In Kenya, corporate governance is not just a boardroom slogan. Far from it! It’s an anchor of economic honor and investor confidence. Corporate governance challenges in emerging markets typically reflect deeper challenges in institutional maturity, enforcement, and fit and are highly complex and unique.
The gaps in governance are articulated in regulation enforcement failure, socio-cultural hurdles, institutional capacity limitations, gender inequality, and political meddling—issues duplicated all over Africa.
With increasing pressure from foreign investors and institutional reforms, Kenya is at a critical juncture. The future of its economy will depend on whether the country enhances its corporate governance or just goes on as usual.
This article analyzes Kenya’s corporate governance ecosystem, highlights key challenges, and offers context-driven solutions. Its objective is not simply to diagnose the ailment but also to motivate improvement. In doing this, it hopes to serve as a primer for business executives, policymakers, investors, and students seeking to comprehend or influence governance in emerging economies.
Key Takeaways (Key Corporate Governance Challenges)
- There are challenges in applying corporate governance benchmarks due to resource shortages and political interference.
- Nepotism and tribalism weaken governance structures, which lowers transparency and objectivity.
- Institutions are prone to low resources and human capital, limiting their capacity for monitoring and enforcement.
- Women continue to be underrepresented on the boards and among senior management despite progress in workplace diversity.
- Political interference tends to undermine corporate governance in state-owned enterprises (SOEs), resulting in corruption and mismanagement.
Status of Corporate Governance in Kenya
Corporate governance in Kenya has evolved vastly over the past two decades, particularly following the corporate scandals of the early 2000s and the subsequent pressure from development partners, investors, and civil society. Let’s break down the most significant aspects of Kenya’s corporate governance environment:
1. Regulatory Framework: Present But Weak Enforcement
Kenya has put in place a fairly robust regulatory framework on paper. While institutions like the Capital Markets Authority (CMA), the Nairobi Securities Exchange (NSE), and the State Corporations Advisory Committee (SCAC) are tasked with enforcing governance standards, enforcement is the ‘real’ weakness.
Most companies, particularly state-owned enterprises (SOEs), violate these regulations with impunity. Political favoritism regularly shields performing managers from responsibility.
It was stated in a 2021 World Bank report that although 90% of Kenyan listed firms nominally report compliance on governance, only 43% are compliant. Oversight institutions are regularly starved of resources and lack the independence to confront politically influential institutions.
2. Board Composition: Predominantly Male & Un-diverse
Good corporate governance is premised on the availability of a board that is independent and diverse. According to a report by the Kenya Institute of Management (KIM), about 36% of board members are women –compared to 23.3% globally. Furthermore, female representation in C-suite roles stands at 37% –compared to 21% globally.
But even so, as impressive as the stats are, in Kenya, boards are still dominated by ageing men, generally of the same professional or political levels. This gap not only devalues ideals of inclusiveness but also diminishes the diversity of perspectives contributing to strategic decision-making.
Moreover, sincere board independence is also eroded by nepotism and conflict of interest. Directors become too aligned with the executives they are responsible for controlling. This can stifle dissent and legalize poor-quality decisions. Best practices such as term limits, performance reviews, and board evaluation occur sporadically and erode the efforts of boards as strategists on company strategy as well as a watchful eye.
3. Transparency and Disclosure: Inconsistent Among Firms
Transparency and open financial and operations data disclosure are fundamental corporate governance values. In Kenya, most large companies listed at the NSE typically make audited accounts and briefings available to investors. Disclosure practices are generally heterogeneous, particularly among parastatals and private enterprises.
Most companies prepare the minimum legally required disclosures and withhold valuable information on ownership patterns, executive compensation, and related-party transactions. The opacity leaves leeway for insider trading, fraud, and financial misreporting. It also undermines investor confidence, particularly foreign investors, who demand more transparency.
4. Institutional Capacity: Inconsistent in Private & Public Sectors
Among Kenya’s less implicit but highly important governance issues are low institutional capacity among the regulators and firms. The regulatory bodies lack the financial, technical, and human capabilities to determine compliance.
For instance, the Office of the Auditor General has consistently stated ‘unavailability of resources as a constraint’ while auditing state institutions and county governments. Similarly, most private companies, particularly small and medium-sized enterprises (SMEs), do not have in-house governance experts or lawyers to guide them on compliance.
Also, most board directors typically do not have formal training programs, and governance audits are unheard of.
Without good institutions that can make the rules and educate the players, governance reforms cannot stick. Such capacity shortfall may be the most considerable hindrance to implementing a culture of governance within Kenyan companies.
Summary of Corporate Governance Status in Kenya
| Aspect | Status |
| Regulatory Framework | Weak on paper; selective enforcement |
| Board Composition | Dominantly male; not diverse or independent |
| Transparency and Disclosure | Inconsistent; weakest in SMEs |
| Institutional Capacity | Weak resources in regulators and corporations |
Challenges of Governance in Emerging Markets in Kenya
Despite Kenya’s quantifiable advances among its listed firms, underlying governance problems still erode sustainable development and investor confidence. These are not just technical or legal in nature but also deeply cultural, institutional, and political.
The most significant governance challenges that define Kenya’s corporate landscape today are:
1. Weak Legal and Regulatory Frameworks
While Kenya has enacted many laws meant to promote corporate governance—e.g., the Companies Act 2015, the Capital Markets Authority (CMA) Code of Corporate Governance, and the Leadership and Integrity Act—they are not enforced and implemented evenly. What is on paper does not always add up to real accountability.
Regulatory bodies often lack independence and capacity, especially when dealing with politically expedient cases or large institutions. They often overlap in their jurisdictions, leading to confusion and inefficiency.
For instance, whereas the CMA oversees listed companies, the SCAC (State Corp Advisory Committee) advises SOEs (state-owned enterprises)—although there are varying enforcement standards and expectations. The result is that some institutions can take advantage of loopholes, cherry-pick compliance aspects, or hide in areas of legal uncertainty.
2. Cultural and Social Barriers
Cultural values and deeply rooted social norms remain a huge barrier to adopting good corporate governance in Kenya. Nepotism, tribalism, and patron-client relationships influence recruitment, procurement, and board appointments.
In most companies—particularly family-owned businesses—strategic positions are inherited along kinship lines rather than merit. This erodes board independence and strategic decision-making. Besides, limited knowledge of governance principles may apply at the grassroots and even to mid-level management.
Corporate governance remains viewed by some businesspeople as a cost of compliance rather than a strategic tool for value creation. This is more common in SMEs that corner Kenya’s private sector, which has over 90%, but frequently do not have the governance building blocks for expansion and sustainability.
3. Limited Institutional Capacity
The capacity of institutions that enforce corporate governance, such as the Office of the Auditor General, the EACC, is commonly overwhelmed. The institutions are inadequately staffed, equipped, and trained to perform their mandates. Most public sector audits lag behind schedule, and even where compromising reports are laid, very few recommendations are taken up.
In the non-public sector, especially small and medium enterprises, there are no internal governance structures, and they are ineffective. Boards are not formalized, strategic planning is inadequate, and decision-making is based on short-term survival rather than long-term performance. Regulators and firms cannot bring governance into mainstream operations unless they are committed to building capacity—through training, mentoring, or exposure to governance tools.
4. Boardroom Gender Inequality
Despite advanced constitutional provisions like the two-thirds gender principle, Kenya lags in gender representation in corporate leadership. Studies indicate that women hold only a small fraction of board directorships in listed companies, with many fewer women at the executive level. This disparity is despite research indicating that gender-diverse boards perform superior risk management and long-term value creation.
The gender gap is fostered by social attitudes, limited role models for young women, and restricted leadership opportunities. Board appointments in specific industries, notably finance and extractives, remain old boys’ networks, where ties rather than competence prevail. The absence of women restricts the diversity of thought needed for well-rounded decision-making and effective governance.
5. Political Interference
Political interference continues to distort corporate governance in Kenya, especially in the state-owned corporations (SOEs). Public corporation top leadership is typically distributed via political appointments rather than meritocracy. This produces incentives that are not aligned, where decisions are made to accommodate political agendas rather than the firm’s long-term welfare.
Strategic plans, for example, get substituted with political promises or election-cycle initiatives at the expense of the board’s autonomy and credibility. This interference traverses procurement, tendering, and budgeting processes, leading to inefficiency, corruption, and diversion of funds.
In a 2022 Transparency International Kenya report, most public sector respondents pointed out political pressure as a serious impediment to good governance. Corporate governance is only possible where there is a clear demarcation between business management and political patronage networks.
Principal Governance Challenges in Kenya (Summary)
| Challenge | Description |
| Weak Legal and Regulatory Frameworks | Inconsistent enforcement and overlapping roles of regulators |
| Cultural and Social Barriers | Nepotism, tribalism, and unwritten rules limit board independence. |
| Limited Institutional Capacity | Under-staffed and under-resourced regulatory and audit institutions |
| Gender Inequality in Boardrooms | A low level of female participation limits diversity and balance in decision-making. |
| Political Interference | Public appointments and decisions vulnerable to political agendas |
Also Read: How Corporate Governance Shapes Company Culture
Overcoming Governance Challenges in Kenya
Treating Kenya’s governance challenges is not an exercise blanket. It is a comprehensive one that must address legal reforms, institutional build-up, change in culture, and inclusive leadership. The following measures represent realistic and practical ways of improving corporate governance in Kenya, and they directly address the five critical challenges highlighted above.
1. Strengthening Legal and Regulatory Frameworks
Good governance begins with the passing of legislation that is not just comprehensive but also effective. Kenya must critically examine existing corporate legislation to seal loopholes and bring them into harmony with best international practices such as the OECD Principles of Corporate Governance.
Foremost, however, regulators such as the Capital Markets Authority (CMA), Competition Authority, and State Corporations Advisory Committee (SCAC) must be afforded fiscal independence and legal protection to implement their mandates unilaterally.
Digitization and automation of compliance oversight can also enhance enforcement to a great degree. For example, the Kenya Revenue Authority (KRA) has made great strides in tax compliance through technology tools—such a system can be used to monitor board appointments, shareholder notifications, and annual returns in real-time.
Moreover, whistleblower protections must be strengthened and instituted to allow safe reporting of governance malpractices without fear of persecution.
2. Promoting Cultural Transformation and Ethical Leadership
Culture is the most challenging yet essential area to transform. It requires specially crafted training and constant indoctrination to redefine Kenya’s corporate culture into a values-based and accountable culture. Educational programs, business school curricula, and board certifications can instill values of governance in next-generation professionals as well as entrepreneurs.
The Institute of Certified Secretaries (ICS) and the Kenya Institute of Management (KIM) should be more involved in this case, extending their outreach and certification even to the SMEs. Organizations also have to lead by example. Existing governance best practice practitioners must share their examples through peer learning platforms.
Establishing national awards for ethical leadership and responsible governance can go a long way towards finding role models and reshaping societal stories about professionalism and meritocracy. Over the long term, such a cultural shift reduces reliance on nepotism, tribalism, and other informal power structures that act against governance.
3. Institutional Capacity Building
Capacity-building needs to become a national priority—not only for regulators but also for businesses. This would involve regular, mandatory training modules for board members, regulators, internal auditors, and senior management.
Training modules, secondments, and cross-sectoral knowledge-sharing initiatives can be funded jointly by government and development partners. Institutions like the World Bank and the African Development Bank have already successfully piloted these initiatives in other African countries.
For SMEs, capacity can be built up through business incubators and partnerships with professional associations that offer governance toolkits. County governments and business organizations like KEPSA (Kenya Private Sector Alliance) can be used to implement governance capacity-building at the county level.
Encouraging governance audits and compulsory filing by large companies with the registrar can also enhance accountability and institutional maturity in the long run.
4. Enabling Gender Parity in Corporate Governance
In order to lock the gender gap in boardrooms, Kenya must move from policy rhetoric to actual practice. The two-thirds gender requirement in the Constitution must be attained in all sectors, state corporations, and the private sector. Regulators like CMA and SCAC can make gender levels of representation a prerequisite for listing or qualifying to participate in public tenders.
Aside from regulation, sponsorship and mentoring initiatives are equally important. Initiatives like the Women on Boards Network and AWEP Kenya must be given additional support and visibility.
Policies within corporations also have to adopt programs for creating women leaders through leadership development, flexible working schedules, and fair performance measurement. A nationwide coordinated initiative towards STEM and finance for girls also establishes the board’s future pipeline talent.
5. Reducing Political Interference
Kenya’s business environment must be de-politicized through structural disengagement of business and government. This entails legislation restricting political appointments to parastatal boards except where appointees have professional qualifications and are screened. The Public Appointments Act must be amended to govern recruitment on merit by independent commissions with civil society and professional association representation.
Also, there must be more public control over state-owned enterprises. Parliament committees and the Office of the Auditor General must be empowered—and resourced—to examine and audit business choices fearlessly, especially in budget and procurement. Public shame, for instance, blacklisting errant SOEs, can also serve as a strong disincentive against politicians’ meddling in business.
Solutions to Governance Challenges in Kenya (Summary)
| Challenge | Proposed Solution |
| Poor Legal and Regulatory Frameworks | Enforce better laws, automate compliance, and safeguard whistleblowers |
| Cultural and Social Barriers | Public awareness training, identification of ethical leadership, and governance education |
| Limited Institutional Capacity | Governance audit and SME training, regulator-regulator training |
| Gender Imbalance in Boardrooms | Gender quotas, women’s training in leadership, mentorship |
| Political Interference | De-politicize the boards’ appointments, reinforcement of oversight institutions, and laws reforms |
Governance Issues in African Businesses
Corporate governance in Africa has always been described as a work in progress typified by the presence of positive developments and historical vulnerabilities in structure. Across the continent, companies face global governance issues that mirror the broader socio-economic and political forces operating.
These are not only barriers to business growth and investor trust but also to the slow pace of economic transformation for most African nations, including Kenya. Below are the main governance issues facing African companies today.
1. Concentration of Ownership and Control
The single most significant governance issue within African companies is concentrated ownership—in which companies are dominated by a few individuals, usually family members, political elites, or the government.
Most profitable Kenyan companies are, say, family-held and owned and have opaque, informal succession processes. Such organizations tend to inhibit accountability and employ people in responsible positions based on loyalty rather than ability.
Though concentrated ownership can ensure stability and a long-term orientation, it also discourages external oversight and reduces the input of non-executive directors. Checks and balances are not readily instituted where the same folks own and run the business.
2. Lack of Regulatory Oversight
Regulatory supervision is one of African leadership’s weakest links. Though most African countries—Kenya among them—have codified corporate governance rules, enforcement is often lacking. Regulators such as Kenya’s Capital Markets Authority or Competition Authority are underfunded and vulnerable to political interference, compromising their enforcement powers.
Besides, in most African countries, regulatory capture is a real threat—big firms intimidating regulators to provide them with special treatment. It encourages unfair competition and an unequal playing field.
For example, Kenya’s parastatals have repeatedly been accused of procurement malpractices and mismanagement, but few of their executives have ever been prosecuted. Such a culture of impunity makes it challenging to have a strong system of governance that relies on punishment for non-adherence.
3. Poor Transparency and Disclosure
Transparency and regular financial and non-financial information disclosure are underdeveloped in African companies. Most companies function in obscurity without annual reports, sharing beneficial ownership, or describing related-party deals. Although listed companies in Kenya must adhere to IFRS and file audited reports, SMEs and private companies do not usually meet basic reporting requirements.
That lack of transparency makes it hard for investors to ascertain the real value or risk of investments. If shareholders lack reliable information, they cannot hold executives and boards to account.
4. Political Influence and Patronage
Politics and business are always hand in hand in most African countries, and Kenya is no exception. Political patronage can be a double-edged sword—it opens doors to lucrative government deals and exposes companies to arbitrary risk when the political regime changes.
Most companies employ patronage networks to secure tenders or preferential regulatory decisions, which is costly to meritocracy and free competition. Kenya has a history of politically connected individuals being put into strategic roles within parastatals or boards of state-owned corporations without having the required qualifications.
The politicization of corporate governance subverts values of transparency and autonomy. It also conveys that corruption or nonperformance is justifiable, provided one enjoys political support.
5. Gender Balance in Leadership
Despite growing activism for diversity and inclusion, women are underrepresented in African business leadership. This gender disparity is not just one of social injustice—it is also a firm performance issue.
Across much of the global research literature, including McKinsey’s and the IFC’s work, there is evidence that gender-balanced boards outperform homogenous boards in innovation, risk, and profitability.
Therefore, omitting half of the population is not just moral inefficiency but also economic inefficiency. Its correction requires policy correction and cultural adjustment.
The Future of Corporate Governance in Emerging Markets
As argued in this article, the corporate governance challenges in emerging markets—Kenyan included—are created by weak enforcement of law, political intrusion, concentration of ownership, and cultural constraints such as nepotism and gender discrimination.
Besides undermining business sustainability, these problems erode investor confidence and the economy’s resilience. Kenya—and Africa at large—is not starting from scratch. With the right mix of political will, moral leadership, and capacity development at the grassroots level, these threats can be leveraged as opportunities for transformation.
To be a solution and not a problem, professionals, business leaders, and regulators must invest in corporate governance. CCG Kenya provides material, experienced advice, and training about governance frameworks. Take the step with us because, at CCG, we believe that good governance creates great business, and great business makes great nations.
