REMARKS BY THE CHAIRMAN, CAPITAL MARKETS AUTHORITY BOARD DURING THE LAUNCH OF THE PARTNERSHIP BETWEEN IFC AND CMA ON THE IMPLEMENTATION OF THE CORPORATE GOVERNANCE CODE
NOVEMBER 1, 2016 AT SAROVA STANLEY HOTEL, NAIROBI
Mr Florian Gubler Deputy Head of Mission Swiss Embassy
Mr Stefan Handoyo Program Manager for the IFC East Africa Corporate Governance Program
Representatives and Consultants from the International Finance Corporation;
Fellow Board Members and Management Team of the Capital Markets Authority;
Members and Repersentatives of the Media;
Ladies and Gentlemen;
All Protocol Observed;
I am pleased to join you in celebrating the partnership between the International Finance Cooperation (IFC) and the Capital Markets Authority towards the implementation of the Code of Corporate Governance for Issuers of Securities to the Public.
As you may be aware, the Authority's strategic guide as it executes its mandate of regulating and promoting the development of orderly, fair and efficient capital markets in Kenya is the Capital Markets ten year Master Plan 2014 - 2023. The gazettement of the Code of Corporate Governance in March 2016 and the implementation strategies being launched today are key milestones in implementing the recommendations contained under the third Pillar of the Master Plan. Pillar 3 underscores the need for a stable financial market that is dependent on sound corporate governance and transparent financial reporting.
The Master Plan reiterates that failures in corporate governance or the issuance of misleading financial reports can cause enduring reputational damage to any capital market. When one looks at several recent highly visible local and international distresses cases and worse still corporate failures resulting in the decline of shareholder value, market instability and losses to investors it is evident that at their root the challenges these businesses have faced involved serious lapses in corporate governance.
The implementation of the Code will therefore go a long way in enhancing stability, competitiveness and the efficiency of Kenya’s capital markets as well as providing important tools and capacity building for issuers of securities to the public. The partnership between the Authority and IFC will ensure that both local and international underpinnings of corporate governance are implemented in Kenya.
The success of the Code depends on the commitment by issuers towards its implementation and the monitoring and engagement by investors as well as oversight by professionals including independent governance auditors. Without doubt, the effective implementation of the Code will go a long way in realizing Kenya’s vision of becoming ‘the heart of African Capital Markets.’
The cooperation agreement (to be signed today) focuses on-
- developing corporate governance training materials that are international in outlook but local in applicability;
- building the capacity of the Authority to strengthen internal skills and capacities to assess compliance and enforce against breaches through development of corporate governance scorecards and reporting tools;
- raising awareness amongst issuers of securities on corporate governance requirements and best practices;
- building the capacity of independent corporate governance auditors; and
- enhancing the capacity of corporate governance trainers through training-of-trainers.
The development of corporate governance reporting and assessment tools and the training to be provided will help improve the capacity of the Authority, issuers, trainers and auditors in implementing, monitoring and enforcing corporate governance requirements. This can only serve to improve the overall environment for transparency and accountability that will help Kenya move even higher in the rankings of key global benchmarks such as the World Bank Ease of Doing Business Index.
In the same spirit and in line with the Code’s recommendation that institutional investors should have transparent, honest and fair practices in their dealings with the companies in which they invest and in order to promote effective implementation of the Code, the Authority, together with IFC and stakeholders, has developed the Stewardship Code for Institutional Investors. The Stewardship Code will complete the set of key regulatory frameworks that form the foundation for effective corporate governance.
The Stewardship Code seeks to encourage the institutional investment community to take action to serve as responsible stewards for their beneficiaries and to help to promote good corporate governance and the sustainable success of issuers in the capital markets. I am pleased to note and affirm that the National Treasury has been very supportive in facilitating the gazettement of the corporate governance reform instruments and am very confident that the Stewardship Code will soon also be gazetted.
On behalf of the Board of Capital Markets Authority, I wish to convey our appreciation for the support of IFC and for the support of the State Secretariat for Economic Affairs SECO of Switzerland. We take this opportunity to reiterate our commitment towards achieving the Authority's mission of promoting the development of Kenya’s capital market to be an investment destination of choice through facilitative regulation and innovation.
It is said that you can lead a horse to water (and I might add you can even bring water to the horse) but you cannot make it drink it. In my view (as one from the corporate private sector) the ultimate success of the Authority, the IFC and all the other agencies engaged in this endeavor will come when the whole corporate world (and dare I say state sector as well), accepts and embraces good governance not because regulators forced them to do so, not because it is 'best global practice', not for checking or ticking of boxes, not because the IFC or Swiss Government says so, but because they recognise and accept it is the right way to do business, it is the way to do business and it is the only way to do business. A whole raft of board committees, independent directors, internal auditors, compliance officers, etc in and of themselves are no guarantee of good governance and against corporate failure. Indeed at the Authority we from time to time find ourselves dealing with cases of issuers - businesses which on paper had the required structures and yet suffered serious governance failures.
To move beyond compliance that is simply paying lip service or aimed only at satisfying a regulator, it is my view this initiative must seek to create an entire environment or eco system that places good governance at the center of everything and is part of its very foundation. In this eco system customers will only buy goods and services, banks will only lend money, insurers will only provide cover, employees would only work, etc, when they are satisfied with a company's governance structure and practices. The training to be provided as part of this initiative must embrace and educate shareholders both large and small and in their various guises - whether at the Securities Exchange, fund managers, private equity funds, individuals, chamas, and all other stakeholders - on the fundamentals of governance so that at the very outset of establishing businesses good governance is placed at the heart and foundation.
I recognise that these are just words and they do not adequately reflect or capture the magnitude of the task ahead but I also know that once governance becomes so anchored and sacrosanct, we can look forward to an even more prosperous and successful Kenya. I also have no doubt that is something we all aspire towards and agree is a cause to which hard work is well worth investing.