Kenya Moves to Curb Growing Corporate Malfeasance With New Code

  • Regulator working with six companies with liquidity challenge
  • CMA wants powers to vet top executives, audit committe members

Kenya introduced new laws aimed at improving transparency among domestic companies after a series of corporate-governance lapses that coincided with massive financial losses.

The legislation, enacted this month, will be implemented over the course of the next year, according to Capital Markets Authority acting Chief Executive Officer Paul Muthaura. The new rules require boards to disclose executive pay, which will be based on performance, and set age and term limits on directorships, he said.

“We welcome the CMA’s move to have more transparency because it simply brings us in line with global best practice,” Bob Collymore, chief executive of mobile-phone operator Safaricom Ltd., said in a phone interview Thursday. “If you are operating in Europe, in the U.S. or even South Africa, you have to declare. So why should Kenya be any different?”

Collymore and KCB Group Chief Executive Officer Joshua Oigara in December became the first corporate directors in Kenya to publicly declare their earnings. Collymore said he receives a monthly salary of about 9 million shillings ($89,000), Oigara takes about 4.9 million shillings.

The new rules replace guidelines that have been in place since 2002 and come after at least six senior executives at Kenyan companies were dismissed or forced to resign in the past two years over issues including mismanagement and poor performance. Kenya, sub-Saharan Africa’s fourth-biggest economy, ranks among the world’s 30 most corrupt countries, according to Transparency International, the Berlin-based advocacy group.

Closer oversight

In June, Uchumi Supermarkets Ltd., Kenya’s only publicly traded retailer, sacked CEO Jonathan Ciano and Chief Financial Officer Chadwick Okumu for what it called gross misconduct and negligence. The company posted a pretax loss of 3.5 billion shillings in the six months through June, compared with a profit of 432 million shillings a year earlier. Ciano and Okumu have denied any wrongdoing.

Home Afrika Ltd., the sole publicly traded property developer in Kenya, in September fired its second CEO in two years after posting a first-half loss. The company had “experienced serious governance challenges as well as apparent business model failure impacting on its cash flows,” Muthaura said in an opinion article he wrote in the Nairobi-based Business Daily newspaper on March 7.

The regulator has been working with other companies including TransCentury Ltd., an investor in infrastructure that faces a “perceived threat” of defaulting on its convertible bonds, and Kenya Airways Ltd., which last year reported the biggest corporate loss in Kenyan history. Mumias Sugar Co., a producer of the sweetener, is facing an independent forensic audit commissioned by the CMA over allegations of poor management and corruption among senior management, Muthaura said.

The CMA plans to seek powers to also vet top executives and members of audit committees at Kenya’s 62 listed companies to strengthen accountability and shield investors from losses. It already scrutinizes board members of pension funds, stock brokers and investment banks.

The vetting would be limited to CEO and CFOs and members of audit committees who are charged with reviewing and interrogating financial statements to ensure they ask the right questions to management, the internal and external auditors before making recommendations, Muthaura said.

“We may need to have closer oversight in the process of the companies preparing financial statements so that we don’t have a situation where you have an audited financial statement that is being questioned and challenged,” he said.

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