- Kenya’s Capital Markets Authority will examine corporate governance reporting templates and assessment methods for all its issuers.
- This initiative ensures continued relevance in the financial landscape while enhancing accuracy to align with global standards.
- The industry watchdog is also exploring integrating sustainability into the listing requirements.
The Capital Markets Authority in Kenya is poised to conduct a comprehensive regulatory examination of corporate governance reporting templates and assessment methods for all its issuers. This initiative aims to ensure ongoing relevance in the financial landscape and enhance accuracy to align with global standards.
Details contained in the regulator’s latest report indicate that this exercise will promote transparency, accountability, and investor confidence in the capital markets sector. This came when the bourse recorded an overall improvement in corporate governance practices in the 2022/2023 financial year.
According to the CMA, during the review period, the annual weighted overall score by all issuers experienced an improvement, rising from 72.27 per cent (good rating) in the financial year 2021/2022 to 75.71 per cent (leadership rating) in 2022/2023.
The Authority is also exploring avenues to integrate sustainability into the listing requirements, underscoring the significance of ESG performance for companies seeking access to the capital markets in Kenya.
Capital Markets Authority transition plan
“The transition is clear: all principles, guidelines and recommendations outlined in the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 will now be enforceable as mandatory requirements,” Capital Markets Authority said in its State of Corporate Governance of Issuers of Securities report.
Capital Markets Authority added that the debate surrounding mandatory versus voluntary requirements in the Corporate Governance Code has been firmly settled with the comprehensive overhaul of the 2002 Regulations.
The regulator’s report reveals that in Kenya, Accountability, Risk Management, and Internal Control among businesses have improved, with the highest score of 80.77 per cent (Leadership rating) showcasing the highest proficiency.
Simultaneously, Board Operations and Control rose to 71.99 per cent (Good rating), exhibiting marked progress from the prior financial year’s performance of 70.32 per cent (Good rating).
Other principles securing a leadership rating included Rights of Shareholders at 79.59 per cent, Commitment to Good Governance at 78.6 per cent, and Transparency and Disclosure at 77.26 per cent.
Ethics and Social Responsibility scored 74.82 per cent, while Stakeholder Relations reached 73.04 per cent.
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Ethics and Social Responsibility
This year (2023), there is an improvement in Ethics and Social Responsibility, which rose by 5.34 per cent from the previous financial year’s performance of 69.48 per cent (Good rating).
A sectoral analysis shows that outstanding performance was recorded in the banking, manufacturing, allied/automobile and accessories, insurance, and energy and petroleum sectors, achieving a leadership rating.
Conversely, other sectors secured a good rating, except for the Agricultural Construction and allied sectors, which recorded a fair rating.
The most improved sector was the Investment and Investment Services sector, increasing from its previous score of 64 per cent to 78.74 per cent.
In contrast, the Agricultural sector experienced a marginal decline of 1.41 per cent from the preceding year’s score of 59.75 per cent.
Banking and Insurance Outperform Other Sectors
The Banking sector maintained its consistent leadership rating across all principles, while the Insurance sector improved, securing a leadership rating in all principles.
However, the Construction Allied and Agricultural sectors encountered a “needs improvement” rating in the stakeholder relations principle, signalling areas for focused improvement.
Over the past five years, the overall weighted score only dropped once, from 72 per cent (Good Rating) in 2019/2020 to 70.15 per cent (Good Rating) in 2020/2021. This drop was mainly due to the 2 per cent penalty imposed on the 9 non-responsive issuers, which decreased the overall score by 0.375 per cent.
Despite adopting business best practices, a 2022 report by Price Waterhouse Coopers titled “Global Economic Crime and Fraud Survey Report for Eastern Africa” shows that there are still ‘malpractices’ in reporting. The report indicates that 63 per cent of the region’s respondents had experienced fraud within their organization, compared to 46 per cent of respondents globally.
“Eastern Africa region reported higher incident rates for more prevalent crimes such as Customer fraud, Asset Misappropriation, Procurement Fraud, Bribery and Corruption, and Supply Chain fraud,” reads the report in part.
It continues that for less prevalent crimes such as HR fraud, Tax fraud, Government Relief fraud, and ESG Reporting fraud, respondents in Eastern Africa generally reported a lower incidence rate than their global counterparts.
Transparency and Disclosures
However, Nairobi Securities Exchange-listed firms are still lagging in transparency and disclosures compared to other governance parameters.
Despite increasing its business dealings’ transparency in the 2022-2023 financial year, it still falls short of other measurement tools such as Accountability, Risk Management, and Internal Control.
CMA states that in 2023, the overall performance on Transparency and Disclosure increased by 4.53 per cent to 77.03 per cent in FY 2022/2023, up from 72.5 per cent in FY 2021/2022.
Capital Markets Authority Chief Executive Officer Wyckliffe Shamiah says that in transparency reporting, 35 issuers had a Leadership rating, 4 had a good rating, 8 had a fair rating, and the rest were in the “needs improvement” category.
“The increase was attributed to the fact that most issuers have disclosed their policies and procedures on individual websites’ annual reports and have made the policies accessible to stakeholders,” said Shamiah in the report.
