Ethnicity and board structure
At a glance
- The Employment and Labour Relations Court ruled that appointing board members solely from one ethnic community is unconstitutional and disregards the diverse fabric of Kenya.
- This decision, based on non-discrimination and equality principles, may set a new standard for private employers when structuring their boards.
- Private employers should consider ethnic diversity as a possible factor in board composition, as national values of non-discrimination and equality apply to them as well, as per the Constitution. Assistance is available for creating board structure requirements and policies in line with this decision.
The court’s judgment related to state agencies; however, the legal basis of this decision, being the principles of non-discrimination and equality, may conceivably introduce a new standard for private employers to consider when structuring a board. Notably, the Employment Act, 2007 (Employment Act) does not set out board composition requirements for private employers. However, the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations, 2011 (Regulations) set out some guidelines to be followed. For example, sections 3 and 4 of the Regulations provide that a board shall be composed of:
- persons who are fit and proper to hold such a position;
- persons who have undergone relevant training on corporate governance within six months of appointment; and
- at least one-third of directors who are not employed by the company, or associated with any of its management, advisers, or consultants, among other such requirements.
Although the Employment Act is silent on this matter, a wide view of the implications of this case, read alongside the provisions of the Constitution and the requirements in the Regulations, suggest that ethnic diversity may be a growing consideration for all when structuring a board. Therefore, even though this judgment was premised on Articles 10 and 232 of the Constitution, which relate to public entities, it is likely that the reasoning in this case can also be applied to private employers because the national values referred to, such as non-discrimination and equality, bind private employers as much as they do state agencies, as set forth in Article 27(5) of the Constitution.
We recommend that private employers take note of this decision and prepare to consider ethnic diversity as a possible factor when structuring a board. As stated by the learned judge in this case, doing so would ensure that “the evils of old which Kenyans opted to do away with in the Constitution”, are indeed done away with.
We are happy to assist in creating and advising on board structure requirements and policies in light of this decision.
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