WELCOMING REMARKS MR PAUL NGUGI, AG. CHAIRMAN, CAPITAL MARKETS AUTHORITY, DURING THE FIRE AWARD 2014 GALA DINNER EVENT, SAFARI PARK HOTEL 24 OCTOBER 2014

Mr. Michael Armstrong   -  Regional Director – Middle East Africa and

    South Asia for the Institute of Chartered

    Accountants in England and Wales (ICAEW)–

    Our Chief Guest

CPA Benson Okundi      -  Chairman, Institute of Certified Public 

                                    Accountants of Kenya (ICPAK)

Council Members of ICPAK

Mr. Edward Njoroge         - Chairman, Nairobi Securities Exchange

NSE Board members

Board Members of the Capital Markets Authority

Invited Guests

Ladies and Gentlemen

 Introduction

It gives me great pleasure to welcome you to the Financial Reporting (FiRe) Award Gala Dinner this evening. FiRe Award has been ongoing for the last 13 years and I am glad to state that Capital Markets Authority has been a promoter since inception. 

Since we began, our vision and mission as promoters has evolved into a direction that attempts to strengthen the quality of financial reporting in corporate Kenya by capturing financial as well as non-financial elements such as sound corporate governance practices and sustainable corporate social responsibility in recognition of the changing dynamics globally. 

Ladies and Gentlemen,

The International Integrated Reporting Council chaired by Prof. Mervyn King has defined integrated reporting as a concise communication about how an organization’s strategy, governance, performance and prospects, in the context of its external environment, lead to the creation of value in the short, medium and long term. The Capital Markets Authority has had the privilege of engaging Prof. King, the chair of the King Committee that is responsible for development and drafting of King Codes I, II and III during the process of reviewing the corporate governance framework for listed companies in Kenya. 

The debate on integrated reporting elicits emotions and sometimes, protests from companies listed on securities exchanges in many African nations because they are wary of ‘too much disclosure’ and the associated compliance costs. 

Permit me to say however, that contrary to popular belief, integrated reporting is not about giving more information for the sake of it. Rather, it is about the quality of reporting that is intended to provide information to investors that would enable them to make informed decisions. Regrettably, not too much effort goes into communication with investors. Organizations choose to focus more on the cost of communication rather than the benefit of meaningful communication. For instance, majority of annual reports are based on templates with very little fresh information is provided. Investors in our country however, need to demand and expect more and companies will need to enhance the standard of their reporting to meet this expectation.  

The Authority has placed much emphasis on corporate governance reform over the last 18 months in recognition of the very special role it plays in the development of any financial market globally. Through the Capital Markets Corporate Governance Steering Committee, a special committee appointed by the Board in December 2012, we developed a new corporate governance legal framework for public listed companies in view of the changing business dynamics globally and also, to align local standards with global best practice. The new legal framework seeks to strengthen public listed institutions in Kenya by positioning them as attractive to local and foreign investors. As we improve corporate governance practices in Kenya, we bolster our country’s position in the competition for global capital flows. Once the new legal framework is enacted, it will automatically replace the current Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya.  

Ladies and Gentlemen, it is worthy to note that the Code encourage the adoption of integrated reporting as well as sustainability of the environment, social well-being and governance atmosphere in which a business operates. 

The legal framework is predicated on an ‘apply or explain’ basis. This is intended to diverge from the current application mode of ‘comply or explain’, under which the current Guidelines are designed. Under the ‘comply or explain’ approach a listed company is expected to comply with  provisions  in the Guidelines or explain to the Authority in writing why it has failed to comply with  the provision, while providing detailed explanations on the failure to comply and  strategies and the timelines towards full compliance. 

On the contrary, the ‘apply or explain’ approach recognizes that a satisfactory explanation for any non-application of a provision contained in the Code, by a listed company, may be acceptable in certain circumstances particularly when it nonetheless delivers a higher governance standard. It encourages boards to apply their minds to any deviation from recommended practice and to give a satisfactory explanation to the stakeholders including the Capital Markets Authority and shareholders. In the ‘apply or explain’ approach, companies are required to provide a clear roadmap, acceptable to the Authority, to move towards full application in the event that the deviation delivers a lower governance standard. This allows for flexibility in the decision making process of companies and acknowledges that the dynamics in each organization and industry are different and therefore a one-size-fits-all approach would not be effective. 

Ladies and Gentlemen, it is worthy to note that the Code is not an Authority document but rather an industry document. Through each stage of its development, we  engaged both chairmen and executive leaders of public listed companies, market intermediaries, international financial organizations, government and peer regulators globally as well as global experts on the subject of corporate governance. The Code is voluntary, however, the absolute minimum standards which any listed company must comply with and are fully enforceable will be legislated into listing requirements under our Listing Regulations and companies will be expected to comply with continuous reporting on those obligations. 

In closing, allow me Ladies and gentlemen, to note some benefits of good governance. Research has demonstrated that investors take notice of and reward companies with high levels of corporate governance. We cannot overstate the fact that investors are willing to pay a premium for a portion of a business, listed or not, where a company voluntarily holds itself to higher standards of corporate governance than expected in law. 

While the cost of compliance with corporate governance standards has been a concern for listed companies in the past, there is proof that the benefits of access to cheaper global capital, high market valuation, profitability, sustainability, attracting and retaining best talent globally and prestige and respect far outweigh the costs of compliance in the long-term. 

We will therefore continue to encourage listed companies, as well as non-listed companies that desire to access capital through the capital markets to strive to entrench and practice higher governance standards. 

Appreciation

 On behalf of the Capital Markets Authority, I sincerely appreciate each one of you for continuously supporting the Fire Award Conference and Gala Dinner. Without your support, this Award would not have received the prominence it now enjoys in the East African region as a premiere award event. I especially thank:-

 KASNEB, our platinum sponsor;

The Institute of Chartered Accountants in England and Wales who is our gold sponsor;

Other organizations that have supported us this year include:- Association of Chartered Certified Accountants (ACCA), Grant Thorton, Insurance Regulatory Authority, RSM Ashvir, WIA East Africa, Mazars, and Sacco Societies Regulatory Authority (SASRA); 

I also thank our fellow promoters, ICPAK and NSE, for their long-term commitment and dedication towards the achievement of the Award mission of enhancing accountability, transparency and integrity in financial reporting. Last but not least, join me in appreciating Mr. Michael Armstrong our chief guest for the FiRe Award Conference and Gala Dinner this year, the conference speakers, and judges.

Thank you.

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