A staffer walks past an electronic board displaying market data during a
trading session at the Nairobi Securities Exchange. PHOTO | REUTERS
Kenya’s capital market is grappling with a confidence crisis due
to lack of
sound corporate governance in publicly-traded companies.
sound corporate governance in publicly-traded companies.
Despite
the adoption of a code intended to enforce governance in 2017, the
number of companies violating reporting requirements, lack diversity in
boards and have been caught up in malpractices including insider
trading, is adversely affecting the credibility of the country’s capital
markets.
The second edition of the State of Corporate Governance Report shows that only 25 companies out of 66 listed on the Nairobi Securities Exchange (NSE) adhere to sound corporate governance.
The
report by the Capital Markets Authority (CMA) surveyed the rate of
adoption of the code of corporate governance practices for issuers of
securities to the public, which became effective in March 2017.
The
report shows a 61 per cent overall score in the rate of adoption of the
code in 2018/2019 up from 55 per cent in 2017/2018 when the first
assessment was conducted.
This year, 53 listed
companies were assessed with seven demonstrating leadership practices,
17 good practices, 21 fair practices while eight need improvement.
“We are confident that if this trend continues, good corporate
governance will become an integral part of each issuer’s business
dealings, and our market will be more stable, competitive, resilient and
attractive,” said Paul Muthaura, CMA chief executive.
The
report comes at a time when a growing number of listed companies are
delaying releasing their financial results with the sanction of the
regulator, thus denying shareholders and investors crucial information
on their performance.
Kenya Power, Uchumi Supermarkets,
Crown Paints, Home Afrika, East African Cables, TransCentury and Mumias
Sugar are among companies that have violated reporting requirements in
recent times.
Mumias Sugar has since been placed under administration after defaulting on loans amounting to Ksh12.5 billion ($120 million).
Action
CMA
is threatening to impose appropriate action against companies violating
the continuous reporting requirements, including failure to submit a
complete annual report and submission of incomplete/poorly filled
reporting templates.
According to the CMA report,
although the financial services sector and particularly bank stocks
dominate trading at the NSE, the manufacturing and allied/automobiles
and accessories counters scored a good rating commitment to good
corporate governance.
Only two banks were ranked among the seven companies adhering to strict corporate governance.
The
construction and allied, investment and investment services and
insurance sectors also scored a good rating with other sectors scoring a
fair rating except the agricultural sector, which scored needs
improvement rating.
This was an improvement from
2017/2018 which saw no sector scoring a “leadership’’ or “good’’ rating
on the overall weighted performance.
“We now have more
issuers moving from need improvement to fair ranking, with the ultimate
objective to have most of the issuers being on good and leadership
rankings,” said Mr Muthaura.
In order to enforce
governance, CMA is pushing listed companies to implement policies on
diversity in the composition of their boards including fair
representation of women and intends to disclose the “overall leaders’’
to guide peers on practices.
The authority also intends
to develop a corporate governance index to give companies an
opportunity to differentiate themselves in the market and tap into a
growing pool of money committed to good governance and sustainability.
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