Protection of privately-owned companies A look into the legal framework governing corporate governance regulations for private companies in Kenya

Abstract

Corporate governance refers to a set of rules and procedures that ensure that those at the heart of running the company adhere to a principle-based form of stewardship. It encompasses the authority to direct, organize, and control the corporate entity.1 Corporate governance thus relates to the relationship between an organization’s various legitimate stakeholders and makes certain that there is appropriate direction in the company for reasonable return on investments.The corporate governance structure of an organization specifies the distribution of rights and responsibilities among different participants within the corporation such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. These processes, policies and institutions direct the bodycorporate in the way it should be run in order to ensure maximum operational output.2The Cadbury Report of 1992 in the United Kingdom provides the most commonly used definition of ‘Corporate Governance’ as “the system by which companies are directed and controlled so as to protect the interest of all stakeholders and ensure reasonable return on investments.”3 The Organisation for Economic Co-operation and Development (OECD) defines it as “the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, namely; board of directors, shareholders and other stakeholders and spells out the rules and procedures for making decisions on corporate affairs”.4 This is the most comprehensive definition accepted by most countries and multilateral organizations such as the World Bank and the United Nations. This so called system also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.