The wake of COVID 19 in the country has continued to affect companies and firms in all sectors of the economy. This includes both private and public sectors. Most companies and firms have endeavored to ensure that their systems and processes remain running as they grapple with the effects posed by this pandemic.
Though corporate governance may not be a major focus during a pandemic, it is during these testing periods that leadership and management structures are tested, exposed for their strengths or flaws, and remembered by stakeholders in the long-term.
On the other hand, poor governance structures are likely to be exposed during such periods of crisis, while well governed Companies or Firms will act more decisively to contain its impacts and provide much-needed transparency and consistency to their stakeholders.
1. What is Corporate Governance?
Corporate Governance refers to the systems and processes put in place for the purposes of effective control and management of companies or firms. A company or a firm must be effectively managed and controlled to be able to achieve the mandate/purpose to which it was formulated.
It is in that regard that we can deduce that corporate governance is based on laws, regulations and guidelines. Key to note is that ethical practices also apply to the management and control of companies or firms.
2. What Are The Principles of Good Corporate Governance?
2.1 Transparency/Openness – The company or firm must be controlled and managed in a transparent manner.
2.2 Integrity – The powers of management and control of companies or firms should be exercised with integrity at all times.
2.3 Accountability – All the organs of management and control.
2.4 Compliance with laws, regulations and guidelines – Where specific laws prescribe ethical behavior, people may implement good practices and comply. If we look at The Companies Act, 2015, it provides for extensive shareholders’ rights. The Act provides that The Capital Markets Authority issues binding guidelines for good corporate governance for both listed and unlisted companies. If we look at the Banking sector, licensed institutions under the Central Bank of Kenya have mandatory requirements under The Banking Act to comply with the CBK guidelines on good corporate governance.
2.5 Proper value system in a Company or Firm.
3. Should The Board Continue Exercising It's Mandate During COVID 19?
The COVID 19 pandemic should not change how a company or a firm is managed and controlled. It is the mandate of the Board members of a Company to ensure compliance with all the laws and regulations, CMA guidelines included. It is also the ultimate role of the Board to ensure that they are continuously involved in the decision making process of the Company or Firm through alternative modes of communication. For certain functions which are ordinarily delegated by the Board to senior management such as managing employees and the working environment, it may be necessary for senior management to involve the Board during the crisis so as to obtain strategic direction in respect of how they carry out these functions and to deliberate with the Board on how management decisions in these respects may affect the sustainability of the company.
4. What Is The Role of Stakeholders amid COVID 19?
During this pandemic, it is imperative for companies and firms to recognize their major stakeholders. A proper mechanism must be provided for engaging with those stakeholders. There is the need to provide for means and ways to formally reach the stakeholders, receive feedback from them and a means of providing feedback on those views. This can be done by:
4.1 Having a robust and proper communication policy to be able to effectively and accurately communicate with the stakeholders;
4.2 Ensuring that the environment adheres to the safety standards of sanitizing and keeping a distance of one meter between people for customers who need to access the physical locations.
5. Should Companies Still Hold Meetings During COVID 19? In Addition, What Guidelines Has The Government Put In Place?
There are several directives being issued by governments around the world, which are increasing the obligations applicable during the pendency of the COVID-19 pandemic. All businesses will be required to comply with all laws, regulations and directives issued by regulators. In a report published by The Capitals Market Authority, we have seen the Authority advise listed companies and licensed persons including collective investment schemes scheduled to hold their Annual General Meetings (AGMs) in
March, April and May 2020, to defer the meetings to a later date while ensuring all affected stakeholders are notified in good time.
We have seen companies considering alternative methods of holding e - meetings such as using Microsoft Teams, Zoom or Skype. Companies may also need to move away from the traditional method of preparing volumes of hard copies to be circulated to each board member during meetings. Where the Articles of Association restricts such, there is the need to amend to accommodate the restriction of social distancing.
When we look at private companies, there is no express provision in The Companies Act that requires holding of an AGM. However, the same will be considered in what is stipulated in the Articles of Association of such a company. The Companies Act 2015 permits private companies to pass written resolutions, which will have an effect as if passed by the Company in a general company. Also, and by virtue of Section 262 (4) (a), private companies whose members exceed the prohibited numbers can equally pass written resolutions in lieu of meeting of members. If there rises a need to hold an AGM, the Government’s directives have to be adhered to.
In considering public companies, The Companies Act 2015 requires holding of AGM in a Public Company be done within six months from the last accounting period of the previous year by virtue of Section 310. The Companies registry has not given any directive on whether holding AGMs should be waived. Be as it may, the Government’s directives have to be adhered to for those companies that are planning to hold their AGMs. Key to note is that in case a company plans to postpone its AGM, the same can take effect to an extent to which the Articles of Association allows.
A Company can also delay or postpone holding of AGMs. The Companies Act 2015 grants the Registrar powers to either on the application of the Company or for any other reason that the Registrar thinks fit, to extend the period within which the Company is to conduct an AGM. Companies who may wish to delay or postpone their AGMs may thus apply to the Registrar for an extension period to hold an AGM. The applications can be submitted electronically through email@example.com.
6. What measures has The Capital Markets Authority (CMA) put in place to adjust compliance timelines for companies or firms?
We have seen that the COVID 19 has greatly affected most companies in terms of generation of revenues and ensuring that Employees mandatory deductions is submitted on time. Listed companies for example have had to disclose so much information as they grapple with the effects of this pandemic.
When we consider The Capital Markets Authority, the entity issued a statement in the month of 03.04.2020 where there was an extension to the deadline for licensed entities to file and publish their financial statements by an extra one month. Therefore, companies that were required to publish their financials by 31.03.2020 will have an additional 30 days to release their results. Similarly, businesses that post results by 30.04.2020 have until the end of May. This is for those listed companies that have been affected by the pandemic. That does not mean that for companies not hit hard by the pandemic have to ride on that timeline as they can equally file their statements within the regulated deadline.
The CMA has also relaxed disclosure obligations in relation to publication of financial statements in two newspapers of national circulation until 30.06.2020. It has directed that all required disclosures be published on the following platforms:
6.1 company websites and social media platforms;
6.2 the NSE website for all issuers and trading participants; and
6.3 the CMA website by all entities affected by this guidance.
Companies that do not face challenges in publishing the same in the newspapers can still publish their financial statements in the two newspapers of national circulation.
The CMA has also stated that given the need to postpone AGMs by most companies, shareholders will need to have a need to access their dividends in various companies to cushion them during these difficult times. To curb this, the respective boards of issuers of securities have been given the greenlight to declare and pay the dividends to their shareholders. However, the same will be subject to the companies’ dividend policies, procuring all other relevant internal approvals, and making available the audited financial statements to CMA, Nairobi Securities Exchange (NSE) and the public in the prescribed various channels.
The Boards of listed companies have also been allowed to progress the appointment and remuneration of auditors. Board decisions on these matters will need to be tabled at the AGMs, once convened, for ratification.
Although COVID 19 has brought many unexpected challenges, research shows various organizations world over have had disaster or crisis planning capabilities or business continuity plans to deal with these sorts of mysterious or unexpected scenarios.
Ordinarily, such measures are stipulated under a company’s risk management function and then through risk oversight of management response to such threats at the board level.
While some boards may have existing risk or crisis committees to help define decision-making or operational protocols, working with management to address unexpected emergencies, the effect of COVID 19 makes it a matter for the whole board notwithstanding management’s day-to-day risk control role.
The current situation should serve as a stark reminder on the importance of putting in place sufficient strategic management processes to identify potential threats, plan, and safeguard critical business functions in the event of disruption.
In a normal operating environment, corporate leaders should be inspiring and leading. This demand from the leadership has not changed; leaders must still inspire, but in a different way. Leaders must always adhere to the principles of Corporate Governance through the COVID 19 crisis.
Article by Rodgers Muyodi,
Advocate, Corporate Employment & Pensions, MMAN Advocates