Cytonn finds ‘significant’ goodwill lacking in adopting corporate governance best practices

Listed companies that embed corporate governance has a direct relationship with stock markets returns and deliver long-term success for their stakeholders according to Cytonn Investments.

However, Cytonn emphasizes that it requires the input of all market participants and stakeholders citing the US market, where proper corporate governance has led to the recovery from the global financial crisis in 2008, and vibrancy of the financial market.

“However, structures do not mean anything if there lacks goodwill and participation from all stakeholders. It is therefore imperative that all  participants ensure that they are adhering to the corporate governance structures set out by the various regulators,” says Cytonn in their weekly investor brief ‘Corporate Governance and Stock Performance.’

Corporate governance is founded on the pillars that, businesses have to practice accountability to stakeholders, fairness, have transparency in business activities and exhibit independence in decision making.

According to Cytonn Investments, in the Kenyan case, Investors have lost over Ksh270 billion in situations that are closely linked to the failure of corporate governance and ethics.

The report noted that 2016/17 has witnessed a notable improvement and focus on corporate governance, leading to reduction in the number of corporate governance issues.

For instance, The top 25 companies in the Cytonn Corporate Governance Ranking Report 2017, (CGR) delivered an absolute return of approximately 37.8 percent over the last 5-years compared to the bottom 25 companies, which delivered an absolute return of (5.1%) per annum over the last 5-years.

Compared to last year, the average performance for companies improved by 4.1 percent to an average score of 65.7 percent, from 61.6 percent in 2016 mainly driven by better disclosures around governance.

This is an indication that Kenyan listed companies are firming up to better governance practices, which is expected to lead to better performance of various companies.

Companies also registered better performance on ethnic diversity with an average score of 62.1 percent compared to a score of 59.4 percent registered last year.

READ: 

Women hold 21pc of senior roles in Kenya’s corporate boardrooms 

KES 264.3 Bn Lost to Corporate Governance Issues 

However, Cytonn notes that, “Despite a general improvement in terms of market participants embracing global best practices in terms of corporate governance, there still lacks a significant level of goodwill in adopting said practices.”

Corporate governance is the application of best management practices, compliance with laws and regulations and adherence to ethical standards for effective management and distribution of wealth and discharge of social responsibility for sustainable development of stakeholders.

Corporate governance is founded on the pillars that, businesses have to practice accountability to stakeholders, fairness, have transparency in business activities and exhibit independence in decision making.