A recent report by the Capital Markets Authority (CMA) on the state of corporate governance in the country reveals a massive improvement in leadership ratings among top corporations. The report assessed listed companies based on key corporate governance best practices and principles like accountability, ethical and social responsibility, transparency, and risk management.
Of course, there are still many other best practices for corporate governance that we shall review in this guide, such as a defined governance framework, good governance policies, correct board composition, board training and development, and effective board recruitment, to highlight a few.
The CMA report highlighted outstanding performance across several sectors, including insurance, banking, energy, petroleum, and manufacturing.
Effective corporate governance lies at the heart of a successful company, making it essential for organizations to adopt best practices. Doing so enhances performance and fosters greater stakeholder confidence—an objective all companies strive for.
In this guide, you will uncover the most effective corporate governance practices tailored for Kenyan companies. To emphasize the significance of these practices, we will also explore four thriving companies committed to good governance. Let’s delve into it!
Key Takeaway
- Good corporate governance is all about effective organization management, and it’s founded on the pillars of transparency, uncompromised responsibility, and accountability.
- The best corporate governance practices include a defined governance framework, clear governance policies, correct board composition, strategic alignment, role separation, board training and development, effective board recruitment, and transparency.
- Other essential corporate governance practices for Kenyan companies include ethics and integrity, accountability, regulatory compliance, effective reporting, corporate social responsibility, and effective communication.
- Notable Kenyan companies setting the tone with good governance practices include Safaricom, KenGen, Sanlam Kenya, and KCB Group.
What’s Good Corporate Governance?
Good corporate governance is about implementing effective policies, controls, and systems to run an organization and encourage a more positive corporate and work culture. It’s simply effective organizational management that prepares the company for future endeavors and keeps it competitive.
Good governance is built on robust pillars such as accountability, uncompromised responsibility, and transparency. It’s also built on resolute internal controls, risk management frameworks, fairness, ethics, and integrity.
It’s about the little details—the simple practices the board promotes that distinguish the company from the rest. Let’s talk about them next.
What Are Corporate Governance Best Practices for Kenyan Companies?
Depending on the practices, there’s a thin line between corporate governance success and failure. Below are classic examples of best practices by top companies in Kenya:
1. Defined Governance Framework
A corporate governance framework (also known as a corporate governance structure) describes a system of governance that an organization adapts and encompasses rules and procedures that run it. It governs the people in authority positions, such as the board of directors and executives, dictating how they should run the company.
Companies must have a defined governance framework to streamline their decision-making, financial performance, risk management process, and board effectiveness. For that to happen, there’s the need for:
- Defined board roles
- Good communication between the board and C-suite leadership
- Effective engagements with shareholders
- Adequate internal controls and risk management protocols
- Defined ethical guidelines
- Transparent and detailed governance auditing
2. Clear Governance Policies
Principles govern boards of directors and companies. Compliance with these principles is the key to being in good books with regulators and promoting a healthy work environment where short-term and long-term goals are attainable.
With so many policies applicable to governance, companies should prioritize the most important ones and make them clear to all. Below is a table breakdown of some of the best policies to prioritize, clarify, and update as often as possible:
| Governance Policy | Description |
| Whistleblower Policy | Protects whistleblowers from reiteration when reporting fraudulent and unethical conduct |
| Conflict of Interest Policy | Obliges directors to disclose potential conflicts of interest to the board. |
| Operation Policies | Guide the execution of company operations in a socially responsible and efficient manner. |
| Enterprise Risk Management (ERM) Policy | Covers risks and crises across all levels of the company |
| Technology Governance Policy | Governs computing technology-related issues in the company |
| Sustainability Policy | Focuses on positive socio-economic impact |
| Environmental, Social, and Governance (ESF) Policy | Focuses on integrating ESG into running the business and becoming a responsible entity |
| Corporate Social Responsibility (CSR) Policy | Focuses on initiatives that boost the living standards of the community |
| Anti-bribery and Anti-corruption Policy | Discourages and punishes bribery and corruption conducts |
3. Correct Board Composition
Board composition shouldn’t be questionable. Inclusion and diversity are necessary to encourage diverse perspectives and boost stakeholder confidence. Women, people living with disabilities, and marginalized groups should have an opportunity to make their views count in the boardroom.
The boardroom table should also include a mix of experience and youthful energy. The board should also allow independent directors to voice their nonpartisan views and provide independent oversight.
4. Strategic Alignment
Good governance dictates that a company’s strategic objectives align with its goals. To mitigate potential damages, a company must use available resources to identify risks and develop a more robust risk tolerance profile and internal controls. Doing so ensures that nothing interferes with your strategic plans or long-term goals.
Strategic alignment means all departments and systems are geared towards a shared vision. It allows room for making necessary adjustments to market changes. Some ways to attain strategic alignment at the board level include:
- Defining goals (with strategic priorities)
- Communicating the goals
- Involving the leadership
- Monitoring progress (through regular reviewing)
- Strategy refinement (depending on need and review findings)
5. Role Separation
Good governance can only exist when everyone on the board and executive team knows their job. Their roles and responsibilities should be well defined. While the board may occasionally delegate jobs to the C-suite leadership and board committees, they should understand the boundaries and not overlook their sworn duties.
For instance, the directors have to attend board meetings and make contributions. They cannot delegate their duties to offer financial oversight, nominate committees, or oversee annual budgets. However, they can delegate day-to-day authority to the CEO or company president.
6. Board Training and Development
The board of directors needs to stay current with the latest trends and practices in corporate governance. For that to happen, the company, through the corporate secretary, should organize governance training and development programs. These programs are key to building board effectiveness, fostering trust and effective leadership, and improving board efficiency.
Regular and timely board training and development also help build shareholders’ confidence and give participating board members and the board a competitive edge. Check out our new Corporate Governance Training to learn more about modern corporate governance and stay ahead of the competition.
7. Effective Board Recruitment
The board of directors can only effectively fulfill its mandate if it has the right composition, as shared early, but that largely depends on recruitment. It establishes a recruitment committee for candidate sourcing, interviews, screenings, and onboarding.
The recruitment committee should create an effective recruitment plan focusing on candidates who meet the board’s needs and fill existing leadership gaps. The committee should clarify the recruits’ expectations and roles while observing diversity, inclusion, expertise, and professional competence.
8. Transparency
Without transparency, gaining stakeholder trust, especially investors and consumers, is hard. The board’s dealings should be visible to the public unless they should be private. They shouldn’t intentionally hold anything from regulators and employees, which could hurt the company’s image or the board itself.
Lack of transparency means investors can’t trust the board or company leadership with their money, and the public may lose confidence in the company entirely. Transparency, however, improves confidence in the board and company and is attainable through open communication channels, proactive information sharing, and policy establishment.
9. Ethics and Integrity
Good governance dictates that the board sets the ethical tone and demonstrates the highest level of integrity. The board members should be ambassadors of good moral conduct in their words and deeds inside and outside the boardroom.
While cultivating a culture of ethics and integrity may not be easy, the efforts start with having the right policies and code of conduct. For instance, the board and every company member should be aware of the whistleblower and conflict of interest policies, which are integral to improving ethics and integrity in the workplace. More importantly, they should understand the dangers of noncompliance.
10. Accountability
No one in the company should be beyond scrutiny—not even the board. The board directors, in particular, should be held accountable for their actions and decision-making to enable them to step up to their roles and be more responsible.
One way is to have an accurate, reliable, and transparent reporting system for measuring directors’ performance. Have the directors agree to key performance indicators (KPIs) or any other assessable performance metric to measure performance.
11. Regulatory Compliance
The board has the oversight role of ensuring compliance with regulatory standards. Doing so protects the company from legal confrontations, operation disruptions, and hefty fines but also safeguards the company’s image. The board can advocate for regulatory compliance by:
- Overseeing the reviewing of the company’s compliance policies
- Establishing a clear risk tolerance strategy
- Recruiting an effective compliance risk management team
- Overseeing internal controls
- Instituting noncompliance policies
- Providing accountability
12. Effective Reporting
Boards of directors are effective when they have access to accurate and detailed reports. The reports enable them to make more informed decisions and develop better short-term and long-term strategies.
While creating reliable reports can be challenging due to style inconsistency and time consumption, the board needs access. One way to do this is to have a competent standing committee handle the reports.
That includes:
- Finance committee (to prepare the financial reports)
- Executive committee (to handle key decisions and strategies)
- Development committee (to take care of the fundraising agendas)
- Market committee (to handle the brand strategy and marketing reports)
13. Corporate Social Responsibility
Corporate Social responsibility (CSR) goes beyond industry compliance. It shows the company’s voluntary actions to contribute positively to the community, which reflects good governance.
The board of directors is essential in promoting the CSR agenda and leading to better governance. It sets the CSR vision, which it integrates into the company’s business strategy.
The board also ensures that resources are well allocated to CSR initiatives and monitors CSR performance. Companies like Safaricom, Unilever, and Coca-Cola have been doing this for years, which explains why they’ve been very successful in governance.
14. Effective Communication
Effective communication is a key building block for good governance. The board should engage shareholders, C-suite leadership, management, and the rest of the workforce. At the board level, directors should regularly communicate openly and honestly with each other when facing challenges.
The communication channels should be efficient and consistent to avoid frustration and confusion. The board should also have a way of collecting reliable feedback from stakeholders, which could be through surveys, interviews, focus groups, and suggestion boxes. The reaction lets the board know what stakeholders think and want from the company.
Examples of Kenyan Companies with Exemplary Corporate Governance Practices
Kenya is a corporate powerhouse, especially in Africa, and many companies are setting the tone for good governance. Below are four perfect examples.
1. Safaricom
Safaricom’s corporate governance supremacy is due to various reasons, including its board charter. The charter offers guidance on the separation of powers, authority delegation to the board committees, and governance practices and policies.
The charter clearly outlines the responsibilities and functions of individual board members. It specifies matters that should be reserved for the board’s deliberation and approval. It also offers guidance on nomination, appointment, training, and evaluation of board and committee members.
Safaricom’s corporate governance structure, however, goes beyond a defined charter. The telecommunication giant also boasts a strong Code of Ethics and Code of Conduct, which directors are expected to observe.
Moreover, the mobile giant has well-defined policies, which include the following:
- Whistleblower Policy
- Board Remuneration Policy
- Anti-bribery/Anti-corruption Policy
- Conflict of Interest Policy
- Insider Trading Policy
- ESG Policy
- Sustainability Policy
- ERM Policy
- Operation Policies
2. KenGen
KenGen has a well-defined corporate governance framework, and the board of directors ensures transparency, accountability, and fairness when dealing with stakeholders. The electricity-generating company focuses on responsible leadership and ethical responsibility through service delivery and interaction with the general public.
KenGen complies with the 2015 CMA Code of Corporate Governance Practices for Issuers of Securities to the Public, which enables it to manage its operations responsibly. The board also complies with the Code of Governance of State Corporations.
KenGen implements ISO 9001:2015 quality standards and ISO 1400:2015 environmental management standards. The board drives KenGen’s strategic agenda and sets the various policies, which include:
- Code of Conduct Policy
- Whistleblower Policy
- Corporate Governance Reporting Policy
- Environmental Sustainability Policy, among others
3. Sanlam Kenya
Sanlam Kenya is another pacesetter with a robust governance framework underscored by numerous policies. These policies are key to streamlining corporate governance. Among them are:
- ERM Policy
- Procurement Policy
- ICT Policy
- Board Induction Policy
- Conflict of Interest Policy
- Insider Trading Policy
- Gift Acceptance Policy
- Board Remuneration Policy
- Code of Conduct Policy
Sanlam’s corporate governance structure is also built on four strong pillars: accountability, fairness, responsibility, and transparency. The board is tasked with providing compliance oversight of these pillars.
The Group CEO, company secretary, and top-level management support the board of directors. The board provides strategic leadership, formulates policies and company strategies, and delegates day-to-day oversight authority to the CEO. Its board leadership is well-defined and spearheaded by a capable chair.
The board also seeks an independent advisor’s service on matters requiring expertise. Sanlam Kenya also complies with the 2015 Companies Act, the CMA Code of Corporate Governance Practices, and the Capital Markets Act Cap 485A, which outline strict governance practices.
4. KCB Group
KCB Group has long set corporate governance standards in the banking sector, which has been instrumental to its success. KCB is run per standard practices and procedures, code of conduct, and existing regulatory guidelines through its effective board of directors and board committees.
The banking group has a zero-tolerance policy for unethical practices like bribery and corruption. Today, anyone can voice their concerns about unethical conduct by the board or any KCB employee via toll-free lines, email, postal address, or website. That includes cases of fraud, discrimination, harassment, and any other form of malpractice.
Through its risk management committee, KCB has effectively managed risks. Even better, its whistleblower, sustainability, anti-money laundering, and supply chain policies are among the most effective and key drivers of the banker’s corporate governance success.
Embrace the Corporate Governance Best Practices Today!
There’s no doubt that the difference between the most successful corporate governance systems and the not-so-successful are their practices. If you want to belong in the former category, the above practices are a must-employ.
Of course, there are many others, and with the corporate governance landscape constantly changing, there’s the need to adapt and embrace newer and more effective practices. That’s part of the reason we started our monthly corporate governance training.
This program aims to equip corporate leaders and business owners with the right skills and tools in corporate governance. We address challenges in corporate governance, and through our expert-led insights and demonstrations, we share valuable tips to give you a competitive edge. Sign up today to kick-start your corporate governance pursuit!
