Corporate Governance Best Practices for Private Companies in Kenya

Introduction

Kenya's private sector is dominated by privately held companies — from family businesses and SMEs to large corporate groups and investor-backed ventures. While these companies are not subject to the same governance codes that apply to listed companies (such as the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015), the Companies Act, 2015 imposes significant governance obligations on all companies, and investors, lenders, and business partners increasingly expect private companies to demonstrate robust governance frameworks.

For private companies, governance is not merely a compliance exercise — it is a strategic tool. Companies with strong governance structures are better positioned to attract equity investment, negotiate favourable lending terms, manage operational risk, navigate succession planning, and resolve disputes between shareholders and management. Conversely, weak governance is a common root cause of corporate failure, shareholder disputes, and regulatory sanctions.

This article examines the key pillars of effective corporate governance for private companies in Kenya and provides actionable recommendations that companies can implement immediately, regardless of their size or stage of development.

Legal Framework

The Companies Act, 2015 establishes the baseline governance requirements for all Kenyan companies. Key statutory provisions include Part X, which governs the appointment, removal, and remuneration of directors. The Act requires every company to have at least one director who is a natural person (Section 128) and sets out the circumstances in which a person is disqualified from acting as a director (Section 133). Part XI codifies the seven general duties of directors, as discussed in detail in our separate article on Directors' Duties. Part XII regulates transactions with directors, including loans to directors, substantial property transactions, and directors' service contracts. Part XIII governs the keeping of company records, including the register of members, register of directors, and minutes of meetings.

Beyond the Companies Act, private companies in regulated sectors face additional governance requirements. Banks and financial institutions are subject to the Central Bank of Kenya Prudential Guidelines, which impose specific requirements on board composition, board committees, risk management frameworks, and internal controls. Insurance companies are subject to the Insurance Regulatory Authority's corporate governance guidelines. Companies issuing securities to the public (even private companies conducting exempt offers) may be subject to CMA governance requirements.

Pillars of Good Governance

1. Board Composition and Structure

The board of directors is the central governance organ of any company. For private companies, getting the board composition right is critical. An effective board should include directors with relevant industry expertise and commercial experience, a mix of executive directors (who are involved in day-to-day management) and non-executive directors (who provide independent oversight and strategic perspective), clarity on the roles and responsibilities of the chairperson and the managing director or chief executive officer, and a size appropriate to the company's needs — typically between three and seven directors for most private companies.

Independent non-executive directors are particularly valuable for private companies with external investors, family businesses with multiple family branches involved in the business, companies preparing for a future IPO or equity fundraise, and companies operating in regulated sectors. While the Companies Act does not mandate independent directors for private companies, their inclusion signals governance maturity and can significantly improve board deliberation quality.

2. Board Meetings and Decision-Making

Regular, well-structured board meetings are the foundation of effective governance. Best practice recommendations for private company boards include holding board meetings at least quarterly (monthly for companies in rapid growth or distress), circulating a detailed board pack at least five business days before each meeting, maintaining a standing agenda that covers financial performance review, operational updates, risk and compliance matters, strategic items, and matters requiring board approval. All board meetings should be properly minuted, with minutes recording the key discussion points, any declarations of interest, the decisions taken, and the voting record where relevant. Minutes should be circulated promptly and approved at the following meeting.

The Companies Act permits board meetings to be held by telephone, video conference, or other electronic means, provided all participants can hear and be heard (Section 176). Written resolutions signed by all directors are also permitted for private companies (Section 178), which can be useful for routine administrative matters that do not require discussion.

3. Reserved Matters and Delegation of Authority

A clear framework for delegation of authority — specifying which decisions require board approval, which can be taken by management, and which require shareholder approval — is essential for efficient governance. The board should maintain a schedule of reserved matters that includes approval of the annual budget and business plan, capital expenditure above a specified threshold, entry into or termination of material contracts, borrowing or guarantees above specified limits, hiring and remuneration of senior executives, commencement or settlement of material litigation, and any transaction with a related party or director.

Below the board level, a management authority matrix should specify the approval authority of the chief executive officer, chief financial officer, and other senior managers, with clear monetary and non-monetary thresholds. This framework enables the business to operate efficiently on a day-to-day basis while ensuring that significant decisions receive appropriate board-level oversight.

4. Financial Controls and Reporting

Robust financial controls and transparent reporting are fundamental to good governance. Private companies should maintain accurate and up-to-date financial records in compliance with the Companies Act and applicable accounting standards. Management accounts should be prepared monthly and reviewed by the board at each meeting. The company should conduct an annual audit by an independent external auditor (mandatory for companies meeting the statutory thresholds under the Companies Act). Internal controls should be documented and regularly tested, covering areas such as cash management, procurement, payroll, and revenue recognition.

For private companies with multiple shareholders or external investors, financial reporting obligations are typically strengthened through the shareholder agreement, which may require monthly or quarterly financial reports, annual audited financial statements prepared in accordance with International Financial Reporting Standards (IFRS), prompt notification of any material adverse change in the company's financial position, and access to the company's books and records for inspection by shareholders or their representatives.

5. Risk Management

Every company faces risks — operational, financial, legal, regulatory, reputational, and strategic. A governance framework that does not address risk management is incomplete. Private companies should identify and maintain a register of the key risks facing the business, establish risk ownership — assigning responsibility for each risk to a specific director or manager, implement mitigation measures and monitor their effectiveness, and review the risk register at least quarterly at board level.

For many private companies, the most significant risks include key person dependency (particularly in founder-led businesses), concentration of revenue in a small number of customers or contracts, regulatory compliance failures, fraud and financial mismanagement, and cyber security and data protection breaches. A proactive approach to risk management not only protects the business but also demonstrates governance maturity to investors, lenders, and other stakeholders.

6. Conflict of Interest Management

Conflicts of interest are a pervasive governance challenge, particularly in closely held companies where directors may also be shareholders, customers, suppliers, or lenders. The Companies Act imposes strict duties on directors to avoid conflicts and to declare any interest in proposed transactions. In practice, companies should maintain a standing conflicts register, require directors to declare any actual or potential conflicts at the beginning of each board meeting, establish a procedure for recusing conflicted directors from relevant discussions and votes, and ensure that related party transactions are conducted at arm's length and on terms that are fair to the company.

7. Shareholder Engagement

Good governance requires meaningful engagement between the board and the shareholders. While the Companies Act sets out the minimum requirements for shareholder meetings (annual general meetings, extraordinary general meetings, and written resolutions for private companies), best practice goes further. Companies should provide shareholders with regular updates on business performance and strategy, hold annual general meetings even where the Act permits the AGM requirement to be disapplied for private companies, ensure that minority shareholders have access to information and the opportunity to raise concerns, and comply with any enhanced information and consultation rights set out in the shareholder agreement.

Commercial Benefits of Good Governance

The commercial case for good governance is compelling. Companies with strong governance frameworks typically achieve better access to capital — investors and lenders conduct governance assessments as part of their due diligence, and companies with robust governance frameworks are more likely to secure investment on favourable terms. They benefit from improved decision-making, as structured board processes and clear delegation of authority lead to more informed and timely decisions. They enjoy reduced risk of disputes, since clear governance arrangements, properly documented in constitutional documents and shareholder agreements, reduce the likelihood of shareholder, director, and management disputes. They gain enhanced reputation with customers, suppliers, regulators, and the broader market. And they experience greater operational resilience, as governance frameworks ensure that the business does not depend on any single individual and can navigate leadership transitions, market downturns, and other challenges effectively.

Conclusion

Corporate governance is a journey, not a destination. For private companies in Kenya, the goal should be to build governance frameworks that are proportionate to the company's size, complexity, and stage of development — and that evolve as the business grows. Starting with the basics — a properly constituted board, regular meetings, clear delegation of authority, and robust financial controls — and progressively adding more sophisticated governance elements as the company matures is the most practical approach.

The Companies Act, 2015 provides the statutory floor, but the most successful companies treat governance as a strategic asset rather than a regulatory burden. Investing in governance pays dividends in the form of better decisions, stronger stakeholder relationships, reduced risk, and ultimately, a more valuable and sustainable business.