The Nairobi Securities Exchange has taken a commendable step in proposing to set up a board where distressed companies can stay as they put their houses in order. However, the test of the pudding is in the eating.
For starters, the NSE must move beyond the proposal stage and actually make this plan a reality so that firms that have serious governance challenges can be moved to the new platform.
This will have two benefits; first, it will signal to investors that the distressed companies are a risky investment even if their shares cost so little. Secondly, it will challenge the directors and managers to raise their game so that they are put back on the main trading platform.
Of course, the listing will also serve as a cautionary tale to other listed firms that they need to remain in good books.
Having said that, it would be advisable for the NSE to consult widely on the proposals and ensure that they are water-tight so that they can uphold predictability of sanctions in the face of any given performance. That way, the rules cannot be used arbitrarily or at whim to punish companies that are otherwise well-managed but are distressed for reasons beyond their control.
Listed firms should also commit to show willingness.