Why it is critical to regulate how board directors are picked, work

As Kenya marches forward on its way to becoming an industrialising middle-income country, it will need a more robust corporate environment that can match the best in the world as a place for doing business.

To achieve this goal, businesses and government institutions will need increasingly stronger corporate governance policies, practices and structures that will inspire the confidence of both local and international investors. One way of achieving this is by having an elaborate system of selecting directors.

At present, appointment of directors is left to the whims of appointing authorities, making this important decision arbitrary, random and subject to possible abuse where there is no oversight or accountability.

In some instances, appointments to boards is regarded as political reward, meaning that critical public and private institutions are saddled with directors who neither understand the institutions they oversight nor have the necessary skills and qualifications to hold those positions.

On this account, they become a liability rather than an asset to the institutions. In short, there is a disconnect between what an ideal director should do, and what appointees actually do.

This is the lacuna that the Institute of Directors of Kenya Bill, 2019 is seeking to address especially now that it has become mandatory for foreign investors setting up in Kenya to have at least 30 percent local shareholding.

That means the local shareholders will need to identify directors who will not only look after the interests of their benefactors but also have the intellectual and ethical fibre to match their counterparts appointed for other shareholders.

Establishing such an institute will first and foremost create minimum standards. This is not meant to limit the power of the appointing authorities but to give them a pool of highly qualified individuals who can make meaningful contributions to the success of the businesses to whose boards they are appointed. One way to do this is to assist government agencies in the vetting of suitable candidates long before they are appointed. Those already interested in such positions will, of necessity, be required to sign up with the institute and undergo training on such critical aspects of governance.

Some of these are how to stop and fight corruption, to understand the different roles that management and boards play so as to reduce friction and encroachment into each other’s territories, promoting professionalism, mainstreaming diversity and ensuring sustainability. It will also develop a code of conduct and ethics.

Appointment law

In the recent past, Kenyans have been shocked by the allegations of brazen corruption perpetuated by public institutions with the connivance of private companies.

Both the public and private institutions had weak corporate governance structures that cost taxpayers billions of shillings.

Unless we put in place a law that provides for how directors to such institutions can be appointed and held accountable, these problems associated with high level corruption will never be addressed.

This is what makes passing the Directors of Kenya Bill, 2019, a fundamental process in improving the business environment in Kenya and reducing corruption, the biggest drain on public resources in this country.

One of the envisaged steps in the journey is the setting up of an Institute of Directors whose mandate will be to champion public interest by holding directors in private and public institutions to account.

It will, among other things, advance knowledge in good corporate governance through publication of books, periodicals, journals and other tools for member and public education.

Of course, it will also be mandated to set standards, say on such critical issues as wealth declaration, professional conduct, qualification levels and other requirements as prescribed in law and the Constitution, with particular emphasis on Chapter Six, which dwells at length on ethics and integrity.

The Bill also provides a mechanism for the public to complain against the conduct of errant directors by providing structures for efficient and transparent, hearing and resolution of complaints.

They are, therefore, too important to be left outside legislation, which has in the past subjected their appointment to irregularities and illegalities, and which has also shielded rogue elements.

Watta is the former chairman, Institute of Directors. [email protected]