Kenyan watchdog wants powers to vet directors and CEOs of listed firms
Monday December 20 2021
Kenya’s Capital Markets Authority (CMA) is seeking powers to start vetting directors and chief executives of listed firms, which could see the tenure of long serving company bosses who also belong to cliques of top shareholders halted.
The policy shift, if approved by the National Treasury, will help protect minority shareholders from the possibility of corporate governance abuses by directors and majority shareholders.
It is argued that while shareholders are ultimately responsible for approval of directors to the board, it is the decisions of major shareholders that always carry the day, in most cases against the will of the small shareholders.
This makes shining the spotlight on these interest groups pertinent by the regulator to guard against corporate governance abuse.
The latest move is in line with the regional policy of protecting the interest of minority shareholders in listed firms after the EAC Council of Ministers agreed on rules that give minority shareholders powers to prevent hostile takeovers engineered by majority shareholders.
According to the East Africa Community (EAC) gazette Notice dated October 27, 2017, the partner states are required to ensure that the interest of minority shareholders in listed firms is protected.
The EAC directives state that all shareholders holding the same class of shares be treated equally and the company boards required to give all shareholders equal chance in deciding merits of any takeover bid.
CMA chief executive Wycliffe Shamiah told The EastAfrican that it is paramount for the regulator to have a say on the appointment of directors and CEOs of listed companies to guard against the possibility of corporate governance abuse.
“The challenge is that the current law does not give us [leeway] power over appointment of CEOs and directors in listed companies.
‘‘We have requested time and permission to vet incoming directors and CEOs the same way the Central Bank does for banks,” said Shamiah.
Previous attempts to acquire these vetting powers through the budget policy proposals fell through after the National Treasury declined to give its approval.
“We need to go back and discuss this proposal because it is good for the market. I need to see how it goes back to our policy proposals next time when we submit them to the National Treasury because it will help,” said Shamiah.
According to the regulator many boards are not doing enough to interrogate managements on serious operational issues of their companies.
“The boards are not regulating what management is doing and therefore we need to have more say in vetting who is appointed as CEO and also as a director,” said Shamiah.
“We looked mainly at audit committees and concluded that anyone going before such committee be vetted by them. That also applies to CEO and finance picks.”
Currently, the appointment of company directors and chief executive officers is the preserve of company boards, a development that the regulator feels has created a loophole for corporate governance malpractice.
“We have left it (appointment of CEOs and directors) to the companies and boards to make those decisions so what you are saying (corporate governance abuse) is possible and we know it and that is why we proposed that we be allowed to be involved with the process of vetting directors of listed companies,” said Shamiah.
In 2018, the CMA prepared corporate governance guidelines protecting minority shareholders from any adverse actions by the controlling shareholders, acting either directly or indirectly.
According to the revised guidelines (2015), all shareholders have a right to a secure method of transfer and registration of ownership of their shares during which the boards of companies should ensure that all shareholders, including minority and foreign shareholders, are treated in an equitable manner.
According to the guidelines, boards should recognise, respect and protect the rights of shareholders.
Good corporate governance seeks to promote among other aspects, legitimate corporations managed with integrity, probity, transparency, recognition and protection of stakeholder rights.