Companies Act a gem for board directors

Before the enactment of the Companies Act in 2015, sustainability and corporate social responsibility in Kenya were voluntary initiatives.

However, as a result of this new law, directors now have a duty to run businesses in a socially and environmentally responsible manner.

This law places a duty on the directors to promote the success of the company.

In fulfilling this duty, the directors are required to consider interests of employees.

Further, the law requires directors to assess the impact of company operations on the community and the environment.

Any failure can be considered a breach of duty to promote the success of the company.

In interpretation, directors should address issues like equality, employee development and health, use of renewable energy, pollution, and waste management in their operations.

What this means for directors is that operating sustainably or practising Corporate Social Responsibility is no longer voluntary.

Further, it also means that the employees and the community are now considered by law to be key stakeholders of the company.

This is because the employees, immediate community and general public are generally affected by the decisions of the company.

The UN Industrial Development Organisation defines CSR as a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.

This move by Parliament might be key to addressing poor working conditions, low wages, the abuse of labour laws, pollution, waste management and societal issues like poverty, insecurity, and poor access to basic education and healthcare.

Implementation of this law will be also play a significant role in the creation of corporate citizenship globally.

For Kenya, creating companies which are corporate citizens will be key to addressing societal challenges akin to special local areas.

Further, it is conceivable that these corporate citizens will likely play a significant role as Kenya moves towards implementation of Vision 2030 goal of becoming a globally competitive and prosperous nation.

The country cannot accomplish this goal with underpaid, unmotivated and sickly employees, uneducated youth, and communities living in polluted and harmful environments.

Directors of companies listed on the Nairobi Securities Exchange (NSE) have even more obligations under the new law.

They have an additional duty to include information about environmental matters including the impact of the business of the company in the annual directors’ note accompanying the financial report.

Directors must disclose information on employees, and other social and community issues. This disclosure includes policies on issues and their effectiveness.

A quick review of a number of listed companies shows that a majority of listed companies complied with this requirement last year.

It is important for directors to note that running a business that is socially and environmentally responsible is beneficial for both the company and the society.

The company gains reputation, attracts quality and highly motivated employees, gains customer loyalty and be more competitive in the market.

From a long term view, studies have shown that shareholders gain more if a company is sustainable in its operations.

It is important for all directors to note that interests of the employees, community and environment in decision making applies to all public and private companies.

Therefore, a director of any company can be held liable for breach of this duty.