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Economy

More than half of directors face exit in parastatal reforms

   Mr Abdikadir Mohammed, the chairman of the State House-based taskforce on parastatal reforms. The team has set high academic qualifications for CEOs and directors of State corporations in its report. FILE
Mr Abdikadir Mohammed, the chairman of the State House-based taskforce on parastatal reforms. The team has set high academic qualifications for CEOs and directors of State corporations in its report. FILE 

The taskforce on parastatal reforms has set new standards for directorship in State-owned firms that if adopted will oust more than half of the current board chairs and terminate the services of up to one third of directors.

The State House-based team has proposed that all chairmen of State corporation boards must have at least a master’s degree and up to 10 years’ experience in a relevant field, applying academic qualifications on directorships for the very first time.

If President Uhuru Kenyatta implements the taskforce’s proposals, all chairmen of state corporations will also be required to have served a minimum term of five years in senior management, setting up three pillars of qualification that more than half of the current occupants of the coveted seats are unlikely to meet.

Kenya Power, GDC and CCK top the list of boards that may be affected by the new requirements.

One will need a Bachelor’s degree, be a member of a professional body and have served in a senior management position for a minimum of six years to serve as a non-executive director in a state firm.

Chief executives of state-owned firms will also require a Master’s degree to remain in office, be a member of a professional body, have 10 years’ experience in a relevant field and minimum of five years in senior management.

The proposals further bar any person who has worked with a state corporation in the past five years from sitting on its board. 

“There is no single generic legislation that governs the recruitment and appointment procedures and processes leading to conflicting provisions and lack of clarity, which undermines the operational effectiveness of government-owned entities (GOE),” the report.

This, it says, has opened the space for political and self-interested meddling in the appointment and recruitment of boards and executives, culminating to a serious lack of the necessary mix of skills and talent on the boards.

Some analysts described the proposed changes as long overdue, saying lack of professionalism is among the key reasons many state-owned firms have underperformed.

“Any reform measures that are meant to professionalise the operation of these bodies are welcome and long overdue. It is important to have the right people in key positions before we can realistically demand productivity,” said Joseph Kieyah, a principal analyst at Kenya Institute for Public Policy Research and Analysis (KIPPRA).

The taskforce’s report not only highlights the rudderless manner in which parastatals are run but also notes that good corporate governance practices are the first step towards salvaging the agencies some of which are “shells of their former selves.”

Successive regimes have exploited the legal gap in the hiring of parastatal executives and staff to appoint cronies and politically correct individuals irrespective of their academic qualifications, experience and suitability for the job.

As the law stands, the President or Cabinet secretaries enjoy sweeping powers over the appointment of directors and top executives of state firms.

Intense lobbying for these positions is the reason key institutions such as the National Hospital Insurance Fund (NHIF) have had an abnormally high turnover of top management.

“The appointment to boards of public enterprises is largely a political process that calls for intense lobbying for consideration,” said Kenya Institute of Management (KIM) chief executive David Muturi.

“Just before elections happen, incumbent regimes make last-minute appointments that are politically motivated, a case of clearing up appointment backlogs or both.”

In the run-up to this year’s General Election, for instance, ministers appointed nearly 70 directors to more than 15 companies in just one month.

The list of affected firms included the Communications Commission of Kenya (CCK), East Africa Portland Cement Company (EAPCC), Kenyatta National Hospital (KNH) and NHIF.

Besides raising the education bar for those interested in parastatal jobs, the taskforce also wants term limits imposed on board members.

The taskforce has set a two-term limit of three years each for board chairmen and members. CEOs of state corporations will have a four-year contract renewable once.

If adopted the taskforce’s recommendations could result in immediate ouster of a large number of directors from the boardrooms.

The report says that board chairmen and members who are serving the first and second terms may be allowed to complete their terms of service subject to meeting the minimum criteria for appointment.

But those who have served more than two terms in accordance with the new rules should “be terminated in line with the policy recommendation to limit the term of service of members to a maximum of two.”

A random sample of parastatals shows that a number of long-serving personalities in state firms such as Fidesius Nyaga, who has been a director with Kenya Power since 1997 (16 years), will have to go.

At KenGen, Henry M’Narobi and Hedrick Omanwa could similarly lose their jobs having sat on the power producer’s board for seven years each.

The taskforce further proposes that a new body to be called Government Investment Corporation (GIC) take over the responsibility of hiring board members competitively and openly.

This would deal yet another blow to Cabinet secretaries who have historically enjoyed, and more often than not misused, the privilege.

It is proposed that the GIC, whose chairman and CEO will be presidential appointees, have a board of seven to nine members. The size of state corporation boardrooms will be limited to the same range.

The taskforce further cites the absence of a clear and uniform remuneration policy across parastatals noting that the boards of governors, in consultation with the parent ministries and the State Corporations Advisory Committee have set inconsistent salaries and pay increment for executives and senior staff.

These inconsistencies have been blamed for causing discontent among workers besides increasing the government’s ballooning wage bill.

“The remuneration of executives and senior staff is highly inconsistent, with no clear reason why in some entities they are remunerated at significantly higher levels than others,” the report says.

“Such disparities must be ironed out by the proposed bodies such as GIC and National and County Agencies Oversight Office in consultations with the Salaries and Remuneration Commission.”

Of the 188 state corporations that responded to the taskforce’s queries, 92 paid salaries from internally generated funds while 96 depended on the Treasury. Of the total Sh131.2 billion wage bill, the government picked the tab on 46 per cent or Sh60.3 billion.

In addition the wage bill, the government has been forced to come to the rescue of parastatals that are still in operation despite incurring losses in successive years.

The report also calls for the reorganisation of parastatals according to their specific types of duties, merging those with overlapping duties as well as scrapping others altogether.

This has caused discomfort among the thousands of state corporation workers who fear loss of jobs in the new dispensation.

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