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Opinion & Analysis

EDITORIAL: New NSE rules on company directors’ pay are timely

Attorney- General Githu Muigai. FILE PHOTO | NMG
Attorney- General Githu Muigai. FILE PHOTO | NMG 

Over the years, the Nairobi Securities Exchange (NSE) has grown to become the depository for billions of shillings in investor wealth -- both local and foreign.

It is one of the critical avenues that Kenya uses to mobilise national savings that are critical to capital formation and development of the economy.

In the past two decades, the government has predictably put a lot of effort in strengthening the bourse in recognition of its important role in the economy.

Nevertheless, this has not prevented listed companies from going rogue and clearly working against the interests of the investing public, not uncommonly to the benefit of the directors or management.

This has not prevented the government from injecting new safeguards in the system for public interest. The latest such measure is the Companies (General) (Amendment) Regulations.

The rules gazetted by Attorney- General Githu Muigai are now part of the law seeking to deepen transparency in remuneration of company directors.

Amongst other aspects, listed firms are mandated to publish details of remuneration to directors and any changes within the year.

Besides, public listed firms will need to justify the payments and if not tied to performance, state why.

More importantly, CEOs who are normally executive directors will be roped in by the law, meaning they can only be paid what is justifiable in the eyes of the shareholders.

Some of these safeguards are meant to stop ridiculous situations where chief executives have continued to be rewarded handsomely even when the companies they lead are tottering on the brink.

Indeed, the focus of the shareholders must be at the apex. The ordinary shareholder has over the years become a caricature at annual general meetings where he concentrates on giveaways and food instead of company finances.

The new regulations should help redeem his image and pave the way for serious wealth creation.

To be fair, seven companies have in the past year begun disaggregating directors’ pay in their annual reports. But with the new rules it will not be an option.

However, we recommend that the rules extend to the top management. Nevertheless, they are a good starting point.

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