Inside KPMG dispute that earned ex-boss hefty Sh460m award

On the morning of Monday, October 3, 2016, Mr Richard Ndung’u was in his office at KPMG East Africa’s former office at ABC Place, Westlands, when he was summoned to the CEO’s office.

An allegation had been made against him by an anonymous person that he was having an inappropriate relationship with his personal assistant, the CEO, Josphat Mwaura, told him, according to documents placed before an arbitrator.

ARBITRATOR

“The claimant (Mr Ndung’u) was therefore required to hand over his personal mobile phones and his laptop, which were to be subjected to forensic imaging presumably to determine whether the claimant had been in communication with the subject of the complaint and whether such communication pointed to an inappropriate relationship,” stated the documents.

As head of tax for Kenya and East Africa, Mr Ndung’u was not just an ordinary senior partner. He had been with the global audit firm for 22 years, during which he had served in various positions, including as CEO between 2004 and 2008. Mr Mwaura, who is expected to leave his position by August, took over from Mr Ndung’u.

Mr Ndung’u was recently among the shortlisted candidates for Commissioner-General of Kenya Revenue Authority. As a senior partner, Mr Ndung’u was on a monthly salary of $12,500 (Sh1.3 million).

The encounter with the CEO that day in October 2016 would set in motion a series of events that culminated in his dismissal from the partnership and set the stage for one of the biggest awards to an individual in a labour dispute.

After being removed from the KPMG East Africa partnership, Mr Ndung’u took their dispute before an arbitrator, Mr John Ohaga, accusing his former employer of unfairly targeting him, intimidation, and non-procedural removal from partnership. KPMG had unsuccessfully opposed the claims made by Mr Ndung’u and portrayed him as someone who was often on the wrong side of the firm’s policies.

In the end, the arbitrator on March 6 this year awarded Mr Ndung’u an aggregate sum of Sh460.5 million and a further Sh1.9 million in special damages. The award will earn interest at the rate of five per cent per year until KPMG settles it. The huge amount, if enforced, could have dire financial implications on the organisation.

PRIVACY

The award could even get bigger if the High Court rules in favour of Mr Ndung’u in a separate suit he filed on May 23 against KPMG International, whose offices are in London. In the suit, he accuses the global audit firm of having “encouraged its member firms, KPMG East Africa and KPMG Kenya, to take retaliatory action against him on account of his ‘raising hand’ (lodging a complaint), contrary to the assurances in KPMG’s Global Code of Conduct, and further contrary to the dictates of the Licence Agreement and the Constitution and the Laws of Kenya”. The suit will return the global firm to the spotlight in Africa after it apologised for its work for the controversial Guptas family in South Africa.

But it is not just the award of more than Sh450 million that stands out in the arbitrator’s determination. The case also brought to light the boardroom wars at one of the country’s most premier audit firm. In the final analysis, the arbitrator was scathing on Mr Mwaura’s conduct and how he handled Mr Ndung’u’s case. In his determination, Mr Ohaga held that the CEO had breached the former partner’s privacy by taking away his mobile phones and laptop and accused him of discrimination for failing to notify Mr Ndung’u of a meeting on January 13, 2017 that was to determine his fate. “The CEO, despite clause 1.3 (i) of the EA Partnership Agreement elected to issue notice to partners and for this reason the claimant was entitled to such a notice. It seems to me that the CEO in exercising his discretion was discriminating against the claimant,” the arbitrator stated in his determination. Mr Mwaura was also accused of launching investigations against Mr Ndung’u without giving him a written notice of the nature of the complaint and the investigation, failure to disclose the entire agenda of the first meeting of December 16 during which the claimant’s fate was first put to a vote, relying on information from the claimant’s wife who had by then died, and exploiting the claimants’ vulnerability by reopening old cases.

REJECTED

“In the end, I find that the CEO acted in a retaliatory manner against the claimant,” said the arbitrator.

KPMG East Africa has filed an appeal after their request for the arbitrator to “correct a computational error” was rejected. In the appeal, they argued that the arbitrator erred in law when it ruled against it. The appeal is praying for the award to be set aside and the former partner’s claims be dismissed.

To counter the appeal, Mr Ndung’u, through his lawyer Kithinji Marete, on Friday filed an application for enforcement of the award. The application also opposes KPMG East Africa’s appeal as an abuse of court process.

“The arbitration agreement between the parties provided that the decision of the arbitrator would be final and binding upon the parties. Hence the applicant (Mr Ndung’u) contends that an appeal does lie from the arbitral award,” the application states.

Though Mr Ndung’u had told the arbitrator that his personal mobile phones and laptop were confiscated against his wish, Mr Mwaura had contended that he surrendered them willingly. “(The CEO) says that he did not confiscate the claimant’s phones and laptop, but that the claimant surrendered them for mapping,” the CEO said in response.

The CEO also said it was Mr Ndung’u who after surrendering his phones and laptop opted to stay away from office.

INTIMIDATING

Even though the investigations were to take “a day or two” the same had not been concluded four days later on October 7. He stated that at around the same time, the CEO “adopted an intimidating and menacing attitude” that pushed him to file a complaint with KPMG member firms in Africa through the chairman of the Senior Partners Forum and KPMG South Africa CEO Trevor Hoole. The same was escalated to KPMG International.

Not long after he lodged the complaint, Mr Mwaura called a meeting of senior partners on December 16 at Villa Rosa Kempinski with the agenda being “consideration of a recent complaint by Richard Ndung’u, final determination and action thereof”.

Before the December 16 meeting Mr Ndung’u was informed by the CEO that the allegations against him of inappropriate conduct and financing his personal assistant’s lifestyle had not been proven.

Despite the primary allegations against him having fallen by the wayside, at the meeting, the CEO told the partners that they should consider Mr Ndung’u’s trustworthiness as had been recommended by KPMG International.

“The CEO brought to the meeting’s attention various matters touching on the claimant which the claimant presumed had been resolved between him and the CEO and which had no relation whatsoever to the complaint he had made to KPMG International,” the arbitrator’s documents stated.

RESOLUTION

He was asked to leave the meeting room, but was summoned two hours later and informed that the meeting had adjourned. But he was required to proceed on ‘compassionate leave’ with limited access to the office and office mail. Mr Ndung’u said after he was asked to leave the meeting room, the CEO called a vote for his removal, which failed.

The next meeting took place on January 13 with the sole agenda being the removal of Mr Ndung’u from the partnership. Before the meeting, two unofficial meetings took place at Capital Club, Westlands, on January 7 and 11 during which he was enticed with an advance of Sh25.5 million and a final payout of Sh112 million if he could agree to immediately resign. The offer was rejected and so on January 13 a meeting was held which he was not invited to. He nonetheless showed up at the meeting.

This time, the partners resolved to remove him, but were still pursuing the option of having him to voluntarily resign.

Three days after the meeting, partners Salim Bashir and Charlie Appleton met with Mr Ndung’u at Capital Club “to discuss the terms of his resignation, and the financial settlement agreeable to him to procure his resignation”. This time, they were offering Sh204 million.

With no agreement on the proposed voluntary resignation and therefore no settlement, Mr Mwaura proceeded to implement the January 13 resolution and formally communicated Mr Ndung’u’s expulsion on January 18, by which time the former partner had informed the CEO of his intention to refer the dispute to arbitration.