Corporate and Good Governance in Kenya
Corporate governance is a broad-ranging term that encompassing the mechanisms, processes and relations by which corporations are controlled and directed. This is anchored on inter alia, the key values of openness and inclusivity, integrity, leadership and accountability. Corporate governance is no longer a policy issue but a constitutional principle as enshrined under Article 10 (2) (c), 73 (2) and 232 of the Constitution of Kenya, 2010. The Capital Markets Act (CMA) depicts that the key goals of corporate governance is to realize shareholders long term value while taking into account interests of stakeholders.
In order to achieve these goals, corporate governance cannot work alone; resultantly it works hand in hand with the concept of good governance. The CMA seeks to align and strengthen corporate governance in Kenya with that of international standards. The absolute realization of corporate governance is reliant on a number of principles which can be summarized as follows; disclosure and transparency, integrity and ethical behavior and observance of the interests of stakeholders.
The concept of corporate governance calls on directors of organizations to carry out their duties in a transparent manner. This can be achieved through disclosing information as and when needed in accordance with the CMA guidelines that is, publishing statements of accounts, financial positions, subjecting themselves to annual audits and so on. This is in order to avoid instances of irregularities and to enhance public faith in the day to day running of the entities. This principle cuts across the board to demand that even in the appointment of the directors, such endeavors are done in an open and transparent manner with full consent of the shareholders.
Second is the principle of integrity and ethical behavior. This requires directors to exercise due diligence in their day to day duties, that is refrain from acts that would be reasonably seen to be detrimental to the corporate. It requires directors to refrain from engaging in acts in pursuance of personal interests at the detriment of the corporation’s interests. This principle mainly places a burden on the directors to prudently discharge their duties in an integral manner.
The United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) highlighted 9 principles of good governance as follows; participatory, consensus related, accountable, transparent, responsive, effective, equitable, and inclusive which follows the rule of law. Good governance encompasses key elements of corporate governance.
Kenya has since the 1990’s taken progressive steps in the realization of corporate governance; this was mainly due to donor pressure for anti-corruption initiative to be put in place by the then regime. This led to positive steps being made for instance the enactment of Kenya’s Corporate Governance Guidelines (CMA Guidelines) 2002 which were drafted taking into account amongst other guidelines, the Cadbury Report. The CMA Guidelines clearly set out in its objectives not only to strengthen corporate governance in Kenya but also to bring it to international levels.
Despite this, corporate and good governance is far from attainment, as is the case in most third world economies. Political interference being the greatest hindrance to the attainment of good and corporate governance. The mindset being the same as was in the old legal regime, making it extremely difficult for mandated organs like the Ethics and Anti-Corruption Commission (EACC) and Director of Public Prosecutions (DPP) to adequately discharge their duties. An example is the lack of proper coordination between the aforementioned two independent organs.