What Kenyans can learn from the Germans on board accountability
At the board level, the directors have the mandate of oversight. PHOTO | FILE
The most conventional way to describe corporate governance is the manner in which companies are directed and controlled.
Another definition is managing the relationship between the owners of the company and directors who oversight the running of the company.
The latter school of thought provides that good governance is about directors running the company well for the benefit of shareholders.
Corporate governance in Kenya seems to take this trend that governance is all about the role of directors to its shareholders. This is commonly known as the shareholder approach to governance.
Governance provisions are contained in the Companies Act and a few governance codes for listed companies.
Therefore, in Kenya, corporate governance is statutory, through the Companies Act, which sets out the duties, roles and responsibilities of the board. It is also voluntary as it sets out the best practice.
However, corporate governance is much wider than protecting shareholder interests. There are other people who would be interested in the manner in which a company is run, including employees, suppliers, regulators and customers.
Proponents of the stakeholder approach argue for managing the interrelationship between all parties interested in good governance. This, therefore, includes the shareholders, directors, the management and other stakeholders.
I agree the subject is much wider than the shareholder approach; it is time Kenyan companies adopted some of the strengths of this approach. France and Germany have adopted this approach.
German corporate law provides for the two-tier board: the management and supervisory boards. The supervisory team has duties like liaising with the auditors and setting out the remuneration of directors.
Part of the supervisory board composition is stakeholders appointed by shareholders, such as employees. It has been argued that such a structure provides maximum accountability of the management board.
Many scandals
There have been many governance scandals in Kenya that have not only affected shareholders but have also affected stakeholders. In many of the governance scandals stakeholders have gone to court to challenge board decisions that do not take into account their interests.
A few years ago a bank merger was temporarily halted by employees, who said it would have affected the pension scheme and impacted the employees’ savings.
Another example of stakeholder activism is when recently employees demanded the resignation of certain board members from a listed company as part of an out-of-court settlement in an intended union strike.
These show that stakeholders have an interest in the governance of a company and good governance should take into account these interests.
Is it time for Kenya to go the German way? I believe emulating the German board structure would have its pros and cons and, therefore, I would recommend adoption of its advantages, including enhancing accountability and transparency. It also allows stakeholders to have a say.
However, it has too much bureaucracy. The management board does not require to consult on every decision it makes but can on a few areas, including implementation of strategy.
The German structure also gives room for conflicts between the boards. Kenyan companies taking that route would have one board with a stakeholder’s committee, which is consulted on limited issues.
This way, stakeholder views are taken into account without the rigidity and conflict of two-tier boards.
