KENYA Law and Practice Contributed by: Sammy Ndolo, Brian Muchiri, Damaris Muia and Nicole Gacheche, Kieti Law LLP
4.5 Rules/Requirements Concerning Independence of Directors Independence of Directors There are no rules and requirements on the inde - pendence of directors in private companies or unlisted public companies. On the other hand, listed companies must ensure that at least one- third of the board of directors are independent non-executive directors. Under the CMA Gov - ernance Code and the Disclosure Regulations, a director is considered to be independent if he or she: • is not an executive director; • does not have a material or pecuniary rela - tionship with the company or related persons; • is compensated through sitting fees or allow - ances; • does not own shares or owns less than 5% of the shares in the listed company; and • serves in such a role for a maximum period of six years. Conflict of Interest The Companies Act requires that a company director avoid any situation where they have, or may potentially have, a direct or indirect inter - est that conflicts with or could conflict with the company’s interests. However, this duty to avoid a conflict of interest is not violated if the other directors have approved the situation in ques - tion. The duty to avoid conflict of interest and not to accept benefits from third parties to survive the cessation from office as a director dictates that if a director has personal interests in proposed or existing transactions with the company, they are required to give notice of such interest to the other directors and, in the case of a public company, to the members of the company within 72 hours. Failure to disclose a personal interest
under the Companies Act is an offence, and on conviction, the director concerned is liable to pay a fine not exceeding KES1,000,000. 4.6 Legal Duties of Directors/Officers The principal legal duties of directors in Kenya arise from common law and have been codified under the Companies Act. These duties include those listed below. Acting Within Their Powers Directors have specific authorities outlined in the company’s constitution. These powers must be used solely to benefit the company, not for per - sonal gain or the interests of others and for the specific purpose for which they are conferred. Promoting the Company’s Success Directors are obligated to make decisions they believe, in good faith, will best promote the company’s success for its shareholders. This includes considering long-term consequences, employee interests, community impact, and fostering good relationships. When a company becomes insolvent, the director’s primary duty shifts to protecting creditors’ interests. Exercising Independent Judgment While seeking professional advice is encour - aged, directors must ultimately make independ - ent decisions. They cannot mindlessly follow the will of others or rely solely on external advice. However, some situations may require follow- ing pre-existing agreements or the company’s constitution. Exercising Reasonable Care and Diligence Directors are expected to exhibit the same lev - el of care, skill, and diligence as a reasonably competent person. This includes applying their own knowledge and experience alongside any
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