Journal of Business Administration and Management Sciences Research Vol. 2(3), pp.

080-090, March, 2013

Available online at http://www.apexjournal.org/JBAMSR
ISSN 2315-8727 2013 Apex Journal

Full Length Research Paper

Role of corporate governance and strategic leadership

practices in mitigating risks in stock brokerage
firms in Nairobi
John Kiarie1 and David Minja2*
1
Department of Accounting and Finance, St. Pauls University, Kenya.
2
Department of Management, Kenyatta University, Kenya.
Accepted 2 April, 2013
st
The success or failure of any organization rests on its leadership. In the 21 century, corporate
governance is becoming a matter of enormous public attention and concern. The increase in investors
interests in the way stock brokerage firms are led, changes in the institutional framework and policies
and demand for ethical leadership from stakeholders have contributed significantly to renewed interest
in the way these firms are run. The rate of collapse of stock brokerage firms trading in the Nairobi
Securities Exchange (NSE) has been alarming. Over the past few years, Kenyan investors have watched
desperately as various brokerage companies collapse resulting in huge investment losses. Analysts
have attributed this problem to leadership and governance issues, yet, no conclusive studies had been
done to test this presupposition. The aim of this study, therefore, was to assess the role of strategic
leadership and corporate governance practices in mitigating risk and maximizing investors returns in
the stock market. The study adopted a descriptive design. A sample size of 64 managers from finance
and operations departments was selected randomly in each organization involved in this study. Primary
data was collected using questionnaires and analyzed using mean, standard deviation and coefficient
of variation. The major findings were that all the brokerage firms have boards of directors. However,
majority of board members did not have adequate skills, knowledge or experience in strategic
leadership, stock brokerage finance and risk management. The study concluded that corporate
governance and strategic leadership practices were not being applied optimally to mitigate risks in the
firms under study.

Key words: Strategic leadership, corporate governance, risk management.

INTRODUCTION

Strategic leadership is the ability to anticipate, envision,
maintain flexibility and empower others to create the
needed organizational changes (Finkelstein et al., 2008).
In a company set-up, strategic leadership practice rests
at the top, in particular, with the Chief Executive Officer,
the board of directors and senior management officers
(Kimutai, 2009).
According to Muriithj (2009), corporate governance is
the system by which organizations are directed and
controlled. The task of corporate governance as
observed by Cummings and Worley (2005) is to bring
about constructive and necessary changes which are
*Corresponding author. E-mail: minjad11@gmail.com.
responsive to the long-term positive outcome of all
stakeholders.
The arguments by the above scholars are supported by
Frenkel et al. (2005) who observe that organizational
controls which incorporate risks mitigation practices are
basic to a capitalistic system and an important part of
strategic implementation in order to achieve the desired
outcomes. Kaplan and Norton (2006) argue that some
firms only use financial controls which produce short-term
outcomes and risk averse managerial decisions. As a
result, outcomes are shared between the business- level
executives making strategic proposals and the corporate-
level executives evaluating them. To avoid temptation for
managers to focus on short term gains only, Kaplan and
Norton advise managers to apply the Balanced
Scorecard framework to ensure that they have

established both strategic and financial controls to help
boost performance, and e reduce risks.
Sharma (2007) argued that intellectual capital,
including the ability to manage knowledge and create and
commercialize innovation, affects strategic leaders
success. The author observed that one of the most
important tasks of the leadership in an organization is to
unlock the natural state of creativity that sleeps within the
minds of the followers. This will help the organization to
experience the kind of innovation required to become a
world-class corporation. On their part, Frenkel et al.
(2005) argued that when a company is left with a void in
leadership, the ripple effects are widely felt both within
and outside the organization. .
Background to the study
In Kenya, shares dealings were initiated in the year 1920.
The business was then confined to British settlers since
local investors were denied trading in securities (CBK,
1984). In 1954; the NSE was set up as a voluntary
association of stockbrokers registered under the societies
Act with permission of London stock exchange. Securities
that were traded in the NSE during the period mainly
comprised of government stock, loan stocks, preference
and common shares. The establishment of the NSE as
an active financial centre was the culmination of five
decades of rapid development of the markets financial
system (Ngugi, 2003).
In November 1988 the Government set up the Capital
Market Development Advisory Council and charged it
with the role of working out the necessary modalities
including the drafting of a bill to establish the Capital
Markets Authority (CMA). In 1989, the bill was passed in
Parliament and subsequently received Presidential
assent. CMA was eventually constituted in January 1990
and inaugurated on 7th March 1990. The CMA was
mandated to regulate and facilitate the development of an
orderly, fair and efficient Capital Markets in Kenya. The
main markets players in the Kenyan Capital Markets
include; the Nairobi Stock Exchange, the Central
Depository and Settlement Corporation Ltd,
Stockbrokers, Investment Advisors, Fund Managers,
collective Investment and Authorized Securities Dealers
(NSE, 2008).
Kilonzo (2009) observed that over the years, the
Capital Market Authority has initiated a number of policies
to facilitate the growth and development of the capital
markets in Kenya. As a result, there has been an
increase in the number of companies seeking to list at the
Nairobi Stock Exchange. The authority is pursuing major
reforms to strengthen its regulatory framework critical for
the maintenance of investors confidence as well as
enhancing investors protection.
Kibuthu (2005) noted that, the period preceding the
2002 general election saw the NSE experience decline in
Kiarie and Minja 081
market performance. The uncertainty of the business
environment resulted in the decline in the confidence and
subsequently poor performance of the stock market as
well as the withdrawal of donor funding but was restored
when a new government came into power.
The market infrastructure was also improved by
installation of a computerized central depository system
(CDS) introduced on November 2004 and whose
operations included, keeping the share registry, clearing
and settlement arrangement hence assuring faster, safer
and easier trading insecurities (Kibuthu, 2005).
Despite the measures taken, several firms such as
Nyaga Stock Brokers and Thuo Stock Brokers were
declared bankrupt back in the year 2007. Discount
Securities Limited was also placed under receivership
and several other companies continue to face solvency
challenges.
Walker (2005) observed that organizations
management are vulnerable to a significant risk in their
respective operations. However, the capability of its
leadership determines makes a significantly how a firm
operates and manages its risk. The responsibility of
leaders and managers therefore, is to ensure that their
organizations put in place corporate governance best
practices and strategic leadership practice that will create
sustained superior performance.
Statement of the problem
The rate at which the Stock brokerages have been
collapsing is alarming. Over the past few years, Kenyans
have watched desperately as brokerage companies such
as Nyaga Stock, Thuo Stockbrokers, Discount Securities
either collapsed or went under receivership, taking with
them about Ksh3 billion of investors money (Daily
Nation, Oct 28, 2009). Walker (2005) argued that,
though all organizations face significant risks in their
operations, the capability of its leadership can shape the
direction the firm takes and is critical to its survival. A firm
whose top leadership embraces good corporate
governance practices is able to achieve above average
results.
The thrust of this study was to investigate whether firms
trading in the NSE employed good governance practices
in mitigating strategic and investment risks. Specifically,
the study looked at leadership and corporate governance
practices of firms trading in NSE in order to establish
whether the variables under investigated were applied in
the firms that had collapsed and also those that still
operated without experiencing challenges to their
survival.
The study, therefore, sought to determine the extent to
which strategic leadership was being practiced and how
that practice assisted the firms under study to mitigate
risks in order to create investor confidence and avoid
corporate failure.
 082 J. Bus. Admin. Manage. Sci. Res.
Purpose of the research
The purpose of this study was to investigate the extent to
which strategic leadership and good corporate
governance practices were evident in organizations
under study. The study also examined and how those
practices helped the firms under study in mitigating risks.
Objectives of the study
1. To establish whether good corporate governance and
strategic leadership practices were evident in the
brokerage firms under study;
2. To determine the composition of the board of directors
and their expertise in corporate governance and strategic
leadership;
3. To establish approaches of strategic leadership in the
brokerage firms to mitigate and control risk.
LITERATURE REVIEW
Overview of the role of strategic leadership in
corporate governance
Finkelstein et al. (2008) argued that, the success or
failure of any organization rests on its leadership. firms
collapse if the leadership suffers from the following
weaknesses: The inability to respond or to identify
threats, overestimating their ability to control firms
external environment, having no boundary between their
interests and that of the company, a belief that they can
answer all the questions, eliminating all those who
disagree with them, and underestimating obstacles and
relying on what worked in the past (Icarus paradox
phenomenon). In addition, Sharma (2007) observed that
organization collapse when the leadership fails to sell its
vision to its followers, has not convinced its followers why
they should be passionate and failure to make employees
loyal to organizational agenda.
Sharma (2007) argued that to attain and sustain
superior financial performance and win investors
confident, strategic leadership must guide the firm in
ways that result in the formation of a strategic intent and
strategic mission. Goffee and Jones (2006) observed that
when leadership commits itself to liberate rather than to
stifle the talents of the people it leads, this results in leap
quantum in terms of loyalty, productivity, creativity and
devotion to organizational vision and goals. Leavy and
Mckieman (2009) observe that, strategic leadership must
facilitate the development of appropriate strategic actions
and determine how to implement them.
Calder (2008) has observed that corporate governance
has become critical for all medium and large
organizations and is becoming a matter of enormous
public attention and concern. On their contribution,
Kaplan and Norton (2006) observed that in todays
competitive business environment, top leadership must
be seen to practice good corporate governance practices.
In particular, the authors observed that modern
management tools such as, code of corporate
governance, use of hedging, derivatives, embracing
regulatory laws and use of Balance Scorecard will go
hand in hand in ensuring high performance and mitigation
of risks likely to affect organizational operations.
Essentials of strategic leadership
Goffee and Jones (2006) argued that strategic leadership
lies in mastering a wide range of skills such as: being a
good administrator, poses capabilities of inspiring others
to achieve excellence, good communicator, promoter of
change and an excellent strategist. Strategic leadership
should be competent in technical and social skills. Hellen
(1999) observed that strategic leadership need to
continually assess their performance and looking for
ways to improve and extend their skills. A strategic leader
should be visionary. Sharma (2007) argued that great
organizations begin with great leadership. Strategic
leaders should also be persuasive, Hackman (2004).
Integrity should also be embraced by strategic leaders,
Hoffman, 2004. Corporate integrity often involves the
sense of shared goals, open communication at all levels,
meritocracy, and appropriate accountability structures
(Sharma, 2007). Strategic leaders also need to be
flexible. Hellen (1999) noted that this is the ability to
adapt to changes and to embrace changes as positive
and desirable. Finally, a good strategic leader needs to
have concern for other people. Sharma (2007) argued
that, strategic leaders should have the ability to
demonstrate genuine care for the people they lead.
Risk background
The term risk as noted by Francis (1993), originates from
the Italian word, riskare which means to dare. The
concept of risk in finance theory as noted by Fischer
(1991) has undergone many changes in terms of its
meaning. The author argued that, it was also associated
with the departure of the market value of the firm from its
intrinsic value and uncertainty faced by the firm in earning
adequate post-tax profits for paying reasonable dividends
to shareholders.
Francis (1993) argued that business leverage and
liquidity risks assume a lot of importance as a major
description of risk. To describe the total risk, it became
common to accept the variability in the returns distribution
as surrogate for total risk.
R = E(R) +Systematic portio+Unsystematic portion;
Where R is returns, E(R) is expected returns. Frenkel et
al. (2005) observed that there are two forces that
contribute to variations in returns in terms of price or

dividend, namely systematic and unsystematic risk.
Systematic risk also known undiversifiable risk is that
portion of total variability in returns caused by market
factors that simultaneously affect the prices of all the
securities. It cannot be controlled or influenced by a
business, and affect a large number of businesses.
Unsystematic risk as noted by Frenkel et al. (2005) is
that part of the total risk that is unique to a firm or
industry. This kind of risk is influenced by factors such as
management capability, consumer preferences, labour
strike, advertising campaigns and lawsuits.
The uncertainty surrounding the ability of the business
firm to issues or make payments on securities originate
from two sources. .
Risk mitigations
Risk mitigation as noted by Radcliff (1990) is as old as
trade and is the foundation of insurance industry.
According to Frenkel et al. (2005), risk management is an
activity directed towards the assessing, mitigating and
monitoring of risks. The investment process involves the
leadership of the firm deciding on which investment
should be undertaken and how much money would be
committed to each investment. Allen (2003) noted that, a
firm will seek to avoid risks in areas of ignorance or non-
core activities while taking additional risks in others.
Pearson and Robinson (2007) noted that most
operational business decision involves considerable long
term investment which in addition has huge significant
exit cost element. Allen (2003) therefore, observed that
firms result in financial hedging. This is also known as
off-balance sheet in that the instrument used are
derivatives or contingent claims which mimic or alter the
buyers or seller exposures.
Most financial risks as noted by Allen (2003) can be
reduced or controlled by use of derivatives. Derivative is
a security whose price is dependent upon or derived
from one or more underlying assets. Its value is
determined by fluctuations in the underlying asset. The
most common underlying assets include stocks,
bonds, commodities, currencies, interest rates and
market indexes. Most derivatives are characterized by
high leverage. Derivatives are contracts and can be used
as an underlying asset. Derivatives are generally used as
an instrument to hedge risk, but can also be used
for speculative purposes (Elton, et al, 2003).
Derivatives hedging
Francis (1993) defined derivatives as financial
instruments whose value is affected by the value of an
underlying item. These underlying items may be
commodities such as agricultural products and animals or
financial assets such as stock, bonds and common
Kiarie and Minja 083
papers. The objective of derivative hedging is not to
completely protect against risk, but gain as much
protection as possible. Derivative hedging should be
subject to the marginal benefits and marginal cost of risk
management (Frenkel et al., 2005).
The advent of modern day derivative contracts
according to Madura (2006) is attributed to the need by
farmers to protect themselves from any decline in the
price of their crops due to weather variations and
overproduction. The first derivatives which where
commodity based dominated the first 100 years of
derivatives trading. But gradually with the advent of
financial instruments, financial derivatives emerged
effective from 1970s (Madura, 2006).
Hedging as noted by Madura (2006) is a strategy
designed to minimize exposure to such business risks as
a sharp contraction in demand for ones inventory, while
still allowing the business to profit from producing and
maintaining that inventory. The author observed that,
banks and other financial institutions use hedging to
control their asset-liability, such as the maturity matches
between long, fixed rate loans and short-term deposits.
For example, banks are faced with credit risks in that
money owing will not be paid by an obligatory. Most of
these risks can be reduced by hedging.
Interest rate risk
Interest rate risk according to Obrian (2007) is the risk
arising from changes in the rate of interest on borrowed
or invested money. It has effect on cash flows of the
borrower or lender. The author noted that, interest rate
risk exposure can be caused by several sources which
includes; price risk, reinvestment risk, prepayment risk
and extension risk.
Interest rate risk involves a risk that has a relative value
of an interest bearing asset, such as a loan or a bond and
worsen due to an interest rate increase. Interest rate risk
can be hedged using fixed income instruments or interest
rate swaps can be referred to as an interest rate
management tool that can be used in conjunction with
any variable rate lending facility, including a facility with
another lender. It allows exchange or modification of
interest obligations so that the business is not exposed to
changes in interest rates.
Liquidity risk
Liquidity risk as noted by Obrian (2007) is the risk that
may make a company or a business unable to meet its
payment obligations when they fall due or to replace
funds when they are withdrawn. The firm can have
several core liquidity management strategies. Such
includes projecting future cash flows and making plans to
address normal operation requirements, as well as
 084 J. Bus. Admin. Manage. Sci. Res.
variable scenarios and contingencies (NSE, 2008).
Operational risk
Securities firms as noted by Leila (2009), engage in
various financial activities, particularly serving as brokers
between two parties in transfer financial securities, and
as dealers and underwriters of these securities.
Operational risk as noted by Ross et al. (1993) is the
risk of monetary loss resulting from inadequate or failed
internal processes, people and systems or external
events. For the stock brokers, operations risk is
essentially counter-party risks such as nonpayment, non-
delivery of scrip, denial of matched order by clients,
trading errors, and sudden closure of banks in which their
funds are deposited.
Market risk refers to the possibility of incurring large
losses from adverse changes in financial asset prices
such as stock prices or interest rates. Market risk is
usually affected by economic developments, political
destabilization, rising fiscal gap, and national debt,
terrorism, energy (Ross et al., 1993).
Kimutai (2009) observed that, brokerage firms also face
regulatory risks when the rules governing the securities
industry are changed, giving rise to potential loss. A new
rule that requires brokerages to maintain a higher net
capital may be hard to meet.
Theoretical framework
There are a number of theories used to explain and
analyze corporate governance. Some of these theories
as noted by Pandey (2006) are the agency theory which
arises from the field of finance and economics, the
transaction cost theory arising from economics and
organizational and the stake holders theory. Other
approaches include the organizational theory and the
stewardship theory. While there are marked differences
among these theories, this study critically examines the
commonly used theory in details; the agency theory since
it is mainly used in accounting and finance related
disciplines.
Agency theory
Pearce and Robinson (2007) noted that, whenever there
is separation of the owners (principals) and the managers
(agents) of a firm, the potential exists for the wishes of
the owners to be ignored. Leavy and Mckieman (2009)
pointed out that managers are employed and delegated
with the responsibility of decision making by owners,
hence creating an agency relationship between the two
parties. However, when the interests of managers
diverge from those of owners, then, managers decisions
are more likely to reflect their preferences rather than the
owners preferences.
Ireland and Hockisson (2008) further argued that,
though many top executives earn princely salaries,
occupy luxurious offices, and wield enormous power
within their organization, they are mortal and capable of
making mistakes or a poor decision. Agency theory
therefore, provides investigators with an opportunity to
replace skeptism with informed insight as they endeavor
to analyze subjective management risk (Leavy and
Mckieman, 2009).
Pearce (2007) argued that from a strategic
management perspective, there are different kinds of
problems that can arise because of agency relationship.
First, the executives may pursue growth in company size
rather than in earnings, as they are more heavily
compensated for increases in size than for earnings
growth. Hence, managers gain prominence by directing
the growth of an organization and they benefit in terms of
career advancement and job mobility that are associated
with increase in company size. On the other hand,
shareholders generally want to maximize earnings,
because earnings growth yields stock appreciation.
Secondly, the executives may avoid risk since they are
often fired for failure, but rarely for mediocre corporate
performance. Thus, executives may avoid desirable level
of risk if they anticipate little reward and opt for
conservative strategies that minimize the risk of company
failure.
Thirdly, managers in most cases act to optimize their
personal payoffs. Similarly, executives may pursue a
range of expensive perquisites that have a negative
effect on shareholder returns which are rarely good
investments for stockholders (Pearce and Robinson,
2007).
In theory, most managers would agree with the goal of
shareholders wealth maximization. In practice however,
managers are also concerned with personal benefits all
provided at the company expenses (Allen, 2003). Such
concerns, the author argued make managers reluctant or
unwilling to take more than moderate risk.
Frenkel et al. (2005), however, argues that investors
can reduce these agency problems. Among these
approaches are stock option plans, which enable
executives to benefit directly from the appreciation of the
companys share just as other stockholders. Senior
management is allowed to buy significant shares in their
corporations.
A second solution to agency problems is for executives
to receive back loaded compensation. This implies that
executives should be paid a handsome premium for
superior future performance. This lag time between
action and bonus more realistically rewards executives
for the consequences of their decision making, ties the
executives to the company for the long term, and properly
focuses strategic management activities on the future
(Francis, 1993).

Finally, Allen (2003) argued that, creating teams of
executives across different units of a corporation can help
to focus performance measure on organizational rather
than personal goals. Through the use of executive teams,
owner interests often receive the priority that they
deserve.
In addition, Frenkel et al. (2005) argued that in recent
years, institutions such as mutual funds, insurance and
pension have become active in risk management.
Institutional shareholders have actively used votes to
outcast underperforming managers and replace them
with more competent managers.
Frenkel et al. (2005) emphasized that shareholders
may also prefer to bear some agency costs to encourage
managers to maximize the firm stock price rather than in
their own self interest. He highlighted the following
agency costs; first monitoring expenditure to prevent
selfish behaviour of the management team. The second
agency cost involves expenditures to structure the
organization in a way that will limit undesirable
managerial behaviour such as appointing outside
investors to the board of directors. Lastly, opportunity
cost resulting from the difficulties that large organizations
typically have in responding to new opportunities. The
firms necessary organizational structure, decision
hierarchy and control mechanisms may cause profitable
opportunities to be forgone because of management
inability to seize upon them quickly.
Managerial incentives are the most powerful, popular
and expensive agency cost incurred by firms. They result
from structuring managerial compensations to
correspond with share price maximization. Compensation
plans can be divided into two groups- incentive plans and
performance plans (Frenkel et al., 2005).
Allen (2003), noted that incentive plans tie
management compensation to share price. These options
allow managers to purchase stock at some time in the
future at a given price. The options would be valuable if
the market price for stock rises above the option
purchase price.
The current view
Although experts agree that the effective way to motivate
management is to tie compensation to performance,
Pandey (2006) argues that the execution of many
compensation plans has been closely scrutinized in
recent years.
Stockholders both individual and institutions have
publicly questioned the appropriateness of the heavy
compensation packages that many corporate executives
receive. Although the sizeable compensation packages
may be justified by significant increases in shareholder
wealth, recent studies have failed to find a string
relationship between the CEO compensation and the
share price.
Kiarie and Minja 085
MATERIALS AND METHODS
To investigate the extent to which strategic leadership
and good governance practices were used to mitigate
risk by brokerage firms, descriptive research design was
the most appropriate. The study integrated both
qualitative and quantitative methods. Quantitative
research produced discrete numerical or quantifiable
data. On the other hand qualitative research method
dealt with non-numerical data and emphasized words
rather than quantification. The method used also
incorporated a census since the number of brokerage
firms was small. The population of the brokerage firms
and Investment banks was only 16 by the time of study
(NSE, 2009).
FINDINGS
Good corporate governance practices
The research wanted to find out whether the
organizations had boards of directors. All the
respondents (56) indicated that the organizations had
boards of directors. King III Report (2009) observed that,
good governance is essentially about effective
leadership.
As noted by Kings Report (2002), the board size and
composition determines the boards effectiveness. The
report noted that, the right size of the board should be the
one that balances the need to avoid being too large and
the need to have a board that is large enough so that it
contains individuals with a balance of skills and
experience that is appropriate for a company of it size
and business. A large board tends to be slow in response
to issues that call for urgent action (Coyle, 2008). In
addition, King III (2009) noted that a board should
reserve a minority seat to bring in other critical
stakeholders or mandated expertise to the table where
needed.
The respondents were required to indicate the level of
agreeing or disagreeing in regard to some strategic
aspects relating to their board of directors. The research
used a five point likert scale. The findings were as given
in Table 1.
It can be observed from the findings in Table 1 that
leadership determines organizational success or failure.
Mitigating and controlling risk
In relation to risk mitigation and controls, the researcher
wanted to establish whether the brokerage firms had risk
department. The findings were as illustrated in Figure 1.
On the presence of risk management department in the
organization, 67% (38) respondents indicated that a risk
management department did not exist and 33% (18) said
 086 J. Bus. Admin. Manage. Sci. Res.

Table 1. The extent to which the respondents agreed/disagreed.

Strongly agree

Std. Dev.
Disagree
disagree
Strongly

Neutral

Agree

Mean

CV
Variable

The success or failure of your organization rests on its

1 3 11 29 12 3.9 0.9 23
leadership.

Your firm respond quickly to changing global competitive

2 5 7 31 11 3.8 1.0 26.3
environment to remain strategically competitive.

The board members in your organization have skills,

knowledge or experience in strategic management, stock
4 6 13 26 7 3.4 1.2 38.4
brokerage, finance, strategic leadership and risk
management

The board of directors in your organization meet regularly 3 3 12 29 9 3.7 1.0 29.7

Independent directors are actively involved in strategic

11 10 29 5 1 2.5 1.4 56.0
formulations

Figure 1. Whether the organizations had a risk management department.

that it existed. The majority of the respondents indicated
that the risk management department did not exist. This
situation pointed a very gloomy picture despite the fact
that controls as noted by Frenkel et al. (2005) are
essential for helping firms to achieve their desired
outcomes.
The research further wanted to establish the types of
risks the firms being studied focused on mostly in their
mitigation strategies. The findings were as illustrated in
Figure 2.
The risks the firms focused on were interest rate risks
as indicated by 40% (7) of the respondents, 33% (6) of
the respondents indicated operational risks while 27%(5)
of the respondents indicated that the focus was on
market risk. The findings indicated that majority of the
firms focused on the interest rate risks perhaps because
this type of risk has more than one cause in terms of
price risk, reinvestment risk, prepayment risk and
extension risk (Allen, 2003).
The research also wanted to establish the various
approaches the firms were using to mitigate risks (Table
2).
The responses above revealed that the most common
approaches to managing risks were Board involvement,
 Kiarie and Minja 087

33%
40%
Operation risk

Market risk

Interest rate risk

27%

Figure 2. Types of risks addressed.

Table 2. Mitigating and controlling risk.

Std. Dev.
Disagree
disagree
Strongly

Strongly
Neutral

Agree

agree

Mean

CV
Variable

Board members are involved in managing

2 6 11 21 16 3.8 1.1 28.9
investors risks.

Operational and financial hedging are used

7 16 17 10 6 2.9 1.2 41.4
to control investors risks

Insurance is used to mitigate investors risk

1 7 10 27 11 3.7 1.0 27
in the organization

There is a risk committee chaired by the

5 6 8 25 12 3.6 1.2 33.3
CEO.

insuring risks and use of a risk management committee.
Operational and financial hedging were not key strategies
in the firms studied.
DISCUSSIONS OF KEY FINDINGS
The study found that majority of the firms was of the
opinion that strategic leadership was crucial to the
success of an organization. This had a coefficient of
variation of 23%. This agrees that the views of Finkelstein
et al. (2008) and Sharma (2007) who argue that, the
success or failure of any organization rests on its
leadership. Organization collapse when the leadership
fails to sell its vision to its followers. It should also
convince its followers why they should be passionate
about the vision and make them loyal to organizational
agenda. Though the firms studied had boards of
directors, majority of board members, did not have
adequate skills, knowledge or experience in strategic
leadership, stock brokerage finance and risk
management.
The study also found out that independent non-
executive directors were not actively involved in providing
strategic direction in the firms studied but were key in
providing technical expertise. This phenomenon could
explain the cause of corporate failure of some brokerage
firms. This is a major departure from the common
practice where boards should have members with various
types of expertise and are empowered enough to
influence decisions that affect running of the organization
(Coyle, 2008; King III, 2009).
The findings revealed that 67% of the firms studied did
not have a risk management department. This could
explain why some brokerage firms collapsed. According
to Frenkel et al. (2005) establishing a department with
specific expertise in risk management is essential to
helping firms to avoid failure and achieve superior
performance.
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