CMA to vet company directors in fresh war against theft, fraud

Top corporate executives and board members of Nairobi Securities Exchange-listed companies will face a new layer of vetting if a proposed set of corporate governance rules meant to rein in rogue managers and stem mounting cases of financial scandals becomes law.

The new rules give the Capital Markets Authority (CMA) far-reaching powers to vet the appointment of chief executives, chief finance officers and directors who serve in the audit committees of public listed companies.

The CMA said the rules aim to strengthen the overall environment for accountability to shield investors from the risk of incurring heavy losses through insider crimes such as fraud.

“In order to strengthen the overall environment for accountability and governance, the authority is in the process of seeking to broaden its oversight mandate to extend to vetting of specific directors of listed companies,” the CMA said in a statement.

The new rules are contained in proposed amendments to the corporate governance code.

The CMA said the new rules will apply to both serving and incoming executives, setting up public companies for a ‘radical surgery’ on the scale Kenyans have recently seen with the vetting of judges and senior police officers.

“The proposed rules are currently with the National Treasury for consideration,” the capital markets regulator said.

The CMA, whose acting chief executive is Paul Muthaura, said it is also waiting for Treasury secretary Henry Rotich to gazette new regulations on business governance developed in 2014 dubbed ‘Code of Corporate Governance Practices.’

Rogue executives

The CMA, unlike the Central Bank of Kenya (CBK), currently has no say on the hiring and firing of directors and senior executives of companies listed on the Nairobi bourse, a situation that is partly attributed to the hiring of some rogue executives to lead public companies.   

The CBK, which regulates the financial services sector, thoroughly vets nominees to boards of directors and senior management of all banks, including chief executives, before they are formally appointed.

“At the moment appointment of directors and senior management of listed companies is not subject to the Authority’s approval only what is required is public disclosure of the same given its classification as material information,” the CMA said.

The CMA’s belated attempt to tame rogue executives comes amid a growing list of listed company managers accused of committing white-collar crimes such as asset misappropriation, tendering fraud, bribery and corruption, money laundering, tax fraud, and anti-trust law infringement.

In all these cases, shareholders were left helpless as the CMA lacked teeth to force out and prosecute the executives.

The list of executives caught up in a web of financial impropriety includes former Uchumi boss Jonathan Ciano and his chief finance officer Chadwick Omondi Okumu who are alleged to have manipulated books of accounts to the tune of Sh1.04 billion at the listed retailer.

Mr Ciano was also one of the biggest suppliers of fresh produce to Uchumi, according to a forensic audit by KPMG. He has since quit his position as chairman of the ICPAK disciplinary committee and resigned from the boards of BAT Kenya and the NSE.

READ: ICPAK to act on Ciano only after Uchumi adopts forensic report

ALSO READ: Former Uchumi boss resigns from BAT board

Ex-Mumias Sugar CEO Peter Kebati alongside finance director Chris Chepkoit were fired in June 2014 amid allegations of running a systematic illegal sugar import racket that brought the company to its knees.

READ: How Mumias Sugar bosses brought firm to its knees

Dawood Rawat, the single-largest shareholder and a director at financial services firm Britam, also found himself in trouble after the government of Mauritius seized his entire stake in the Kenyan firm over claims that he perpetrated a $693 million (Sh70.4 billion) Ponzi scheme in the Indian Ocean nation.

Mr Rawat was forced to resign from the Britam board, where he owned a 23 per cent stake through his investment vehicle British-American (Kenya) Holdings Limited (BAKHL).

The scandal forced Britam’s board — chaired by former head of civil service Francis Muthaura — to remove the veto powers earlier held by Mr Rawat.

READ: Britam stock hit hard by Mauritian ex-director’s fall

The Kenyan firm deleted from its articles of association the segments that gave the Mauritian a veto power over the appointment of Britam’s CEO and finance director.

Corporate attorneys welcomed the proposed governance rules saying they will be in line with the newly enacted Companies Act (2015) that has stiff penalties for directors who subvert company activities. 

Company directors who accept bribes to sway decisions, or fail to declare interest in existing transactions and tenders, or run a slush fund for their benefits now face a Sh1 million fine if found guilty, said Sammy Ndolo, a partner at law firm Hamilton Harrison & Mathews.

Former CMA chairman Kung’u Gatabaki welcomed the fresh attempts by the regulator to strengthen governance, saying he was kicked out for being too enthusiastic to have corporate governance rules enforced.

“This is nothing new. This is something I was advancing but the buccaneers fought me,” said Mr Gatabaki in an interview.

“To make Nairobi an international financial centre, appointment of directors to listed companies has to be scrutinised to ensure they are not tainted.”

It was during Mr Gatabaki’s tenure at the head of the capital markets regulator that the CMA banned seven executives of troubled auto dealer CMC Motors from serving on other boards for running a secret account held in the island of Jersey.

The Jersey account is said to have received commissions totalling £8.6 million (Sh1.2 billion) between 1977 and October 2013.

Those disqualified from appointment as directors of other listed companies included Martin Forster (CEO), Sobakchand Shah (finance director) and the non-executive directors, Charles Njonjo, Jeremiah Kiereini, Richard Kemoli and Andrew Hamilton.