The recent turbulence surrounding proxy advisory firms in the United States offers instructive lessons for Kenya’s evolving capital markets. While institutional investors at the Nairobi Securities Exchange operate in a vastly different regulatory environment, the fundamental tensions between corporate governance, shareholder activism, and institutional power deserve closer examination.
Proxy advisers essentially serve as intermediaries between large institutional investors and the companies they hold stakes in, providing research and voting recommendations on matters ranging from executive compensation to merger approvals. In mature markets like the US, firms such as ISS and Glass Lewis have become indispensable gatekeepers, precisely because monitoring thousands of shareholder meetings requires enormous resources and expertise. The controversy now engulfing them stems from accusations of political bias and excessive influence, culminating in regulatory pressure from the Trump administration and high-profile defections like JPMorgan’s decision to build its own AI-powered voting system.
For Kenya, where institutional investors including pension funds control significant portions of listed companies, the proxy advisory model remains underdeveloped. The Capital Markets Authority has progressively strengthened corporate governance requirements, mandating independent directors and audit committees, yet the infrastructure for systematic shareholder engagement lags behind. Most institutional investors at the NSE still rely on internal teams or case-by-case analysis rather than specialized advisory services. This gap reflects both market size constraints and the relatively concentrated nature of Kenyan corporate ownership, where founding families or strategic investors often retain controlling stakes.
The analytical question is whether Kenya should embrace the proxy advisory model or learn from its current dysfunction elsewhere. On one hand, as pension funds like NSSF and individual retirement schemes accumulate larger portfolios, the capacity challenge becomes acute. These institutions lack the specialized resources to independently assess every proposal at dozens of annual general meetings. A credible local proxy adviser could democratize governance expertise, allowing smaller institutional players to make informed voting decisions and potentially checking the power of controlling shareholders.
On the other hand, the American experience reveals inherent vulnerabilities in concentrating such influence. When two firms effectively shape voting outcomes across thousands of companies, questions about their accountability, methodology, and potential conflicts of interest become unavoidable. JPMorgan’s embrace of artificial intelligence to replace human advisers suggests technological disruption may render the entire model obsolete before it fully matures in emerging markets. Large language models trained on historical shareholder data could theoretically provide voting recommendations at minimal marginal cost, eliminating the duopoly problem entirely.
The deeper issue, however, transcends the mechanics of proxy voting. Both in the US and potentially in Kenya, the real challenge is that corporate governance has become inseparable from broader political and social questions. Shareholder proposals now routinely address climate policy, labor practices, diversity metrics, and other matters that blur the line between fiduciary duty and advocacy. Kenyan institutional investors will inevitably face similar pressures as environmental, social, and governance considerations gain prominence locally.
Rather than rushing to replicate Western institutional arrangements, Kenya’s capital markets would benefit from a more deliberate approach. Strengthening the CMA’s capacity to enforce disclosure requirements, encouraging collaborative engagement among institutional investors, and developing local governance standards tailored to Kenyan corporate realities may prove more valuable than importing advisory intermediaries. The proxy firm controversy ultimately reflects deeper uncertainties about who should govern corporations and toward what ends. These questions have no easy answers, whether in New York or Nairobi.
