More scrutiny for listed firms in new CMA rules

A board meeting. Board members must declare possibility of conflict of interest in their dealings with a company under the new rules. [Courtesy]

You will soon be able to interrogate the management of a company before you invest in it.

This will be made possible by a move by the Capital Markets Authority (CMA) to implement radical rules to increase transparency among listed firms.

The regulator has published a template where a company will declare its true financial state in a bid for the regulator and would-be investors to detect early warning signs and reduce conflict of interest where it may arise.

Interrogate reports

The law, which became effective on March 4 this year, means that all companies listed on the Nairobi Securities Exchange (NSE), will feed details into the template and post them on their websites.

“As required by the code, the template once duly filled and signed will be uploaded on the issuer’s website within four months after the end of the issuer’s financial year. Investors and the general public are encouraged to interrogate the reports to inform their engagement with the companies they invest in,” said CMA in a public notice yesterday. The new rules, especially put the board of directors as the people responsible for transparent and effective stewardship of companies and prohibit them from holding such positions in more than three public listed companies at any one time.

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It also sets an age limit for holding board positions at 70 years and the tenure of an independent board member of a cumulative term of nine years.

Board members also have to declare possibility of conflict of interest and they must not have been employed by the company in an executive capacity within the last three years if they are to serve on the board. This comes even as Parliament also seeks to amend the companies Act to shine more light on directors and scrutinise their relatives who do businesses with them.

Under the Companies Amendment Bill (2017) sponsored by Majority Leader Aden Duale, directors of companies will have to declare extended relations, including their in-laws, brothers and sisters, grand children as well as the spouses of all the these relatives who conduct businesses with their firms.

The bill also seeks to have directors declare any transactions done by a director with the company, the amount notwithstanding.

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