Codification of Duties of Directors Under the Companies Act, 2015: an Analysis of Their Clarity, Accessibility and Certainty

Abstract

There has been widespread corporate collapse in Kenya both in the private and state-owned corporations. Many of the scandals witnessed in the past have mainly been linked to poor corporate governance and weak regulatory systems. In 2015, the new Companies Act was enacted codifying the duties of directors and thus bringing them squarely under the legal framework for corporate governance in Kenya. Before the codification, directors’ duties were found under common law that were haphazard and restricted in application in Kenya. As such, they were not clearly spelt out, easy to access and their application was not certain. The question that begs for answers is whether codification of these duties has enhanced their clarity, accessibility and certainty for improved standards of corporate governance in Kenya. To achieve this, the researcher employed the shareholder primacy theory and the enlightened shareholder theory to guide the study. Doctrinal research was adopted as the most appropriate methodology for the research. The study analyzed director’s duties under the common law and the duties as codified under the Companies Act, 2015. It also examined regulation as a concept in corporate governance and it emerged that two forms of regulation being hard law and soft law through soft codes or self-regulation are essential in regulation of corporate governance. The study found that codification has enhanced clarity, accessibility and certainty in the application of directors’ duties in Kenya. It also found that continued application of common law rules on the duties especially the general duties is still permissible; and that a complementary application of codified law and regulation through soft codes and best practices in Kenya is essential. The study will be beneficial for policy makers in corporate governance and provides a good body of knowledge on regulation in corporate governance