The Law on Corporate Governance and Shareholder protection in Kenya: a case for reduction of Corporate Scandals within private Companies

Abstract

This study is on the law on corporate governance and shareholder protection in Kenya with key emphasis on corporate scandals within private companies. It examines the evolution of corporate governance in Kenya and a number of key scandals and debacles that have been experienced within the private corporate sector from 1900 to present. These scandals are an indication that despite the numerous legal enactments, amendments and regulations within this focus, the corporations in Kenya are still at a risk of collapsing. History has revealed that in the recent past, Kenya has substantively amended its legal framework on corporate governance. But yet again, the corporate failures have equally been on the rise. Therefore, it suffices to say that there is need to review the legal framework on corporate governance in Kenya so as to ascertain where the problem lies, noting that Kenya has been in the forefront in emulating the international standards on corporate governance. The legal framework on this study is broad because there are several local statutes (and rules and regulations) and other international instruments. Additionally, a critical look at this concept will demonstrate that the back stops at the interaction between the shareholders and the Board of Directors (BoD). The relationship between these two organs is paramount towards attaining good corporate governance. The core argument of this study is that countries which have a strong legal system are expected to perform well on matters of corporate governance. Additionally, corporations which embrace good governance have the ability to control failures. Such governance is typically demonstrated by a robust BoD, who in essence are the agents of the company. The shareholders, on the other hand, are the owners of the company. As such, good corporate governance by a competent BoD guarantees shareholder confidence and this translates to high economic growth. This study recommends that for Kenya to sufficiently deal with corporate failures within the private corporate sector, it must embrace an environment where there is a strong legal framework and a healthy interplay between the shareholders and the BoDs.