Listed companies in Kenya recorded a slight drop in their governance for the financial year ended June 2024, attributed to the failure of issuers to adhere to the principles of the Code of Corporate Governance.
According to the Seventh Edition of the Report on the State of Corporate Governance for Issuers of Securities to the Public in Kenya released by the Capital Markets Authority (CMA) on Monday, the annual weighted overall score for all issuers showed a decrease in leadership rating by 2.15 per cent from 75.71 percent in the 2022/2023 financial year to 73.56 per cent (good rating) in the 2023/2024 financial year.
There is also a move from disclosure-based assessment by the Authority to an implementation-based approach where issuers are expected to document specific initiatives on how they were implementing the provisions of the corporate governance code.
The Authority assessed 52 listed firms, and the performance was as follows: 27 assessed issuers securing a Leadership Rating, 13 issuers achieving a good rating, eight issuers demonstrating a fair rating, and four issuers within the Needs Improvement category.
Among the 52 issuers assessed, the CMA awarded 27 companies a Leadership Rating, reflecting excellence in governance practices. Meanwhile, 13 issuers attained a Good Rating, eight were categorised as Fair, and four were found to need improvement.
"This comprehensive assessment serves as a crucial roadmap for issuers, showcasing areas of excellence while identifying opportunities for improvement. Our ultimate goal is to strengthen corporate governance and sustainability practices, fostering long-term growth, transparency, and enhanced stakeholder confidence in the capital markets sector,'' CMA boss Wyckliffe Shamiah said.
The banking sector scored a Leadership Rating in all principles except Board Operations and Control where it scored a Good Rating. This is a decline from last year, where it scored a Leadership Rating in all principles.
The report attributed the slight drop to the fact that most issuers in this sector are group entities and some of their independent directors and non-executive directors serve as directors within the group contrary to the requirements of independent directors and non-executive directors in the Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023.
The Insurance Sector also experienced a decline. While it achieved a Leadership Rating across all principles during the year under review, it attained a Leadership Rating in most principles but scored a Good Rating in Board Operations and Control and Stakeholder Relations.
The Construction and Allied Sector demonstrated notable improvement across four principles compared to last year with commitment to good corporate governance improving from a Fair Rating to a Good Rating.
Stakeholder Relations improved from a Needs Improvement Rating to a Fair Rating, Ethics and Social Responsibility improved from a Fair Rating to a Good Rating while Transparency and Disclosure improved from a Good Rating to a Leadership Rating.
Notably, the Stakeholder Relations Principle showed a decline across several sectors, including the Construction & Allied Sector, Energy & Petroleum Sector, Insurance Sector, Investment and Investment Services Sector and the Non-Listed Issuers Sector.
"This would be attributed to the fact that most issuers did not disclose or demonstrate how they engaged institutional investors as stakeholders to promote enhanced levels of corporate governance in line with the
Stewardship Code for Institutional Investors 2017."
