Political interference does not augur well for firms with State shareholding

Tuesday February 14 2012

Jaindi Kisero

Managing Editor, Investigations

Jaindi Kisero Managing Editor, Investigations & Economic Affairs 


Why is President Mwai Kibaki getting involved in the shenanigans surrounding the battle for the control of the East African Portland Cement company?

It is baffling that the President has degazetted the appointment of the chairman, Mr Mark ole Karbolo, right in the middle of court proceedings seeking to establish whether or not the company is, indeed, a public corporation, according to the State Corporations Act.

We now have a bizarre situation where — despite the fact that the High Court is yet to decide whether or not the State Corporations Act is applicable to the dispute over the cement company — the President goes ahead to invoke the same law to remove the chairman as if oblivious of the fact that the applicability of the law he is invoking is at the heart of the court dispute.

Without a doubt, the offended party will be heading to the court to challenge the President’s decision.

Just how the protagonists managed to get the President to show his hand so late in the day is an intriguing question.

Strange happenings can precede a notice degazetting the appointment of a board of a parastatal.

This is a true story. Last year, the council of one of the public universities decided to competitively recruit a new deputy vice-chancellor in charge of finance to replace the incumbent, whose term had expired.

However, the retiring official was a well-connected individual with friends in high places and he did not want any competition.

Political pressure mounted on the chairman of the council and other members to renew the term of this individual without subjecting him to competition.

But the chairman and the council stood firm and went ahead to schedule the interviews.

The story is that the council members had gathered in a board room, ready to start interviewing the well-connected deputy vice-chancellor when the man reached into his pocket and removed a piece of paper, which he tabled before the panel of interviewers.

It turned out to be a Kenya Gazette notice announcing that the appointment of all council members had been revoked.

The smug official told the council members: “As you can see, you have no powers to interview me.”

The show of impunity was astonishing and there was a bigger shock when the chairman called the permanent secretary of the line ministry.

He was not even aware that such a notice had been issued.

The East African Portland Cement case has become a cause célèbre because the court’s ruling will have major ramifications for the governance of companies in which the government has a share.

How much power should the government exercise when it comes to listed companies where the State does not have a controlling interest?

We know that best corporate governance practice requires that shareholders of a company take the back seat after appointing the board.

The board steers, while the management of the company concentrates on rowing the boat.

As a shareholder, you cannot just wake up one morning and say that you want to replace a director you nominated.

Such actions must be taken in accordance with the articles and memoranda of the company.

Such resolutions must be introduced at a meeting of shareholders.

And, there is a threshold of the shareholding that you have to muster before you can remove a director.

The genesis of the problem at East African Portland Cement is that one shareholder (the government) wants to steer and row the boat at the same time.

It will be interesting to hear the High Court’s pronouncement in this dispute.

How can one shareholder appropriate powers to remove the managing director of a company in such a manner?

Where does the minister for Industrialisation get the powers to remove even the directors nominated by other shareholders?

Is it not the case that the permanent secretary at the Treasury is, indeed, the real holder of the shares in East African Portland Cement?

So, how can the minister for Industrialisation purport to have the powers to remove even the Treasury permanent secretary?

The court should be allowed to decide this matter.