How corporate governance has evolved in recent times

Some of the changes we expect to see in governance include separation of the roles of chairman and CEO.  FILE PHOTO | NMG
Some of the changes we expect to see in governance include separation of the roles of chairman and CEO. FILE PHOTO | NMG 

This article highlights the changing face of corporate governance. The corporate governance concept is relatively new.

There were many financial scandals in the past which led to the rise of corporate governance. They include the Enron and Parmalat scams.

They led to the formulation of governance regulations globally. The financial crisis of 2007-2008 also heralded reforms in corporate governance regulations.

In Kenya, the practice got a boost with the enactment of the Companies Act 2015, which further bolstered existing regulations.

In some companies, complex ownership structures have led to new governance systems.

Some companies adopt the German governance structure where there are two boards; the management and another board composed of owners and investors.
Such complex structures have led to the rise of new governance models.

Globally, there is a shift on the importance of stakeholders in corporate governance.

For example, institutional investors have more power on board composition as they appoint directors who manage affairs.

Institutional investors often impact the strategy of the company. Employees also have a say in the management of some firms. Employee ownership plans entitle staff to have a stake in some companies, which entitles them to board participation.

The government also has a say on board management, not only as a regulator but in some cases as an investor and direct participant. In some boards, for example universities, the government may have representatives who exercise management oversight.

Many corporations are becoming bold and adopting different styles of governance.

Globalisation has brought about new governance structures and it is likely that Kenya will adopt some. Kenya follows the UK model of complying or explaining. Some of the changes we expect to see in governance include separation of the roles of chairman and CEO.

Sometimes these roles are entwined, where a CEO is also chairman of a firm.

However, the trend is changing and separation of the roles is increasingly being adopted.

The issue of directors’ remuneration is also of paramount importance. It is argued that they should be well paid so as to attract and maintain highly qualified people.
Some companies appoint committees that set up pay structures for directors.

Board inclusivity and diversity are emerging trends in global corporate governance. Women are increasingly being appointed to boards to achieve inclusivity and gender balance.

Youths, people from minority groups and physically disabled persons are increasingly finding their way onto boards.

Many corporate governance experts argue that a diversified board brings people of different backgrounds together and taps their skills for better performance.

Kenya is being impacted by emerging global trends. I have seen some companies adopt new governance structures.

I have also noticed that boards are becoming more diversified. There are now more women on the boards than before.

There is even provision for youth representatives on some boards.