Building an Effective Board of Directors for Kenyan Businesses
A well-structured board of directors is vital for Kenyan companies seeking sustainable growth, regulatory compliance, and investor confidence. Under the Companies Act No. 17 of 2015, every private company must appoint at least one director, and public companies at least two, for both, at least one director must be a natural person. Listed firms must also adhere to the Capital Markets Authority (CMA) Corporate Governance Code on board composition, independence and committees.
Boards deliver strategic oversight, risk management, financial stewardship and stakeholder assurance, boosting a company’s credibility and access to capital. Key roles include approving strategy, supervising executives, overseeing audit and risk, and ensuring good governance practices via board charters and committees.
What Is a Board of Directors?
A board of directors is a group of individuals elected by shareholders to oversee management, safeguard assets, and set strategic direction. In Kenya’s unitary board system, executive directors (company managers) and non-executive directors (external advisers) sit together, with the latter providing independent oversight.
Legal Framework Governing Boards
1. The Companies Act No. 17 of 2015
Minimum Directors: Private companies require at least one director while public companies need at least two but each must have at least one natural person.
Articles of Association: Firms can set higher or lower director limits in their articles.
Director Qualifications: Must be 18 years old and not disqualified under sections 145–147 (e.g., bankruptcies).
Statutory Duties: Sections 142–146 give a list of duties to act within powers, promote company success in good faith, exercise independent judgment, avoid conflicts, and declare interests.
2. CMA Corporate Governance Code (Listed Companies)
Board Composition: Majority non-executive directors; at least one-third independent directors who neither hold significant shares nor have material ties to the company
Board Committees: Audit, Risk, Nomination and Remuneration committees comprised mainly of independent non-executives.
“Apply or Explain”: Companies must comply with the Code or explain deviations in annual reports.
Benefits of a Strong Board
Strategic Oversight: Boards guide vision, approve budgets, and steer major investments.
Risk Management: Committees monitor internal controls, compliance and ethical conduct, reducing fraud and penalties
Enhanced Credibility: Independent directors reassure investors and lenders, easing access to capital.
Stakeholder Trust: Transparency and balanced representation protect minority shareholders and build stakeholder confidence.
Effective Succession: Boards oversee leadership pipelines, ensuring smooth CEO and senior management transitions.
Core Roles and Responsibilities
Strategy & Planning - Approve business strategy, monitor execution, review major projects and M&A deals.
Executive Oversight - Hire, evaluate, and, if necessary, remove the CEO; set executive compensation via Remuneration Committees.
Financial Stewardship - Approve annual financial statements, dividends, and ensure audited accounts for AGMs.
Risk & Compliance – Define risk appetite, supervise Audit and Risk Committees, and ensure regulatory adherence.
Governance Policies – Adopt board charters, codes of conduct, and ensure “apply or explain” reporting under CMA Code.
Board Evaluation & Development - Conduct annual board performance reviews and training for directors to enhance governance skills.
Best Practices and Tips
Diversity & Inclusion: Strive for gender balance and varied skill sets to enhance decision-making.
Continuous Learning: Provide ongoing training on governance trends, industry changes and legal updates.
CEO–Chair Separation: Consider separate roles for Chair and CEO to strengthen oversight.
Digital Governance: Leverage board portals and secure document repositories for efficient, transparent communication.
Insurance & Indemnities: Obtain Directors’ & Officers’ (D&O) insurance for liability protection, noting statutory duties remain non-excludable.
By aligning with the Companies Act requirements and the CMA Code, and adopting these best practices, Kenyan businesses can build boards that not only fulfill legal mandates but also drive strategic growth, risk resilience and stakeholder confidence, key ingredients for long-term success.
Contact us for tailored support in establishing and managing your board. Azali Certified Public Secretaries LLP (AzaliCPS) offers comprehensive company secretarial and corporate governance advisory services to guide organizations through every stage of board development.