Poor corporate governance in eight companies has cost investors Sh264.3 billion, a new report has said.
According to the Corporate Governance Index launched yesterday by Cytonn Investments, fraud at Imperial Bank and Chase Bank, and a drop in the share price of Kenya Airways, Mumias Sugar, TransCentury, Uchumi, National Bank and CMC can be attributed to the corporate governance issues they have faced.
Shareholders of national carrier Kenya Airways suffered the biggest blow, with the company’s share value plunging from a peak of Sh124 per unit in 2006 to yesterday’s close of Sh4.00.
The index also looked at some of the firms with the best corporate governance structures, with KCB Group, Safaricom and Standard Chartered ranked the top three among 50 listed companies.
The index used 24 metrics to rank the firms, including disclosures, board composition and attendance, gender diversity, ethnic diversity, transparency and independence.
Companies with gender diversity and ethnic diversity delivered better returns to their investors compared to companies with limited or no diversity, Cytonn found.
However, Francis Mwangi, an investment analyst at Standard Investment Bank, cautioned that it is difficult to connect the drop in share price to corporate governance issues. Further, for companies such as Kenya Airways, it is difficult to tell if the firm even had corporate governance problems.
“The performance of a firm’s share price is affected by a number of other factors aside from corporate governance,” he said.
Some of these factors include performance of the business itself, a difficult micro-economic environment, such as volatile currency exchange rates, or even a situation where the industry itself gets tougher for the business, such as when Eveready’s competitors started importing batteries, added Mr Mwangi.
“You would also have to look at when the information on corporate governance became public, leading to a decline in share price,” he said.