In today's business environment, corporate governance is no longer a concern reserved for public companies such as banks or multinational corporations. It has become a strategic necessity for every company ranging from public and companies, fast-growing startups and family-owned businesses.
Internationally, Rwanda has gained recognition for creating a business-friendly environment where registering a company takes few hours, digital government services continue to expand, and investor confidence has steadily grown. However, as businesses continue to grow, one issue remains unaddressed: who truly governs the company?
Law N° 007/2021 of 05/02/2021 governing companies amended in 2023 (the "Companies Act”) establishes governance obligations reserved to the Board that are equally relevant to public and private companies.
Corporate governance is more than just a regulatory requirement but a business strategy which guards companies against poor decision-making, attracts investors, and accountability of director for the long-term success of the company.
Article 144 of the Companies Act provides that "the business and affairs of a company must be carried out by or under the direction and supervision of the Board of Directors.” The article further gives the Board all the powers required for the direction, supervision and management of the company's affairs, except in cases where certain powers are reserved by law or the company's articles of association to shareholders.
Therefore, directors are not merely ceremonial figures but fiduciaries who are entrusted with protecting the company's future through providing strategic directions among others provided in article 147-149 of the Companies Act.
Shareholders are owners not managers
The Companies Act separates the powers of shareholders and those entrusted to Board to ensure robust corporate governance in a company. Since shareholders are the founders of businesses, they are conferred rights to appoint director(s) who qualify to become directors to carry out strategic oversight of the company.
Being a director is not merely a title nor attending meetings rather it is a legal responsibility towards the company and its shareholders. Article 153 provides that "a private company must have at least one director and a public company shall have at least two (2) directors”.
Practically, directors are expected to act in good faith, exercise independent judgment, avoid conflicts of interest and exercise reasonable care in making decisions that benefits the company. Although the Board may delegate operational duties to committees or management, it cannot delegate any of its fiduciary responsibilities.
Some privately owned companies believe that governance only applies to public companies, which is a costly misjudgment. Although public companies are subject to additional requirements such as mandatory company secretaries and separation of the Chairperson and CEO role, the fundamental governance principles under Companies Act applies to all types of companies.
Private companies often encounter higher governance risks since ownership and management roles are closely connected because when businesses expand, informal decision-making can lead to disputes, financial setbacks, and operational challenges.
The Company Secretary
Too often, the Company Secretary is misunderstood because of the word "Secretary,” yet the modern Company Secretary is fundamentally a governance professional supporting the Board, advising on statutory and governance matters, maintaining corporate records, facilitating sound decision-making and helping ensure that the company meets its legal and regulatory obligations.
Strong governance is increasingly a commercial advantage as banks and investors routinely evaluate it before committing capital, looking beyond financial performance to assess the effectiveness of the Board, accountability, and soundness of risk oversight.
Companies with robust governance are equipped to manage crises, attract investment, retain stakeholder confidence, and plan for leadership transitions.
Every Board meeting should begin with one question: Are we governing the company for today's profits alone, or for its long-term success?
The Companies Act provides a strong foundation for corporate governance. The responsibility now lies with corporate leaders to strengthen Board effectiveness, establish clear governance structures and promote accountable leadership to enhance investor confidence, build resilience and create sustainable long-term value.
The writer is Company Secretary at PTS.