State company directors’ new legal reality

A key element of the Act is the methodology of appointing independent non-executive directors (INEDs) to boards of the companies. The GOE Boards Search and Selection Panel was created under the Act to undertake the recruitment of these INEDs.

The Panel is made up of four non-public officers and one public officer appointed by the Cabinet Secretary of the National Treasury. The sixth member is a public officer from the ministry under which the GOE falls under and is appointed by the Principal Secretary of the relevant state department under the ministry.

The chair of this Panel is selected through a vote by the members, and only a non-public officer is eligible to be voted as chairperson.

Frank Mwiti, currently the chief executive officer of the Nairobi Securities Exchange, was voted in as the chairperson in April 2026. The Panel hit the ground running and immediately put up an advertisement asking members of the Kenyan public to apply for directorships in the GOEs.

As Kenyans happily apply for these roles, it would do them good to take note that the Mwongozo Code of Conduct that applied to parastatals and was not codified in law, no longer applies in the case of GOEs that are now operating as limited liability companies.

Folks, you are now walking into the jaws of the shark in the Kenyan Companies Act 2015.

Mwongozo was a guide, the Companies Act is the law and it legislates financial penalties for non-compliance with a number of its provisions.

The GOE Act mirrors the Companies Act in its requirements for financial transparency and record keeping as well as reporting and disclosure requirements. The Board must ensure accurate recording of transactions, financial position and performance.

Financial statements should be prepared and audited. Most importantly, our dear soon-to-be INEDs, related party transactions must be disclosed. These are transactions by the company with directors or close relatives of those directors.

The key ethos is that financial records should enable full transparency and accountability. So if Tom, your fellow director who charms the cotton socks off of everyone on the board, is a tenderpreneur his business interests must be disclosed. What happens if they’re not disclosed?

Under Section 635 of the Companies Act, the responsibility for the preparation of a company's financial statements falls directly on the board of directors for both public and private companies. Financial statements must be prepared for each financial year.

Failure to do so carries a fine of up to Sh1 million for defaulting directors. Section 625 requires directors with material interests in a transaction to disclose the same. It gets better.

Further down the Act, Section 652 (4) states that if financial statements are approved that do not comply with the requirements of the Act, any director who knew of the non-compliance (or was reckless about it) and failed to take reasonable steps to stop it commits an offence and is liable for a fine.

And before you get your knickers in a twist about how could you have known that Tom the tenderpreneur was doing business with the company, it would be a good time to ask yourself whether you read the auditors’ reports, followed by a meeting and discussion with them before the accounts were signed off by the Board.

That is the whole premise of “recklessness” for a director. Not exercising “care”.

One more thing, just in case you thought that you could lie low like an envelope and not get caught, the Companies Act allows a shareholder of a company to apply to the High Court for permission to sue the directors on behalf of the company.

Commonly known as a “derivative action”, this clause can be brought in respect of a cause of action arising from "an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.”

This goes beyond just tenderpreneur Tom’s activities, it goes into the overall role of a director in their governance mandate. For those directors who are in Nairobi Securities Exchange listed entities where the government is the majority shareholder, it would do good to take note of this provision that is available to minority shareholders.

The GOE Act now requires all the state owned companies to publish their accounts on their websites, in addition to the Cabinet Secretary publishing the same on the National Treasury’s website together with performance evaluations and appointment reports.

Dear soon-to-be INED, we get to know your name and how your directorship oversight role plays out in the annual financial performance. It’s no longer “business-as-collecting-sitting-allowance-usual.”

Welcome to the new transparency order.

Carol Musyoka is a former banker and is currently a corporate governance specialist.