The Vision 2030 development blueprint seeks to transform Kenya into a middle-income country and a competitive International Financial Centre. 

The third medium term plan under the policy has revalidated the Capital Markets 10-Year Master Plan (CMMP, 2014-2023) as one of its flagship projects.

One area of focus and key achievement of the master plan has been the improvement of corporate governance.  This has been driven through the implementation of the Code of Corporate Governance Practices for Issuers of Securities to the Public, as well as the Stewardship Code. 

The latter, being only the second such code on the African continent, places emphasis on institutional investors’ role in promoting transparent, honest and fair practices in dealings with companies in which they invest to promote sustainable shareholder value and long-term success.

Significant strides have been made in the protection of minority investors. The recent World Bank “Doing Business” Report 2018 recognised some of these efforts in the improved ranking in protecting minority investors, by 25 positions from 87 to 62  (53.33 to 58.33 in points) compared to the 2017 report.

This recognition played a major role in Kenya’s overall improvement compared with the 2016 Report that ranked Kenya at position 115 with a score of 46.7.

In Africa, Kenya is ranked third after Rwanda and Mauritius.  This improvement has largely been attributed to progress in areas that the Capital Markets Act and regulations cover.  

This is linked to the Capital Markets Authority’s enforcement of mandatory provisions in the Corporate Governance Code gazetted on March 4, 2016, which was developed as part of wider corporate governance reforms in response to the changing business environment and the need to align local standards to global best practices.

Key areas identified include; the requirement of shareholders’ approval for new share issues; the requirement for Boards to include independent and non-executive members; and requirement for Boards to include a separate audit committee exclusively comprising Board members.

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Other reforms that have enhanced the Doing Business ranking on the protection of minority investors include; requirement for the CEO and Board Chair of a company to be separate individuals; prohibition of a subsidiary from acquiring shares issued by its parent company; disclosure requirement of beneficial ownership stakes representing five per cent  of a listed company and requirement for listed firms’ annual financial statements to be audited by external auditors, and disclosed to the public. 

Others areas include; the provision that shareholders representing 10 per cent of the listed share capital can call for an extraordinary meeting, and that the sale of 51 per cent of listed companies’ assets requires approval.

This list is not conclusive but demonstrates progress in corporate governance especially to protect minority investors.

The resulting impact is often an influx of investment in companies showing strong compliance with these provisions. It is no surprise that such economies are able to attract investment, leading to improved returns and increased value in firms.

Kamunyu Njoroge is manager, investor education and public awareness, Capital Markets Authority.