CMA to vet company directors in fresh war against theft, fraud

 

Capital Markets Authority acting chief executive Paul Muthaura. PHOTO | FILE 

By DAVID HERBLING, hdavid@ke.nationmedia.com

In Summary

• New rules give CMA powers to vet the appointment of chief executives, chief finance officers and directors who serve in the audit committees of public listed companies.
• The new rules are contained in proposed amendments to the corporate governance code.
• The CMA, unlike the Central Bank of Kenya, currently has no say on the hiring and firing of directors and senior executives of companies listed on the Nairobi bourse, a situation that is partly attributed to the hiring of some rogue executives to lead public companies.   

Top corporate executives and board members of Nairobi Securities Exchange-listed companies will face a new layer of vetting if a proposed set of corporate governance rules meant to rein in rogue managers and stem mounting cases of financial scandals becomes law.

The new rules give the Capital Markets Authority (CMA) far-reaching powers to vet the appointment of chief executives, chief finance officers and directors who serve in the audit committees of public listed companies.

The CMA said the rules aim to strengthen the overall environment for accountability to shield investors from the risk of incurring heavy losses through insider crimes such as fraud.

“In order to strengthen the overall environment for accountability and governance, the authority is in the process of seeking to broaden its oversight mandate to extend to vetting of specific directors of listed companies,” the CMA said in a statement.

The new rules are contained in proposed amendments to the corporate governance code.

The CMA said the new rules will apply to both serving and incoming executives, setting up public companies for a ‘radical surgery’ on the scale Kenyans have recently seen with the vetting of judges and senior police officers.

“The proposed rules are currently with the National Treasury for consideration,” the capital markets regulator said.

The CMA, whose acting chief executive is Paul Muthaura, said it is also waiting for Treasury secretary Henry Rotich to gazette new regulations on business governance developed in 2014 dubbed ‘Code of Corporate Governance Practices.’

Rogue executives

The CMA, unlike the Central Bank of Kenya (CBK), currently has no say on the hiring and firing of directors and senior executives of companies listed on the Nairobi bourse, a situation that is partly attributed to the hiring of some rogue executives to lead public companies.   

The CBK, which regulates the financial services sector, thoroughly vets nominees to boards of directors and senior management of all banks, including chief executives, before they are formally appointed.

“At the moment appointment of directors and senior management of listed companies is not subject to the Authority’s approval only what is required is public disclosure of the same given its classification as material information,” the CMA said.

The CMA’s belated attempt to tame rogue executives comes amid a growing list of listed company managers accused of committing white-collar crimes such as asset misappropriation, tendering fraud, bribery and corruption, money laundering, tax fraud, and anti-trust law infringement.

In all these cases, shareholders were left helpless as the CMA lacked teeth to force out and prosecute the executives.

The list of executives caught up in a web of financial impropriety includes former Uchumi boss Jonathan Ciano and his chief finance officer Chadwick Omondi Okumu who are alleged to have manipulated books of accounts to the tune of Sh1.04 billion at the listed retailer