NSE firms fined for keeping list of top owners secret

The Trading Floor at the Nairobi Securities Exchange. Of the 60 listed at the NSE, 11 did not list their top 10 shareholders in annual reports. Photo/DIANA NGILA  NATION MEDIA GROUP

By GEOFFREY IRUNGU

In Summary

• Companies that flouted different regulations were fined between Sh50,000 and Sh1 million, but CMA is seeking powers to impose even harsher penalties including jail terms for senior managers.
• Of the 60 listed companies on the Nairobi Securities Exchange, 11 did not list their top 10 shareholders in their annual reports.

Nearly one-fifth of the 60 companies listed on the stock exchange were penalised for failing to disclose the list of their top 10 shareholders in 2012, the capital markets regulator has disclosed.

This made disclosure of top ownership the most flouted corporate governance requirement out of 10 regulations that the Capital Markets Authority (CMA) listed in its annual report released last week.

Companies that flouted different regulations were fined between Sh50,000 and Sh1 million, but the regulator is seeking powers to impose even harsher penalties including jail terms for senior managers.

“We recognise that some of the penalties may not have the effect that is desired as they appear lenient. We want to go the way Western countries are dealing with listed companies that flout corporate governance rules,” said CMA chairman Kung’u Gatabaki in an interview.

The CMA report also revealed, for the first time, names of companies that were fined for violations ranging from financial reporting to corporate governance.

Among the companies mentioned as having been penalised or reprimanded or asked to correct violations included Kakuzi, Kenya Airways, East African Portland Cement and Centum Investments.

Mr Gatabaki said the regulator would amend corporate governance rules to impose stiffer penalties on companies and directors who flout regulations in future.



Of the 60 listed companies on the Nairobi Securities Exchange, 11 did not list their top 10 shareholders in their annual reports.

The other most flouted rules were those on having sufficient board composition and timely release and submission of audited accounts. Five out of the 50 listed companies had flouted each of these rules.

CMA also disclosed that four listed companies had not established board committees— which normally investigate and give guidance on specific operations and then report to the full board.

However, all the listed companies ensured that their chief finance officers and company secretaries were in good standing with their respective professional bodies, namely, the Institute of Public Accountants of Kenya and the Institute of Certified Public Secretaries of Kenya. This was an improvement from the past when some companies did not meet this guideline.

Three companies failed to disclose their corporate social responsibility activities in their annual report, while two failed to release and submit their interim and audited accounts.

One company did not did not submit its 2010/11 interim financial report in time. The regulator has traditionally not disclosed what action, if any, is taken against listed firms that flout its rules.

The 2012 CMA annual report is the first one in which it discloses company names and the penalties imposed on violators.

“These disclosures increase transparency in the market as well as help protect investors by empowering them to evaluate the financial soundness of the respective firms.

The objective of the review of financial reports is to examine compliance to listing and licensing requirements as well as International Financial Reporting Standards,” said the CMA in the report.

National carrier Kenya Airways was cited for “failure to transfer shares held in Employee Share Ownership scheme (ESOP) to beneficiaries pursuant to Regulation 119 of the Capital Markets (Collective Investment Schemes) Regulations 2001.”

CMA said “Kenya Airways was directed to redeem the shares held in the Employee Share Ownership Scheme in favour of the beneficiaries on February 9, 2012.”

Centum was slapped with a Sh50,000 fine for failure to issue a profit warning in relation to its 2011 annual results.

Mr Gatabaki’s threat that CMA would introduce stiffer penalties and jail terms in line with what is happening in the western countries could alarm many listed firms.