The Treatment of Family Owned Companies by the Existing Corporate Governance Framework in Kenya: a Case for Review
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THE TREATMENT OF FAMILY OWNED COMPANIES BY THE EXISTING CORPORATE GOVERNANCE FRAMEWORK IN KENYA: A CASE FOR REVIEW KAGIRI CYNTHIA NJERI G62/8006/2017 A Research Project submitted in partial fulfilment of the requirements for the award of the Degree of Masters of Laws Degree of the University of Nairobi Law School October 2019 SCHOOL OF LAW UNIVERSITY OF NAIROBI NAIROBI Research Project GPR 699 G62/8006/2017 TABLE OF CONTENTS DECLARATION................................................................................................................................ iii DEDICATION.................................................................................................................................... iv ACKNOWLEDGEMENTS ............................................................................................................... v TABLE OF CASES............................................................................................................................ vi TABLE OF STATUTES .................................................................................................................. vii ABBREVIATIONS .......................................................................................................................... viii CHAPTER ONE ................................................................................................................................. 1 INTRODUCTION............................................................................................................................... 1 1.1. Background of the Study...................................................................................................................... 2 1.2. Statement of Problem ........................................................................................................................... 6 1.3. Justification of the Study...................................................................................................................... 6 1.4. Research ............................................................................................................................................... 7 1.4.1. Research Methodology .................................................................................................................... 7 1.4.2. Research Objectives ......................................................................................................................... 8 1.4.3. Research Questions .......................................................................................................................... 9 1.4.4. Limitations ....................................................................................................................................... 9 1.4.5. Hypothesis ...................................................................................................................................... 10 1.5. Theoretical Framework ...................................................................................................................... 10 1.6. Literature Review ............................................................................................................................... 14 CHAPTER TWO .............................................................................................................................. 19 THE CHARACTER, THEORY AND GOVERNANCE CHALLENGES OF FAMILY COMPANIES .................................................................................................................................... 19 2.1. Introduction ........................................................................................................................................19 2.2. Understanding Family Companies .....................................................................................................19 2.3. Corporate Governance Theories in Family Owned Companies ........................................................23 2.4. Corporate Governance Challenges in Family Owned Companies .....................................................33 2.5. Conclusion .........................................................................................................................................39 CHAPTER THREE .......................................................................................................................... 41 i Research Project GPR 699 G62/8006/2017 CORPORATE GOVERNANCE AND FAMILY COMPANIES IN KENYA: A REVIEW OF THE REGULATORY FRAMEWORK .......................................................................................... 41 4.1. Introduction ........................................................................................................................................41 4.2. Corporate Governance in Kenya ........................................................................................................41 4.3. Constitution of Kenya ........................................................................................................................43 4.4. Companies Act ...................................................................................................................................45 4.5. Corporate Governance Codes and Regulations in Regulated Industries ............................................51 4.6. Codes of Governance for Private Companies ....................................................................................56 4.7. Custodians of Corporate Governance in Kenya and Family Owned Companies ..............................60 4.8. Conclusion .........................................................................................................................................62 CHAPTER FOUR ............................................................................................................................. 64 FOREIGN AND GLOBAL APPROACHES TO CORPORATE GOVERNANCE IN FAMILY COMPANIES .................................................................................................................................... 64 4.1. Introduction ........................................................................................................................................64 4.2. The Brazilian Code of Best Practices of Corporate Governance .......................................................65 4.3. IFC Family Business Governance Handbook ....................................................................................70 4.4. Conclusion .........................................................................................................................................72 CHAPTER FIVE .............................................................................................................................. 74 CONCLUSION AND RECOMMENDATION .............................................................................. 74 4.1. Introduction ........................................................................................................................................74 4.2. Summary of Research Study ..............................................................................................................74 4.3. Findings..............................................................................................................................................75 4.4. Recommendations ..............................................................................................................................77 4.5. Conclusion .........................................................................................................................................80 BIBLIOGRAPHY ............................................................................................................................. 81 ii Research Project GPR 699 G62/8006/2017 DECLARATION I, CYNTHIA KAGIRI, declare that this is my own original work and that it has not been presented and will not be presented to any other university for similar or any other degree award. Signature _________________________________ Date ________________________________ CYNTHIA KAGIRI G62/8006/2017 This project has been presented for examination with my authority as a university supervisor. DR. NJARAMBA GICHUKI Signature _________________________________ Date ________________________________ This is a copyright material protected under international and national laws. It may not be reproduced by any means, in full or in part, except for short extracts under fair use, for scholarly work only, without the written permission of both the author and the university. iii Research Project GPR 699 G62/8006/2017 DEDICATION To my family, one of God’s greatest gifts to me. And especially to Mr. and Mrs. Samson Mugo, who left me an indescribable legacy and encouraged me to pursue my dreams for God’s glory. iv Research Project GPR 699 G62/8006/2017 ACKNOWLEDGEMENTS I would like to acknowledge the Almighty God for carrying me through. This work is a testimony of His grace and providence. This project would not have been possible without the humanitarianism of Professor Arthur Eshiwani and the support of my official supervisor, Dr. Njaramba Gichuki. Thank you for your guidance, and on occasion, tolerance. I also acknowledge the invaluable support of my colleagues who asked questions, held me accountable and even proof read this work (and left it with the ominous tracked changes): Victorine Rotich, Julie Mwangi, David Wanjohi and Elizabeth Kamau, I am so grateful. I am especially grateful for the encouragement