Kenya’s Capital Markets Authority http://www.cma.or.ke has drafted proposals on corporate governance and is waiting for approval from Finance Minister Uhuru Kenyatta so they can be gazetted and legally enforceable. They include a requirement that at least one in three directors be “independent.”
According to a report in Business Daily newspaper, CMA chairman Kungu Gatabaki said: “We want one third of the directors to be independent and we are sending a circular to all listed companies to make sure that they observe strict governance.” An independent director is one has not been employed in an executive capacity at or had a business relationship with the appointing company in the last 5 years, including consulting work or being a significant customer or supplier. He added: “All listed companies should have independent directors but what has been happening is that many of them, because of their history, have nominee directors of the main shareholders. These (the amendments) touch on the appointment of directors, insider transactions, doing business with companies.”
Currently corporate governance is only voluntary, until the new rules become law. There should also be a formal and transparent procedure in the appointment of directors to the board. Anyone offering him or herself for appointment as director should disclose any potential area of conflict.
Mr Gatabaki said that related-party transactions will be required to be at an “arm’s length” and have adequate disclosure, but that the CMA would discourage insiders from such transactions, in order to avoid conflicts of interest. Mr Gatabaki said disclosure on related party transactions would be enhanced and that once the amendments are approved, then the CMA would have the powers to enforce them.
The guidelines are prominent after allegations of fraud and over-priced supplies at listed autodealer CMC Motors. Former chairman, Peter Muthoka, is chief executive of Andy Freight Forwarders Services, the largest single service provider to CMC, which is accused of overcharging the company by between KES300 million (US$2.96m) and KES500m. He is also the largest shareholder with 22.6%.
Mr Muthoka was dismissed as board chairman of CMC in September due to alleged “conflict of interest.” Mr Gatabaki said the CMA had met with CMC’s board to help them resolve the issues. It is also to investigate alleged fraud and could prosecute any suspected corrupt practices. A case was previously brought against former directors of Uchumi Supermarket, who were accused of irregularly selling the retailer’s assets.
Mr Gatabaki said the regulator was trying to improve the environment in which listed companies in the country operate and facilitate the return of various foreign and local investors. In August the World Bank said Kenya had weak investor protection laws that put small and minority shareholders at risk and ranked the country 93 out of 183, second to Rwanda (number 28) in East Africa in investor protection rules. The country was ranked poorly because of weaknesses on disclosure and approval of related-party transactions.
Some listed firms on the NSE have been run as family businesses or among close friends but are now faced with transparency challenges as their owners try to accommodate new shareholders.