Central Bank of Kenya (CBK) has given lenders until June to ensure that at least a third of board seats are held by independent directors.
The banking regulator defines an independent director as a board member who is not a direct or indirect representative of the principal shareholders, has not worked in the bank as an executive for the past five years and has not had any business relationships with the institution in the same period.
Housing Finance is one of the banks that have not met the one-third threshold given that its seven-member board only has one director who qualifies as an independent director based on the CBK definition.
The other directors save for the CEO Frank Ireri have been tapped by its principal shareholders including the National Social Security Fund (NSSF), Britam and Equity Bank — whose four directors sit on the board of mortgage firm Housing Finance, which is not a subsidiary of the bank.
“We have started the recruitment of additional non executive directors in line with CBK requirement,” Mr Ireri told the Business Daily Thursday.
Significant suppliers of the lenders or relatives of senior managers and those with a direct or indirect shareholding of more than five per cent in the appointing banks are also not considered independent.
Equity owns 24.9 per cent of Housing Finance while Britam and NSSF control 21.4 per cent and 6.81 per cent of the mortgage firm.
Their representatives have dominated the board of the home loans provider.
Equity directors Peter Munga, David Ansel, Shem Migot-Adholla and Benson Wairegi (the CEO of Britam) sit in the board of Housing Finance.
The NSSF is represented by its chairman, Mr Adan Mohamed. This leaves the firm’s chairperson Steve Mainda as the sole independent director.
This means that Housing Finance will need to recruit two independent directors given that it has opted not to replace some of its board members.
The new regulations on independent directors are aimed at reducing the influence of principal shareholders on the boards as well as safeguard the interests of minority investors whose power in the key decision-making organs has declined.
Majority of directors in corporate Kenya have secured their seats in boardrooms with the help of business associates, personal contacts or friends.
In mid-2007, Equity and British America Investment Company acquired a 24.9 per cent stake from the Commonwealth Development Corporation. They have since bought additional shares, pushing their combined ownership to 46.51 per cent in December.
In 2010, Equity’s quest to tighten grip on the home loans firm sparked a vicious boardroom battle that led to the replacement of two independent directors, Nancy Sabana and Kungu Gatabaki who was later appointed chairman of the Capital Markets Authority.
This was followed with the appointment of Mr Wairegi, Mr Munga and Prof Shem Migot Adhola to the board.
On paper, Equity Bank and Britam exist as different entities, but they are in the grip of personalities who are bound by common business and commercial interests through cross-ownerships.
Mr Munga is the chairman of Equity and key shareholder in Britam, whose managing director, Mr Wairegi, is also a director of Equity and top shareholder in the lender.
Equity CEO James Mwangi is a director and shareholder in Britam along with Mr Munga and Mr Wairegi.
A number of Kenya’s 44 banks will need to reconstitute their boardrooms before June, but Equity and National Bank, which is under tight control of the Treasury and the NSSF, are the only listed banks that will be affected most by independent directors rule.