Corporate Governance As A Gateway To Business Growth And Sustainability In Kenya Prof. PLO Lumumba, LLD, CPS(K), MKIM 1st February, 2017 Sarova Panafric Hotel, Nairobi

Outline Definition of Corporate Governance Corporate Governance in Kenya Principles of Corporate Governance Definition of business growth and sustainability Intersection between business growth and Corporate Governance Intersection between sustainability and corporate governance Conclusion

Definition of Corporate Governance King IV (SA) unveiled on 1st November, 2016, Whose effective date is 1st April, 2017 defines corporate governance as the exercise of ethical and effective leadership by the governing body towards the achievement of the following outcomes: ethical culture; good performance; effective control and legitimacy.

Definition of Corporate Governance conti. King IV moved from ‘apply (principles) or explain (practice)’ to ‘apply (principles) and explain (practice)’. Principles embody the aspiration of the journey to good CG, while practice is the way the principle is implemented. Corporate Governance Rules are supposed to improve the quality of leadership which boards are giving their business- Bowman Gilfillan- Quick Guide to Corporate Governance and King III. Corporate Governance involves the establishment of structures and processes with appropriate checks and balances that enable directors to discharge their duties- King III report. Legal duties of Directors are i. duty of care, skill and diligence; and ii. Fiduciary duties.

Corporate governance in Kenya In Kenya Corporate Governance has been codified in the following documents; 1999- Code of Best Practice for Corporate Governance. 2002 CMA’s now repealed Corporate Governance Practices by Public Listed Companies in Kenya. 2015- Code of Corporate Governance Practices for Issuers of Securities to the Public. 2015- Mwongozo Code of Conduct for State Corporations. Companies Act, 2015 contains the legal duties of Directors.

Mwongozo Code The first code of governance for State Corporations. It is based on a “ comply or explain” approach. It separates the CEO and Corporation Secretary functions to be held by two people. Their specific roles are provided. Provides for clear roles and duties of individual directors, the BOD and their performance appraisal yearly, which informs their re-appointment. Independence of directors, even executive directors is provided. Introduces stakeholder inclusivity, ethical leadership, corporate citizenship, and integrated reporting that includes the Triple Bottom. Entities are obligated to undertake yearly BOD self evaluation, yearly governance and legal audits to ascertain level of compliance and implement a performance management system. For ease of BOD business teleconferencing is introduced.

2015- Code of Corporate Governance Practices for Issuers of Securities to the Public Replaces the 2002 code, and takes a “ apply or explain” approach, with focus on the principles, with acceptance of non-compliance in certain situation if well explained and disclosed. Has 28 principles that cover the broad areas of Appointment, composition, size & qualifications of Board members- transparency in appointments, limitation in terms, diversity in composition, limitations in number of multiple directorships. Structure of the Board- efficient structure, requisite balance of skills and experience in committees and the board, establishment of an audit committee. Functions of the board- BOD to provide strategic guidance, accountability of BOD to shareholders, fiduciary duties, segregation of the role of the Chairperson and CEO, need for a Company Secrtary to provide advice and guidance.

2015- Code of Corporate Governance Practices for Issuers of Securities to the Public conti. Board independence- BOD to put in place policies that will ensure independence of its members, annual assessment of independence, cumulative 9 year term limit for independent directors. Age limit for Board Members- has to be provided, recommended is 70years. Board tools- put in place tools and aids, board charter, code of ethics, annual work plan and self-evaluation toolkits to assist in ease of doing business. Board induction and continuous skills development- induction on joining and continuous update and development of skills and knowledge. Annual evaluation of Board members, including CEO and Company Secretary Remuneration of board members- fairly and responsibly.

2015- Code of Corporate Governance Practices for Issuers of Securities to the Public conti. Compliance with laws, regulations and standards- including internal policies. Governance audit- yearly to confirm that the company is operating on sound governance practices. Rights of shareholders; Equitable treatment of shareholders; International investors The media and corporate governance- proactive engagement of media as a communication tool. Managing stakeholder relations- proactively. Amongst others

Principles of Good Corporate Governance King IV provides 17 principles of Good Governance; Ethical and effective leadership. Development of an ethical culture, through good governance. Responsible corporate citizen. Inseparability of organization’s core purpose, strategy, business model, performance and sustainability. Integrated and clear reports that enable assessment of an organization’s performance, and its short, medium and long term prospects. Governing body serves as focal point and custodian of corporate governance

Principles of Good Corporate Governance conti. 7. Governing body should have requisite skills and independence. 8. Delegation by governing body, of duties within its own structures i.e. committees. 9. BOD self evaluation. 10. Appointment of the requisite management, clarity of their roles and delegation of duties, authority and responsibility. 11. Proper risk analysis and management. 12. Positive leverage of ICT for the strategic benefit of the organization.

Principles of Good Corporate Governance conti. 13. Adherence to legal requirements, with cognizance to voluntary codes and standards. 14. Fair, responsible and transparent remuneration in order to achieve organization’s strategic goals short, medium and long term. 15. Audit internal functions, and other controls strengthened with their reports available for internal decision making. 16. Stakeholder inclusivity in governance. 17. Responsible investment by investor organizations.

Broad Benefits of Good Corporate Governance

Definition of business growth and sustainability Business growth = positive increase in cash flow/earnings.

Definition of business sustainability = managing the triple bottom line i.e. people, profit & planet. Ability of a business to withstand economic, environmental and social shocks i.e. resilience.

Intersect business growth and Corporate Governance Transparency - information for capital decision making internally and externally. Corporate citizenship- increases attractiveness of a company for investors. Risk management- shareholder wealth maximization, Triple bottom line Establishment, delegation of duties, responsibilities and authority within the governing body and management- ease of decision making, identification of responsibility and accountability. Ethical & effective leadership and internal controls- curb corruption & fraud, increases competitive advantage thus has a positive effect on business growth.

Intersect business sustainability and Corporate Governance Good corporate citizenship & stakeholder inclusivity- company’s decisions/processes/procedures are in cognizance of the Triple Bottom in a bid to be a good corporate citizen. Transparency, and integrated reporting (includes the Triple bottom) gives information required for capital decision making, thus giving it a competitive advantage. Internal controls and risk management – identify and mitigate against economic, social and environmental shock bolstering resilience. ethical and effective leadership – forward looking strategies/policies and procedures.

Business Growth and Sustainability in Kenya Bad corporate governance has led to the collapse, and deterioration of growth and sustainability of the following private and public entities; Kenya Airways Imperial Bank Chase Bank KCC Kenya Airports Authority

Business Growth and Sustainability in Kenya Good corporate governance has led to business growth and sustainability in Kenya in, Pharmaken Ltd and Diamond Property Merchants Ltd - winners of 8th Ed. & 9th Ed. of business daily-KPMG top 100 mid sized companies. The award looks at good corporate governance as one of the key factors in business growth. NIC Bank- winner of 14th Edition of FiRe Award in the Corporate Governance category and Overall Champion of Corporate Governance COG awards in the 6th Edition.

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