Habida joined the board of the Burnley Policy Institute (BPI) as an independent non-executive director. BPI, a non-governmental organisation, was created to provide well-funded academic research in agricultural best practices to influence government agricultural policy.
Habida was asked to join the audit committee of the board due to her accounting background. At one of the committee meetings she attended, Anthony, the BPI finance manager, tabled the quarterly accounts and Habida noted that the US dollar current account was sitting flush with cash.
"Why don't we place these funds into a fixed deposit instead of letting them lie idle in the current account?" she posed to Anthony. Anthony didn't miss a heartbeat: "These are funds that we received from a donor and our donors are very strict that their funds need to be utilised strictly for programmatic activities and not to be placed in deposits to earn interest."
Habida was taken aback at the missed opportunity to leverage on sweating a liquid asset, but understood that a donor-funded organisation like BPI had to abide by the rules set by those who gave it critical funding.
Two quarterly meetings later, Anthony tabled the accounts and Habida noted that there was significant growth in the "interest earned" section of the income statement. As the discussion on the accounts wore on, she asked Anthony why this line item had grown. Anthony, always quick on the take, didn't miss a heartbeat: "That is interest earned from some deposits that we placed at XYZ Bank."
Habida quickly glanced at Mary, the chair of the audit committee. Mary didn't notice that Habida was nonplussed at Anthony's response and waved at him to continue his presentation. "I'm sorry Mary, but I am a little confused," Habida interjected. "A few months ago, Anthony here said that donors do not allow us to place funds in fixed deposits as we are supposed to put their funds into programmatic activities. So what is the source of these deposits at XYZ Bank since all our revenue is donor-sourced?" This time, Anthony missed several heartbeats. Eventually he managed to croak out a fairly lame explanation about how the source of these deposits was from a donor that had not placed any restrictions.
But Habida smelled blood in the water and followed through on her piranha instincts, asking Anthony what the deposit placement policy was, who approved which banks the deposits would be placed in and what were the actual interest rates paid.
Mary, noting Anthony's obvious discomfort, turned to Angela, BPI's executive director, who had been quietly observing the heated exchange. Angela sighed loudly and leaned back on her chair. "Honestly, I don't understand accounting and, quite frankly, I have never understood what Anthony does so I just leave him alone."
Habida took note of Angela's laissez faire attitude and made a mental note to have a private word with Mary, the audit committee chair as well as the chairman of the board later. She worried about the inconsistencies in Anthony's answers which, in her experience, spoke to the possibility that Anthony may have been placing the institution's funds in banks that were willing to "reward" him for such placements and these were not necessarily the most stable of financial institutions.
A few months later, Habida resigned from the BPI board when it became apparent that there was no clear direction from the board chair as to how to handle a potential financial scandal in the making, in an institution where the chief executive had no qualms announcing to her head of finance that her ignorance of his work meant that she was happy to leave him alone.
This is a one hundred percent true story that happened here in Kenya, and one I have used several times when I am teaching corporate governance to directors. I use this story in the context of when should someone leave a board that they are sitting on? This story usually generates heated debate, as some students feel that Habida should have stayed on to try and fix the problem while others feel that the problem is insurmountable and Habida made the right decision to leave.
As some pescatarian wonk once quoted, a fish rots from the head. The lack of a sense of urgency by the executive director to deal with a potentially rogue finance manager together with the board chair's relaxed attitude about the executive director's capacity to manage the finance manager made Habida extremely nervous and she worried about her own reputation as a director.
About a year after Habida's resignation from the board, Angela was forced to resign when a senior member of her team executed a bloodless coup after leading two staff strikes protesting against her incompetence. And BPI lived happily ever after. I think.
