2020 currency exchange
57 rates), owing to poor CG practices, including fraud and weak board oversight. The report further points out that
58 “for a market with [just] over 60 listed companies to have significant issues with at least 8 companies (i.e.
59 13%)….[shows] a worryingly high statistic that should call into question our regulatory frameworks and its
60 effectiveness” (Cytonn Corporate Governance Report, 2016, p. 20).
61
62
25
63
64
65
 The evidence presented in this subsection suggests that external auditors may be constrained
1
2 from discharging their roles effectively due to close relationship with their auditee companies.
3
4 This finding also explains why the quality of auditing continues to wane, despite the presence
5
of features that would otherwise be expected to boost the quality of accounting and auditing
6
7 within the corporate sector (see also Wanyama, Burton, & Helliar, 2009; Kimani, 2016). We
8
9 therefore argue that appointment (and operations) of external auditors mainly serves as a
10
11 facade for accountability, as it gives the erroneous perception that one of the most important
12
13 checks and balances for preventing accounting fraud and financial misconduct in the
14
15 corporate sector is functioning. The hat that such auditors wear as external third parties
16 potentially only serves as a veil of autonomy, without real professional independence (see,
17
18 Cammack, 2007; Hopper, 2017).
19
20
21 Accordingly, the strong commercial logic in audit practice demonstrated in the above analysis
22
23 engenders an auditor–auditee relationship steeped in clientelism. This behaviour is a key
24
25 feature of neo-patrimonial contexts, where “a party with authority, social status, wealth, or
26
some other personal resource [i.e. auditee firms] and another who benefits from their support
27
28 or influence [i.e. auditors]” are able to derive mutual benefits from each other (Bakre, Lauwo,
29
30 & McCartney, 2017, p. 1304). This analysis further shows that clientelist and patronage
31
32 networks borne out of neo-patrimonialism do not only exist in the public sector arena as
33
34 reported in prior literature (see, Kelsall, 2011; Mkandawire, 2015; Lassou, 2017), but also
35
36 thrive within the private and external audit sector. The above evidence supports our
37 Proposition 3, that neo-patrimonial-led contexts constrain accounting from operating as a
38
39 reliable institution for maintaining integrity, owing to conflict of interests and weak oversight.
40
41
42 6. Summary and conclusions
43
44 This study has relied on a neo-patrimonialism lens (Eisenstadt, 1973; Kelsall, 2012; Hopper,
45
46 2017) to uncover the underlying neo-patrimonial features that influence the implementation
47
48 of CG and accountability reforms adopted in Kenya. This was motivated by insights from the
49 literature on CG and accountability mechanisms in LDCs that have highlighted the challenges,
50
51 and limited implementation/effectiveness of these mechanisms (e.g. Wanyama, Burton, &
52
53 Helliar, 2009; Siddiqui, 2010; Okpara, 2011; Bakre & Lauwo, 2016; Lassou & Hopper, 2016;
54
55 Alawattage & Alsaid, 2017; Lassou, 2017; Nakpodia & Adegbite, 2018). Distinctively, we
56
57 explore the implications of neo-patrimonialism in the context of the business/private sector
58
59
60
61
62
26
63
64
65
 governance and accountability and its regulation thereof, and we draw on contemporary
1
2 experiences from the Kenyan corporate sector.
3
4
5
Our findings show that while Kenya has developed, over time, a well-defined legal-rational
6 structures, including an elaborate corporate sector regulatory framework, visibly qualified
7
8 professionals (i.e. accountants and auditors) and corporate boards with appropriate CG
9
10 subcommittees, CG and corporate accountability practices remain considerably weak and
11
12 ineffective. We contend that a key reason underlying this state of affairs is that decisions and
13
14 actions of corporate players (e.g. board members, directors) and regulatory players (e.g. CMA
15
16
and ICPAK) are driven largely by neo-patrimonial dynamics. For instance, tribalism and
17 powerful networks of patronage and clientelism interfere with board appointment processes,
18
19 while weak enforcement systems play a more symbolic, rather than regulative role. We also
20
21 found a widespread culture of bribery and corruption, which presents a significant hindrance
22
23 to corporate accountability, as involved parties seek to cover up their actions. External auditor
24
25 independence was also found to be at risk due to conflicts of interest where auditors provide
26
auditing and consultancy services, thus engendering or perpetuating clientelist associations
27
28 with auditee firms.
29
30
31 Overall, the present paper contributes to the literature along two main fronts. Firstly, the paper
32
33 adds to literature on CG and accountability practices in emerging economies, using in-depth
34
35 qualitative evidence from Kenya, to highlight the processes by which the effective
36
37
implementation of western-based CG and accountability practices is moderated by neo-
38 patrimonial features. By doing so, the paper responds to recent calls for more ‘accounting and
39
40 accountability research’ on Africa (Nyamori, Abdul-Rahaman, & Samkin, 2017), using ‘in-
41
42 depth interviews and archival data’ to uncover factors which hamper CG and accountability
43
44 practices in Kenya (Soobaroyen, Tsamenyi, & Sapra, 2017). Secondly, this paper is one of
45
46 the first studies to deploy the neo-patrimonialism frame to analyse how informal institutions
47 (e.g. corruption, patron/client relations) influence the conduct of corporate governance and
48
49 accountability within the private sector. Thus, considering that corruption and rent-seeking
50
51 continue to escalate in many LDCs (Bakre & Lauwo, 2016; Hopper, 2017), despite the
52
53 introduction of CG and accountability reforms (O’Brien & Ryan, 2001; Bakre, Lauwo, &
54
55 McCartney, 2017), this paper calls into question the logic behind such reforms. By mobilising
56
57 neo-patrimonialism to examine CG and accountability practices within the private (corporate)
58 sector, this article extends prior studies that have deployed this lens to examine accounting
59
60 within a public sector context (e.g. Lassou & Hopper, 2016; Lassou, 2017; Lassou, Hopper,
61
62
27
63
64
65
 Tsamenyi, & Murinde, 2019). Our paper contributes to the literature by showing how the
1
2 mechanisms of neo-patrimonialism not only pervade the political systems in African
3
4 countries, but also impact privately controlled modern enterprises, significantly constraining
5
their efficiency (Taylor, 2014). We suggest that future neo-patrimonial-led research should
6
7 be sensitive to the fact that private sector actors are important enablers and supporters in the
8
9 continued dominance of neo-patrimonial systems in Africa.
10
11
12 The paper suggests that LDCs governments and their development partners should work
13
14 together with stakeholders to ensure adequate systems are put in place to support appropriate
15
16
CG and accountability practices. For instance, governance rating agencies such as the Mo
17 Ibrahim Foundation5 or the World Bank6, could try and give more explicit recognition of the
18
19 influences of neo-patrimonial regimes on governance and accountability practices in African
20
21 countries, in order to encourage more proactive policy responses to address them. Also,
22
23 capital market oversight authorities should be strengthened to enforce regulations regarding
24
25 transparency of related-party transactions and payments that could be construed as corrupt.
26
External auditors could also specifically be made responsible to report on companies’
27
28 compliance with disclosures concerning related-party transactions and non-arm’s length
29
30 contracts.
31
32
33 Finally, we call for research to understand how neo-patrimonialism affects internal board
34
35 processes and board dynamics. Where possible, action research during board meetings may
36
37
be considered in order to gain deeper and first-hand experience of the LDCs boardroom black
38 box. We also encourage research on accounting pedagogy in Kenya to enable policy makers
39
40 and professional bodies to understand how accounting education and training can be improved
41
42 to counteract the influence of informal institutions (e.g. the culture of bribery and corruption)
43
44 on the work of accounting professionals. Future research could also explore how minority
45
46 shareholders may be empowered to be able to participate effectively in the CG process and
47 ensure that their interests are safeguarded within Kenya’s neo-patrimonial context.
48
49 Researchers may examine whether shareholders’ association/s by virtue of having members
50
51
52
53 5
In 2006, the Mo Ibrahim Foundation established the Ibrahim Index of African Governance which uses data
54 from different sources to rank African countries yearly based on their quality of governance. More information
55 about the index is available at [Link]
56
57 6
The World Bank collects data and produces yearly ranking for over 200 countries based on six indicators
58 (Worldwide Governance Indicators): i.e. voice and accountability, political stability and absence of violence,
59 government effectiveness, regulatory quality, rule of law, control of corruption. More information about this
60 raking is available at [Link]
61
62
28
63
64
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 from different cultural backgrounds, can help to counteract the dominance of one or a few
1
2 communities/tribes in corporate boards, thus minimising patronage tendencies within firms.
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 1
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15
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20
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22 Figure 1: Country profile and World Bank global governance indicators
23
24
25
26  Total GDP: US$74.938 billion
27
28  Population: 49,699,862 million
29
30  Political stability rank*: 12.86
31
32  Government effectiveness rank: 40.87
33
34  Regulation quality rank: 43.75
35
36  Rule of law rank: 37.98
37
38  Voice and Accountability rank: 40.39
39
40  Control of corruption rank: 15.38
41
42  Strength of investor protection index**: 5.8
43
44  Transparency International's Corruption Perception Index of
45
46
2018: Ranked 144 out of 180 countries
47
48
49
50
Notes:
51
 * Rank definition: Percentile rank among all countries (ranges
52
53 from 0 (lowest) to 100 (highest) rank)
54
55
 ** The strength of investor protection index is an average of
56 three indices—the extent of disclosure index, the extent of
57 director liability index, and the ease of shareholder suit index.
58 The index ranges from 0 (little to no investor protection) to 10
59 (great investor protection).
60
61
62
63 Source: Compiled by the authors from World Bank Indicators, and, data on ‘Doing Business Project’
64
65
15
16
17 Figure 2: An integrated framework of different forces and pressures constituting the accounting and governance framework
18
19
20 External forces Internal forces
21
22
23
24 Foreign donor The Nairobi Stock
25 agencies (USAID,
26 Exchange
DFID, AUSAID)
27
28
29
30 International
31 Capital Markets
32
Monetary Fund Authority
33 (IMF)
34
35
36
37 International
38 Financial Reporting Central Bank of Kenya
39 Standards (IFRS)
40
41
42
43 The Institute of Certified
44 Public Accountants of
45 Kenya (ICPAK)
46
47
48
49 The Institute of Certified
50 Secretaries of Kenya
51 (ICS)
52
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55
56
57
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 Table 1: Chronology of key accounting and corporate governance reforms in Kenya
Timeline Event
Early 1980s: 1980-84 First phase of (economic) reforms introduced by the IMF and World Bank–
1 beginning of the privatisation process
2
3 1984 Joint study by the IFC and the Central Bank of Kenya recommending the
4 creation of a regulatory body for the capital markets
5
6 1985-1991 Second phase of (economic) reforms spearheaded by the World Bank and IMF—
7 the establishment of the Capital Markets Authority (CMA) and formalisation of
8 the NSE
9 Jun-86 Funding agreement signed between the Government of Kenya (GoK) and
10 donors (USAID) to establish a capital market development authority
11 Nov-89 Kenyan parliament passes a bill to set up the CMA through an act of parliament
12 (Cap 485A, Laws of Kenya)
13
14
Jan-90 CMA constituted
15
16 Mar-90 CMA inaugurated
17 1991 NSE formalised as a private company limited by shares
18
19 1991-1996 Third generation of economic reforms spearheaded by the World Bank and IMF
20 1997 Commonwealth secretariat held a three-day workshop in Kampala, Uganda, on
21 improving company performance
22
23 Nov-98 First corporate governance workshop in Kenya organised by the NSE, CMA,
24 ICPAK, and ACCA
25 March-August 1999 Private Sector Corporate Governance Trust (PSCGT) reviewed various
26 international codes of CG and drafted a sample Kenyan code
27
28 Oct-99 PSCGT organised a CG workshop/seminar sponsored by the Ford Foundation,
29 British Department for International Development, and Friedrich Ebert
30 Foundation
31 Nov-99 PSCGT sample code published and distributed in Kenya
32
33 Dec-99 Institute of Certified Public Accountants of Kenya (ICPAK) adopted the
34 International Standards on Auditing (ISA)
35 Dec-99 ICPAK adopted the IFRSs as issued by the IASB without modifications
36
37 Jan-02 Kenya Shareholders’ Association established
38 Apr-02 Formal adoption of CG code based on ‘Comply or Explain’, entitled: Guidelines
39 on Corporate Governance Practices by Public Listed Companies in Kenya
40
41 ICPAK adopted Code of Ethics for Professional Accountants
2009
42
43 2010 IFRSs became effective for small-and-medium-sized enterprises (SMEs)
44 2014 ICPAK partially adopted International Public Sector Accounting Standards
45 (IPSAS)
46 2015 Kenya Accountants and Secretaries National Examinations Board (KASNEB)
47 adopted the International Education Standards (IES) syllabus for professional
48 accountants.
49
50 2015 2002 Code amended with Code of Corporate Governance Practices for Issuers of
51 Securities to the Public, 2015.
52 2017 Stewardship Code for Institutional Investors was issued by the Capital Markets
53 Authority
54
55 Source: Collated from various sources (e.g., The Office of Economic and Institutional Reform, 1994;
56 Capital Markets Authority, 2002; Gatamah, 2002; Were, Ngugi, & Makau, 2006); Capital Markets
57 Authority of Kenya website, 2017).
58
59
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 Table 2: Summary of Interviewees

Codes of Number of
Interviewees Category of interviewees interviews
1
2
SEK 1-14 Senior executives of Kenyan listed firms 14
3 RRB 1-12 Representatives of regulatory bodies (Capital Markets
4 Authority (CMA), Institute of Certified Public Accountants
5 of Kenya (ICPAK), Institute of Certified Public Secretaries
6 of Kenya (ICPSK), and Nairobi Securities Exchange
7 (NSE))
8 12
9
10 J1 Journalist 1
11 CGT1 Corporate governance trainer 1
12
UAA1 University academic (Accounting) 1
13
14 Total 29
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
41
63
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65
 Table 3: Table of Interviewees

Codes of Interviewees Job title Gender Industry/Company Size

1 SEK1 Compliance Officer Female Energy and Petroleum/Large
2
3 SEK2 Executive Director Male Insurance/Large
4 SEK3 Deputy Director Male Insurance/Large
5 SEK4 Executive Director Male Investment/Medium
6
SEK5 Non-executive director Male Manufacturing/large
7
8 SEK6 General Manager Male Telecommunication and
9 Technology/Medium
10 SEK7 Compliance Officer Female Manufacturing/Medium
11 SEK8 Chief Risk Officer Male Telecommunication and
12 Technology/Medium
13 SEK9 Additional Director Male Manufacturing/Medium
14
15
SEK10 Executive Director Female Banking/Large
16 SEK11 Compliance Officer Male Banking/Large
17 SEK12 Executive Director Female Banking/Medium
18 SEK13 Executive Director Female Manufacturing/Large
19
20 SEK14 Executive Director Male Commercial and services/Small
21 RRB1 Vice Chairman Male Regulatory Body
22 RRB2 Council member Male Regulatory Body
23
RRB3 Council member Male Regulatory Body
24
25 RRB4 Council member Male Regulatory Body
26 RRB5 Enforcement officer Male Regulatory Body
27 RRB6 Legal & Corporate Male Regulatory Body
28 Affairs Director
29 RRB7 Regulatory Affairs Male Regulatory Body
30
Director
31
RRB8 Executive Director Female Regulatory Body
32
33 RRB9 Deputy Director Male Regulatory Body
34 RRB10 Commissioner Male Regulatory Body
35 RRB11 Executive Director Male Regulatory Body
36
37 RRB12 Executive Director Female Regulatory Body
38 J1 Journalist Male Media
39 CGT1 Corporate Governance Female Private Training Firm
40 Trainer
41 UAA1 University Academic in Male University of Nairobi
42 Accounting
43
SEK=Senior executives of Kenyan listed firms, RRB=Representatives of regulatory bodies,
44
JI=Journalist, CGTI= Corporate governance trainer, UAA1= University academic (Accounting)
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
42
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 Table 4: List of Interview Questions
Boards of Directors
i. In your opinion, what are the board committees that help in promoting good corporate
1 governance within your organisation?
2 ii. How would you define an effective board of directors?
3 iii. What are some of the steps taken by the board to supervise and support the management?
4
5 iv. What criterion is used in recruiting new board members? Are the new directors trained for
6 their new roles?
7 v. In your opinion, what particular features of the board structure have the greatest effect on
8 corporate governance?
9 vi. What factors would you consider as most important regarding the composition of board as well
10
as the board committees?
11
12 vii. Do you think the board of directors should have a greater responsibility for governance and
13 oversight in the event of any corporate scandal?
14
15
Bribery and corruption
16 i. How would you rate the state of transparency and in Kenya’s corporate sector?
17 ii. What are some of the challenges that your organisation faces while performing its supervisory
18 roles?
19 iii. How you would describe the quality of internal controls and external oversight in minimising
20 the likelihood of bribery and corruption?
21
22 Professionalism and inadequate skills of accountancy practitioners
23 i. How would you describe the role of professional accounting bodies and higher educational
24 institutions in promoting accounting education?
25 ii. Does your company encourage existing employees in pursuing professional accounting
26
27 qualifications?
28 Lack of auditor independence
29 i. How would you rate the quality of audit work performed by external auditing companies?
30
31
ii. How would you describe the level of auditor independence?
32 iii. In your opinion, how you can compare the role of Big 4 auditing firms and local auditing firms
33 in enhancing transparency and accountability in the corporate sector?
34
35
Inadequate regulatory regime
36 i. How would you rate the commitment from companies to strengthen corporate governance
37 within the Kenyan corporate sector?
38 ii. Have you had instances where some corporate governance regulations contradict with other
39 legal requirements in the country?
40 iii. In your view, what are some of the weaknesses or weak areas in the current regulatory
41
42
requirements?
43 iv. How good is the coordination between the various supervisory bodies charged with overseeing
44 CG implementation (i.e. Capital Markets Authority, Institute of Certified Public Accountants of
45 Kenya, and Registrar of Companies)?
46 v. What are your main concerns regarding the manner in which corporate governance is designed?
47
48 Missing shareholder sophistication
49 i. What are some of the corporate governance problems that have had direct consequences on the
50 welfare of shareholders?
51 ii. How have shareholders made use of available options in seeking redress for their grievances?
52 iii. In your opinion, are AGMs well attended? What do you think about the level of shareholder
53
54 participation and activism at AGMs?
55
56
57
58
59
60
61
62
43
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65
 Appendix: List of Acronyms
 ACCA - Association of Chartered Certified Accountants

1  AGM - Annual General Meeting

2
 AUSAID - Australian Agency for International Development
3
4  CBK - Central Bank of Kenya
5
6  CG - Corporate Governance
7
8  CMA - Capital Markets Authority
9
10  CNW - Company Name Withheld
11
12  DFID - Department for International Development
13
14  FiRe - Financial Reporting
15
16  GoK - Government of Kenya
17
18  IASs - International Accounting Standards
19
20  IASB - International Accounting Standards Board
21
22
 ICPAK - Institute of Certified Public Accountants Kenya
23  ICS - Institute of Certified Secretaries of Kenya
24
25  IES - International Education Standards
26
27  IFAC - International Federation of Accountants
28
29  IFC - International Finance Corporation
30
31  IFRSs - International Financial Reporting Standards
32
33  IMF - International Monetary Fund,
34
35  IPSASs - International Public Sector Accounting Standards
36
37  IRA - Insurance Regulatory Authority
38
39  KASNEB - Kenya Accountants and Secretaries National Examinations Board
40
41
 LDCs - Less Developed Countries
42  NSE - Nairobi Securities Exchange
43
44  PSCGT - Private Sector Corporate Governance Trust
45
46  ROSC - Report on the Observance of Standards and Codes
47
48  SMEs - Small and Medium-sized Enterprises
49
50  UK – United Kingdom
51
52  USA - United States of America
53
54  USAID - United States Agency for International Development
55
56  WB - World Bank
57
58
59
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Cover Letter

Dr Philippe Lassou
Professor Trevor Hopper
Professor Collins Ntim

Guest Editors,
Critical Perspectives on Accounting 4 October 2020

Subject: Submission of Revised Manuscript to Special Issue of CPA on African Accounting and
Development: YCPAC-D-18-00024R4

Dear Editors,

We are grateful to the guest editor Dr Philippe Lassou for his minor comments and feedback on our revised
manuscript. We have accepted and incorporated the suggested changes. We have professionally proofread the
final revised version. Our final revised version has no typos, grammatical mistakes. In addition, we have carefully
checked every single reference to ensure that (a) each cited reference appears in the final reference list (b) in-text
references are consistent with CPA reference style, and (c) final reference list is in line with CPA references style
for books, article, web pages, and working papers. We believe the paper has now improved significantly after
several rounds of reviews.

We hope the paper will be considered for publication in Critical Perspectives on Accounting.

We are once again thankful to the editorial team and the two reviewers who have reviewed our paper at the earlier
rounds.

We are looking forward to hearing from you.

Yours faithfully,

Dr Subhan Ullah,
University of Nottingham Business School, UK

On behalf of co-authors:

Dr Danson Kimani, Essex Business School, UK

Professor Devendra Kodwani, The Open University Business School, UK
Professor Pervaiz Akhtar, University of Aberdeen Business School, UK
Detailed reply to reviewers comments

Response to Editor comments

Ms. Ref. No: YCPAC-D-18-00024R4

Title: Analysing corporate governance and accountability practices from an African neo-patrimonialism
perspective: Insights from Kenya

Journal: Critical Perspectives on Accounting

1. Please review the few changes suggested (see attachment) and address the comments in
the word file. After you have reviewed and accepted the changes, please turn on track
changes before addressing the comments and the points below.
Response:

Thank you very much for reading the revised manuscript, and the track changes. We
accepted the track changes.

2. In order to be as up to date as possible with the relevant literature, please ensure that you
have reviewed recent issues of the major interdisciplinary accounting journals to identify any
article(s) which should be incorporated into your argumentation.
Response:

Thank you. We have considered several articles from interdisciplinary accounting journals,
and this is now well reflected from a diverse range of references from different outlets,
appearing in the reference list.

3. Please be careful in checking the references, making sure that they are consistent with the
journal’s style. It would also be useful to verify the integrality of the references (in both
directions).
Response:

Thank you. We have checked every single intext citation to ensure they appear in the final
reference list and they are consistent with CPA referencing style.

4. When these changes are made, then please read the manuscript one last time in order to
make sure that you are comfortable with every sentence and word.

Response:

Thank you for this suggestion. We have carefully proof-read the final version from a
professional proof-reader. The co-authors have also read the final version and we hope the
paper has improved substantially.

We are once again thankful to the editorial team and the reviewer for the earlier feedback.