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The Chairperson That Jumped

When I’m not pounding on my laptop keys, feverishly trying to get 750 nitpicking words out to my very patient Business Daily editor every Thursday, I do get to spend some time doing governance work for different clients. Part of that work is evaluating the performance of boards of directors where we issue a questionnaire and it is filled by all the members of the board. The questionnaire is fairly comprehensive, covering all aspects of board work for instance board information and board processes, but then it can get really introspective by asking directors to rate the performance of their peers. Different aspects are interrogated here such as how the director prepares for board meetings, contributes during the meetings, interacts with her peers and management amongst other areas.

It’s not hard to know if a director is prepared for a board meeting because you will see whether they are asking questions whose answers are on page three of the board pack in red, bold font or who insist that management read the paper out loud, word for excruciating word, as if they were a kindergarten teacher providing a critical lesson in washing hands. On how the director interacts with her peers, as evaluators we are looking to see if the person engages her peers respectfully, listening keenly when required and not always hogging the airtime during meetings. Do her contributions generate a normal conversation or are they the Molotov cocktail that always start a fight amongst board members or against management? Well of course we don’t ask the question in such an incendiary manner, but the answers from evaluation participants who are honest will usually provide illuminating answers when truth has been chosen as the path to an evaluation Damascus.

As I’ve been doing these evaluations for the last ten years, I have met hundreds of directors who have enriched me with knowledge on how good and bad boards perform. Early in my governance journey, I took on an assignment of a board based in one of the East African Community countries. It was the first time that the board was doing the exercise, which had been instigated by a significant external stakeholder who needed to know that the organization was functioning optimally in order for that stakeholder’s continued critical support. In simple words: either you guys are a functioning governance organ or we should reconsider why the heck we are supporting you guys.

The exercise went fairly smoothly and all directors actively participated in the process, giving honest feedback about the board’s functioning as well as the performance of their peers. As a rule, I usually have a quick session with the board chairperson before I present the final report particularly where there are some sticky issues that have surfaced during the evaluation. As the client was not based in Kenya, the only time I had to meet with the chair person was literally thirty minutes before the meeting was due to start over breakfast at the hotel where the meeting was taking place. We went through the key areas of concern and then I left the chairperson to read the rest of the report quietly as I went to sit at a waiting area near the meeting room. Twenty minutes after the meeting started, I was called in to give my presentation. The chairperson gave an elaborate introduction of why the board evaluation had been required to be undertaken and then gave me the floor.

I presented the evaluation report and finished off by saying that the individual peer assessments would be sent to each director after the meeting. As soon as I finished, the chairperson said, “Well you have all seen the evaluation report. A number of you have issues with the way I lead the board and push for this organization to perform. I cannot lead where I am not appreciated so at the end of this meeting I will be resigning as chairperson.” Even the fruit flies buzzing over the raisin filled tea pastries came to a standstill as shock sucked the frigid air out of the room.

I had watched a leader undertake the “sepukku” which is an honor bound ritual suicide done by Japanese samurai warriors. The chairperson had chosen to fall on their sword, rather than continue to chair a board where some directors had raised issues with some of the leadership traits exhibited. Could the outcome have been different? Yes, if the chairperson decided to hang in there and undergo a self-imposed performance improvement plan. I have no doubt that there had probably been other issues simmering in the past, but my key take away from that episode was this: When it’s time to go as a leader, don’t wait to be pushed off the cliff. Just jump.

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Twitter: @carolmusyoka

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Governance lessons from Kenya Pipeline

[vc_row][vc_column][vc_column_text]Being a director on a company board is not and should never be for the faint hearted. An article in last Wednesday’s edition of the Business Daily caught my corporate governance side eye. The story titled “Ochuodho, 3 others to face charges over Kshs 827m fraud” highlighted a court case that has dragged for years with the protagonists avoiding criminal conviction for what, on the face of it, appears to be an ordinary financing transaction. Kenya Pipeline Company had allegedly paid a third party company a large amount of money to enable the third party company make payments on its behalf to its international creditors. The former managing director Shem Ochuodho, and the third party company’s executive directors were in trouble for getting the Attorney General, finance and energy ministries to approve a transaction, only to execute an entirely different transaction.

Within the story is a hyperlink to an older story dated January 10th, 2010 where a magistrate’s court issued a summons to the same Shem Ochuodho and the former board chairman Maurice Dantas to come to the anti-corruption court to answer to fraud charges over the same case. There are a number of corporate governance issues that this old Kenya Pipeline Company (KPC) case bring to fore. To begin with, a transaction was approved by the KPC board (since borrowing has to be typically approved by an institution’s board) but the board chairman (who is responsible for oversight and monitoring via the board) was on the fraud hook together with the managing director (who is responsible for execution). The lesson here: a board of directors is never immune from the actions of management. Secondly, the necessary external approvals seem to have been obtained from the relevant government officials, but management went ahead to allegedly execute a completely different transaction. The lesson here: if your mother sends you to the kiosk to buy flour but you choose to buy Patco sweets instead, you’ll be in very deep trouble.

Based on the newspaper articles however, it would appear that the board chairman’s case seems to have dissolved somewhere along the way but should not distract from the fact that sitting on a board, and keeping a keen eye on what management is asking you to approve, is imperative.

But the second issue is of more relevance. What the third party was supposed to do was to pay the external creditors on behalf of KPC and sit on the debt for as long as it would contractually take for KPC to pay the third party back. Why would this deal make sense to the ordinary man sitting in the Rongai matatu? If the deal enabled KPC to postpone its payments to the external creditors past their due date, it would ease the pressure on KPC’s cashflows thereby enabling it to apply that cash to more pressing current commitments. Secondly, if the deal enabled KPC to convert a foreign currency commitment into a long-term local currency one, it would assist KPC to mitigate against future currency depreciation which would come into play if the Kenya shilling slid south against the US dollar making the foreign currency loan that much more expensive to pay off. (Assuming, of course, that KPC’s revenue model was based in shillings, because if its revenues were in US dollars then there would be a natural hedge).

The story begs the question about what transpired at the KPC board meeting that approved the transaction back in the early years of this century. Did they ask the following questions: Does this third party have the capacity to undertake this transaction on its own balance sheet? No? Then where is it getting the money to fund the transaction? From a bank, you say? So why don’t we just go to that bank directly ourselves? At this point a fairly flushed managing director would be waxing lyrical about how the third party company has a better relationship with the bank and can negotiate a far better deal. Director X, who’s known not to suffer fools gladly, should have raised an eyebrow and asked: “But isn’t the bank that is financing this third-party-knight-in-shining-armour…..our very own bank?”Clearly this didn’t happen, leading to the current court cases. Directors on company boards, kaa chonjo (stay alert)!

[email protected]
Twitter:Twitter: @carolmusyoka[/vc_column_text][/vc_column][/vc_row]

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Credit Reference Bureaus Destroy rather than support credit

[vc_row][vc_column width=”2/3″][vc_column_text]Two weeks ago, I published an opinion on this page highlighting my experience with an erroneous report that was submitted by my bank to the credit reference bureaus (CRBs). The article generated some interesting feedback from some kindred spirits. Augustine M shared as follows: “I have also experienced a similar issue like yours. A standing order that I had closed 5 years ago, but apparently the bank continued to surcharge and penalize for 4 dark years, only came to my attention when I needed that CRB Credit Report. What made me mad was why my bank, which I understand has rights of set-off to enable them recover from your other accounts with them and clear you, goes ahead to issue a damning report. Yet I had all along another well performing loan with the same bank.”
Well dear Augustine, a major assumption that you are making is that your bank has a universal view of your accounts. Whereas you have a universal view of the bank in terms of all the products and services that you are consuming from them, your bank may have as many separate records of you, as there are services you are consuming. These records are in different databases that don’t talk to each other because they are in different departments. Asking your bank to set off from one account to another, well…that’s just asking for too much efficiency. I mean do you know how many internal approvals have to be sought to get that process approved? You’ve got to be kidding man! Now your bank might be a manyanga bank, meaning it has a supercalifragilisticexpialidocious 21st century operating system and therefore your national identity card number can generate a universal view of your accounts. But then it requires someone to initiate that query. And there’s hundreds of thousands of other retail clients like you. Moreover that would require a rather high level of efficiency. So hang tough bro, they’re just not that into you. One more thing: can you imagine the number of negative reports that the CRBs have of ordinary wananchi who have minor charges on accounts that have failed to be closed? And are now dragging a millstone around their creditworthy necks in the name of credit reporting? Another writer Andrew F had this to say:

“Hello Carol, as soon the CRBs were authorized commercial banks submitted 800,000 negative credit reports! Needless to say, the commercial banks neglected to comply with the new law by notifying the 800,000 account holders who were having their credit histories trashed! Too expensive? It really makes no difference; our commercial banks are out of control and our friends and associates **** (edited out as this is a family newspaper) us royally in plain sight. You knew who to contact which only leaves 799,999 others being trashed without legally required notice.”
Dear Andrew: Are you aware of how many Kenyans must have been temporarily employed during the process of issuing 800,000 negative credit reports? During that period, the unemployment levels for the country took a significant dip and the banks were awarded with the highest Pay As You Earn award from our veritable tax collectors. In fact the bigger issue for me is that by ignoring Section 50 (1) (b) of the Credit Reference Bureau (CRB) Regulations 2013, which requires banks to “notify each customer, within thirty days of the first listing, that his name has been submitted to all licensed Bureaus,” the banking industry deliberately scuttled efforts by Postal Corporation of Kenya to grow its profits through sale of regular postage stamps on the 800,000+ reports that should have been mailed out.
Finally, JK weighed in with these words: “Just thought I would point out great article today in Business Daily, the system is absolutely flawed. In South Africa they forced all bureaus to delete all their information and have all banks resubmit because almost the entire country was listed for one reason or another. I was listed because I owed a bank Kshs 200 for not closing my account with them. I’m surprised a class action has taken this long in Kenya.” Dear JK, thanks very much for reaching out to this pained sister. I have tried to research your point about what happened in South Africa and actually found that in 2005 the South Africans published a National Credit Act which stipulates the type of information that credit bureaus can keep on consumers, how the information is obtained, used, and for how long that information may be kept on their records. More importantly, the Act aims to ensure that credit bureaus keep accurate records on consumers. In a bid to cure the mischief of erroneous credit reporting, the Act in Section 72 gives consumers the right to access and challenge information held by a credit bureau. A key extract of that section provides that a consumer can challenge and request proof of the accuracy of information held by a credit bureau. Should a credit bureau fail to provide the consumer with proof of accuracy of information that the consumer disputes, it is compelled to remove the disputed information from its records. The same section also gives the consumer the right to be advised by a credit provider before certain adverse information about that consumer is passed onto a credit bureau and to receive a copy of that information on request. As we often say in Kenya, it’s not a dearth of laws that we suffer from; rather it is the enforcement of existing law that is the problem. The Credit Reference Bureau regulations in Kenya do protect the consumers, but the protection mechanisms are not being enforced by the banks, either through sheer laziness and ineptitude or utter contempt for the impact of their actions. I like that the South African legislation puts the burden of proof for veracity of information on the credit bureau, which means that a layer has been added for ensuring that consumers are protected from lazy bank processes.

[email protected]
Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]

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Right of Reply from SMEs

[vc_row][vc_column width=”2/3″][vc_column_text]Last week I wrote the true story of Moraa, an enterprising furniture manufacturer that just wanted her government to help her grow her business locally as well as find new export markets. What I didn’t expect was that I would be opening the floodgates to responses from other readers who suffer from a similar angst as Moraa. For instance JGM penned:

“I have made a lot of noise from way back about these investor conferences which we spend a lot of money to hold yet we do not do the same for our own local investors. We do not invite them to county meetings to discuss how to grow together. Instead you have all manner of government agencies harassing them. You wonder what the definition of an investor is. Like hawkers, they don’t have to be arrested and their merchandise confiscated. Just charge them the levy they were supposed to pay and tell them to leave unauthorized space. But recognize they put up their own little money hoping to get a return. That is an investor. In fact the average hawker is one of the most intelligent forms of an investor, as he has to factor in a risk most other businesses don’t: deliberate government crackdown! If these county guys would call us we have roundtables and meetings and agree on a common agenda, we would gladly pay them more levies for them to deliver service.”

JGM does have a point. Hawkers are investors. They may be at the bottom of the food chain, but they are business people trying to make an honest living. It would be far more innovative to treat them as potential growth enterprises than to beat them down daily and view them as the nuisance they are perceived to be. KM is a young man who I once employed and he left as he was bitten by the entrepreneurial bug. At less than 30 years old, he and a friend set up a microcredit agency about five years ago. He exemplifies the face of the Kenyan hustler as he writes: “Carol, I’m so happy you wrote this morning’s article. The SME is struggling to get access; we are harassed by KRA at each and every turn. Literally Nairobi County camps at either of my two branches and there is always a new licence or ‘fee’ I have not paid! Maybe we should create a lobby for SME’s? I have several horror stories.” But clearly not enough horror stories to make him want to close shop because he is passionate about his business. For now he’s all about maintaining his entrepreneurial sanity.

Meanwhile, back at the Murang’a County ranch, KG sent me this missive: “Dear Carol, I am involved in the small-scale production of juice in Murang’a County with all intentions of scaling up. My frustrations can be summed up as follows:
I have been having the runaround with KEBS for the last four months and not because my product failed but just trying to get the certificate after paying Kshs 5800/=. KRA would want me to pay excise duty on the juice but they have 17 requirements for me to fulfill before they grant me a licence. Some are reasonable and straightforward but let me highlight a few of what I consider ridiculous (maybe they need to put on sneakers and see the work we are doing)
• Valid security bond for the protection of excise duty
• NEMA certification
• Letter from the county government showing the factory is in a designated industrial zone.
• Licence fee of Kshs 50,000 for me to pay taxes!
My business is an SME for heavens sake! In view of the above what am I to do? Operate under the radar thus stifling my growth? Or do I remain small?
Kindly share some of this issues with the wider public and perhaps some sense may start prevailing.”

As Jeff Koinange aptly puts it, “You can’t make this stuff up!” Good people: these are real Kenyans who have ideas and capital and are willing to pay taxes if that will enable them to grow their businesses, employ more people as well as create a supply chain that grows with them and strengthens the economy. Please note that not a single one of them has requested for money in the now ubiquitous ‘naomba serikali’ fashion. MW writing from the heart of Nairobi’s hustler district sent in his two cents: “Hi Carol! Thanks for hitting the nail on the head on how to grow this economy in today’s Business Daily! I am a small offset printer on Kirinyaga road and I often wonder what those who run this country think about us small business people. It is obvious that these businesses employ the majority of Kenyans. If you cross beyond Moi Avenue the population increases in quanta and so do the daily transactions, albeit in small denominations! The government needs to do little things like making life bearable for the Jua Kali Mechanics by building them sheds, provide water, toilets, and perhaps organize them into co-operatives that could buy modern tools so that their work can graduate to industrial standards. My point is these top shots have no idea what Kenya is all about. They just think about foreign investors! If we are having problems investing in our own country how will foreigners fare?” I wanted to give MW a hi-five as he summarized every SME owner’s frustrations: if the locals cannot succeed in doing business at home, what makes the government think that a foreigner will fare better?
To their credit, two different chaps from the Export Processing Zone sent me lengthy emails to disabuse me of the notion that they are unhelpful. Both were eager to meet with Moraa and provide some assistance. I linked up Moraa with them promptly. Kenyans just want a hassle free local business environment through which they will build their enterprise on the back of their own capital and sweat. Government can do it.

[email protected]
Twitter: @carolmusyoka[/vc_column_text][/vc_column][vc_column width=”1/3″][/vc_column][/vc_row]