A corporate is a legal entity that is separate and distinct from its own formed into an association and endowed by law with the rights and liabilities of an individual.
Governance is the process of governing, either by a government, a market or a network, over a social system (family, tribe, formal or informal organization, a territory or across territories) either through the laws, norms, power or language of an organized society.
Corporate governance is:
a) The system by which companies are directed and controlled…
b) Set of rules that define the relationship between stakeholders, management, and board of directors of a company and influence how that company is operating. At its most basic level, corporate governance deals with issues that result from the separation of ownership and control. But corporate governance goes beyond simply establishing a clear relationship between shareholders and managers.
c) Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.
d) The relationships among the management, Board of Directors, controlling shareholders, minority shareholders and other stakeholders.
e) The process carried out by the board of directors, and its related committees, on behalf of and for the benefit of the company’s Shareholders and the other Stakeholders, to provide direction, authority, and oversights to management, “It means how to make the balance between the board members and their benefits and the benefits of the shareholders and the other stakeholders.
ORIGIN OF CORPORATE GOVERNANCE
Throughout the 20th century, the economies of many countries became increasingly involved in the currents of international trade and the expansion of global financial transactions. Within this context, companies underwent significant transformations as fast business growth led to a realignment of control structures, as ownership and management decoupled. Corporate governance issues arose because of conflicts involving dispersed ownership and differences between the interests of shareholders, executives and the company itself.
The most widely accepted position states that corporate governance was initially intended to overcome the classic “agency “. In this situation, the owner (shareholder) delegates corporate decision-making powers (as determined by law) to a specialist agent (administrator) in which case, differences may arise between both groups position on what they consider to be best for the company, an issue that Corporate Governance practices are intended to eliminate.
Corporate Governance in Kenya began in 1998 in a workshop for non-executive directors organised by the Private Sector Initiative for Corporate Governance which was attended by major institutions such as Nairobi Stock Exchange (NSE), Capital Markets Authority (CMA), Institute of Certified Public Accountants (ICPAK) and the Kenya Chapter of the Association of Chartered Certified Accountants (ACCA), with participation drawn from many leading corporate organisations, the organisers, M/s Dominion Consultants Limited. The participants at the workshop discussed the topic and its adoption by Kenyan companies. They later held a second seminar in 1999 where a decision was made to formulate an interim committee with a core mandate of developing a Code of Best Practice for Corporate Governance in Kenya and improving the little knowledge of corporate governance Kenyans had.
The first draft of the Code of Best Practice for Corporate Governance was produced and distributed to over four hundred organisations with a request to send in comments about the draft and the way forward.
Capital Market’s Authority (CMA) Adoption of Corporate Governance Code.
While the CMA recognized and supported the Code of Best Practice for Corporate Governance developed by the Private Sector Initiative for Corporate Governance, in 2002 the CMA gazetted the now repealed Guidelines on Corporate Governance Practices by Public Listed Companies in Kenya. The 2002 Guidelines adopted the “Comply or Explain” approach which meant that all listed companies were required to include in their annual reports whether they had complied with the 2002 Guidelines, if not, they were expected to state reasons for non-compliance and steps being taken to comply. However, this approach proved to be ineffective as most companies did not comply with the Guidelines and as a result, between 2002 and 2015, Kenyans witnessed a lot of companies collapse due to poor corporate governance.
As a result, with the aim of correcting the above-named problem, CMA gazetted the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 (the 2015 Code) which replaced the 2002 Guidelines. One of the major changes in the 2015 Code is that it moved from the “Comply or Explain” approach to “Apply or Explain” approach. This new approach requires Boards to fully comply with the 2015 Code failure to which the non-compliant companies must ‘disclose to the CMA the reasons for non-application and clearly indicate the time frame required and the strategies to be put in place towards full compliance.’