NSE-listed IPOs flouting good governance rules

Tuesday October 29 2019

A worker walks past an electronic board displaying market data during a trading session at the NSE

A staffer walks past an electronic board displaying market data during a trading session at the Nairobi Securities Exchange. PHOTO | REUTERS 

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Kenya’s capital market is grappling with a confidence crisis due to lack of 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).


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.