CMA must crack the whip on errant firms

A disclosure that more than a dozen listed companies at the Nairobi Securities Exchange (NSE) do not comply with corporate governance guidelines, is both shocking and also telling of the rot in Kenya’s corporate space.

The fact that directors at both Cooper Motors Corporation (CMC) and East Africa Portland Cement Company (EAPCC) were allowed to squabble and disrupt operations at their respective firms, is also a pointer to what poor corporate governance structures that exist.

For instance, why would a director of a company that supplies CMC also sit on the motor dealer’s board, creating conflict of interest issues? Why would directors of a cement firm elect a board chairman and chief executive only for this selection to be overruled by the Government, also a principal shareholder?

Apart from CMC and EAPCC, there are a number of listed firms with no proper board of directors or not even have a proper mix.

Part of this problem stems from the fact that shareholders rarely interrogate directors elected during annual general meetings, actively participate in the proceedings or even have veto powers.

enrich themselves

Latest reports by the CMA shows that a number of companies do not meet all or part of the guidelines on corporate governance. Some seventeen chief finance officers of NSE listed firms are not in good standing with the Institute of Certified Public Accountants of Kenya (ICPAK).

As at June 2011, there were 55 listed companies at the NSE. Out of these, eight company secretaries were in ‘bad records’ with ICPAK.

Given what has happened at CMC, Marshalls East Africa or even EAPCC, it is clear that retail investors and well as minority shareholders rarely have their interests protected. Instead, directors act to enrich themselves, including forming their own firms and then bidding for business in a process that they have influence or control.

While in most AGMs it is the chief executive who runs the show, there are those firms where the board chairman enjoys some executive power, creating possible conflict areas between the board and management.

In other instances, the board is a mere rubber stamp with no oversight authority over a firm’s management.

It is also no clear who is qualified to sit on the board, their qualifications and even suitability for the positions they occupy.

While companies are embracing technology and new ways of doing business, directors are in the 60s and out of sync with modern skills and latest trends in business.

It is rare for shareholders to get rid of a director, leave alone question their contributions or the huge salaries most of them enjoy. Most of these directors belong to the old school and therefore find it a different ball game to be open and transparent.

In the 2010/2011 financial year, CMA states that 16 companies failed to disclose statement on corporate social responsibility in their annual reports while six firms did not release details of the top ten shareholders in their annual reports. A similar number of companies don’t have sufficient board composition.

We urge CMA to crack the whip and name those listed firms doing badly in corporate governance before they go the CMC way.

A case of boardroom wrangles within CMC and other listed companies is a wakeup call for CMA to increase its market surveillance.

This is to prevent cases where directors engage in selfish interest to the detriment of minority shareholders.

We urge CMA to draw up new corporate governance guidelines to reflect modern business trends and challenges.

Further, an outdated Companies Act that has been in existence for years, should also be altered.

misuse of position

In the ensuing changes, at least a third of board members of listed firms should be independent, meaning that among other things, these directors cannot will not have any business relationships or been employed by the company in the preceding five years.

No directors at CMC, Marshalls or even cement maker EAPCC have been prosecuted for disrupting operations at their respective firms.

There is need to rein in errant directors who misuse their positions to steal.

While the CMC house has been burning, the market regulator is all the while watching from the sidelines with no legal powers to intervene