Corporate Governance in Kenya: What Directors and Boards Need to Know

Most directors in Kenya only discover what the law expects of them when something goes wrong — a dispute between shareholders, a lender's due diligence request, or a regulator asking who approved a decision. By then, the gaps are expensive to fix.

Corporate governance is simply the system by which a company is directed and controlled. For a Kenyan company, that system rests on the Companies Act 2015, the company's articles of association, and — for listed and regulated businesses — additional codes and sector rules. This guide explains what directors and boards need to know, and where governance most often breaks down.

Why governance matters to a private company

Governance is sometimes treated as something only listed companies need to worry about. That is a mistake. Private companies in Kenya face governance questions every time they:

• raise money from investors or banks;
• admit a new shareholder or lose an existing one;
• enter a significant contract or acquisition;
• deal with a regulator, auditor or tax authority; or
• prepare the business for sale or succession.

In each case, someone will ask the same question: was this decision properly made, by people with authority to make it, and is there a record? Good governance is how you answer "yes".

The legal duties every director owes

The Companies Act 2015 sets out the general duties of directors. They are owed to the company, not to individual shareholders, and they apply to executive and non-executive directors alike. In summary, a director must:

1. Act within powers — follow the company's constitution and use powers only for the purposes for which they were given.
2. Promote the success of the company — act in the way they consider, in good faith, most likely to benefit the members as a whole, having regard to long-term consequences, employees, business relationships, the community and the environment.
3. Exercise independent judgement — not simply follow the instructions of a shareholder or fellow director.
4. Exercise reasonable care, skill and diligence — measured against what can reasonably be expected of a person in that role, and of that particular director's actual knowledge and experience.
5. Avoid conflicts of interest — not place themselves in a position where their personal interests conflict with the company's.
6. Not accept benefits from third parties given because they are a director.
7. Declare any interest in a proposed transaction or arrangement with the company.

A breach of these duties can lead to claims against the individual director. Separately, directors carry statutory responsibilities for keeping registers, filing returns and accounts, and maintaining accurate beneficial ownership information. Penalties can follow where these are neglected.

What good governance looks like in practice

Legal duties are the floor, not the ceiling. In a well-run Kenyan company, governance usually shows up in a handful of practical documents and habits.

A constitution that fits the business

Many companies still operate on articles of association adopted at incorporation, often from a template. If the shareholding, board or business model has changed since then, the articles may no longer reflect how decisions are actually made. That mismatch is a frequent source of disputes.

A clear board charter and delegations

A board charter sets out what the board decides, what it delegates to management, how often it meets, how meetings are called and how decisions are recorded. Clear delegations stop management from exceeding its authority — and stop the board from becoming a bottleneck.

Conflicts handled openly

Family businesses and founder-led companies often have directors who also supply, lend to or contract with the company. That is not unlawful, but it must be declared and managed. A simple conflicts policy and register of interests protects both the company and the director.

Decisions properly recorded

Minutes and written resolutions are the evidence that a decision was properly taken. Informal decisions made on a call or in a messaging group are hard to prove later, and they can leave a transaction open to challenge.

Up-to-date statutory records

Registers of members and directors, filings with the Registrar of Companies and beneficial ownership records should always match reality. In our experience, this is one of the first things investors and lenders check.

Listed and regulated companies

Companies whose securities are offered to the public are also subject to the Capital Markets Authority's corporate governance code. Banks, insurers, pension schemes and other regulated entities face governance rules from their own regulators, covering matters such as board composition, independence, committees and fit-and-proper requirements. A board in a regulated sector should map which rules apply and design a single framework that satisfies them all, rather than several overlapping ones.

Common governance mistakes we see

• Decisions without authority. A managing director signs a significant contract that the articles or a shareholders' agreement reserve for the board or shareholders.
• Undeclared interests. A director's related company wins a contract without the interest being declared or approved.
• Template articles. The articles do not reflect the current shareholding, leaving key questions unanswered.
• Missing minutes. The company cannot prove when, or by whom, an important decision was approved.
• Stale filings. Registers and beneficial ownership records are out of date — and only discovered during a transaction.
• No succession thinking. The business depends on one founder, with no plan for incapacity, exit or death.

Who should take advice

Governance advice is particularly valuable for:

• new directors who want to understand their personal exposure;
• boards preparing for investment, a bank facility, a sale or regulatory review;
• family businesses moving from informal to formal decision-making; and
• companies where shareholders or directors already disagree about authority.

A practical illustration

This example is illustrative only. It does not describe a real client or matter.

A family-owned manufacturing company in Nairobi has three directors: two siblings who run the business and a cousin who sits on the board but is not involved day to day. One sibling also owns the company that supplies most of its packaging. Prices have risen steadily, and the cousin starts asking questions.

Nothing unlawful may have happened. But the supply contract was never approved by the board, the interest was never formally declared, and the minutes do not record any discussion of it. When a bank later reviews the company for a working-capital facility, the arrangement becomes a due diligence issue, and the cousin raises it as a dispute.

With a conflicts policy, a declared interest and a properly minuted board approval, the same arrangement would have been unremarkable.

Key takeaways

• Directors' duties under the Companies Act 2015 are owed to the company and can lead to personal claims.
• Governance is proven by documents: articles, board charter, minutes, registers and declarations of interest.
• Conflicts of interest are not unlawful in themselves, but they must be declared and managed.
• Review governance before any investment, financing, sale or major change in shareholding.

How WTT Lichuma can help

Our corporate law practice advises boards, directors and owners of Kenyan companies. For governance specifically, we review constitutions, registers and minutes, identify the gaps that matter, and draft the documents that close them — from articles and board charters to conflicts policies and resolutions. Learn more about our corporate governance advice.

Where governance issues sit between shareholders, a well-drafted agreement is often the right starting point — see our shareholder agreement services.

Frequently asked questions

Are directors' duties in Kenya written into law?

Yes. The Companies Act 2015 codifies the general duties of directors, including acting within powers, promoting the success of the company, exercising independent judgement and reasonable care, avoiding conflicts and declaring interests.

Does a small private company need a board charter?

It is not a legal requirement for every private company, but it is good practice. It clarifies who decides what, and investors and lenders often ask for one.

Can a director rely on management's advice?

Directors can rely on information from management and advisers, but they must still exercise their own independent judgement and reasonable care. Blind reliance is not enough.

How often should governance be reviewed?

Whenever the shareholding, board or business changes significantly, and before any investment, financing or sale. Many boards also schedule an annual review.

If your board is preparing for a transaction or wants a governance health check, speak to our corporate team.