State officers test law with seats on private firm boards

At least four State officers are sitting on the boards of Nairobi Securities Exchange (NSE)-listed companies in breach of the constitutional provision barring them from participating in any other gainful employment.

The number of such officers dabbling in corporate governance assignments has risen in the past year as Kenyan companies stepped up their hiring of high-profile directors hoping to ride on their influence to navigate regulatory and operational challenges.

Investment firm Britam tops the list of companies that have packed their boardrooms with influential personalities after it hired former head of civil service and Secretary to the Cabinet Francis Muthaura last week.

Mr Muthaura — who has served in all post-independence governments except the current one — joins the Controller of Budget Agnes Odhiambo and Transport Principal Secretary Nduva Muli on the Britam board.

The list of high-profile public officials sitting on the boards of private companies includes Public Service Commission chairperson Margaret Kobia who was tapped to the Sameer Africa board early this month, the chairperson of Salaries and Remuneration Commission Sarah Serem who sits on the Mumias Sugar board and the general manager of Export Promotion Council (EPC) Lucy Waithaka who chairs Eveready East Africa and sits on the board of Sasini.

READ: Sameer appoints public service head to its board

Also in the race for highly connected directors are Seven Seas Technology, which has tapped former Solicitor-General Wanjuki Muchemi to chair its board, Athi River Mining and Liberty Holdings that have former Capital Markets Authority chief executive Stella Kilonzo on their boards.

But the appointment of serving state officers to the boards of private corporations has raised concern over high-level exposure to conflict of interest and influence peddling that come with the directorships.

The appointment of state officers to the boards of non-state firms has particularly turned the spot-light on the Ethics and Anti-Corruption Commission (EACC) – the agency charged with ensuring that public officers live within the constitutional demands on integrity. 

Article 77 of the Constitution bars full-time State officers from participating in any other gainful employment.

Though some of the State officers sitting in private company boards have argued that the threshold for taking up such an appointment is the presence of the risk conflict of interest, Mumo Matemu who chairs the anti-corruption agency was categorical that the appointments are in breach of the Constitution.

“The Constitution is clear that state officers cannot participate in any other gainful employment. Those breaching the law risk losing their positions among other remedial actions,” Mr Matemu said.

His position was supported by Kamotho Waiganjo, who serves in the Commission for the Implementation of the Constitution (CIC).

“The law is clear that all state officers, including independent office holders and members of constitutional commissions, cannot take up any other gainful employment,” said Mr Waiganjo.

Directors of private companies earn millions of shillings in board emoluments, amounting to gainful employment.  

The law on leadership and integrity defines gainful employment as one where ‘compensation is for work and that can lead to conflict of interest or impairment of the state officers’ judgement in their public duties.’

This suggests that Mrs Odhiambo, Ms Serem, Prof Kobia and Mr Muli — whose positions fall within the definition of State officers — are in breach of the law by continuing to serve in company board.

Britam has in the past defended Mrs Odhiambo’s presence on its board on grounds that it sought and got the approval of the then head of civil service Francis Kimemia before appointing her last year.

But on Thursday, the company’s chief executive Benson Wairegi said he expects the board members such as Mr Muli - who was recently appointed PS - to seek direction from EACC which shall determine whether they can continue holding the directorships.

Constitutional lawyers, however, argued that Mrs Odhiambo’s is an independent office in which Mr Kimemia had no authority to offer any direction. Besides, the Constitution does not stipulate any exemptions to the rule barring state officers from participating in any other gainful employment.

Mr Waiganjo said only government employees not defined as state officers can legally serve as directors of private companies, as long as the appointments do not impede their work or lead to conflict of interest.

All public servants are required to declare significant conflicts of interest and the extent of such conflict, including offers of future employment in their daily operations.

State officers acting in breach of this requirement or those using their offices to serve the interest of other parties to the detriment of the State are liable to a jail term of up to five years or fines running into millions of shillings.

The Capital Markets Authority (CMA) said it had little say on state officers joining boardrooms of private companies or parastatals.

“We are telling such individuals to search their conscience and if they feel it is all right then they can proceed to take up the directorships,” said Kung’u Gatabaki, the CMA chairman.

Corporate governance experts see the appointment of current and former government functionaries to boards of private corporations as a reflection of their quest to win a larger share of state contracts.

The government is the single biggest consumer of goods and services in the economy, placing a premium on deep networks within officialdom.

Job Kihumba, a corporate governance expert, however, reckoned that there was nothing wrong with the appointment of influential people to the boards of private companies because they add value to the quality of governance. 

“It is not illegal for companies to seek a head-start in government deals through the appointment of people who are well versed with the system,” said Mr Kihumba even as he acknowledged that such networks have been abused in the past.

Mr Kihumba said abuse of position and influence peddling were more widespread in the era of opacity in the award of state tenders but increased transparency in government is helping to level the playing field.

But Mr Kihumba, who has served as the chief executive of the Nairobi Securities Exchange, warned those taking up directorships in private companies while still in public office that they are exposing themselves to perception of inappropriate behaviour.

In the event that the company on whose board such a person serves as a director wins a government contract, he said, it would be difficult to fight claims of undue influence.

Britam said it expects to benefit from Mr Muthaura’s skills built over decades in public service as it continues to rollout new products and expand beyond the Kenyan borders.

“His appointment is an impetus to Britam’s business strategy on the backdrop of an ambitious regional growth strategy with some of the key planks in its trajectory being growth of the product portfolio of the insurance and asset management businesses,” Britam said in a statement.

Mr Muthaura wields substantial influence in Kenya and East Africa, having held senior government and diplomatic positions in a high-profile public career that started in 1973.

He is close to retired presidents Daniel arap Moi and Mwai Kibaki, who recalled him back to public service in 2003.His son Paul Muthaura is currently the acting chief executive of the CMA.

The appointment of Mrs Kilonzo is seen as part of a global trend in which listed public companies hire former regulators to help them navigate the ever complex legal and regulatory landscape.

Hiring of former regulators has drawn criticism in the United States where it is seen as an attempt by corporations to short-circuit the tight regulations enacted in the wake of the 2008 global financial crisis that was partly blamed on poor corporate governance.

The recent trend of appointing former and serving state officers to the boards of private firms is also seen as signalling the search for a new crop of power brokers after the exit of high-profile businessmen, some of whom started their careers in government.

Former Attorney-General Charles Njonjo and businessman Richard Kemoli have in the past one year resigned from the boards of several publicly traded companies, a move that has been linked to their disqualification by CMA over corporate governance lapses at CMC Holdings where they served as directors.

The two held multiple directorships and, alongside Jeremiah Kiereini, had the longest boardroom careers dating back to 1980s.

Mr Kiereini, a former head of civil service, is expected to jumpstart his boardroom career after the court overturned CMA’s ban on his directorship on Thursday.

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