Personal Finance

Corporate governance lessons for businesses from the constitution


Corporate governance and good leadership of state corporations was enhanced following the promulgation of the 2010 Constitution. The current constitution unlike the previous one has a whole chapter dedicated to leadership and good governance.

Businesses can borrow some of these constitutional provisions and import them as part of their governance practices. This is especially for businesses that do not yet have in place any governance structures.

Good governance is important for maximum shareholder value in increasing the worth of the company. Good governance attracts investors to your business. Good governance improves the relationship your business has with stakeholders.

Chapter 6 of the Constitution is on leadership and integrity. Section 73 the Constitution provides that the authority given to a state officer is given on public trust for the people. This means that the state officer does not hold the office for personal benefit but rather for the best interest of the public.

Directors of private businesses also hold the position of director for the best interest of the shareholders. They are trustees of the shareholders and have a fiduciary duty to uphold their interests.

The Constitution notes that the state officer ought to exercise his authority in such a way as to bring honour and repute to the state corporation. Similarly, a director ought to exercise leadership in such a way that the reputation of the business is upheld.

A director’s actions have a bearing on the reputation of the business. If the director is involved in corrupt dealings, this may have the effect of giving the business a bad reputation in as much as the business did not participate in such dealings.

The Constitution has very good provisions on the selection criteria for leaders. These provisions can be adopted by private businesses as part of their director selection and criteria.

The first set of criteria used in selecting leaders is on competence and suitability. A director ought to be competent for the position. This means he must have the expertise and qualifications for the position. This is where academic qualifications and past experience come in handy.

The Constitution also emphasizes on the personal characteristics of the leader. He must be objective, impartial and honest. When choosing a director, it is important to go beyond the professional and academic qualifications.

It is equally important to consider the personal character attributes of the leader. Is he or she honest? Are they impartial? Are they objective? There are some intrinsic leadership qualities which cannot be taught in school but are personal attributes of the director.

The Constitution sets out some governance principles such as accountability, transparency and discipline. These principles also apply in the private sector.

Accountability is important in reporting and information where directors are accountable to the shareholders and other stakeholders. Transparency means there is openness in decision making. Directors ought to be disciplined and committed.

The Constitutional provisions of public participation means that stakeholders are involved before decisions are made. Similarly, good governance requires the directors to consult all stakeholders before arriving to certain decisions.

For example, it is important to consult the staff in a decision that may affect them. The constitutional provisions on equality, democracy and freedom from discrimination can be imported into good governance practices.

Other than adopting constitutional provisions, private businesses can consider state run private trainings on governance such as the Mwongozo Leadership Code. It is a Code that can be adopted by private businesses.