Recently the Capital Markets Authority (CMA) threw some regulatory teargas into the streets and left listed companies coughing and sneezing in confusion. In October 2023, the regulator issued a new set of rules namely Capital Markets (Public Offers, Listings and Disclosures) Regulations, 2023. A local Kenyan proverb states that an old man sees further while sitting down than a young lad can see perched on top of a tree. This Wise Old Man Johnny as it were, sought to solve enormous and endemic Kenyan corporate governance problems by helping listed companies to see that group representatives from head office were actually executive directors in disguise.

Let me provide some context from an article I wrote in this paper in April 2024:

“But Johnny also introduced a very interesting definition of what a non-executive director (NED) is. “Non-executive director” means a member of a board of a company who is not an executive director and is not an executive director or employee of a related entity.” Let me remind you briefly. The managing director and any other senior management person who is working within the organization and who have been registered as statutory directors at the companies registry, are regarded as executive directors. Executive because they execute. So a non-executive director is a statutory director who doesn’t execute. Under this umbrella fell those directors sent by the group in the case of listed subsidiaries of regional or international group companies. They were not independent since they were employees of the group. So they were simply non-executive directors.

Johnny has now put group representatives in limbo by stating that an NED is not an executive director or employee of a related entity. These group representatives also do not fall under the definition of an independent non-executive director (INED) since it explicitly defines one as not being an executive director, not having a material or pecuniary relationship with the company, not owning shares in the company and, finally, an INED is compensated through sitting fees or allowances.”

I took a stroll over to the CMA website and found that they had a board of very eminent directors themselves. The CMA has no less than six members of its board that it correctly describes as independent. These eminent independents do not work for the government of Kenya or any of its related entities such as ministries, state agencies or county governments. However, also on the CMA board are the Cabinet Secretary for Treasury, the Central Bank of Kenya (CBK) Governor and the Attorney General (AG) who are usually represented by their alternates, staff members of their respective offices. The CMA, being a statutory body formed under the National Treasury parent, is a 100% blue blooded government agency.

It therefore wouldn’t be a stretch of the imagination to say that representatives from the parent Ministry which is the National Treasury can be equated to representatives of the parent entity for a listed company. Furthermore, it wouldn’t be an exaggeration to state that the Central Bank and the Attorney General’s office are pretty much related entities to the National Treasury, being government functionaries and what not. So the CBK and AG representatives would also be regarded as “ those fellows from group” if they were sitting on a listed company board.

Consequently, if we are to pull the Wise Old Man Johnny’s thinking thread, then the CS Treasury, the CBK Governor and the AG are executive directors at the CMA. Why you ask? Because the new CMA regulations are very black and white. Either you are an INED or an NED. And if you’re a “fellow from group” then you are an executive director as you are an employee of a related entity (remember the definition of an NED is someone who is not an employee of a related entity!). By dint of being an executive director, you execute decisions in the organization. You have responsibility over the day to day actions of the entity. You can kick open closed doors in the building and demand to know what’s going on there. You can pop up the bonnet and check what’s going on in the engine, heck you can change the spark plugs yourself. You can issue internal memos to staff and give directives on organizational policy.

So to the listed companies out there that were gnashing their teeth at having their group representatives unwittingly defined as “executive directors”, please gnash no more. You are in the great company of other executive directors, senior cabinet level government personnel no less. I hope the CMA top floor has provided corner offices for all the executive directors on their own board.

X: @carolmusyoka

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