As part of the national plan to promote corporate governance in public institutions that issue securities, and to encourage local and foreign investment, the government of Kenya published its new corporate governance code of practice in March.

As was the case in the 2002 version this one replaces, the new Code is based on the “apply or explain” approach, and provides some basic corporate governance guidelines, that institutions will apply depending on their size, composition and activity. They can be summarised as follows:

1. Board of Directors

Appointment, composition, diversity and succession planning

• Appointment: A formal, transparent appointments policy must be approved. The appointments committee will be in charge of proposing the election of new board members.
• Composition: A majority of board members will be non-executive and at least a third of all members should be independent.
• Diversity: A policy must be put in place to ensure diversity in the composition of the board (profiles, experience, gender, race, age, nationality).
• Succession planning: The institution must approve a succession plan for board members. If possible, no more than a third of all members should resign from the board at any one time.

Structure

• The board’s structure should reinforce its effectiveness and add value to the company.
• The board may set up committees to support certain areas. Specifically, it should at the very least set up an audit committee and an appointments committee.
• The appointments committee will be made up of independent and non-executive directors and will be chaired by an independent board member.
• The audit committee should be composed of at least 3 independent and non-executive members, and chaired by an independent board member.

Separation of functions

• The posts of Chair of the board and company CEO may not be held by the same person.
• The CEO must be a non-executive member of the board.

Company secretary

• The function of the Company Secretary must be carried out by a member of the Institute of Certified Public Secretaries of Kenya.

Independence

• The board must have policies and procedures that ensure that its members are independent.
• The independence of the board members will be reviewed every year by the board. In particular, independent board members are to have a maximum mandate of 9 years.

Age limit

• No board member may be over 70 years old.

Induction and training

• All board members should receive an induction when they join the company and regular training sessions.

Annual evaluation

• The board’s activity will be evaluated every year, as will that of its Chairman, its committees, its CEO and the Company Secretary.

Remuneration policy

• Board members’ remuneration policy must be fair and responsible, so as to attract and retain talent.
• The board may set up a remunerations committee, made up of independent, non-executive members who recommend board members’ remuneration.
• The remunerations policy is to be approved by company shareholders during the Annual General Meeting.

Compliance with good government practices

• Every year, the board must assess whether the company is applying good practice in its corporate governance. The evaluation will be made by a professional who is accredited by the Institute of Certified Public Secretaries.

2. Shareholder rights

• The board must acknowledge, respect and protect the rights of company shareholders, as well as guaranteeing that they are treated fairly.
• Important information about the company in terms of its good governance must be disclosed, in order to inform the market, and to protect investors and other stakeholders.

3. Stakeholder relations

• The board must identify the company’s interest groups and develop strategies and policies to manage relations with the same, bearing their interests in mind when making decisions.
• There must be effective, fluid communications with the interest groups.

4. Ethical and social responsibility

• The board must apply the principles of responsibility, accountability, justice and transparency when taking decisions and in its actions.
• It must ensure that its corporate strategy is aligned with the company’s sustainability.
• It will approve an Ethics and Conduct Code that applies to all members of the company.
• It must set up a whistle-blowing channel.
• It will ensure that the company acts as a responsible citizen

5. Accountability, risk management and internal control

Financial reporting

• A structure should exist within the company that verifies and protects the integrity of financial reports.
• The board will be responsible for the veracity of the financial statements published in the annual report.
• At the Annual General Meeting, company shareholders must appoint an external audit company, whose members should rotate every 6 – 9 years.

Risk management and internal control

• The board must approve a risk management policy. This will set the risk tolerance level, as well as assessing and monitoring risk in order to safeguard the interests of investors and shareholders.
• The board must establish an effective internal control system. It will delegate to senior management the responsibility for designing, implementing and monitoring the effectiveness of this control system.
• At least once a year, the effectiveness of the risk management and internal control systems will be reviewed.
• The board must set up the internal audit function, the chief officer for which will report directly to the audit committee.

6. Transparency and information disclosure

• The board must encourage the disclosure of all relevant information about the company: its statutes, the structure and make-up of the board, the ethics and conduct code, mission, vision and strategic goals, compliance with the law, non-financial information (CSR), compliance with good practice in corporate governance, technology information, risks, stakeholders and corporate governance policies, among others.

Institutions will be given a year from the publication of the Code to adopt the principles and, in any event, must report annually on their application or else explain the reasons why certain standards have not been adopted.

 

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