The Capital Markets Authority (CMA), the regulatory body overseeing Kenya’s financial markets, has taken a bold step to strengthen corporate governance by proposing a cap on the number of listed companies a single company secretary can serve at the Nairobi Securities Exchange (NSE). The new regulation, which limits this number to three, is aimed at enhancing the effectiveness, focus, and accountability of company secretaries.
This move comes at a time when the demand for heightened transparency and efficiency in corporate governance is critical, given the increasing complexity of compliance requirements and the central role company secretaries play in ensuring good governance.
Understanding the Role of a Company Secretary in Listed Firms
A company secretary serves as the cornerstone of a firm’s compliance and governance framework. Their roles extend far beyond administrative duties, encompassing legal, regulatory, and advisory responsibilities. Key functions include:
- Regulatory Compliance: Ensuring timely filing of returns and adherence to statutory obligations as per the Companies Act.
- Corporate Governance: Advising the board of directors on best governance practices and legal frameworks.
- Board Administration: Organizing board meetings, drafting minutes, and providing strategic guidance.
- Shareholder Communication: Acting as a liaison between the company and its shareholders.
In listed firms, these roles become even more critical due to the stringent regulatory requirements of the CMA, the Nairobi Securities Exchange (NSE), and global corporate governance codes.
Why the CMA Wants to Cap the Number of Companies a Secretary Can Serve
The CMA’s rationale for introducing this regulation stems from a need to address the following issues:
1. Improving Focus and Dedication
Many company secretaries currently serve multiple firms, often juggling responsibilities for as many as five or more. This overextension can dilute their effectiveness, leading to lapses in compliance and governance oversight. Limiting the number to three ensures that each company receives the attention it deserves.
2. Reducing Conflicts of Interest
Serving multiple companies, especially within the same industry, can create conflicts of interest that compromise the impartiality and integrity of the company secretary. A cap helps mitigate these risks by reducing overlapping obligations.
3. Strengthening Corporate Governance
A company secretary plays a crucial role in implementing governance frameworks. By focusing on fewer companies, they can more effectively contribute to the development of robust governance practices.
4. Aligning with Global Best Practices
Many developed markets, such as the United Kingdom and South Africa, already impose limits on the number of boards or companies professionals can serve. This move aligns Kenya with global standards, enhancing its appeal to international investors.
Potential Impacts of the Regulation
The proposed cap on company secretaries has wide-ranging implications for listed companies, professionals, and the broader financial ecosystem:
1. For Listed Companies
- Talent Redistribution: Companies relying on highly sought-after company secretaries may need to find additional qualified professionals to meet compliance requirements.
- Cost Implications: The need to engage more company secretaries could increase operational costs, particularly for smaller firms.
- Improved Governance: Firms will likely benefit from secretaries who are more focused and less overburdened, leading to enhanced governance outcomes.
2. For Company Secretaries
- Portfolio Restructuring: Professionals currently managing more than three listed firms will need to downsize their portfolios, potentially relinquishing lucrative engagements.
- Increased Accountability: With fewer companies to serve, secretaries will be expected to deliver higher-quality governance and compliance services.
3. For the Market
- Enhanced Investor Confidence: Improved corporate governance is likely to boost investor confidence in NSE-listed firms, attracting both local and international investment.
- Professional Standards: The cap may encourage the training and development of more company secretaries to fill the talent gap.
Challenges to Implementing the Cap in Nairobi Securities Exchange
While the CMA’s proposal has merit, its implementation is not without challenges:
1. Shortage of Qualified Professionals
Kenya has a limited pool of certified company secretaries. The new regulation could exacerbate this shortage, leading to difficulties for some firms in finding qualified candidates.
2. Transition Period
Companies and professionals will need time to adjust to the new regulation. Clear timelines and guidelines from the CMA will be essential for a smooth transition.
3. Increased Costs
Firms may face higher costs as they seek to engage additional company secretaries. This could particularly impact small and mid-sized enterprises listed on the Nairobi Securities Exchange (NSE).
4. Resistance from Stakeholders
Some company secretaries and listed firms may resist the regulation, viewing it as an unnecessary restriction that limits professional freedom and operational flexibility.
Comparative Analysis: Learning from Other Markets
Countries like the United Kingdom and South Africa have long recognized the need to regulate the roles of company secretaries and board members to prevent overextension. For instance:
- United Kingdom: The UK Corporate Governance Code limits the number of directorships a single individual can hold, ensuring effective performance.
- South Africa: The Companies Act mandates detailed disclosures regarding company secretarial roles to ensure accountability.
These models provide valuable lessons for Kenya as it implements the CMA’s proposal.
Recommendations for Companies and Professionals
To adapt to the new regulations, listed firms and company secretaries should consider the following steps:
For Listed Companies:
- Assess Current Arrangements: Review the number of companies your company secretary currently serves and prepare for adjustments.
- Plan for Succession: Develop a succession plan to onboard additional secretaries if needed.
- Invest in Training: Support the professional development of in-house staff to meet company secretarial needs.
For Company Secretaries:
- Restructure Portfolios: Identify which companies to retain based on workload and strategic value.
- Enhance Skills: Invest in continuous professional development to remain competitive in the market.
- Build Capacity: Collaborate with industry bodies like ICPSK to increase the supply of qualified professionals.
The CMA’s proposal to limit the number of listed companies a company secretary can serve in Nairobi Securities Exchange is a bold and necessary step towards enhancing corporate governance in Kenya. While the regulation presents challenges, its benefits in terms of improved focus, reduced conflicts of interest, and alignment with global best practices are undeniable.
As stakeholders prepare to navigate this transition, collaboration and proactive planning will be essential. With effective implementation, this regulation could set a new standard for governance excellence, boosting investor confidence and strengthening the financial market.
FAQs
What is the role of a company secretary in listed companies?
A company secretary ensures compliance with legal and regulatory requirements, supports the board, and implements governance practices.
Why is the CMA proposing a cap on company secretaries?
The CMA aims to enhance focus, reduce conflicts of interest, and strengthen corporate governance by limiting the number of companies a secretary can serve.
How many companies can a secretary currently serve?
There is no formal cap, but some secretaries manage portfolios of five or more companies.
What challenges does this proposal present?
Challenges include a shortage of professionals, increased costs, and resistance from stakeholders.
How does this regulation compare to global standards?
The cap aligns Kenya with global best practices seen in markets like the UK and South Africa.
