National Bank of Kenya headquarters in Nairobi. New banking rules that
aim at reducing the influence of principal shareholders could lead to
more than a third of the 44 lenders reconstituting their boards.
Photo/FILE
Nation Media Group
By DAVID HERBLING
In Summary
- The rules reserve a third of board seats for independent directors.
- The regulator is keen to reduce the big role that old-boy networks currently play in the appointment of directors in the banking sector with the planned independent director’s rule whose draft CBK unveiled last June.
- Majority of directors in local banks secured their seats in boardrooms with the help of business associates, personal contacts or friends.
Central Bank of Kenya has given commercial banks
until June next year to meet governance rules that could lead to more
than a third of the 44 lenders reconstituting their boards.
The rules reserve a third of board seats for independent directors.
The new regulations are aimed at reducing the
influence of principal shareholders on the boards as well as safeguard
the interests of minority investors.
The tools are aimed at reducing the influence of
principal shareholders in the boardrooms as well as safeguard the
interests of minority investors whose influence in the key
decision-making organs has declined.
Central Bank defines an independent director as a
board member who is not a direct or indirect representative of the
principal shareholders, has not worked in the bank as an executive for
the past five years and has not had any business relationships with the
institution in the same period.
Significant suppliers of the lenders or relatives
of senior managers and those with a direct or indirect shareholding of
more than five per cent in the appointing banks are also not considered
independent.
The new rules will affect even some banks that are listed on the Nairobi Securities Exchange like Housing Finance and the National Bank of Kenya.
“Institutions will be granted 18 months from the
effective date of this guideline to ensure the board is properly
constituted as provided in the guideline,” said the Central Bank.
“The effective date of this guideline shall be 1st
January 2013. However, the implementation date shall have a transition
period.”
The regulator is keen to reduce the big role that
old-boy networks currently play in the appointment of directors in the
banking sector with the planned independent director’s rule whose draft
CBK unveiled last June.
Majority of directors in local banks secured their
seats in boardrooms with the help of business associates, personal
contacts or friends.
Boardroom diversity
Corporate governance experts said that the current
mode of operation denies company boardrooms diversity that is critical
for fresh ideas, debate and improved governance standards.
“It is not a secret in Kenya that to serve on any
board, you must have the right background and a powerful network of
allies to help you get there,” Ashif Kassam, a managing partner at HLB
Ashvir, a consulting firm said earlier.
“It is nearly the same boardroom boys listening to their own
voices in one firm after the other, limiting the inflow of fresh ideas.”
NBK has a 10-member board made up of three
executive directors including the managing director Munir Ahmed and his
two deputies, Isaiah Mworia and Ali Noor.
Of the seven non-executive directors, two (Tom
Odongo, the managing trustee of the NSSF and the head of financial
services at the Ministry of Finance, George Omino) directly represent
the NSSF and the Treasury respectively. That leaves NBK without an
independent director, following the ouster of long-serving board member
Michael Muhindi in June.
Mr Muhindi lost the vote after he failed to win the NSSF’s support.
The other four directors — Sylvia Kitonga, Erastus
Mwongera, Mr Atwoli and Mohammed Hassan (now board chair — are on the
board courtesy of the NSSF.
In the Housing Finance case, the principal shareholders are Equity Bank, Britam both control 46.1 per cent of the mortgage firm, and NSSF with a 6.82 per cent ownership.
It has a board of seven members including the
chairman, Mr Steve Mainda, Equity Bank representatives Mr Peter Munga,
Mr David Ansel, and Mr Shem Migot-Adholla, while the NSSF is represented
by its chairman Mr Adan Mohamed.
The other directors are CEO Frank Ireri, and Benson Wairegi who sits on both Equity and Britam boards.
Mr Mainda is the only one who qualifies as an independent director based on the CBK
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