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Home » Insights » Okoiti V The Board, Export Processing Zones Authority & 3 Others; Otieno (Interested Party) (Petition E133 Of 2021) [2022] KEELRC 3771 (KLR) (29 July 2022) (Judgment)

Okoiti V The Board, Export Processing Zones Authority & 3 Others; Otieno (Interested Party) (Petition E133 Of 2021) [2022] KEELRC 3771 (KLR) (29 July 2022) (Judgment)

ELRC pronounces itself on the governance of State Corporation with respect to the role Of Cabinet Secretaries in the appointment of Chief Executive Officers of State Corporations.  The Court went ahead to elucidate that Cabinet secretaries needed to move away from assumption that State Corporations were departments within their ministries. Further, it is important to note that the State Corporations Act and the Mwongozo Code recognizes that there is corporate autonomy in State corporations, which intends to develop State corporations into more serviceable public corporation devices. This autonomy is exercisable through the Boards and Cabinet Secretaries should not encroach on that autonomy.

A. Factual background

The tenure of a substantive Chief Executive Officer (CEO) of the Export Processing Zones Authority (the Authority) was coming to an end on September 20, 2018. Subsequently, the Authority ran without a substantive CEO appointed according to the law. The Cabinet Secretary responsible for the Authority soon thereafter started tinkering with the Authority by seconding various officers from her ministry to act as the CEO. The 4th Respondent in the matter was appointed as CEO in an acting capacity, in that manner. The Board of the Authority (the Board) undertook a recruitment exercise for the CEO position and recommended the appointment of the interested party. The Cabinet Secretary faulted the recruitment exercise from the very beginning and stated that at the time the interview was conducted, she had constituted an audit team which unearthed irregularities in the exercise. The Cabinet Secretary claimed that the Board usurped and subjugated her role in the appointment of the CEO. She therefore declined the recommendation of the Board and extended the term of the 4th Respondent instead. Soon thereafter, the petitioner filed a Petition before Court seeking among many others a declaration that the extension of the tenure of the 4th respondent’s service as the acting CEO of the Authority was invalid; a declaration that the Cabinet Secretary could not overrule the Board on appointment of the CEO; and an order compelling the Cabinet Secretary to appoint the interested party as CEO of the Authority, in accordance with the recommendation of the Board.

B. Issues

Flowing from the issues above, the matter before Court raises the following issues-

a) What was the role of Cabinet Secretaries in the appointment of Chief Executive Officers of State corporations?

b) Whether a person could be an acting Chief Executive Officer in a State corporation for over 30 days.

c) Whether the Code of Governance for State Corporations (MwongozoCode) was a legally binding instrument in State Corporations governance.  

d) Whether cabinet secretaries could audit the recruitment process of State corporations

C. Holding

  1. On the first question on the role of the Cabinet Secretaries in the appointment of Chief Executive Officers of State Corporation, the Court held that State corporations exercises their legal mandate through the Board, not through a Cabinet Secretary in the parent ministry. Section 2 of the State Corporations Act, Cap 488 the Laws of Kenya, defines CEO as the person appointed and employed as such under section 5(3) of the Act, or the person for the time being, exercising the executive powers of a State corporation.

Further, in canvassing the role of a Board in State Corporations, the Court applied Section 5(3) of the State Corporations Act, which gives the mandate to engage and employ staff, including the CEO to the Authority. Therefore, the Authority, through its Board, was the employer. The Cabinet Secretary was not the employer. The role of the Cabinet Secretary was specified. It was to approve, in consultation with the State Corporations Advisory Committee, the terms and conditions of service of staff who included the CEO, employed by the Board.

For purposes of the Exports Processing Zones, Section 7(1) of the Export Processing Zones Act (EPZ Act), provides that the Minister/ Cabinet Secretary, could appoint the CEO, but only on the recommendation of the Authority and in so doing the Cabinet Secretary must revert to the State Corporations Act and the Mwongozo Code, if the EPZ Act, created doubt in her mind on who actually employs the CEOs of State Corporations.

Therefore, in its decision, the Court held that there existed no room for the Cabinet Secretary to disregard the recommendation made by the Board, justifying her decision on section 7(1) of the EPZ Act. The recommendations of the Board were mandatory. They were intended to be so, under the State Corporations Act and the Mwongozo Code. They overrode any objections a Cabinet Secretary could harbour, on the appointment of State corporations CEOs. In light of the State Corporations Act and the Code on appointment of CEO, the Cabinet Secretary had to act on the recommendation of the Board, and appoint.

  1. On the second question on whether one can act as a Chief Executive Officer for more than 30 days, the Court upheld Section 34(3) of the Public Service Commission Act, No 10 of 2017 (PSC Act) which placed a minimum period in an acting capacity at 30 days and the ceiling at 6 months. The Court in addressing the extension of the 4thRespondent’s acting role as the CEO held that such a move was expressly in contravention of that law and therefore void ab initio. The Court also addressed its mind to the provisions of section 34(5) (b) of the PSC Act which stated that an acting appointment should not be made to undermine the expeditious appointment or deployment of a competent person to the public office concerned. The prolonged extension of the 4th Respondent’s acting role seemed to have been made to undermine the appointment of a substantive CEO. It was illegal and void.
  2. The third issue raises the question on whether the Code of Governance for State Corporations (MwongozoCode) was a legally binding instrument in State Corporations governance. The Court held that the primary Act, on establishment and governance of State Corporations, was the State Corporations Act. The primary instrument on governance of State Corporations was the Code of Governance for State Corporations (Mwongozo Code) which aligned the governance of State corporations to the Constitution.

The Court further upheld the position of several courts that found the Mwongozo Code to apply in State Corporations governance and had held that that code has gained the force of law. Its application had been upheld in decisions of several courts. Consequently, the President issued Executive Order No 7 of 2015 for the implementation of the Code. It has been argued that the Code has a statutory underpinning in section 3 of the State Corporations Act, which mandated the President to formulate regulations to streamline governance in State Corporations.

  1. On the last question on whether Cabinet Secretaries can audit the process of the recruitment of a Cabinet Secretary, the Court held that the Cabinet Secretary went way out of line, in commissioning an audit of the recruitment process. The Court stated that there is no law authorizing Cabinet Secretaries to audit State Corporations. The Court went ahead to address the provisions of section 18 of the State Corporations Act that created the office of the Inspector-General, who could conduct special investigations of any State Corporation, on request of the State Corporations Advisory Committee or the Controller of Budget and/or Auditor-General. It is important therefore to state that in cases where a Cabinet Secretary finds it necessary to audit the recruitment process of a CEO, they ought to do so through the State Corporations Advisory Committee or the Inspector- General of Police.

In furtherance of the involvement of relevant ministries in the governance of State Corporations, the State Corporations Act, the EPZ Act and the Mwongozo Code provides for inclusion of the Principal Secretaries in the boards of State Corporations. Any reservations on the process of the recruitment of the Chief Executive Officers from the ministry ought to be expressed in that meeting, through the ministry’s representative.

The Court went ahead to elucidate that Cabinet secretaries needed to move away from assumption that State Corporations were departments within their ministries. Further, it is important to note that the State Corporations Act and the Mwongozo Code recognizes that there is corporate autonomy in State corporations, which intends to develop State corporations into more serviceable public corporation devices. This autonomy is exercisable through the Boards and Cabinet Secretaries should not encroach on that autonomy.

D. Conclusions

In a nutshell, the judgment of the Court in this matter brought clarity to the management and governance of State Corporations and the roles of different stakeholders including that of the Cabinet Secretaries and the Boards of the State Corporation. Therefore, the court held as follows-

  1. The Role of the Cabinet Secretary in the recruitment of CEOs for State Corporations is to confirm the appointment made by the Board, without any further reservations or question.
  2. A Chief Executive Officer cannot be in that position in an acting capacity for more than 60 days.
  3. The code of the governance for the State Corporations extends to the Mwongozo Code which has gained significant acceptance in Courts and through Presidential directive.
  4. The Cabinet Secretaries have no mandate or role whatsoever in the scrutiny of the processes undertaken by the Board of a State Corporation. The law has established agencies with such roles, including the Auditor-General, the Controller of Budget, the Inspector General of Police and the Ethics and Anti- Corruption Commission.
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