The law did not take into consideration that some persons who sit as
directors in some companies do so, due to their expertise in the field
and perhaps due to lack of alternatives. FILE photo | nmg
The Kenyan competition law is one of the most protectionist
legislation in the world when it comes to safeguarding the public from
abuse of economic power by corporates.
It has been
argued in several scholarly papers that an over protectionist law may
actually be bad for the consumer and the economy.
One
school of thought argues that corporate giants spend a lot of money on
research and development and also put a lot of effort therefore it is
only obvious that they may end up controlling a large percentage of the
market.
It is further argued that at times, a near
monopoly status is achieved because of the absence of competitor in the
market not necessarily due to abuse of dominance or due to employing
unfair trade practises in order to achieve this position.
Some corporates attain a dominant position due to innovation and
perhaps securing intellectual property rights for their products and
services. Therefore it would be unfair to punish them by indirectly
legislating market share.
A second school of thought
argues that it is indeed necessary to protect the consumer and the
public from actions by dominant corporates as there is a likelihood of
abuse of dominance in the event that no legislative protection is
conferred on the consumers.
The Kenyan Competition law
contains an interesting provision on unwarranted economic power under
Section 50. I did an analysis of the law and several other jurisdiction
laws and found that not many other countries contained this provision.
The
Competition Authority of Kenya (CAK) has published guidelines on this
provision. It is interesting that this regulation does indeed spill over
into boardrooms and may affect cross directorships as it states that
unwarranted economic power is deemed to be cross directorships between
two entities producing substantially the same goods and services
controlling 40 per cent of market share.
It is argued
that where a director sits on the board of several companies including
competitors then there is likely to be a collusion in decisions to the
detriment of the market. Accordingly this law discourages a similar
board of directors sitting in the board of competitors.
While
cross directorships are not necessarily banned, it seems they are
frowned upon under competition laws. The guidelines set out the process
of determining unwarranted economic power by setting out the principles.
These include determining the extent to which competition affects the
sector, the rate of employment and others.
The CAK has
power to review, to receive complaints and to investigate. It can then
order a disposal of interests in the affected corporates.
A
strict interpretation of these guidelines means then it is not
advisable to have one director sitting in various boards of competitors
as he is likely to be conflicted in decision making.
Currently
governance of corporates is mainly under Companies Act, industry
specific laws amongst others. These contain detailed provisions on the
issue of conflict of interest and the fiduciary duty of the director to
the company in which he governs.
The provision in the
competition law may apply where a director is found to use his influence
in an injurious manner. The law did not take into consideration that
some persons who sit as directors in some companies do so, due to their
expertise in the field and perhaps due to lack of alternatives.
If
this law were to be strictly applied, then some directors would have to
relinquish some of their directorships as they may be deemed to be
cross directorships and further if there is a combined share of 40 per
cent.
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