Tuesday November 1 2011

The intriguing boardroom battle is power politics; save this motor firm

The boardroom tiff at the jewel in the crown of Kenya’s motor industry, the CMC Group, which is a listed company, is stirring stuff.

Those sensational allegations about the existence of accounts in Jersey where commissions paid by suppliers were stashed away provide good raw material for understanding how the game of supplying popular models of vehicles to the government used to be played by European multinationals.

Indeed, the CMC saga has given us a rare insight into the tactics these European motor vehicle suppliers and their local allies used to employ during the eras of both Jomo Kenyatta and Moi.

In terms of supply of motor vehicles to the government — especially large orders from massive government departments such as the Provincial Administration and the military — CMC Group’s franchises have maintained dominance for many years.

This is the Land Rover, Leyland, and more recently, Volkswagen Passat company. As I follow some of the sensational revelations coming out of the saga, I find myself wondering whether it is a mere coincidence that both the former head of public service, Mr Jeremiah Kiereini, and former Attorney-General Charles Njonjo, ended up as major shareholders of this company?

A former aide of President Moi, Mr Joshua Kulei, was also a major shareholder until recently. He sold his stake to some of the parties involved in the on-going tiff.

The symbiotic relationships between these European multinationals and the oligarchs of the Moi and Kenyatta eras is a story for another day.

What is captivating public opinion right now is the escalation of hostilities between the two sets of large shareholders of the CMC Group. The banality of the rivalry has no parallel in the history of listed companies.

Never before have directors of listed companies seemed so insular, their concerns so far removed from the interests of the thousands of people whose names appear in the shareholding register.

Were CMC a commercial bank, some of the directors would right now be in court facing charges of insider trading, or debarred from being directors of listed companies on the grounds of not having passed the “fit and proper” test.

On the face of it, the dramatis personae will not give you names that immediately ring a bell. Mr Peter Muthoka is a highly successful local businessman. So, are Mr Paul Wanderi Ndung’u and Mr Joe Kamau Kibe.

But in terms of profile, name recognition and reputation, they are still new players in this space and are yet to join the big league of Kenya’s corporate titans.

This is why some commentators quickly dismiss the CMC board-room war as a battle pitting “old money” and the nouveau riche.

But when you get into the gossip, the rumours and conspiracy theories about which of the players in the battle has what political backing, that’s when you realise that the CMC saga is about power politics.

Where does public interest lie in all this? First, we must not allow this sterile war to bring down the firm.

The Marshall Group used to be a big company, operating several franchises and owning a national distributorship and dealership network. It lost its sparkle mainly because of a protracted court battle between its large shareholders.

The dispute between the directors of CMC must be resolved in the interest of all stakeholders. Ordinarily, the majority shareholder should have his way. But all those allegations of impropriety must be independently investigated before any elections are contemplated.

After all, it is the integrity of capital markets which is at stake here. For the capital markets to go to the next level, something will have to be done to restore public trust in the directors of listed companies.

And, we urgently need to strengthen the hands of the Capital Markets Authority. I will not go into the argument about whether the corporate governance guidelines issued by the regulator are enforceable. That’s for the courts to determine.

The CMA must have powers to sanction insider dealings and to bar individuals found to have engaged in malpractices from sitting on boards of listed companies.

The government recently published amendments to the Company Law. Let’s look at these amendments again against the backdrop of the CMC saga.