Report on the State of Corporate Governance for Issuers of Securities to the Public in Kenya 2018

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1. Foreword: Message from the Chief Executive

Research and practice have confirmed the importance of good corporate governance for an organization's sustainability and profitability. The Capital Markets Authority introduced the 2015 Code of Corporate Governance to assess this performance, resulting in a 55% weighted overall score for 2017/2018, which serves as a baseline for future improvements.

2. Executive Summary

This inaugural report analyzes corporate governance across 56 issuers, finding that most perform at a 'fair' level. Only 3 issuers achieved 'leadership' status, while 17 were identified as needing significant improvement.

3. Introduction

The code shifted from a 'comply or explain' framework to an 'apply and explain' model, emphasizing the spirit of good governance. The assessment methodology leverages seven key pillars, including board operations, shareholder rights, and internal controls.

4. Results and Analysis

Performance was segmented by seven principles:

• Commitment to good governance (55% average)
• Board operations and control
• Rights of shareholders
• Stakeholder relations (lowest performing category)
• Ethics and social responsibility
• Accountability, risk management, and internal control
• Transparency and disclosure

6. Conclusion and Recommendations

Issuers must address key weaknesses, including:

• Publishing board charters on websites.
• Establishing independent nominations and remuneration committees.
• Conducting annual governance audits.
• Developing formal dispute resolution processes.
• Implementing integrated reporting and whistleblowing policies.

7. Next Steps

The Authority will continue capacity building, refine assessment tools, and initiate enforcement actions against issuers failing to meet reporting requirements.