How political and personal interests define boardrooms

For the past two weeks, Kenyans have been treated to a boardroom circus involving directors of the National Hospital Insurance Fund (NHIF) on one side and the government on the other.

The wrangles in the public health insurer are only the latest example of the goings-on in Kenya’s corporate and State corporation boardrooms.

Directors have shown vested interests where there is a lot of money involved and in awarding of contracts and tenders on the boards of companies they sit on.

There are political appointments in State corporations which largely serve the interest of individuals.

And there is the question of who really should appoint directors and what role they play on the boards.

In the recent past, listed companies CMC, a motor dealer, and East Africa Portland Cement, a cement maker, have endured vicious boardroom wars. So have State corporations such as the National Housing Corporation.

Privately held companies such as Tuskys supermarkets and Akamba bus company have not been spared boardroom wars either.

Many experts in corporate governance and individuals who sit on the boards, say there have always been conflicts between directors in most companies.

“Boardroom wrangles are not new. What is new is that most of the drama is now happening in public,” said Mr Job Kihumba, chairman of the Centre for Corporate Governance.

But others have an opposing view stating that the strength of the board is shown in their unity during boardroom conflicts.

“When you have a weak chairman then you will have such issues leaking out,” says Mr Frank Ireri, the chief executive of the Housing Finance Company.

“The board is supposed to take a vote to make a decision and if you have board members still not happy they can take the decision to resign,” he said.

Housing Finance had its share of boardroom wrangles two years ago, which saw the exit of three directors.

Corporate governance

But Mr Ireri says there is a need to educate the boards on their role through corporate governance classes and defining the role they play.

According to Mr Kihumba, lack of a clear definition of the role of directors and the conflict of interest where directors do business with the company or State corporations are the two biggest causes of conflict.

“The major cause of the wrangles is that a lot of directors’ rules are not defined and that the directors act as if they are managing the company,” he said.

In the NHIF case, Prof Richard Muga, who was the chairman, suspended the chief executive, Mr Richard Kerich, over controversy surrounding the award of millions of shillings to health service providers in the planned roll out of a new medical scheme for the civil servants.

But he was overruled by Medical Services minister Anyang Nyong’o, who reinstated the CEO. The circus continued until Prime Minister Raila Odinga finally sent home the entire board last week. President Kibaki then appointed a caretaker board to oversee NHIF affairs.

Overreaching powers

This has brought into question the role directors play in the board. Was the chairman overreaching his powers by suspending the CEO?

“The chairman has no powers to unilaterally suspend the chief executive. It has to be a board decision in as much as the chairman is the first among equals,” said Ms Jacquline Mugo, the executive director of the Federation of Kenya Employers, who until February this year served on the board of NHIF. She has been appointed to the new board.

Ms Mugo said that most conflicts are due to political interference and personal interests in the public health insurer.

She said there is heavy involvement by the government in NHIF affairs which makes it difficult to contain the political interference.

“There is a need to separate the board and the management and bring in good quality,” she said.

For some of Kenya’s large family owned businesses, separating the management and directors is not an easy task.

This is because many of the managers also serve as directors of the companies, which in most cases can lead to conflict of interest and infighting like is the case with Tuskys.

Mr Stephen Mukuha Kamau, the managing director of Tuskys, is the third born of five brothers. The first born, Mr John Kago Kamau, serves as the chairman of the board. There is no external director in the business with all the five brothers sitting on the board.

Four other brothers own a 17.5 per cent stake in Orakam, the holding company of Tusker Mattresses Ltd (Tuskys Supermarkets). Mr Kago and his two sisters hold the remaining 30 per cent stake, shared equally among them.

The siblings have accused Mr Mukuha of mismanaging their company in business dealings between Tuskys and seven suppliers that are either related or personal ventures of the directors of the company. It has resulted to the siblings taking Mr Mukuha to court. (READ: Tuskys probed over Sh1bn deal)

If the largest family owned businesses have the right to keep their dealings secret, Kenya’s publicly listed companies fare even worse.

Some of the directors who sit on the board of publicly listed companies have been accused of a serious conflict of interest by entering business arrangements which serve their own interests instead of putting shareholders interests first.

Took the helm

The case of CMC has been the most publicised in the last one year. The former chairman, Mr Jeremiah Kiereini, was reportedly forced to resign last year by a group of shareholders led by Mr Peter Muthoka, who took the helm. (READ: New report unearths more CMC bosses’ corrupt schemes)

But Mr Muthoka was also ousted last year as chair of CMC after he was accused of breaching corporate governance rules by being head of the auto firm’s boards and a CMC supplier through Andy Forwarders.

He was accused of overbilling the company up to Sh1.5 billion in a period of five years, prompting the capital markets regulator to stop trading in CMC shares at the Nairobi Securities Exchange.

The regulator also ordered a forensic audit into the company’s finances, which was carried out by South Africa’s Weber Wetzel, which prompted CMA to ask the auto dealer to drop its external auditors, Deloitte, and change its boardroom, a move that led to the removal of Mr Muthoka and Mr Joseph Kivai, a co-director in Andy Forwarders.

“If there is a conflict of interest between myself as a director and the interest of the company, the interests of the company should come first,” said Mr Kihumba.

EAPC, a listed cement maker, had its board differ with the government over a kiln upgrade contract worth $45.2 million, which it awarded to South Korean firm, Posco Plantec, ignoring the government’s choice of H Young, which many said was being fronted by well-connected individuals in government.