A Call to Promote Good Governance in Kenya

The Place for Corporate governance Professionals

Fellow Governance Professionals

For decades, the field of governance has been viewed with both awe and consternation, firstly because it seemed to be a preserve of lawyers and accountants only and secondly because of the ambiguity around what this really entailed.? For many years, at least in this country, being appointed to a board of directors often looked like a retirement plan for many long serving executives, a political reward for those affiliated with high government offices and something to keep friends and family busy. It was never really seen for what it should be an important decision-making and oversight responsibility for businesses and organizations.

No matter which sector?one works in; be it private sector, public sector, government,? charities or membership associations, governance is the oil that keeps the engine running. In the words of Sir Adrian Cadbury, Chairman of the UK FRC: “Corporate governance is the system by which companies are directed and controlled.”

Kenya’s Capital Markets Authority defines corporate governance as “… the process and structure used to direct and manage the business and affairs of a company towards enhancing business prosperity and corporate accountability with the ultimate objective of realizing long-term shareholder value, whilst taking into account the interests of other stakeholders. This definition gives a deeper context to the importance of our profession to the survival and success of our institutions. And, you don’t have to look far to understand why.

In the past decade or so, we have seen some of Kenya’s iconic retail chains go burst as a result of either inadequate or ineffective governance practices. For many these were household names that should be in business eternally:-

• Uchumi Supermarket:
• Nakumatt Supermarket:

Among both listed and unlisted entities you could say the signs were on the wall when 10 troubled?firms? were placed under receivership; among them:??

-Chase Bank, -Pan Paper Mills, -ARM Cement, -Deacons East Africa, -Karuturi, -Mumias Sugar -Eveready East Africa?

A cursory look at the governance practices across the above-mentioned may reveal a lapse across the 4 pillars of Corporate Governance – Accountability, Responsibility, Fairness and Transparency. All or some of the following characteristics of poor corporate governance may be evidenced:

• Lack of transparency: Organizations with poor governance often lack transparency in their decision-making processes, financial reporting, and communication with stakeholders.
• Weak board of directors and/or poor board dynamics: A dysfunctional board of directors is a common indicator of bad governance. This can include a lack of independence, excessive concentration of power, or the presence of directors who are not adequately qualified or engaged in their responsibilities.
• Inadequate risk management: Poor governance often involves insufficient risk management practices, where companies fail to identify, assess, and mitigate risks effectively.
• Conflicts of interest:?When directors or leaders have conflicts of interest, such as pursuing personal gain at the expense of the organization or its stakeholders, it demonstrates a failure in governance.
• Ineffective internal controls:?Weak internal controls can lead to financial mismanagement and inaccurate reporting. Companies with bad governance often lack robust internal control systems to ensure accountability and compliance with regulations.
• Poor stakeholder relations:?A company with bad governance may neglect the interests of stakeholders, and not have a robust stakeholder management or engagement strategy.
• Poor oversight on execution of strategy:?this includes boards not dedicating sufficient time and attention to future growth opportunities and emerging issues

Such characteristics may also account for the fate of global players such as Enron, Lehman Brothers, Pfizer, Wells Fargo, Equifax, Volkswagen, and many more whose scandals have been well publicized.

The same could be said of our State Corporations as evidenced by the yearly reports from the Office of Controller of Budget and the National Audit Office.

This begs the question: what ails our governance? Is it a lack of professionals in the boardrooms? Is it an inadequacy of governance systems, processes, and tools to execute requisite governance responsibilities? Or is it our propensity to exercising poor judgement, making bad decisions or pure greed? Or are there not sufficient deterrents, penalties or consequences in place?

As professionals, it is incumbent upon us to play our role effectively in ensuring the presence of strong governance frameworks in our various institutions to ensure accountability and transparency across the wider organization.

What would it take for our governance experts, actors, and regulators to streamline the way we steward our businesses and institutions beyond producing a raft of detailed corporate governance guidelines?

As an institution, the ICS has done commendable work in developing governance standards to ensure uniformity and consistency of the governance practice. It has also created a platform to celebrate exemplary governance through the Champions of Governance awards while also providing regular thought leadership through various publications that serve to enlighten members and the public at large on the latest governance trends and requirements.? As members we benefit from opportunities to learn various essential skills, notably the certification of governance auditors which has resulted in governance audits being embedded in the governance systems of? both public and private sectors.

Focus now needs to shift to the boardrooms. The men and women who sit in those hallowed boardrooms carry heavy burdens on behalf of shareholders and stakeholders and cannot take their responsibilities lightly. We know that for boards to effectively discharge their duties the following is of utmost importance:

• Board Composition:?A diverse board with qualified and independent directors?bring diversity to the table and to decision-making. This means that candidates must be vetted based on their skills, governance experience and industry-related expertise.?
• Commitment to Integrity and Ethical Behavior:?Whereas every organization requires directors of integrity and high ethical standards, there should be a clear conflict of interest policy to guide them and this should be accessible to them at all times. ?
• Defined Roles and Responsibilities:?The biggest challenge for corporate governance is to have board members who are not clear about their roles and responsibilities. This applies to the executives as well. Directors and management alike need to respect the distinction between governance and management roles. ?
• Alignment of Strategies and Goals:?Board directors oversee strategy and execution on both short- and long-term bases, and this includes oversight on risk management.
• Accountability:?Understanding the accountabilities between individual directors, committees, the board, shareholders, management and staff. ?

In the context of governance, if something isn’t working in the boardroom it won’t work for the rest of the organization.

Good governance is about having the right people in the boardroom, doing the right thinking, having the right conversations (even when they are difficult ones), receiving the right information, so that they make the right decisions to develop a culture that attracts and retains the best people to make great things happen. But, for the board to accomplish its work, it needs the support and guidance of a qualified governance professional, in our case, company or corporation secretary. Today’s governance professional must play a much bigger role, including:

• Organizational governance:?It is important that robust governance arrangements are documented and communicated to the organization. The position of the company secretary enables them to have a holistic view of the governance framework. As a result, they are generally tasked with ensuring that this framework and any supporting policies and procedures are documented and effective.? Tools such as board evaluations and governance audits if used properly will help support good governance.

• Supporting the chairman:?The company secretary has a duty to advise the Board, through the chairman, on all governance matters. Together they should periodically review whether the Board and the company’s other governance processes are fit for purpose and consider any improvements or initiatives that could strengthen the company's governance. The relationship between the company secretary and the chairman is central to creating an efficient Board.

• Board and committee processes:?The company secretary plays a leading role in good governance by helping the Board and its committees function effectively in line with their terms of reference and best practices. Providing support goes beyond scheduling meetings to proactively managing the agenda and ensuring the presentation of high-quality, up-to-date information in advance of meetings.??

• Board development:?All directors should have access to the advice and services of the company secretary. The company secretary should build effective working relationships with all board members, offering impartial advice and acting in the company's best interests. In promoting board development, the company secretary should assist the chairman with all development processes, including board evaluation, induction, and training.?

• Communication with stakeholders:?The company secretary is a unique interface between the Board and management, and as such, they act as an important link between the Board and the business. Through effective communication, they can coach management to understand the expectations of, and value the Board brings. The company secretary also has an important role in communicating with external stakeholders, such as investors, and is often the first point of contact for queries.??

• Disclosure and reporting:?In recent years, there has been increased emphasis in the quality of corporate governance reporting and calls for increased transparency. The company secretary usually has responsibility for drafting the governance section of the company’s annual report and ensuring that all reports are made available to shareholders according to the relevant regulatory or listing requirements.

As I conclude, the challenge I would like to pose to all governance professionals is to own their space as not only experts but also advisors and counsel to both board and management. You can no longer sit on the sidelines and leave everything to the board just because your views were not sought. You must step in wisely to help prevent a reputational crisis and possible board malpractice and dysfunction which may lead to the collapse of your institution. Your organization is counting on you.

Thank you.?

Dr Martin Oduor-Otieno