An AGM. Significant strides have been made in the protection of minority investors. FILE PHOTO | NMG
The Vision 2030 development blueprint seeks to transform Kenya
into a middle-income country and a competitive International Financial
Centre.
The third medium term plan under the
policy has revalidated the Capital Markets 10-Year Master Plan (CMMP,
2014-2023) as one of its flagship projects.
One area of
focus and key achievement of the master plan has been the improvement
of corporate governance. This has been driven through the
implementation of the Code of Corporate Governance Practices for Issuers
of Securities to the Public, as well as the Stewardship Code.
The
latter, being only the second such code on the African continent,
places emphasis on institutional investors’ role in promoting
transparent, honest and fair practices in dealings with companies in
which they invest to promote sustainable shareholder value and long-term
success.
Significant strides have been made in the
protection of minority investors. The recent World Bank “Doing Business”
Report 2018 recognised some of these efforts in the improved ranking in
protecting minority investors, by 25 positions from 87 to 62 (53.33 to
58.33 in points) compared to the 2017 report.
This
recognition played a major role in Kenya’s overall improvement compared
with the 2016 Report that ranked Kenya at position 115 with a score of
46.7.
In Africa, Kenya is ranked third after Rwanda and
Mauritius. This improvement has largely been attributed to progress in
areas that the Capital Markets Act and regulations cover.
This is linked to the Capital Markets Authority’s enforcement of
mandatory provisions in the Corporate Governance Code gazetted on March
4, 2016, which was developed as part of wider corporate governance
reforms in response to the changing business environment and the need to
align local standards to global best practices.
Key
areas identified include; the requirement of shareholders’ approval for
new share issues; the requirement for Boards to include independent and
non-executive members; and requirement for Boards to include a separate
audit committee exclusively comprising Board members.
Other
reforms that have enhanced the Doing Business ranking on the protection
of minority investors include; requirement for the CEO and Board Chair
of a company to be separate individuals; prohibition of a subsidiary
from acquiring shares issued by its parent company; disclosure
requirement of beneficial ownership stakes representing five per cent
of a listed company and requirement for listed firms’ annual financial
statements to be audited by external auditors, and disclosed to the
public.
Others areas include; the provision that
shareholders representing 10 per cent of the listed share capital can
call for an extraordinary meeting, and that the sale of 51 per cent of
listed companies’ assets requires approval.
This list is not conclusive but demonstrates progress in corporate governance especially to protect minority investors.
The
resulting impact is often an influx of investment in companies showing
strong compliance with these provisions. It is no surprise that such
economies are able to attract investment, leading to improved returns
and increased value in firms.
Kamunyu Njoroge is manager, investor education and public awareness, Capital Markets Authority.
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