Strong investor protection rules also boost a company’s credit rating, making it easy
for them to raise capital, innovate, diversify and compete.
Corporate governance has become a hot topic globally, especially after the 2008
global financial crisis.
The nature of transactions that have been blamed for causing the crisis has
awakened investors with money in listed and unlisted companies to demand for greater transparency and
accountability from directors and the ability to take part in major decisions.
Failure to offer strong protection, especially to minority shareholders, is
now seen to negate the attractiveness of many economies to investment,
making it an area of competitiveness.
Kenya’s corporate governance rules remain heavily skewed towards
majority shareholders.
This has become even more evident with the recent high-profile cases in
which majority shareholders and directors have been sued for making
decisions that were not in the interest of all shareholders.
“In Kenya, for example, any shareholder who manages to win the support of the majority shareholders is able
to do almost anything,” said Mr John Kirimi, the executive director at Sterling Investment Bank.
Mr Karimi said the skewed distribution of power is the reason minority shareholders who want to remove
someone from a board of directors find such a move difficult.
Kestrel Capital’s Andre Desimone however said there has been significant improvement of investor
protection in recent years with increased vigilance from the Capital Markets Authority but the legal system
remains wanting.
“At the end of the day it is more of the strength of the legal system and enforcement,” said Mr Desimone who
added that most investors are happy with the level of disclosure.
In May, businessman Chris Kirubi, a former chairman of Uchumi Supermarkets, and members of his board
that included managing director Kennedy Thairu, Francis Emmanuel Oyugi, Joseph Munyiri Munene, Isaac
Awuondo and Nigel Ralph Pavit and Allgate directors were acquitted of charges of conspiring to defraud
Uchumi through the irregular sale of the retail chain’s prime property in Nairobi for Sh147 million.
The transaction, which was approved by the board of directors, saw the supermarket sell its Aga Khan Walk
branch to Allgate Ltd, which then leased the building back to Uchumi at a price of Sh1.7 million per month in
2004.Mr Kirubi faced other charges of breaching public trust as the former Uchumi board chairman by
approving the sale without an independent valuation.
Legal action
For the first time, directors of Kenyan firms were made aware of the fact that the decisions they make, such as
overpaying themselves, taking too much risk or taking very little risk, at the expense of a company without
consulting minority shareholders can be ground for legal action.
Most listed companies at the Nairobi Stock Exchange have a large number of investors with minority stakes
and a small number of investors with controlling stakes.
Traditionally, the small investors have been unable to influence the decisions from the small number of
investors with majority shareholding.