REPORT CARD

NSE's commitment to corporate governance drops to 67.13% - CMA

Majority had their scores dropped due to their delays in reviewing the draft assessment reports

In Summary
  • The banking and insurance sectors had a leadership rating with the banking sector having the best-weighted overall of 81.74%
  • The agricultural sector had the least weighted score with a fair rating.
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE
An investor looks at the digital board at the Nairobi Stock Exchange(NSE)/FILE

The rate of commitment to corporate governance among listed firms dropped marginally last year on delayed review of draft reports.

The latest annual report by the Capital Market Authority (CMA) shows firms' commitment rate dropped to 67.13 per cent from 77.20 per cent last year.

''Given that responsiveness is a factor in measuring an issuer’s commitment to good governance, some issuers had their scores dropped due to their delays in reviewing the draft assessment reports and sharing their feedback,'' CMA said. 

The report measures several indices including board operations and control, rights of shareholders, accountability, risk management and internal controls. Others are transparency and disclosure.  

The issuer scores zero points on each question if they have not observed the practices, one point if they have partially observed, two points if they have fully observed and three points if they have gone above and beyond the requirements of the code.

Based on the final score, issuers are rated in four groups:  Leadership rating (75 per cent and above), Good rating (between 65 per cent and 74 per cent), Fair rating (between 50 per cent and 64 per cent) and Needs improvement rating (below 50 per cent).

Last year, the number of issuers in the leadership category remained 25 but those in the good rating category dropped to eight from 11 in 2019/2020. 

The number of those with fair ratings grew to 10 from eight while five need improvement compared to only four in the previous financial year.

There was an improved performance in three principles including rights of shareholders, stakeholder relations and ethics and social responsibility.

On the other hand, four principles decreased in performance. They include commitment to good corporate governance, board operations and control, accountability, risk management and internal control as well as transparency and disclosure.

The best performing principle was the rights of shareholders while the least performing was the commitment to good corporate governance.

The most improved principle was the rights of shareholders while the commitment to good governance principle was the most dropped.

The banking and insurance sectors had a leadership rating with the banking sector having the best-weighted overall of 81.74 percent.

The energy and petroleum sector, manufacturing and allied, as well as construction and allied sectors, had a good rating.

The remaining sectors had a fair rating with the agricultural sector having the least weighted overall score with a fair rating of 55.04 per cent. All sectors registered a drop in their weighted overall scores save for the agricultural sector which had a slight improvement of 0.02 per cent.

The investment and investment services sector was the most dropped from 75 per cent in FY 2019/2020 to 62.31 per cent in the current assessment period.

The annual publication outlines CMA’s independent assessment of companies listed on the Nairobi Securities Exchange (NSE) and the issuers of corporate bonds are applying the principles and recommendations contained in the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (CG Code).

According to CMA CEO Wyckliffe Shamiah, the banking sector had the best-weighted score with a leadership rating across all the principles of the Code while the agricultural sector had the least weighted score with a fair rating.

''We continue to see boards of issuers exercising their duties and responsibilities with clarity, assurance and effectiveness in line with the Code while embedding good governance and sustainability practices into their business dealings and culture’, Shamiah said.