Cytonn Investments has released its annual Cytonn Corporate Governance Report (Cytton CGR) – 2018, which demonstrates that firms with higher levels of corporate governance, the top 50% in Cytonn CGR, outperformed those with lower levels of corporate governance, the bottom 50% in Cytonn CGR, by 15% when looking at share price performance over the last five-years. KCB Group, Nairobi Securities Exchange (NSE), and Safaricom tied as the Top 3 companies with best corporate governance practices among listed companies in Kenya.
The ranking is based on 24 metrics that consider different aspects of governance, including board composition, ethnic and gender diversity, board meeting attendance, board independence, remuneration, and overall transparency. The survey was conducted on 47 companies listed on the Nairobi Securities Exchange with a market capitalisation in excess of Ksh 1 billion.
“We continue to see a direct and strong correlation between corporate governance and share price performance. Of the 47 companies we analysed, the top 24 firms have delivered an average return of 2.1% over the last five-years while the bottom 23 companies have had a negative return of 13.0% over the same period, which means that the top 24 firms delivered 15% better returns.,” said John Ndua, Investment Associate at Cytonn Investments. “This indicates the importance of strong corporate governance in delivering sustainable and attractive returns to investors,” he added.
“Compared to last year’s ranking, there was an overall improvement in the comprehensive score, board attendance, proportion of non-executive directors as well as ethnic diversity in the 47 listed companies in our report,” continued John. He also pointed out the outstanding improvement in gender diversity to an average of 21.7%, from 17.1% in 2017.
“Corporate governance reporting standards continue to improve in the country. Earlier in the year, the Capital Markets Authority’s Code of Corporate Governance practices came into full effect and we have witnessed compliance as companies adopted the provisions of the code in their annual reports for the financial year 2017. The report, themed ‘Improved Corporate Governance Key to Investor Protection’, analyased the information these companies made available to us and employed other metrics to rank their corporate governance structure. We also acknowledge the integral role that oversight bodies like the Capital Markets Authority and the Central Bank of Kenya have played in ensuring that good corporate governance principles are upheld,” said Derrick Kieya, Investment Analyst at Cytonn Investments.
KCB Group, NSE and Safaricom all tied at the 1st rank, each having attained a comprehensive score of 85.4%. This was supported by, among others; gender and ethnic diversity in the board composition, a good proportion of independent directors, defined tenures to accommodate rotation, and high level of exposure to of board members to global markets.
The most improved firm in the ranking was Limuru Tea, with a comprehensive score of 41.7%, ranking them at Position 46, from a score of 16.7% and Position 49 in the 2017 Report. This was due to; increase of board members to an odd number, introduction of a female board member, and better disclosure on board member details, work experience, and remuneration. However, they are still below the 50.0% mark, indicating that they still have governance gaps in their overall structure.
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The biggest decliner was ARM Cement, which recorded a decline to a comprehensive score of 58.3%, ranking them at Position 42, from a score of 66.7%, ranking them at Position 22, in the last report. This was due to lack correlation between remuneration and earnings, a high shareholding level at the board, and evenness of the board.
Table 1: Cytonn’s Corporate Governance Report Company Ranking by Comprehensive Score
|
Cytonn’s Corporate Governance Report Comprehensive Score Ranking |
||||||
| Company |
Current Score |
2017 Score |
2016 Score |
Current Position |
2017 Position |
2016 Position |
| KCB |
85.4% |
91.7% |
95.8% |
1 |
1 |
1 |
| NSE |
85.4% |
81.3% |
68.8% |
1 |
5 |
15 |
| Safaricom |
85.4% |
81.3% |
83.3% |
1 |
5 |
2 |
| DTB Bank |
83.3% |
85.4% |
75.0% |
4 |
2 |
9 |
| CIC |
81.3% |
79.2% |
64.6% |
5 |
8 |
25 |
| Standard Chartered |
79.2% |
83.3% |
83.3% |
6 |
3 |
2 |
| NIC |
79.2% |
68.8% |
66.7% |
6 |
21 |
18 |
| Kenya Power & Lighting Co Ltd |
79.2% |
79.2% |
68.8% |
6 |
8 |
15 |
| BAT Kenya |
77.1% |
79.2% |
77.1% |
9 |
8 |
5 |
| East Africa Breweries |
77.1% |
79.2% |
77.1% |
9 |
8 |
5 |
| Liberty |
77.1% |
81.3% |
66.7% |
9 |
5 |
18 |
| Jubilee Holdings |
77.1% |
83.3% |
77.1% |
9 |
3 |
5 |
| Kenya Re |
75.0% |
60.4% |
58.3% |
13 |
33 |
32 |
| Carbacid Investments |
75.0% |
60.4% |
45.8% |
13 |
33 |
44 |
| Standard Group |
75.0% |
70.8% |
60.4% |
13 |
20 |
28 |
| Kengen |
75.0% |
75.0% |
79.2% |
13 |
16 |
4 |
| Equity |
75.0% |
75.0% |
72.9% |
13 |
16 |
10 |
| National Bank |
75.0% |
77.1% |
68.8% |
13 |
14 |
15 |
| Umeme Ltd Ord 0.50 |
75.0% |
77.1% |
72.9% |
13 |
14 |
10 |
| Coop |
75.0% |
79.2% |
70.8% |
13 |
8 |
13 |
| Britam |
72.9% |
60.4% |
54.2% |
21 |
33 |
38 |
| Sasini |
72.9% |
64.6% |
60.4% |
21 |
27 |
28 |
| WPP Scan Group |
72.9% |
66.7% |
45.8% |
21 |
27 |
44 |
| Barclays |
72.9% |
79.2% |
77.1% |
21 |
8 |
5 |
|
Cytonn’s Corporate Governance Report Comprehensive Score Ranking |
|||||||
| Company |
Current Score |
2017 Score |
2016 Score |
Current Position |
2017 Position |
2016 Position |
|
| Kenya Airways |
70.8% |
60.4% |
66.7% |
25 |
33 |
18 |
|
| Nation Media Group |
70.8% |
64.6% |
58.3% |
25 |
27 |
32 |
|
| Sanlam Kenya |
68.8% |
72.9% |
70.8% |
27 |
19 |
13 |
|
| Kenol/Kobil |
66.7% |
54.2% |
52.1% |
28 |
42 |
40 |
|
| Centum |
66.7% |
64.6% |
64.6% |
28 |
27 |
18 |
|
| Longhorn Publishers |
66.7% |
72.9% |
67.0% |
28 |
– |
– |
|
| I&M Holdings |
66.7% |
75.0% |
72.9% |
28 |
16 |
10 |
|
| Stanbic Holdings |
64.6% |
58.3% |
56.3% |
32 |
40 |
35 |
|
| TPS East Africa |
64.6% |
64.6% |
58.3% |
32 |
27 |
32 |
|
| Unga |
64.6% |
64.6% |
66.7% |
32 |
27 |
18 |
|
| Total Kenya Ltd |
64.6% |
65.2% |
65.2% |
32 |
26 |
24 |
|
| Housing Finance |
64.6% |
66.7% |
60.4% |
32 |
22 |
28 |
|
| East Africa Portland Cement |
62.5% |
60.4% |
50.0% |
37 |
33 |
42 |
|
| B.O.C Kenya |
62.5% |
60.4% |
56.3% |
37 |
33 |
35 |
|
| Trans-Century Ltd |
62.5% |
62.5% |
56.3% |
37 |
32 |
35 |
|
| Bamburi |
62.5% |
66.7% |
66.7% |
37 |
22 |
18 |
|
| Mumias Sugar |
60.4% |
52.1% |
52.1% |
41 |
45 |
40 |
|
| ARM |
58.3% |
66.7% |
64.6% |
42 |
22 |
25 |
|
| Crown Paints |
56.3% |
50.0% |
43.8% |
43 |
47 |
46 |
|
| Williamson Tea |
54.2% |
52.1% |
47.9% |
44 |
45 |
43 |
|
| Kakuzi |
54.2% |
54.2% |
60.4% |
44 |
42 |
28 |
|
| Limuru Tea |
41.7% |
16.7% |
18.8% |
46 |
49 |
49 |
|
| Kenya orchards |
10.4% |
10.4% |
10.4% |
47 |
50 |
50 |
|
Source: Cytonn Research
Table 2: Cytonn’s Corporate Governance Report Top 10 Companies By Ethnic Diversity
|
Top 10 by Ethnic Diversity Ranking |
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| Company |
Current Score |
Previous Score |
Current Position |
Previous Position |
| Sanlam Kenya |
87.5% |
87.5% |
1 |
1 |
| ARM** |
87.5% |
77.8% |
1 |
7 |
| East Africa Breweries |
81.8% |
81.8% |
3 |
3 |
| Kenya Re |
81.8% |
72.7% |
3 |
15 |
| Kenol/Kobil |
80.0% |
75.0% |
5 |
9 |
| National Bank |
80.0% |
75.0% |
5 |
10 |
| Nation Media Group |
80.0% |
71.4% |
5 |
17 |
| KCB Group |
77.8% |
81.8% |
8 |
2 |
| BAT Kenya |
77.8% |
77.8% |
8 |
6 |
| Standard Group |
77.8% |
75.0% |
8 |
14 |
Source: Cytonn Research
** ARM Significantly improved it’s score after the recent board reshuffle in an effort to remedy the current ongoing crisis
Cytonn’s Corporate Governance Report Top 10 Companies By Gender Diversity
|
Top 10 Gender Diversity Rank |
||||
| Company |
Current Score |
Previous Score |
Current Position |
Previous Position |
| Barclays |
50.0% |
50.0% |
1 |
1 |
| Mumias Sugar |
44.4% |
40.0% |
2 |
2 |
| Kenol/Kobil |
40.0% |
0.0% |
3 |
41 |
| Stanbic Holdings |
40.0% |
18.2% |
3 |
24 |
| B.O.C Kenya |
37.5% |
37.5% |
5 |
3 |
| Safaricom |
36.4% |
30.0% |
6 |
7 |
| Kengen |
33.3% |
27.3% |
7 |
15 |
| Housing Finance |
33.3% |
33.3% |
7 |
4 |
| Kengen |
33.3% |
27.3% |
7 |
15 |
| BAT Kenya |
33.3% |
22.2% |
7 |
17 |
Source: Cytonn Research
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