Being a company director is hard. Scratch that. Being a company director in Kenya, is extremely hard. And nothing brought that point painfully home more so than the press release issued by the Director of Criminal Investigation George Kinoti a week ago.
In the document dated February 28, 2019, the director released the names of 107 companies and their directors, on the premise that “the underlisted companies and their directors are believed to be connected with or have information which will assist in ongoing investigations into fraudulent [sic] construction of Arror and Kimwarer multipurpose dams valued at Sh63 billion…”
Both mainstream and social media took to the list with much glee, as the list of directors read like a who’s who in the Kenyan corporate scene. Criminal culpability was being imputed for executive actions taken in what seems to be the extraordinary course of business. Note my use of the word “executive”.
While the story is still being unravelled, what is slowly coming out is that goods and services were procured in the name of the construction of the dams. The said goods and services were provided by companies who had executive officers that execute decisions and boards that provide oversight and accountability for the acts or omissions of those executives.
The accounting officer in a company is the chief executive officer. He or she is responsible for all the decisions and actions that the company undertakes. However, the board is ultimately accountable for those decisions and actions. Since the board is not involved in the day to day actions and are meeting on a minimum of a quarterly basis, it is not unfair to assume that they are in the dark about what cheques are being signed by the management accountant in finance at 3pm this afternoon.
Controls
Boards rely heavily on management to follow approved policies and procedures, the internal auditor to provide real time assurance of controls and the annual external audit process to verify that the business is under overall effective control. Failure of the board to provide effective oversight is supposed to be met with retribution from shareholders whose interests the board represents.
But this is where it gets interesting. Enter the stage the Director of Criminal Investigations. In the same press release, he continues to aver that the companies and directors were “..paid to offer various services. They should avail the following documents (i) quotations (ii) invoices (iii) delivery notes amongst other relevant documents.” It goes without saying that feverish phone calls were quickly made by directors to CEOs asking them - with varying degrees of consternation – what the heck was going on and what documents are these that were being referred to? Board directors wouldn’t have the first clue where to find these documents, but management should and would. Which then begs the question why the director didn’t just address his press release to the companies and their CEOs?
A strong message was being sent in that press release. The social capital card was in play, you know, the one that relies on embarrassment and peer pressure to yield up results.
It would be a herculean task to directly link a non-executive director to the provision of goods and services of a company unless they signed the invoice in their own blood.
Resignation
But dragging their names in public would mean that they could likely sing like proverbial canaries if required or they would help to apply the necessary pressure on recalcitrant management to produce what was needed. ASAP. Sadly, the names of directors included a number who had resigned from those companies years ago, thus whose names were unnecessarily being published.
One critical lesson here is that anyone who resigns from a director role must ensure that not only is that resignation accepted and acknowledged, but that the company secretary on record files and updates the company’s records at the Companies Registry. There is a dangerous precedent being set here in dragging non-executive directors from the board room and into the fifth floor accountant’s office.
Board room conversations in this country will now have to have an operational risk agenda item: who are we doing business with and what kind of trouble can it bring us? Banks have already been forced to do it with the anti-money laundering breaches and prohibitive regulatory fines following the National Youth Service corruption investigations last year. I guess even tile and towel importers will now have to do the same.
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Note: The results are not exact but very close to the actual.
