Ideas & Debate

How compliance, governance can help enhance NSE investor confidence


The Nairobi Securities Exchange trading floor. FILE PHOTO | NMG


  • Investment is an important aspect of not just an individual’s life, but also of any commercial enterprise.
  • This is because in essence, it ensures present and future financial security.
  • Stocks may probably be the most well-known type of investment.

Investment is an important aspect of not just an individual’s life, but also of any commercial enterprise. This is because in essence, it ensures present and future financial security.

Stocks may probably be the most well-known type of investment. Whereas investments in equities have been focused on economic benefits to shareholders based on the value determined off the stock market, in recent times there has been a paradigm shift from shareholder-first principle to stakeholder capitalism.

Consequently, companies have been seen to offer value to stakeholders and investors keen to consider compliance, governance as well as assessing the social impact of companies.

The Nairobi Stock Exchange (NSE) is arguably a more liquid and active market than most of its counterparts in sub-Saharan Africa. However, by international standards it is smaller, less liquid and volatile with regard to price, returns and volume.


The NSE has made commendable efforts such as the introduction of the Growth Enterprise Segment, which was designed to give access to SMEs the benefit of accessing capital through listing.

The NSE has also seen significant enrolments on its Ibuka incubation and acceleration programme, designed for aspirational companies with growth prospects. However, with just slightly over 60 listed companies, the NSE has struggled to attract new listings.

The limited use of the equity market as a source of financing is an indication that Kenya’s stock market faces a wide range of problems. Such impediments include lack of awareness and information by the general public on the role of the stock exchange and the dynamic socio-political environment.

However, the biggest challenge is lack of investor confidence, which consequently has a monumental effect on the demand and supply of equities in the capital markets.

What are the sustainable solutions? From the investor’s point of view, enhancing trust can simply be derived from amplifying compliance levels and aligning with good corporate governance practices.

Listed companies ought to ensure that they comply with all laws, regulations, sector standards as well as ethical practices. Companies listed on the NSE are required to comply with the provisions of the Companies Act, 2015 relating to directors’ remuneration reports, form and information of financial statements, and lodgement of auditor’s report on the quoted companies’ statements.

Further, with the Capital Markets Authority (CMA) being the key regulator, quoted companies ought to ensure compliance with the disclosure obligation. Issuers are required to make immediate public disclosure of information which might reasonably be expected to have a material effect on the market.

Such information includes cautionary announcements, disclosure of periodic financial information, dividends and interest, annual financial statements, notifications relating to capital, shareholding and corporate governance.

Simply put, corporate compliance enables companies to mitigate the risk of major failures and violations that may potentially disrupt operations and put the company at risk. This in turn fosters trust by building credibility and demonstrating integrity by management. A study conducted by CFA Institute and Elderman revealed that to restore trust, compliance, independence and objectivity are what matter most to investors.

Whilst compliance deals with the letter of the law, corporate governance deals with the spirit of the law. It lays the ground work for how a company approaches matters such as fair business practices, shareholder activism and ethical standards. As such, investor trust can also be enhanced by observing good corporate governance standards.

The CMA, through its Code of Corporate Governance outlines governance standards and guidelines for companies to observe in the course of their management and control.

These elements range from board operations and control, shareholder relations, ethics and social responsibility, accountability and, transparency and disclosure. With a good corporate governance structures in place, listed companies are likely to benefit a great deal in form of efficient processes, smooth operations and a healthy corporate culture.


It is also fundamental that listed corporations keep pace with corporate governance trends occurring at the international level. In some jurisdictions, for instance, Environmental, Social and Governance (ESG) has been incorporated by institutional investors as part of their investment strategy.

This has seen the introduction of ESG indices and ESG ratings to offer clear insights into the ESG risk for companies. Corporate governance trends that have been prevalent in the recent past and which locally listed corporations should be keen to adopt include diversity, equity and inclusion (DEI), virtual board and shareholder meetings and convergence of sustainability reporting standards.

Compliance, corporate governance and the stock markets clearly have an inextricable nexus. The benefit of observing compliance and good governance practices is that listed companies align themselves with the broader perspective of a stakeholder focus with intrinsic value.

This in turn promotes investor trust as it reflects the value of the company without reference to the market value. Listed companies can therefore improve the investment standards locally by being deliberate about enhancing their compliance levels and governance practices.

Karumba is an associate at Scribe Services Registrars Limited