By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publisher of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021.*
Governance, in the corporate context, refers to the system through which a corporation is directed and controlled in order to protect the interests of all stakeholders and ensure reasonable return on investments. Corporate governance has also been defined as the system through which a corporation is directed and controlled and which specifies distribution of rights and responsibilities among various players in a corporation being the board of directors, shareholders and other stakeholders and further sets out the rules and procedures for corporate decision making.
The Global Corporate Governance Forum in advocating the need for good corporate governance notes that: “Corporate Governance has become an issue of worldwide importance. The Corporation has a vital role to play in promoting economic development and social progress. It is the engine of growth internationally, and increasingly responsible for providing employment, public and private services, goods and infrastructure. The efficiency and accountability of the corporation is now a matter of both private and public interest, and governance has, thereby, come to the head of the international agenda.”
Good corporate governance is important in attracting investors, creating competitive and efficient corporations, enhancing accountability and performance in an organization and promoting effective and efficient use of resources in an organization. On this basis, it is argued that good corporate governance is a prerequisite for national economic development. In order to give effect to the ideal of good corporate governance, several principles have been generally accepted as pillars of ideal corporate governance. The Constitution of Kenya enshrines national values and principles of governance which bind all persons. These include inclusiveness, equality, non-discrimination, good governance, integrity, transparency, accountability and sustainable development.
The Organisation for Economic Co-operation and Development (OECD) identifies the principles of corporate governance to include: equitable treatment of shareholders; disclosure and transparency; role of stakeholders in corporate governance and responsibilities of the board. Good corporate governance cannot thrive in an environment of conflicts. Governance conflicts are bound to occur in an organization due to the different players involved and the difference in ideas, principles and plans that such players may hold. The parties in an organization may have a conflict about the distribution of resources, or they may have a more fundamental conflict about the very structure of their organization and the basic nature of their interaction.
A corporation entails multiple personnel including the directors, the Chief Executive Officer, shareholders and employees. In their day to day interactions, these personalities are likely to differ leading to conflicts. If such conflicts are not addressed effectively and in a timely manner, they may pose a threat to the business affairs of a corporation and defeat the core purpose of good corporate governance. The paper critically analyses governance conflicts and explores the use of Alternative Dispute Resolution in managing such conflicts. It addresses some of the causes of governance conflicts and the need to have such conflicts managed in an efficient, effective and timely manner. It highlights the benefits of using ADR in managing governance conflicts and proposes reforms aimed at enhancing good corporate governance through effective, efficient and timely conflict management.
It has been argued that most corporate governance conflicts arise because of how board members interact with each other in discharge of their duties. Such conflicts could take the form of disagreements between directors and top management over corporate strategy or financial policy. Boardroom conflicts are inevitable. Decision making within the boardroom results from a process in which directors consider all the information reasonably available to them and engage in a vigorous debate on issues such as company strategy, company control and financial policy. This increases the likelihood of disagreements within the board. Indeed, it has been argued that a board that never argues or disagrees is most likely to be an inactive or passive board.
Governance issues, requirements and standards have been attributed as a fertile source of misunderstandings and disputes within an organization. These can include; the relationship between directors and the Chief Executive Officer; the interplay between oversight and management; and the balancing of an organization’s short and long term interests. Further, governance disputes can also arise as a result of poor corporate performance or disputes involving stakeholders. When a disagreement or dispute arises within an organization, it is in the best interest of the organization to have them managed effectively, expeditiously and efficiently.
How such disagreements are managed determines whether the underlying issues can be resolved or whether the disagreement can ripen into a dispute that can have detrimental effects on the affairs of an organization including its financial performance and public image. It is thus essential for an organization to develop and adopt efficient dispute management mechanisms. Efficient dispute management within an organization is part of good risk management since it enables an organization to cushion itself against the adverse effects of disputes whenever they occur.
*This article is an extract from the Article “Managing Governance Conflicts Through Alternative Dispute Resolution in Kenya,” by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized among the top 5 leading lawyers and dispute resolution experts in Kenya by the Chambers Global Guide 2022.
References
Muigua, K., “Managing Governance Conflicts Through Alternative Dispute Resolution in Kenya,” Available at: http://kmco.co.ke/wp-content/uploads/2020/08/Managing-Governance-Conflicts-Through-Alternative-Dispute-Resolution-in-Kenya-3.pdf (accessed 17 May 2022).
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