The Companies Act, 2015 (the “Act”) in Section 142-147 has outlined the various duties of directors as below;

1. Duty to act within powers and in accordance with the company constitution.

2. Duty to promote the success of the company.

3. Duty to exercise independent judgement.

4. Duty to exercise reasonable care, skill and diligence.

5. Duty to avoid conflict of interest and conflict of duties.

6. Duty to reject benefits/gifts from third parties.

Further, the Act provides that where a director breaches any of the duties listed above, then civil consequences for the breach should arise. The consequences of breach are the same in common law and in equity.

However, the duty to exercise reasonable care, skill and diligence is the only exception in terms of how it is enforced because it is a common law duty.  The rest of the general duties of a director are equity-based duties which would be enforced as any other fiduciary duty of the directors to the company.

Consequences for breach of equity-based director duties have been established in the law of equity and on equitable principles. The remedies are as below;

1.     Removal of the director from office; the shareholders must vote and decide whether to remove the director temporarily or permanently depending on the seriousness of the breach.

2.    Return of company property; property which has been taken by a director must be returned upon breach of any duties of the director.

3.    Restitution of profits; a court of law can order that where the company has suffered a loss because a director breached any duty, such a director should pay the company from his personal profits.

4.    Injunctive reliefs; a court can issue an injunction to prevent further breaches of duties by a director to prevent further losses.

5.    Setting aside of a transaction; a court may order that a transaction entered on behalf of the company by a director who is not acting within his powers and duties be set aside.

In the realm of Corporate Governance, the composition of boardrooms has long been a topic of discussion and debate. One particularly contentious issue has been the lack of gender diversity on corporate boards, with some organizations still maintaining all-male or all-female boards. Historically, gender representation in corporate boardrooms in Kenya and around the world has been heavily skewed towards men, limiting women’s opportunities for leadership and decision-making roles. However, in recent years, an era marked by progress and a growing recognition of the importance of diversity, such practices are increasingly being questioned and there is a growing recognition of the need for gender balance to harness diverse perspectives and promote equitable outcomes. For example, in Kenya, The Constitution of Kenya, enacted in 2010, provides a strong foundation for promoting gender equality. Article 27(8) specifically emphasizes the need to ensure gender balance and demonstrates an affirmative action to redress past imbalances. In addition, the Capital Markets Act of 2015 corporate Governance Guidelines for Institutions outlines the code of Corporate Governance Practices for listed companies in Kenya, requires companies to consider gender when appointing board members

Improved Representation and Perspective

One of the fundamental reasons why gender diversity on corporate boards is crucial is the principle of representation. Boards are responsible for making strategic decisions that shape the trajectory of a company, and they should reflect the diverse perspectives and experiences of the stakeholders they serve.

Gender diversity ensures that the voices of women, who constitute roughly half of the global population and a significant consumer base, are not marginalized or overlooked. It brings forth different viewpoints, leading to a more balanced decision-making process and reducing the risk of groupthink.

Enhanced Performance and Innovation

Numerous studies have shown a positive correlation between gender-diverse boards and improved corporate performance. A Research recently conducted on the effect of gender inclusivity on Boards found that companies with diverse executive teams, including gender diversity, are more likely to outperform their less diverse counterparts.

Diverse boards bring a wider range of skills, expertise, and ideas to the table, fostering innovation and creativity. This diversity of thought enables companies to adapt to changing market dynamics, identify new growth opportunities, and respond more effectively to challenges.

Better Talent Pool and Reputation

By excluding an entire gender from corporate boardrooms, companies limit their access to a substantial portion of the talent pool. Embracing gender diversity expands the pool of qualified individuals eligible for board positions, allowing organizations to tap into a broader range of skills and experiences.

This inclusivity attracts top talent, enhances corporate reputation, and increases the potential for attracting diverse customers and investors who value ethical and responsible governance practices.

 Legal and Regulatory Considerations

Governments around the world are increasingly recognizing the importance of gender diversity on boards and have taken steps to address the issue through legislation and regulations. Many countries, including Norway, France, and Germany, have implemented quotas or introduced voluntary targets for gender representation on corporate boards. Compliance with these regulations not only assists organizations avoid legal repercussions but also signals a commitment to diversity and inclusion, positively impacting their reputation. In Kenya for Instance, the Capital Markets Act of 2015 Code of Corporate Governance Practices for Issuers of Security to the Public outlines the code of Corporate Governance Practices for listed companies in Kenya, requires public companies both listed and unlisted to consider gender when appointing board members

Corporate Social Responsibility and Ethical Imperative

Embracing gender diversity on boards is not just a matter of corporate social responsibility; it is an ethical imperative. Organizations have a moral obligation to promote fairness, equal opportunity, and respect for human rights within their own structures. Gender diversity in leadership positions is a tangible step towards reducing gender inequality and dismantling systemic barriers that hinder women’s progress in the workplace. By championing diversity, companies can become advocates for societal change and contribute to building a more inclusive and equitable world.

Corporate Governance therefore dictates that companies should not have boards composed exclusively of men or women. Gender diversity on corporate boards is not merely a box to be ticked or a politically correct gesture; it is a strategic imperative. By ensuring gender diversity, companies can benefit from a broader range of perspectives, enhance their performance and innovation, access a larger talent pool, comply with legal and regulatory requirements, and fulfill their ethical obligations. Ultimately, inclusive governance strengthens the fabric of organizations, promotes sustainable growth, and paves the way for a more equitable future.

1.    What it a Social and Ethical Audit?

A Social and Ethical audit involves a comprehensive evaluation of a company’s processes or systems to ensure they comply with ethical requirements, additionally it serves as a means of evaluating the societal impact of various business initiatives.

The purpose of this investigation is to determine whether an organization adheres to industry or societal ethical norms. The Audit is aimed at investigating a business’s practices and transactions to assess its level of adherence to its internal policies, organization’s social and environmental performance, including its impact on stakeholders such as employees, customers, and the community as well as its compliance with external guidelines and nationally recognized ethical standards.

2.   Why are social and ethical audits required?

Social and Ethical Audits allow the Company to see itself through a variety of lenses and captures the Company’s ethical and social profile. Companies are able to recognize the importance of:  their financial profile for their investors, their service profile for their customers, their profile as an employer for their current and potential employees and their company’s profile for the communities impacted by their activities.

A Social and Ethical Audit brings together all of the factors which affect a Company’s reputation and examines the way in which it does business.

Taking a picture of the Company’s value system at a given point in time is beneficial in several ways:

• Assists to identify areas where ethical violations are occurring such as Discrimination and Harassment, Toxic Workplace Culture, Unethical Leadership, Data Privacy among others, provide a roadmap for addressing them and baseline by which to measure future improvement.
• Provides Stakeholders the opportunity to clarify their expectations of the Company’s behavior and assists the Company to learn how to meet any societal expectations which are not currently being met.
•  Enables the Company understand its relationships with key stakeholders such as employees, customers, and shareholders, and to align its values with those of their workforce.
• Clarifies the actual values to which the Company operates.
• Assists to mitigate risks, such as legal liability, reputational damage, and loss of business among other benefits.
• Enhances corporate reputation and assists to make the Company fraud resistant.
• Enables the Company gain an understanding of the issues which motivate employees and improve staff motivation and morale.
• Assists to identify general areas of vulnerability, particularly related to lack of openness.
• It is of great value to multinationals in take-over and merger situations, especially ones which involve partners from different countries where there may be conflicting value systems.

3.   What areas of concern are included in Social and Ethical Audits?

Social and ethical audits generally involve a review of a Company’s policies, procedures, and practices related to social performance, ethical behavior and compliance with applicable laws and regulations. Key audit areas in social ethical audits include:

• Economic – The Audit assesses the costs and benefits of a project or practice, analyzing resource allocation and the impact on community development, healthcare infrastructure, and housing needs in impoverished areas.
• Environmental – The Audit considers the environmental impact of a project or practice, including potential pollution of soil, water, or air and its effect on human health. A social audit in this area examines the project’s responsible execution.
• Social risk – The Audit assesses the risk of negative consequences, such as protests, violence, litigation, or criminal activities, and examines specific impacts on marginalized groups, such as indigenous peoples, women, children, and migrants.
• Community –The Audit examines community-based projects that offer services or employment to residents in a specific area and empowers communities to take ownership of these opportunities.
• Human Rights- The Audit conducts checks for human rights abuses in certain areas, including child labour, freedom of association and assembly, freedom from discrimination, and indigenous people’s rights.
• Contracts – The Audit evaluates a project’s impact on individuals under contract with a company, assessing fair pay, humane treatment, and accessibility to medical treatment if injured on the job.
• Governance and Board Oversight: The effectiveness of the board of directors and its role in setting the tone at the top of the organization is a critical area of review in ethical audits. The audit assesses the board’s composition, independence, and decision-making processes related to ethical and compliance matters.
• Code of Conduct and Ethics: The code of conduct and ethics is the primary document that sets out a Company’s expectations for ethical behavior. The audit reviews the adequacy of the code of conduct and ethics and assess whether it is effectively communicated and understood by employees.
• Risk Management: The audit assesses the Company’s risk management processes related to ethical and compliance matters, including the identification, assessment, and mitigation of risks.
• Whistleblower Program: The audit assesses the effectiveness of the Company’s whistleblower program, including the policies and procedures for reporting and investigating allegations of ethical or legal violations.
• Vendor and Supplier Management: The audit assesses the Company’s vendor and supplier management processes, including due diligence and monitoring procedures, to ensure that the Company is not working with unethical or non-compliant partners.
• Employee Training and Communication: The audit assesses the effectiveness of the Company’s employee training and communication programs related to ethical behavior and compliance with applicable laws and regulations.

4.   How are Social and Ethical Audits conducted?

Social and Ethical audits are usually conducted by an independent third party and generally involves a comparison between internal and external guidelines with actual behaviors within a Company and involve the following:

•  Comprehensive evaluations of an organization’s ethical policies, practices, and culture.
• Interviews with employees, and analysis of data to identify any ethical issues that may be present in the Organization.
• Review of the organization’s history of ethical violations, as well as any current reports of unethical conduct.
• Review of the various areas of a Company’s operations, including labour practices, environmental impact, supply chain management, and governance, how a Company discloses its finances, access to Company information, conflicts of interest, bidding and award practices, and the giving and receiving of gifts.
• Review of charitable contributions this includes information about the organization’s donations to charitable causes, as well as its involvement in philanthropic activities.
• Review of the organization’s involvement in community service and volunteer work, such as organizing and participating in local events.
• Assessment of the organization’s communication and decision-making processes to ensure that they are open and transparent.
• Review of the organization’s policies and practices related to employee safety, health, and well-being.
• Assessment of the organization’s compensation policies to ensure that they are fair and equitable.
• Assessment of the organization’s efforts to engage with and support the communities in which it operates.
• Review of the organization’s policies and practices related to diversity and inclusion, including its hiring practices and employee training programs.
• Assessment of the organization’s financial reporting practices to ensure that they are accurate and transparent.
• Review of the values that shape a Company’s ethical culture through daily work practice which can include: integrity, respect, diversity, safety, conscientiousness, creativity.

5.   How do I schedule a Social and Ethical Audit?

At Bellmac Consulting LLP we provide a comprehensive assessment of your Company’s policies, procedures, and operations to identify potential risks and opportunities for improvement.

Our team of experienced auditors follows a rigorous process to ensure that all relevant areas are covered, including but not limited to, contracts, environmental, social risk, community, corporate governance, financial reporting, data privacy, anti-corruption, and human rights.

Additionally, we assist organisations set up automated social and ethical audits and anonymized ethical violation reporting. We also offer Social and Ethical Training.

6.   How are corrective action plans and recommendations managed?

After completing the audit, we provide you with a detailed report that includes actionable recommendations to improve your Company’s social and ethical practices. Our recommendations are specific and practical, taking into account the unique needs and challenges of your business.

We understand that implementing changes can be challenging, and therefore, we provide follow-up support to help you successfully implement our recommendations. Our team of experts are available to answer any questions and provide guidance as needed.

Surrendering of shares refers to the voluntary return of shares held in a company by the registered shareholder for those shares. Surrendering shares, is in effect, the same as transferring those shares in favour of the company that issued them.

The Companies Act, 2015 allows companies to accept surrendered shares, in accordance with their Articles of Association, for failure by any shareholder to pay any outstanding sums regarding those shares. Once shares are surrendered, the company that issued them has a duty to cancel them.

Cancellation of those shares can lead to a reduction in the company’s share capital by the nominal value of those cancelled shares. Furthermore, if the company’s share capital is reduced below the authorised minimum for public limited companies (i.e., KES 6,750,0000), such a company must convert to a private limited company and then apply to the Registrar of Companies for the registration of its conversion.

In order to avoid the reduction of share capital, the Companies Act does not prevent the directors of a company from transferring the surrendered shares to new buyers.

The Companies (General) Regulations, 2015 provide a model Articles of Association that can be adopted by prospective public companies limited by shares. The articles state that a member of a company may surrender shares in a company in the following scenarios, namely:

1. Where a notice of the intended forfeiture of those shares has been issued by the company directors for failure to pay a specified amount regarding them;

2. Where the directors may forfeit those shares; or

3. Where the shares have already been forfeited.

The effect of surrendering shares, as per the model Articles of Association, is that all interests, claims, rights and liabilities regarding those shares are extinguished. The person surrendering those shares ceases to become a member of the company with respect to those shares and is also required to surrender the share certificates for the surrendered shares for cancellation.

However, that person still remains liable for any outstanding sums at the date of surrender including any interests that accrued before or after the date of surrender.

The Companies Act does not prevent members from voluntarily surrendering their fully paid up shares as the Act allows companies to acquire their own shares upon paying the full amount of consideration for those shares. In short, a member can voluntarily surrender their shares to the company upon receiving the capital he invested into the company as consideration.

Any surrender of shares that would lead to the reduction of a company’s share capital will first need the passing of a special resolution by company members. The company will also have to comply with all the requirements that pertain to the reduction of share capital as seen in PART XV of the Companies Act.

The Board has the mandate of setting out the strategic direction of the company, overseeing management’s performance, and ensuring that the company operates in compliance with the expected legal and ethical standards. With an increase in stakeholder expectations and enhanced regulatory requirements, there has been an increasing need for use of various mechanisms to assess the performance of the board.

One such mechanism is board evaluation which is a method that assists the board in verifying whether it is meeting its expectations, whether it is making progress towards achieving the organization’s set goals and objectives, whether it is following the board charter, guidelines and bylaws, and provides an opportunity to gather feedback on a board’s effectiveness.

As a measurement tool, an effective board evaluation should be role-based and have the ability to assess performance. The evaluation can be conducted internally or externally and takes various forms, including: full board evaluation; board committee evaluation and non-board evaluation.

The board evaluation process ought to be objective, effective, and concise. The process ought to assess the actual performance against the expected performance and best practices.

Board evaluation provides a comprehensive view of a board’s performance and is strategically important for the following reasons:

• First, board evaluation provides a feedback mechanism for improving board effectiveness, maximizing strengths and developing strategies to enhance the board’s effectiveness in areas that require development.

Board evaluation is a strategic tool that helps boards understand their strengths and weaknesses, identify areas for improvement, and align their efforts with the organization’s strategic goals. It involves a systematic review of the board’s performance, including its structure and processes.

• Second, board evaluation may assist in enhancing board diversity and inclusion. One of the critical tenets assessed during the evaluation process is the diversity of the board and its committees. The results of the assessment are critical in identifying diversity gaps and developing strategies for addressing them. Such strategies may include developing policies to enhance diversity, recommending the recruitment of board members from underrepresented groups, and increasing board training and development on diversity and inclusion.
• Third, performance measurement through board evaluation may help in identifying and mitigating risks. Directors are individually and collectively responsible for actions they take, thus they need to understand the various risks faced by the organization they serve.

Board evaluation supports risk assessment and mitigation as it highlights weaknesses in the board’s governance practices. Possible weaknesses may be related to compliance risks as a result of a breach of the law or regulations, potential business losses due to inefficacious financial reporting, potential reputational damage due to a breach of ethics, or internal conflicts with management that may affect the board’s ability to provide effective leadership.

• Fourth, board evaluation is useful in facilitating board succession planning. Evaluation of the Board assists in assessing the skills, knowledge, and experience of individual directors and identifying knowledge and skill gaps that may exist. This may guide the development of a succession plan, guide recommendations on board rotation and succession of directors and balance skills to give rise to quality decisions.
• Fifth, performance measurement through board evaluation assists in enhancing stakeholder inclusivity and engagement. Through the evaluation process, the board assesses its engagement structure and engagement practices and identifies possible areas to improve its relationships with stakeholders, including management, shareholders, staff, clients, and the public. The areas of assessment include responsiveness, transparency, accountability, and independence.

In conclusion, board evaluation is a strategic and essential tool for ensuring that the board is functioning effectively and meeting its objectives. It provides valuable feedback on the board’s performance, enhances board diversity and inclusion, helps in risk management, facilitates board succession planning, and enhances stakeholder engagement. Institutions that invest in board evaluation are better positioned to improve their efficiency, achieve long-term success, and maximize their impact.

GOVERNANCE, RISK MANAGEMENT, AND COMPLIANCE (GRC)

Governance, risk management, and compliance (GRC) is a corporate management system that incorporates these three crucial functions into the processes of every department within an organization.

The main goal of GRC is to reduce risks, costs and duplication of effort. It is a strategy that necessitates organization-wide cooperation to produce outcomes that adhere to internal standards and procedures established for each of the three core functions.

Governance/ Corporate Governance

Good corporate governance is essential for Businesses as it creates transparent rules and controls, provides guidance to leadership, and aligns the interests of shareholders, directors, management, and employees.

In order to demonstrate excellent governance, the appropriate framework of guidelines, processes, procedures, and accountability systems must be established.

At Bellmac, we assist you to develop a cutting-edge governance structure that is efficient and apply GRC technologies to keep you on track as you accomplish your objectives.

Risk Management/ Enterprise Risk Management

The goal of the enterprise risk management program is to secure value while optimizing risk profile and achieving company objectives. Prioritizing stakeholder expectations and providing them with accurate information are both parts of this process.

We provide managed services, consultancy, risk culture and business continuity assessments, as well as advice on the full range of risk management.

Compliance/ Corporate Compliance

Regulatory compliance failures can lead to enormous financial loss and severe reputational damage. Organizations must adhere to rules, policies, standards, and laws set forth by industries and/or government agencies and be prepared to keep up with regulatory and ethical changes, ensure compliance in a cost-effective manner, and respond to risks or incidents.

BELLMAC CONSULTING LLP offers a full spectrum of integrated control, compliance, and certification solutions across all sectors. We offer you Advice and support on a wide range of Regulatory Compliance and Registration issues relating to Kenya Revenue Authority, National Social Security Fund, National Hospital Insurance Fund, Kenya Investment Authority, Communications Authority, Betting Control and Licensing Board, Energy Regulatory Commission, Export Promotion Council, Kenya Bureau of Standards, National Environment Management Authority, Sacco Societies Regulatory Authority and the Tourism Regulatory Authority 

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Our Governance, Risk Management, and Compliance (GRC) Services include:

• LEGAL AND COMPLIANCE AUDITS
• CORPORATE GOVERNANCE AUDITS
• BUSINESS ETHICS AUDITS 
• ENVIRONMENTAL, HEALTH AND SAFETY (EHS) AUDIT 

Our team is committed to help your organization reach the highest standards of good Corporate Governance. Check out our services