The Kenyan regulation of company directors: an analytical study

Abstract

As a former colony of the UK, Kenya inherited its current regulatory framework of directors from the UK. Since the regulatory framework was inherited, it has not been modified in any way to reflect the circumstances of the country. This thesis assesses the suitability of the current regulatory framework of directors to Kenya by examining the extent to which the regulation of directors facilitates commercial activity and enables delivery of benefits to companies. This is assessed by analysing whether: • The rules properly regulate the key relationship between directors and shareholders. • The rules are easy to understand. • Important areas of general law should be codified. • Company directors should have non-statutory guidance to their duties and responsibilities. • Directors are properly appointed; directors have regard for their duties. • Shareholders have adequate means of enforcing liability against miscreant directors. • Self-regulation by directors would be effective. • There are enough safeguards to regulate directors of parastatals.1 • The current disqualification regime in Kenya is effective. This thesis demonstrates that the Kenyan regulatory framework relating to directors is weak, outdated, and a morass of complexity which causes much uncertainty. This thesis establishes: the objectives of commercial laws still exist from colonial times and, thus, do not conform with the present day's commercial activities; the power of shareholders to control directors is minimal; the ineffectiveness of local and international regulatory framework of directors has affected the performance of companies; corruption affects the well-being of both corporate entities and the economy of the country; the application of subjective rather than objective standards to assess the liability of directors is ineffective; the corporate and collective nature of the company makes it difficult for shareholders to enforce liability against errant directors; that parastatals have performed poorly due to inadequate managerial performance of directors; the disqualification regime needs to be more stringent in order to deter miscreant directors. It is the contention of this thesis that reforms of the current regulations are required in order to achieve a framework which is modern, effective, transparent, straightforward and easy to understand. Whilst it seeks to make recommendations for a regulatory framework tailored to local circumstances, it also draws from developments in the UK and other Commonwealth countries, which would facilitate enterprise, fair dealing, accountability, balance the interests of business with those of shareholders and stakeholders, and contribute to the growth of the national economy.