CMA introduces new regulations on corporate governance

The Capital Markets Authority (CMA) has introduced new regulations seeking to cap the term limit of directors of listed firms.

Independent directors can serve a maximum of nine years whereas previously they could serve for an unspecified period so long as they received shareholder support.

According to the regulator, the new Corporate Governance Code is expected to make company operations more transparent to shareholders.

The capping of term limits is part of a raft of changes the CMA is hoping will ensure better corporate governance in an effort of protecting shareholder.

“This will bolster the efforts that the industry continues to put in place to ensure that Kenya is able to attract local and foreign interest and investment,” CMA Ag CEO Paul Muthaura said.

The new code also requires listed firms to disclose the remuneration policy for board members and executive directors.

The move seeks to ensure that companies enact a payment structure that reflects the company’s performance. Under the new regulations, executive directors will also be required to have a stake in the companies they run.

2015 saw 18 listed firms issue profit warnings, an indication of a drop in performance during the year. With the new regulations, listed firms will have to link company performance to both board and management remuneration.

“Pay shall include an element that is linked to corporate performance, so as to ensure maximization of the shareholders’ value,” reads part of the gazzetted regulations.

The new code mirrors The Companies Act 2015, which also require companies. firms to disclose public directors and management.

In line with enhancing corporate governance, the capital markets authority has also capped the age of directors at 70.

“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,” the regulations state.

The new Corporate Governance Code is based on an ‘apply or explain’ principle, a change from the ‘comply or explain’ approach of the preceding Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya, 2002 (Corporate Governance Guidelines).

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