Independent Directors

Independent Directors
Independent Directors

In Kenya, independent directors play a crucial role in the governance structure of companies.

In Kenya, independent directors play a crucial role in the governance structure of companies. As per the Capital Markets Authority regulations, an independent director is a person who is independent of the management of the company; meaning they have no fiduciary relationship with the company, are compensated through sitting allowance and have no shares in the company. However, this definition has been subject to discussion and change with the Capital Markets (Public Offers, Listings and Disclosures) Regulations now stating that an executive director cannot be independent and capping the tenure of an independent director from nine years to six years. 

Independent directors are appointed to the board of directors through nomination committees to ensure the selection of qualified and independent individuals. The shareholders are also required to approve the appointment of independent directors as per the company’s Articles of Association. The Capital Markets Authority and the Nairobi Securities Exchange regulate the governance practices of listed companies, including the appointment and functioning of independent directors. These regulatory bodies may issue guidelines and directives to promote good corporate governance practices. 

Duties and responsibilities of independent directors 

  1. Independent directors are expected to provide objective and impartial judgment on corporate affairs, free from any undue influence from management or other stakeholders​.​ 
  2. ​​O​verseeing the performance of management, ensuring compliance with laws and regulations, and safeguarding the interests of shareholders and other stakeholders​.​​     ​  
  3. ​​S​erve on various board committees, such as audit committees, remuneration committees, and nomination committees, to enhance governance and oversight. 
  4. ​​A​dhere to a code of conduct that emphasizes integrity, professionalism, and accountability.  
  5. ​​A​ct in the best interests of the company and avoid conflicts of interest. 

What duty does the company owe independent directors? 

  1. Companies are encouraged to provide training and development opportunities for independent directors to enhance their understanding of the company's operations, industry dynamics, and corporate governance practices​.​​     ​ 
  2. Independent directors may receive remuneration for their services, which should be determined by the company's shareholders or the board of directors, as per the provisions of the Companies Act and the company's articles of association. 
  3. Companies are required to disclose information about their independent directors in their annual reports, including their qualifications, experience, and independence status. 

How We Can Help  

CM-SME Club has skilled and agile legal minds that are well equipped with knowledge of independent directors and the vital role they play in enhancing transparency, accountability, and investor confidence in Kenyan companies. We provide valuable legal advice and guide businesses on shares and shareholding including advising on the documentation required to protect the interests of the Company. Contact law@cmsmeclub.com for assistance.  

Published on Aug. 22, 2024, 1:10 p.m.