Rogue directors scare away new investors, report shows

Failure to punish directors who mismanage companies and plunder funds is making Kenya unattractive to investors, a new report says.

The report blames lack of goodwill in the political leadership as one of the reasons for this sad state of affairs.

Voters are also not spared, with a call to lock out people known to have run down both public and private institutions during their tenures.

The report notes that investors in the world over have been closely monitoring the way the country deals with board members who preside over embezzlement of shareholders cash and allow graft to flourish under their watch.

Audit Firm EY, which carried out the study on behalf of the Institute of Directors, Kenya, said the country lacks political goodwill to punish errant directors and set a precedence for future engagement.

EY partner and advisory leader for Africa Celestine Munda, IOD-Kenya Chief Executive Meshack Joram and Strathmore University Law School founding dean Luis Franceschi, called on Kenyans to shun a consistent trend where people who mismanage companies and public agencies are elected to political office.

The trio said Kenya needs to urgently come up with a code of conduct for directors of corporate boards to enhance accountability and transparency.

Ms Munda said weak regulatory agencies that lack the capacity to make follow-ups create a major avenue for graft.

“We must address insecurity, improve infrastructure and condemn poor governance by ensuring regulatory agencies not only have regulations in place, but also monitor and report to Kenyans on actions taken to correct detected anomalies. This is the best way to make the corporate sector vibrant,” she said.

Dr Fransceschi said good governance goes hand in hand with social responsibility, a trend that had received a severe backlash due to corruption.

He said Kenya’s corporate boards must cease being prestigious positions but engage in the serious task of making profits for shareholders and revenues for the country.

“Investors come to do profitable business but having directors who hardly attend meetings and are easily coerced to approve certain investments without close scrutiny has adversely affected the business environment,” he said.

JUDICIOUS MANAGEMENT
Kenya, he added, needs laws that create room for innovation by directors who are prudent in their management style, courageous in decision-making, exercise self-control and are fair in their decisions.

Mr Joram said they had fronted the publication of a Bill that seeks to formally recognise IOD Kenya as the sole regulatory body for directors, saying if approved and signed into law, future directors would first be vetted before being appointed to any board.

“As it is now, the President and his cabinet secretaries solely appoint anybody without giving reasons for the appointment and then proceed to fire them at will. We need a body that adds a voice to directors’ appointments so as to bar people with a bad history in governance from sitting on any future boards,” he said.

IOD-Kenya suggested creation of a one-stop-shop strategy in State agencies where regulatory services have to be sought, saying this would curb graft and reduce delays that create room for the vice to thrive.

Ms Munda said political goodwill could help drive good governance across all sectors — including the county governments — adding that this was the best way to improve livelihoods and create a good business environment for investors.

“At times, you find some board chairmen who are very powerful and they usually arm-twist board members. This is dangerous, as they can easily lead a company to its death-bed.

But with a good code of conduct, board members could raise the alarm and quit to salvage their names since they know in future no one will approve their application to join any board,” she said.

The IOD Kenya study said institutional investors, among them the government, must be actively involved in management issues to stem plunder of funds and curb wastage and pilferage of shareholder investments.

Mr Joram said corporate governance should be introduced in learning institutions as a regular subject to enhance and inculcate integrity issues.