CMA warns listed firms over neglect of minority shareholders

The Capital Markets Authority (CMA) has warned listed companies against failing to adequately protect the rights of minority shareholders, highlighting a decline in corporate governance practices among Kenyan issuers.

In a new report titled “The State of Corporate Governance Practices of Issuers of Securities to the Public in Kenya 2024," the regulator expressed concern over a significant drop in the performance of listed companies in upholding shareholder rights. 

While acknowledging that many listed companies have policies in place, the report found a significant gap between policy and actual practice, with many companies failing to demonstrate equitable treatment for all shareholders, including minority and foreign investors.

CMA has not name the offenders. 

"Issuers shall recognise, respect and protect the rights of shareholders and ensure this is enshrined within their governance framework," the report says.

"However, the Authority noted that some of the Issuers failed to provide specific details and documentation on how their governance framework recognises the need to equitably treat all shareholders while also providing mechanisms for protection of minority and foreign shareholders."

The report, however, highlights several key areas of concern, including the inadequate involvement of shareholders in company decision-making. 

“Shareholders play a critical role in promoting ="https://www.standardmedia.co.ke/business/business/article/2001509134/nse-lifts-suspension-on-trading-of-kq-shares">good corporate governance< by actively participating in Annual General Meetings (AGMs)," the report notes.

"Their involvement in scrutinising policies and financial statements ensures transparency and accountability."

The regulator also criticises listed companies for failing to adequately disclose key information to shareholders.

The report points to a decline in transparency and disclosure, with many companies failing to publish critical policies such as procurement, risk management, and information technology policies on their websites.

"Issuers have the opportunity to enhance their transparency by publishing key policies such as procurement, risk management and information technology on their websites," the report states.

"This provides stakeholders with insights into the frameworks guiding the company's operations and strengthens confidence in their governance practices."

Furthermore, the report emphasised the need for greater transparency in board-level activities, including the disclosure of directors' other affiliations and potential conflicts of interest.

CMA also encourages companies to adopt globally recognised sustainability frameworks and enhance their environmental, social, and governance (ESG) disclosures.

The regulator reckons that by upholding the rights of all shareholders and promoting transparency and accountability, listed companies can enhance investor confidence and contribute to the overall growth and development of the Kenyan economy.

“While many Kenyan issuers have demonstrated commendable progress in adopting sound governance practices, there remains a pressing need to enhance several key areas,” says CMA Director in charge of Markets Operations Mr Daniel Warutere.

“Boards must transcend mere compliance and focus on providing strategic oversight that ensures long-term value creation. This involves fostering diversity not only in gender but also in expertise, experience and perspective to promote more balanced, informed decision-making.”

Mr Warutere notes that board members should actively challenge management decisions, ensure independent thinking and consider the impact of their decisions on shareholders and other stakeholders.

“Ensuring the protection of shareholder rights is paramount. Issuers must be committed to transparent communication and regular, accurate reporting on financial performance, governance practices and the strategic direction of the business,” he says.

He also urges strong internal controls and risk management systems are the backbone of a well-governed issuer.

“Issuers must adopt comprehensive frameworks that address various forms of risks and ensure that mechanisms for detecting fraud, mitigating conflicts of interest and safeguarding stakeholder interests are in place,” says Mr Warutere.