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Corporate Governance in Kenya


last updated: 14/10/2019


The Kenyan capital market is regulated by the Capital Markets Authority (CMA). The CMA was set up in 1989 as a statutory agency under the Capital Markets Act Cap 485A. It is charged with the prime responsibility of both regulating and developing an orderly, fair and efficient capital markets in Kenya with the view to promoting market integrity and investor confidence. The regulatory functions of the CMA as provided by the Act and its regulations include; Licensing and supervising all the capital market intermediaries; Ensuring compliance with the legal and regulatory framework by all market participants; Regulating public offers of securities, such as equities and bonds & the issuance of other capital market products such as collective investment schemes; Promoting market development through research on new products and services; Reviewing the legal framework to respond to market dynamics; Promoting investor education and public awareness; and Protecting investors’ interest

Presently, the Kenyan capital market is relatively small with only 66 companies listed in the Nairobi Securities Exchange (NSE), which is the country’s only securities exchange. The top five companies account for 60-70% of market capitalisation, while the top 20 dominate over 95% of the market capitalisation.

In 2016 the CMA published a code for corporate governance practices for publicly listed companies. The Code replaced the Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002. The code was informed by the need to respond to the changing business environment coupled with the desire to align Kenyan local standards to global best practice to promote institutional strengthening for listed companies.

The code sets out the principles and specific recommendations on structures and processes, which companies should adopt in making good corporate governance an integral part of their business dealings and culture. The code advocates for the adoption of standards that go beyond the minimum prescribed by legislation. It adopts a “Apply or Explain” approach which is principle-based rather than rule-based. The approach requires boards to fully disclose and explain any non-compliance to their shareholders and the CMA in their annual reports and AGMs. The reasoning behind this approach is to allow shareholders to enforce governance standards on the belief that they have incentives to maximise their investment and want companies they invest in to be successful.

Some key highlights of the Code include:

1. Executive Pay Provisions – the Code provides ‘Companies shall remunerate Board members fairly and responsibly. The Board shall establish and approve formal and transparent remuneration policies and procedures that attract and retain Board members. The remuneration policy for Board members shall clearly stipulate the elements of such remuneration including directors’ fees, attendance allowances and bonuses. The Board shall ensure that the remuneration policies are aligned with its strategies. The Board remuneration policies and procedures shall be disclosed in the annual report’.  The directors’ remuneration should be sufficient to attract and retain directors to run the company effectively and shall retroactively be approved by shareholders in an Annual General Meeting. The executive directors’ remuneration shall be structured in line with remuneration for other directors in the same industry and shall be aligned with the business strategy and long-term objectives of the company. The remuneration of the executive directors shall include an element that is linked to corporate performance, including a share option scheme, so as to ensure the maximization of the shareholders’ value. The remuneration of non-executive directors shall be competitive and in line with remuneration for other non-executive directors in the same industry. The remuneration package to directors shall be appropriately disclosed’.

2. Age limit for board members – the Code recommends an age limit of 70 years. The Code states, ‘it is desirable for board members to retire at the age of seventy years. However, members at an annual general meeting may vote to retain a Board member who is over seventy years’.

3. Director term – the Code provides, ‘the tenure of an independent board member shall not exceed a cumulative term of nine years, an independent board member may continue to serve on the board subject to re-designation as a non-independent board member. The assessment criteria of independence of directors shall also include tenure. Long tenure can impair independence. As a result, the tenure of an independent Board member is capped at nine years. The nine years can either be a consecutive service of nine years or a service of nine years with intervals’.

4. Board Diversity – the Code provides, ‘the board shall have a policy to ensure the achievement of diversity in its composition. Each board shall consider whether its size, diversity and demographics make it effective. Diversity applies to academic qualifications, technical expertise, relevant industry knowledge, experience, nationality, age, race and gender. The appointment of members shall be gender sensitive and shall not be perceived to represent a single or narrow constituency interest. Where companies establish a diversity policy, the companies shall introduce appropriate measures to ensure that the policy is implemented’.

5. Shareholders rights -  the code prescribes that the board has to recognize, respect and protect the rights of shareholders and facilitate the effective exercise of the rights. Shareholders should receive relevant information on the company’s performance through distribution of annual reports and accounts, and half-yearly results as a matter of best practice. The reports are to be availed across multiple communication channels suitable to shareholders’ different media consumption habits. These include websites, postal mail and newspapers. Every shareholder has a right to participate and vote at the general shareholders meeting including the election of directors. Shareholders are encouraged to participate in AGMs and to exercise their votes. The Board is required to ensure that shareholders’ right to full participation at AGMs is protected by giving them; sufficient information on each subject to be discussed at the AGM, voting rules or procedures, proxy models with different voting options, an opportunity to question the management, the opportunity to place items on the agenda, the opportunity to vote in absentia, and sufficient information to enable them to consider the costs and benefits of their votes.

6. Stewardship - Institutional investors under the jurisdiction of the CMA are required to have transparent, honest and fair practices in their dealings with the companies in which they invest. The code recommends that Institutional investors should take up the role of stewardship as the representatives of their clients or investors in listed companies and other approved products through their organizations. Particularly it encourages institutional investors to make direct contact with the company’s management and board to discuss performance and corporate governance matters as well as vote during the AGMs


With a view of implementing and reinforcing the code for corporate governance in 2017 CMA promulgated a stewardship code for institutional investors. In 2017 the CMA issued the Stewardship Code for Institutional Investors. The main aim of the code is to encourage the institutional investment community to take action to serve as responsible stewards for their beneficiaries. This will help promote good corporate governance and the sustainable success of listed companies in the capital markets.

The Code applies to asset owners and asset managers investing in the debt and equity companies listed in the securities exchange. They are required to either apply the principles of the Code in their investment practices or explain why specific aspects of the provisions may not have been adhered to. This statement is to be displayed publicly on the institutional investor’s own website and CMA’s. Its primary focus is on domestic investors domiciled in Kenya. Overseas institutional investors are encouraged to become signatories to the Code. It applies to institutional investors on a “apply or explain” basis. The code defines “apply or explain” to mean that the principles and best practices in the Code shall be applied by institutional investors and an explanation must be given for any departure or non-adherence. The Code is premised on seven core principles:

  1. stewardship or responsible investment policies;
  2. monitoring companies held in investment portfolios;
  3. active and informed voting practices;
  4. engagement, escalation and collaboration with other institutional investors;
  5. conflicts of interest;
  6. focus on sustainability issues, including environmental, social and ethical factors; and
  7. public disclosures and client reporting.




Capital Markets Authority

Embankment Plaza, 3rd Floor

Longonot Road, off Kilimanjaro Avenue, Upperhill

P.O Box 74800 - 00200



Tel: +254 20 2264000/ 2264900 / 2221869

Cell: +254 722 207767




Information supplied by:

Austin Ouko

National Social Security Fund Kenya 


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