CMC saga: It’s necessary to protect the rights of minority shareholders

I am not much of an authority on company law. What I know about the subject of corporate governance is stuff I have read in journals and books.

In the corporate sector of the developed West, one of the most debated subjects today is the power of the shareholder and the rise of corporate democracy.

Shareholder activism is at an all-time high and company directors are facing intense pressure from owners not only to account for their decisions, but to practise the highest standards of disclosure.

I have particularly enjoyed the “say on pay” crusade. More and more, shareholders are beginning to demand restraint on executive pay.

As a consequence, regulators are being forced to modernise their rules and regulations, not only to give shareholders a stronger voice in companies, but also to protect the interests of minority shareholders.

Just how much voice does the minority shareholder in a listed company have? A comprehensive answer is not possible in this column.

But the on-going saga surrounding the Cooper Motors Corporation (CMC) is a good entry point into the discussion.

Viewed critically, the CMC affair is not just about which of the squabbling directors is right or wrong. Indeed, if you approach the matter as if all that is at stake is how to apportion blame between Mr Peter Muthoka on the one hand, and Mr Joel Kibe and Mr Paul Ndung’u on the other, you risk glossing over pertinent policy issues, which the controversy raises.

For me, the real outrage in this saga is the predicament facing minority shareholders of the company ever since the crisis erupted several months ago. Right now, they have no clue what is going on within the company. They have had to satisfy themselves with what they read in the press.

We all know that company law and best practice demand very high standards of transparency and disclosure of all material developments in an enterprise.

The information must be communicated to shareholders who must congregate every year at an annual general meeting.

CMC’s annual meeting has been delayed for several months, with the result that some 14,743 minority shareholders have been kept in the dark about the major changes that have taken place in the company since the last such meeting.

Combined, the stake of the minority shareholders comes to 37 per cent. The rest is in the hands of the top 10 shareholders.
This latter group is the one that has been squabbling incessantly, and several disputes have been lodged in court.

But the minority shareholders have been rendered voiceless — unable to either express themselves on the issues at hand or to exercise their rights as the company’s owners.

Indeed, the CMC saga has been a long tale of intriguing twists and turns. Controversy broke out over the pricing of logistics services by Andy Forwarders.

The long-serving chairman, Mr Jeremiah Kiereini, resigned, while the long-serving CEO, Mr Mark Forster also left. Several directors and top shareholders of the company were forced out of the board.

At one point, the Capital Markets Authority suspended trading in company shares at the Nairobi Stock Exchange.

PriceWaterHouseCoopers was called in to conduct a forensic audit on the transactions between CMC and Andy Forwarders. Muthoka hit back by suing the forensic auditors.

The Capital Markets Authority also called in a South African company, Webber Wentzel to conduct an independent audit on the affairs of the company.

Some of the findings of the South Africans contradicted the findings and conclusions of the forensic audit by PWC.

There were reports that CMC had entered into a lopsided deal in which an agent, Pewin Ltd, was being paid six per cent of all motor vehicle sales to the government.

I could go on and on. The point is that because an annual meeting has not been held, the voice of the minority shareholder on these burning issues has been totally ignored.

First and foremost, shares confer to the owners rights to profits and assets. But they also confer rights to appoint the board and approve major decisions.

In the interest of protecting the interest of minority shareholders, the CMA should now force CMC to hold an annual general meeting.

jkisero@ke.nationmedia.com