To have a Board of Directors or not?

A couple of days ago, we had a wonderful conversation with an inspiring #entrepreneur who was progressing a brilliant and novel business idea and had incorporated a company to execute it.

We were happy to discuss what aspect of Governance the company should consider from the onset and what could wait until the business got onto its feet, based on what they had observed in the business world.

What is a Board of Directors? This is a group of individuals appointed by business owners – shareholders in the case of a company, whom the business owners entrust with the mandate to guide the company and sign off on the strategic direction of the company. The Board of Directors also have additional tasks such as to hire the CEO, approve and sign off the financial statements, budget and capital allocations of the company and generally, to ensure that the business succeeds while operating within the best interests of internal and external stakeholders.

Being invited to sit on a Board usually connotes unlocking another level of career excellence for someone. But one should be aware that in law, being a director of a company comes with legal and fiduciary duties, which if not executed, can lead to legal liabilities. According to the Kenyan Companies Act 17 of 2015, the following are the general duties to take note of:

1. The duty to act within the powers given according to the mandate provided by the Company;
2. The duty to act in good faith and promote the success of the business as a good corporate citizen;
3. The duty to exercise independent judgement- the day to day activities are run by management, the directors offer independent guidance;
4. The duty to exercise reasonable care, skill and diligence;
5. The duty to avoid conflicts of interest and to act ethically- themselves and their family members;
6. The duty not to accept 3rd party benefits;
7. Duty to declare interests in proposed and or existing transactions.

So that being said, noting the duty of care that a Director’s position holds, for new business and at inception, the statutory minimum of director appointments should be considered (one for a private company and 2 for a public limited company). Additional directors may be an additional start up cost for a company as bearing in mind the legal liability, it would be likely (and prudent) to put in place a professional indemnity for the comfort of the Board Members.

An alternative and what a number of #startups do beyond the statutory minimum of Directors is to have some experts from their networks serve as a Board of Advisory for a specified term and who can act as a sounding board for the #enterpreneur as they get their business off the ground. This can merge later into a structured #board, so that the entrepreneur does not have to walk alone.

Talk to us – enquiries@akiraconsult.ke for advice on what kind of governance you require in whichever stage of your business, we are here to help!