Kenya’s CMA Code of Corporate Governance Practices and the Mwongozo Code both run on a “comply or explain” model: a listed company, or a state corporation under Mwongozo, does not have to follow every single provision, but where it departs from one, it has to say so publicly and explain why. For a company actually caught by one of these codes, the practical question is rarely whether an explanation is allowed. It is what makes an explanation good enough to survive scrutiny from investors, the regulator, or the board’s own audit committee.
Why “comply or explain” exists instead of a flat rule
A rigid one-size-fits-all governance rule does not fit every company equally well, a small recently listed company genuinely has different practical constraints than a large, long-established one. The comply or explain model is a deliberate compromise: it sets a clear benchmark everyone is measured against, while accepting that a well-reasoned departure, properly disclosed, can sometimes serve shareholders better than mechanical compliance.
What a weak explanation looks like
Regulators, and increasingly institutional investors, have seen every version of the weak explanation: a vague reference to “company size” or “current structure” with no specifics, a promise to comply “in due course” with no actual timeline, or an explanation that simply restates the departure without saying why it happened or what is being done about it. These read as an excuse rather than a genuine account, and they tend to draw exactly the follow-up scrutiny a company was trying to avoid by explaining rather than complying.
What an explanation actually needs to do
A defensible explanation states specifically which provision is not being followed, gives the actual reason, a genuine constraint, a considered alternative arrangement, or a transitional stage the company is in, rather than a generic justification, and where relevant, sets out what the company is doing instead to achieve the same underlying objective the provision was aimed at. If full compliance is simply a matter of time, a real timeline for getting there is far more credible than an open-ended intention to comply eventually.
Treat it as a governance decision, not a disclosure formality
The explanation should be something the board actually discussed and decided on, not a line added by whoever compiled the annual report. A board that can point to an actual minute recording why it chose to depart from a specific provision, and what it considered instead, is in a far stronger position than one that can only point to the published paragraph itself. The disclosure is meant to be evidence of a real decision, not a substitute for having made one.
