Ten listed firms listed under the Nairobi Securities Exchange (NSE) are under investigations by the Capital Markets Authority (CMA) for breach of good governance.
The 10 companies are claimed to have breached the Code of Corporate Governance Practices regarding disclosure and adherence to the appropriate corporate governance practices.
According to the latest assessment by CMA, it was revealed that 17 firms are yet to commit to good corporate governance fully. The Authority further stated that those who breached the practice will not be spared.
The concern arose due to profit warnings of some companies coupled with those that have failed over the years.
The authority pointed out that 17 companies need to improve their commitment to the right practice.
The CMA- Corporate Governance Report of issuers of securities to the public in Kenya shows that only 56 issuers in 2017/18 complied, whereas 10 companies failed to provide properly compiled reports.
“The authority is considering taking appropriate enforcement action against the aforementioned issuers for violating continuous reporting,” said CMA in a statement.
According to CMA chief executive, Paul Muthaura, compliance is a mandatory regulatory requirement.
“Appropriate action will be taken against those who did not file or compile reports,” he added without hinting on the action the regulator will take.
He notes that transparency and disclosure are vital aspects for market-based monitoring of companies and are central to a shareholder’s ability to exercise his or her ownership rights.
Disclosure is also a fundamental tool needed to influence companies and safeguard the investors and it helps in attracting capital as well as maintaining confidence in the stock exchange market.
Some of the unethical behaviors depicted by various companies together with the loss of investor confidence and the weakening of the integrity of the market are some of the repercussions of weak disclosure.
CMA, in its code clearly states that “Insufficient or unclear information may hamper the ability of markets to function, increase the cost of capital and result in poor resource allocation.”
Among the list of the companies that complied with the governance, 10 were categorized as the best performers, eight were given a ‘good’ rating while 21 fell under the fair rating. The assessment was banked mainly on the availability of company information to the public.
Managers of firms that breach the code of conduct face stiff penalties including prosecution.
The authority, in 2018, took action against the National Bank of Kenya Board members and former senior managers who served the company as at December 31, 2015, for alleged misrepresentation of financial statements and embezzlement of funds.
Some of the managers were forwarded to the Office of the Director of Public Prosecutions, with further criminal investigation recommended.
CMA says that good corporate governance highly contributes to a company’s good performance and without it, what was experienced in 2018 is inevitable. The year saw at least 12 listed firms issued profit warnings, as 6 others realized tremendous profit drops. Others failed completely.
“Research and practice have undoubtedly confirmed the importance, value, and contribution of good corporate governance to an organization’s continued existence (sustainability), profitability, growth and business prospects,” says the regulator says in its report.