Before I start, I want to doff my hat to the Kenya Power technicians. It cannot be easy wading through calf-high waters to get to troubled transformers and fix power outages in these past two weeks. But they do it despite the cacophony of noise and abuse from their customers, punching furiously in the dark with rapidly diminishing phone batteries. So thank you, Kenya Power.
I also want to thank the Capital Markets Authority (CMA) for a thoroughly confusing set of regulations issued in October 2023 via their line ministry, the Treasury Cabinet Secretary. I don’t want to bore you, dear reader, with the law. Nor do I claim to be a legal expert. Back in 2015, our CMA, being the forward-looking institution that it is, issued a corporate governance code. It was different, modern and based on the governance regime of “apply or explain”. Because it was just a “code”, it was a guiding tool, which only got the full force of the law once the CMA converted the same into a set of regulations in 2016, which then converted the code into a “comply or explain” regime.
Fast forward to last October when the Cabinet Secretary issued the Capital Markets (Public Offers, Listings and Disclosures) Regulations 2023.
Other than being a titular mouthful, it is 232 regulatory protective pages on how to get approvals and how to make public and private offers for the issue of securities to unsuspecting Kenyans. (The suspecting ones usually have a barrage of expensive lawyers and analysts to tear through prospectus documents, so this is for you and me, ok?) It also contains a slew of requirements for information memoranda, share buybacks, and blah blah that are a fairly comprehensive regulatory framework for our objective to become the premier regional business financial centre.
The regulations, if you read all 232 pages, have absolutely nothing, I repeat, absolutely nothing to do with the governance aspects of issuers of securities. At least that’s what it reads from page six to page 54. Plus another 178 pages of related, detailed schedules. But a smart Johnny sitting at the CMA decided this was the best place to put in a few corporate governance changes in the section dealing with definitions of terms.
Johnny first started by limiting the tenure of independent non-executive directors (INEDs) from nine to six years by redefining what an INED was. Remember, the regulations were about how to issue securities, etc, but these definitions were slipped in. I opined on the INED issue in my piece on January 29 this year so I won’t repeat myself.
But Johnny also introduced a very interesting definition of what a non-executive director (NED) is. “Non-executive director” means a member of a board of a company who is not an executive director and is not an executive director or employee of a related entity.” Let me remind you briefly. The managing director and any other senior management person who is working within the organisation and who has been registered as statutory directors at the company’s registry are regarded as executive directors.
Executive because they execute. So a non-executive director is a statutory director who doesn’t execute. Under this umbrella fell those directors sent by the group in the case of listed subsidiaries of regional or international group companies. They were not independent since they were employees of the group. So they were simply non-executive directors.
Johnny has now put group representatives in limbo by stating that a NED is not an executive director or employee of a related entity. These group representatives also do not fall under the definition of an INED since it explicitly defines one as not being an executive director, not having a material or pecuniary relationship with the company, not owning shares in the company and, finally, an INED is compensated through sitting fees or allowances.
For most of the group representatives I know, sitting on a subsidiary board is considered part of their work and allowances are not paid. Unless in the CMA’s view, they should be paid and therefore be considered as INEDs, and that surely cannot be Johnny’s intention.
Parliament has asked the public to send in their views on these regulations. Unlike the Kenya Power technicians, I am lazy and won’t be submitting anything to Parliament directly. But next week, I will go a little deeper into the governance chaos these regulations portend.
