The role of demerger of composite insurance companies in Uganda as a corporate governance strategy

Abstract

This study aimed at establishing whether the demerger of composite insurance companies was employed as a strategy geared towards a stronger corporate governance regime and sound corporate governance principles in those demerged insurance companies. It delved into the motives for demerger and further investigated the underlying theories that informed the demerger legislation. A comparative analysis of the international legal framework and relevant domestic legislation was made in order to demonstrate the manner in which other countries have legislated for and implemented demerger of composite insurance companies as a corporate governance tool and the challenges they faced, as well as lessons that can be drawn. The study went ahead to provide an analysis of the existing literature on demerger of composite companies and their respective corporate governance structure. This study conducted a mixed method approach of both primary and secondary means of data collection. Qualitative research approach and purposive sampling technique were used to interview players and professionals in the insurance sector and the managers of the demerged insurance companies. The study found that demergers have led to creation of leaner, less complex and more efficient companies with improved productivity due to improved focus on their key operations. These demerged companies got an opportunity to start over on a cleaner slate with enhanced corporate governance structures. The study also found that demergers highlighted issues of corporate leadership through the board, board composition, risk management and other key corporate governance principles, thus the emergence of the Insurance (Licensing and governance) guidelines of 2020. Whereas most stakeholders and respondents in the study found the demerger process to be smooth, the fact that mergers and acquisitions of some companies like Goldstar insurance, UAP Old mutual, occurred suggests that there were challenges in the aftermath. The study thus recommended equipping of stakeholders with better information and strategies for sustainable long-term growth of the resulting companies. The study further recommended the need for enforcement of corporate governance principles as opposed to having them on paper only. A conclusion was drawn that the requirement to demerge composite insurance companies was indeed a good corporate governance opportunity for demerged companies, unfortunately, in the absence of enforcement mechanisms, Uganda’s apply or explain approach leaves the efficiency of the registered structural and governance changes dependent on the will of the company’s governance to enforce the binding local and international corporate governance laws and policies.