Investigating corporate governance practices in the Kenyan stock brokerage industry: Ownership structure and investor protection

Abstract

This study is an exploratory survey on the ownership structures and investor/ client protection endeavours as components of corporate governance practise in the Kenyan stockbrokerage industry. The main purpose of the study was to bring to light, the imperative aspects of corporate governance practise by an industry recovering from its deepest decline in history, experienced during the second half of the first decade of the 21st Century. With a data from 10 out of the possible 11 firms licensed to facilitate the buying and selling of securities to the Nairobi Securities Exchange (NSE) investors, the findings of this study portrayed the industry as very volatile as a number of profound deficits in the firms’ corporate governance practises were observed. The findings indicate that the ownership structure of the firms is highly concentrated with some firms having a single shareholder holding as much as 90%, mainly institutions and families. Additionally, the findings point to the lack of a clear comprehension of the tenets over and above the benefits of good corporate governance practise. It was noted that most firms comply with the corporate governance codes/ rules laid down by the Kenyan Capital Markets Authority (CMA), possibly due to the fear of the repercussions of non-compliance rather than for the ultimate benefit of the firms and the industry’s different stakeholders. The mechanisms of disseminating investment related information were noted to give preference to large scale investors over the small scale investors notwithstanding the fact that if put together the small scale investors would constitute the largest block of investment holders in the firms’ portfolios. The findings of this study have significant implications on the measures engineered by the Kenyan Capital Markets Authority, the Nairobi Securities Exchange and investors generally in reinforcing good corporate governance practises in the Kenyan Stockbrokerage industry.