KES 264.3 Bn Lost to Corporate Governance Issues

Kenyan investors have incurred Kshs. 264.3 billion losses as a result of isolated corporate governance issues affecting a section of companies, Kenyan investment firm Cytonn Investment said on Monday.

“For a market with over 60 listed companies to have significant issues with at least 8 companies equates to about 13per cent of listed companies with corporate governance issues. That is a worryingly high statistic that should call into question our regulatory frameworks and their effectiveness,” said Shiv Arora, Head of Private Equity Real Estate.

Some of the companies that have led to losses being incurred include: Chase Bank, CMC, Imperial Bank, Uchumi, Mumias, Kenya Airways, National Bank and TransCentury according to the “Kenya Listed Companies Corporate Governance Analysis Report -“What is the role of corporate governance in the recent investor losses?”

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Cytonn states that mismanagement of institutions which have large government holding, as well as unsustainable debt levels have led to corporate governance issues and investor losses.

“Poor strategies have led to the demise of companies like Mumias, Uchumi and Kenya Airways, with the capital in these entities shrinking by more than 90 percent, and the companies operating with negative equity positions,” according to the report.

For such public institutions, they call for privatization to ensure an efficient turnaround, which is not dependent of a public bailout.

The Cytonn Corporate Governance Index (CGI) ranked the 50 listed companies on the Nairobi Securities Exchange, with a market capitalization of over Kshs. 1 bn, on 24 corporate governance metrics.

The main areas of analysis were focused on (i) board composition, (ii) audit functions, (iii) CEO tenure and evaluation, (iv) remuneration, and (v) transparency.

In the CGI – Comprehensive Score Ranking, Kenya Commercial Bank Group had the highest score of 95.8 percent, followed by Safaricom         and Standard     Chartered all with 83.3 percent.

The bottom three companies were: Flame Tree Group Holdings 33.3percent, Limuru Tea 18.8 percent and Kenya orchards 10.4 percent.

Barclays Bank was ranked first on gender diversity with an even gender distribution with 50 per cent.  Safaricom and Mumias followed with 44percent and 36.3 percent respectively.

ARM, Limuru Tea , Carbacid Investments, East Africa Portland, Kakuzi, WPP Scan Group, Crown Paints, Car & General and Kenya Orchards all had a zero percent score.

TransCentury was ranked lowest in terms of ethnic diversity, with 87.5 percent from one ethnicity. Kenol Kobil scored the highest in this category with 17 per cent.

From the survey, Shiv Arora stated that good corporate governance was directly correlated to stock price performance.

“Companies with a well-diversified board in terms of gender outperformed those with an undiversified board composition highlighting the importance of gender diversity as a corporate governance ranking metric.”

“The same applies for ethnic diversity where companies that are ethnically diverse also outperformed those that are ethnically biased,” the report states.