Enforcement of Directors’ Duty to Promote Success of a Company: a Focus on the Banking Sector

Abstract

There has recently been a wave of bank failures. This study attempts to analyze some of the reasons for the failures. Section 143 of the Kenyan Companies Act imposes on directors of companies, a “duty to promote the success of the company”. The section further sets out a list of key deliverables and various stakeholder groups whose interests the directors should consider. This study looks into the possibility of enforcing that duty to ensure that banks succeed. To answer these questions, this study carried out both desktop and fieldwork research. From the desktop research, there is a lot of speculation as to whether the law currently, is capable of delivering success for all stakeholder groups. This speculation is further infused with the responses from the field research, resulting in some critical insights. The results from this research indicate that the board of directors is critical in determining the success or failure of the company. Further, that companies that adopt best practices of corporate governance are more likely to succeed. The results also indicate that there are indeed challenges affecting the enforcement of the duty. These challenges arise from the ambiguity of the law and weaknesses in enforcement mechanisms. This study therefore gives guidance to directors of banks on how best to ensure that banks succeed even if they are not involved in the day-to-day running of the institution. This is in spite the fact that there are inherent weaknesses in the law. It is imperative that bank directors appreciate that theirs is a unique role, as compared to directors in other industries. It is also important for bank directors to ensure that the banks they steer adhere to the best practices of corporate governance, despite the short-term pressures.