A summary on the The Report on The State of Corporate Governance Practices of Issuers of Securities to the Public in Kenya 2024

A happy not so new year 2025 to you! We crossed over well and Akira Consult Limited is looking forward to being of service to you this year. To get acquainted with our services- Corporate Governance Advisory, Board Training, Board Compliance and Evaluation and Board Services, check out www.akiraconsult.ke.

Earlier this month, the Capital Markets Authority-Kenya (CMA) released a report on their (extensive) assessment on the state of Corporate governance of the 52 or so companies listed in the Nairobi Securities Exchange. While this may not be representative of the entire nation of Kenya, it is pretty persuasive as these companies can be taken as an indication of the growth of our economy, a measure of investor confidence and as well our level of innovation. It is important to acknowledge that over 90% of Kenya’s economy is made up of SMEs and as a result, this report would give a good indicator as to where the leadership in governance lies.

It was interesting to note that overall, CMA discovered that the annual weighted score for the listed companies showed a decrease in performance, from 75.71% (Leadership rating) in the 2022/2023 financial year to 73.56% (Good rating) in the 2023/2024 financial year. That should concern us.

Making up that score was the 7 parameters of the Capital Markets Code of Corporate Governance Practices for Issuers of securities to the Public 2015 (The Code); of which the top highest scoring parameters were: Commitment to Good Corporate Governance; Accountability, Risk Management & Internal Control; and Ethics and Social Responsibility. In the lower scoring parameters were Transparency & Disclosure, Rights of Shareholders, Stakeholder Relations and finally Board Operations and Control.

The fact that the parameter on Board Operations and Control which is one of the most active spaces in governance advisory, and also the place that a Company Secretary (CS) can shine brightest scored most poorly, was disappointing. The commentary that supported the decline emphasized on the importance of well constituted Boards in compliance with the Code and the Capital Markets (Public Offers, Listings and Disclosures) Regulations 2023 (the POLD), the classification of directors and constitution of committees, the failure to report on Legal and Compliance Audits and as well disclosing the outcomes of Board Evaluations. Though some of these are easily redeemable, the conversation on directorships shall need a brave reckoning so that this parameter can improve.

As a Company Secretarial firm, we welcome CMAs suggestions on limitation on the number of listed companies that a Company Secretary can serve effectively. CMA has proposed the limitation that directors currently have under the Code and POLD which is 2-3 depending on the type of directorship. Outsourced Secretaries have the liberty to take up more than one of these positions, but in so doing, should recognise that the tasks are not seasonal, unlike audit firms who have more capacity to do so. To be an effective CS, he/she should, in between the Board Season, follow up on Board matters, ensure on going compliance, remain a trusted advisor to the Board and Senior Management and remain an advocate for new areas of governance that the Company may wish to explore. After all, the cake is big enough and we can all grab a piece! 😎

It was also interesting to note that the industries leading in Corporate Governance from the report were Banking, Energy and Insurance, possibly due to their highly regulated nature and as well their maturity. It is unsettling that the lower scoring industries (Investments & Investment Services, Construction & Allied and Agriculture) which historically are industries which operate on Trust and take up alot of employment opportunities, could really do better. Agriculture even more so, being the backbone of the economy.

As regards some recommendations CMA made that caught our eye, the following make special mention in our view:

  1. That listed companies are yet to come to terms with the mandatory nature of the Code and The POLD. Companies just have to bite the bullet and in the famous phrase ‘Just.do.it!’. We can help in educating the Board about the two pieces of regulation and the compliance checks that can be put in place.
  2. We anticipate that Board Member changes shall be inevitable and for us, we look at this as an opportunity to get fresh and diverse thinking especially in new areas of governance (technology, ESG, AI) on the Board.
  3. Another area of innovation shall be on how Companies look to communicate with their Shareholders and engage them in policy approval. This is on our mind and we shall be figuring it out soon.
  4. Board Reviews and Board Evaluations are areas that we are well conversant with; from policy drafting, training, administering evaluations and reporting- including creating a road map for change, based on developmental areas. The recommendation on disclosure of results is something we can work on with you.
  5. Finally, this is the best time to schedule the solo Audit Committee and External Auditor meetings. What is holding you back?

The above is just a summary of our reflections. Please read the report, it well articulates the direction that governance is heading.

Looking forward to working with you in 2025!