Fraud And Board Failures In Kenya

Abstract

This study makes a case for effective enforcement mechanisms against fraudulent directors and boards that fail to conduct their governance duties. Although the CMA has in the past instituted legal reforms to enhance good corporate governance practices in Public Listed Companies, nevertheless, there are challenges faced in administering effective enforcement actions. The study focuses on assessing the enforcement actions by the Capital Markets Authority for the period 2015 to 2019. Fraud orchestrated or condoned by directors bedevilled listed companies in Kenya within this study’s period. Areas of concern that arose from this were why the regulator did not detect timely the malfeasances and why for some cases no enforcement action was administered against directors. This project advances three central arguments: the first argument is that the Capital Markets Authority and tribunal institutional reporting arrangement as envisioned by the Capital Markets Act has impeded effective enforcement actions against fraudulent directors. Secondly, collateral attack cases instituted by aggrieved directors resulted in unfavourable decisions such as quashing CMA’s enforcement actions on procedural matters. Thirdly, there are implementation challenges faced by the CMA resulting in delays in instituting actions or inaction. This is due to pending court cases, claims of undue influence, capacity and resource constraints. Through doctrinal research methodology, this study examines the challenges faced by the CMA in administering enforcement actions against fraudulent directors. A key finding of this study is that the achievement of an effective enforcement framework in Kenya requires a sound legal framework and an implementation program that evolves from early detection to investigations and ultimately to administrative, criminal or civil proceedings. This study reveals that there is room for further revision of the CMA legal framework to address gaps in sanctions/penalties provisions, devolve the Authority CEO’s power to invoke investigations and to promote CMA’s independence by devolving/limiting the Executive’s powers as outlined in the Capital Markets Act.