Listed firms with best corporate governance, practices

June 27, 2017
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The report, released once every year, ranks listed firms using 24 metrics revolving around disclosures, board composition, board meetings attendance, transparency and independence/FILE

, NAIROBI, Kenya, Jun 27 – KCB Group, Diamond Trust Bank Group and Jubilee Holdings have the best corporate governance structures and practices among listed firms with a market capitalisation exceeding Sh1 billion.

This is according to the Cytonn Corporate Governance Index Report-2017 released on Tuesday.

The report, released once every year, ranks listed firms using 24 metrics revolving around disclosures, board composition, board meetings attendance, transparency and independence.

According to the report, Uchumi was the most improved company with a comprehensive score of 60.4 percent from a score of 37.5 percent in the last report due to better disclosures on board composition and activities such as meetings and evaluation of the board, the shareholding of directors, and rotation of their auditor to KPMG from EY.

WPP Scangroup improved to 66.7 percent from a score of 45.8 percent last year while Liberty Holdings came in as the third most improved company with a score of 81.3 percent from 66.7 percent in 2016.

EA Cables led the top decliners with a comprehensive score of 54.2 percent from a score of 62.5 percent in 2016 owing to a decline in female representation in the board, a decline in board meetings attendance by board members and an increase in the average age of board members.

Kakuzi Limited and Kenya Airways were the second and third top decliners with Kakuzi Limited’s score declining to 54.2 per cent from a score of 60.4 per cent last year and Kenya Airways score dropping to 60.4 per cent from a previous score of 66.7 per cent.

Cytonn’s Chief Investment Officer Elizabeth Nkukuu noted that the top half companies in terms of corporate governance have also delivered better returns to their investors with the shares delivering a 43 per cent better return than the bottom half.

“When we analyze share price performance of the 50 listed firms in our index over the last five years, we find that the top 25 firms have delivered 37.8 per cent, while the bottom 25 firms have delivered a negative return of 5.1 per cent, a 43 per cent differential. This indicates the importance of strong corporate governance in delivering sustainable attractive returns to shareholders,” Nkukuu explained.

Compared to last year’s ranking, the report highlights the improvement in the comprehensive score, board attendance and proportion of non-executive directors as well as ethnic diversity for all 50 listed companies.

However, companies performed poorly on gender diversity at an average 16.4 per cent female representation in the board compared to a score of 18.3 per cent last year.

“We expect the continued focus on corporate governance from the oversight bodies such as CBK, CMA, RBA, IRA, and SASRA and the general public to play a critical role in the adoption of best practices in running the affairs of companies in Kenya,” said Maurice Oduor, Cytonn’s Investments Manager.

Corporate governance in Kenya has come under the spotlight, which is partly attributed to the billions of losses that investors have suffered due to poor corporate governance.

Last year, poor corporate governance robbed listed firms’ investors of Sh264 billion.

The Finance Bill (2017) seeks to create a body, the Financial Services Authority (FSA) that will merge and take over the roles of the Capital Markets Authority, Retirement Benefits Authority, Insurance Regulatory Authority, and SASRA.

The FSA is likely to lead to increased transparency in the non-bank financial services industry by eliminating regulatory gaps and providing a standard approach to governance.

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