End of an era as regulator ejects veteran directors

Former attorney- general Charles Njonjo, former head of civil service Jeremiah Kiereini and business magnate Richard Kemoli have strutted Kenya’s corridors of power for decades.

Last Friday marked a sudden end to their domineering boadroom presence-- at least in publicly listed companies.

Faced with allegations of fraudulent transfer of funds belonging to motor vehicle dealing company, CMC Holdings-- where all the three were directors-- the Capital Markets Authority (CMA) decided to ban them from sitting on any board of a listed firm.

“The CMC case is an exhibit of an appalling failure of corporate governance.

The board slept on their job and abdicated their fiduciary duties to the company and shareholders to the group managing director.

The result as evidenced from accumulated provision from bad debts in the sum of Sh1.4 billion as at September 30 2011 was a foreseeable quick march to financial status my lips tremble to mention,” said CMA chairman Kung’u Gatabaki on Friday.

He was echoing Justice (Rtd) Aaron Ringera, who was appointed chair of an ad hoc committee that evaluated alleged irregularities at the motor dealing firm.

In total, seven directors were included in the CMA ban.

They included former executive directors of CMC Martin Forster and Sobakchand Shah and non-executive directors Peter Muthoka and Andrew Hamilton.

Mr Gatabaki said the market regulator has written to all firms where the seven are serving as directors asking them to drop them from their boards.
“CMA has written to all companies where any of the seven sit demanding their resignation as directors from the boards,” said Mr Gatabaki, adding “We have banned all the seven from sitting on any board in future.”

Mr Kiereini, Mr Njonjo and Mr Kemoli are immensely wealthy individuals whose business interests span across several sectors and are believed to wield strong influence on the boards where they sit or are represented.

The three also had strong links with past governments, associations that may have propelled them to the top echelons of the corporate circles.

Mr Kemoli, who is either serving or has been a director in nine listed companies, could be the most exposed of the three since he is now required to vacate his position as non-executive director at cement manufacturer Bamburi, Unga Group, East African Breweries Limited and agricultural firm Kakuzi.

Mr Kemoli, 76, has in the past chaired the board at Housing Finance before he was ejected in a boardroom coup two years ago.

He is the current chairman of the board of directors at Lafarge Bamburi and Unga Group.

He has also sat on the internet service provider AccessKenya’s board.

Mr Kiereini, 82, has also held directorships in at least six listed companies including EABL, CFC Stanbic Holdings, CFC Stanbic Bank, Unga Group and CFC Insurance- where he is still a director.

 Mr Njonjo has in the past sat on the boards of directors of Heritage Insurance and CFC Life, before they were merged to form CFC Insurance Holdings- where he resigned as director this year.

Asked why the CMA spared current CMC Holdings managing director Bill Lay, who was accused in one of the investigative reports of having signed an exploitative sales agency contract that saw the company lose millions of shillings, Mr Gatabaki said the issue “was still under investigation.”

Mr Muthoka, who was ousted as chairman of the company in a boardroom coup, has been accused of having profited from trading with CMC, but has contested the charge saying his contract with the firm was approved by the board.

Joel Kibe, the current chairman, termed the ban as the biggest move taken by the CMA ever.

“That is the best thing that has happened in the corporate world since such fraudulent actions have eroded investor confidence at the NSE,” said Mr Kibe, who has been involved in a long-running battle for control of the auto dealer with Mr Muthoka.

 Mr Gatabaki said ban, which takes effect immediately, was executed after three different investigations found the board members to have been implicated in fraud, directly or otherwise, which has cost the auto dealer billions of shillings.

Reports by audit firm PricewaterhouseCoopers, Webber Wentzel and the ad hoc committee led by Mr Ringera found the directors to have failed in protecting the company interests, and did nothing to intervene even when it was ‘obvious the management was running down the company’.

CMA now plans to invoke clauses that allow for the restitution of the company’s funds that were found to have been hidden in foreign accounts plus interest, estimated at between double or triple the original amounts.

Andy Forwarders, owned by Mr Muthoka, could also be required to repay any amounts it may have overcharged CMC in the period when it had been contracted to provide clearing and transport services for the auto dealer.

Mr Gatabaki says that investigations are ongoing to determine whether the current management at CMC led byMr Lay may have broken any regulations by contracting Pewin Motors as an agent for selling its cars.

CMA did not disclose when it intends to lift the suspension slapped on the auto dealer’s shares from trading at the NSE, citing that retail investors were likely to suffer heavy losses should they be readmitted while investigations are incomplete.
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