Former CEOs kick up storm with transfer to boardrooms positions

The list of retired executives with seats in corporate boardrooms include Mr Peter Muthoka, the former CEO of Sasini Tea, who chairs the KCB board and is a member of Sasini’s board, Mr Kung’u Gatabaki, who headed British private equity firm CDC and is now at Uchumi, and Mr Richard Kemoli, also a former CDC executive and one of most enduring faces in corporate Kenya’s boardrooms.

The list has in the past five years expanded to include Mr Patrick Obath, the former managing director of petroleum marketer Shell, who is a board member at the Kenya Power and Lighting Company and also chairs the Kenya Private Sector Alliance board; former Safaricom chief executive Michael Joseph, who serves in the telecoms giant’s board, and Mr Abdul Samji, a former managing partner of audit firm PKF, who chairs the DTB Bank board and is also a director of the Kenya Tourist Board.

Serving chief executives have not been left out either, underlining the preference for executive experience and association with successful captains of industry in the race for talent.

KCB chief executive Martin Oduor-Otieno, for instance, has been a director of British American Tobacco (BAT) since 2007 as is Mr George Odo, the East Africa managing director of private equity firm Africinvest, who sits in the KCB board.

Cross movement of these individuals from corner offices into boardrooms has been blamed for the alarmingly high average ages in Kenya’s boards in a country where nearly half (42 per cent) of the population is aged below 15 years and the average age is 19 years.

More recently, as a new crop of CEOs left office for different reasons and walked into boardrooms, a debate has ensued as to whether they are adding value or pulling back the pace of progress in corporate Kenya.

“It is the act of balancing the experience of the old guard against the skills and dynamism of the youth,” said Mr Sammy Onyango, the chief executive of consultancy firm, Deloitte East Africa.

He reckoned that the desire for continuity and stability was the main factor that has contributed the most to entrenchment of boardroom inbreeding whose full impact no one has been able to measure.

“But there is also the enduring desire by chief executives, where they have room, to pick close associates for board positions to reduce overt resistance to management decisions,” said Mr Onyango.

Some participants in boardroom politics have, however, argued that the minimal boardroom changes reflect the shortage of corporate governance skills that has placed a high premium on proven managers with wide experience.

“Hiring former CEOs of successful corporations is informed by the hope that they will bring the required skills in strategy formulation. That may or may not happen,” said Mr Obath.

Though many firms have insisted that appointments to their boards are based on merit as determined by a candidate’s track record, critics have continued to point to the fact that most of executives have skills that do not match the specific needs of the companies they join as board members.

The board of directors is a critical outfit for modern corporations whose key roles include determining overall strategic direction besides looking after the interest of shareholders.

For companies operating in competitive environments, weak boards or lack of strategic direction have become critical areas of exposure, generating poor decisions that result in massive losses or even ultimate collapse as has been recently seen in the US.

Absence of competent and relevant skills in boardrooms has also denied many companies a chance to seize emerging growth opportunities, especially where directors fail to steer smooth entry into new markets, going into new business lines or restructuring.

Most analysts expect the hiring of former CEOs to continue, saying the demand was part of a global trend driven by undersupply of top talent that gives them an edge over skilled but young managers.

Though most former CEOs are head-hunted for their perceived skills, some management experts say the majority accept the offers merely because they are ill-prepared for life outside the corporate corridors and often do not have an exit plan.

Apart from offering them a new lease of life after retirement, boardroom memberships become fresh sources of earnings and a chance to cultivate valuable contacts for their businesses and other pursuits.

Remuneration for directors and chairpersons vary from company to company, with the monthly package ranging from Sh40,000 to over Sh200,000.

Listed firms, banks and multinationals offer the biggest emoluments for directors as they earn higher revenues.

The presence of retired and serving CEOs in several boardrooms has raised fears of a possible stifling of new ideas and perpetuation of an exclusive club of boardroom operators that is less accountable to shareholders.

“We recommend that one should not serve in the boards of more than three big companies. Overshooting this limit is likely to reduce performance of a board director,” said Mr Job Kihumba, chairman of the Private Sector Corporate Governance.

He added that a retired CEO should wait for three to five years before joining the board of the company he previously led.

“Joining the board soon after retiring as CEO makes life difficult for the incoming chief executive and may cause tension in the boardroom,” he said.

Consultancy firm KPMG found in a recent survey that most companies, including those that are listed at the stock exchange, were operating without proper direction and oversight of the risks they faced in the business environment, pushing poor governance to the top of the list of corporate Kenya’s challenges.

KPMG found that Kenyan firms were losing billions of Shillings in the pursuit of wrong strategies, massive revenue leaks and poor risk assessment by directors.

The boardrooms of most companies are full of ineffective and less knowledgeable directors who are either unwilling or unable to objectively evaluate management decisions, leaving businesses to blindly walk into risky environments, the report said.

High exposure of corporations in the area of governance is being seen as the product of the big role that old-boy networks play in the appointment of directors, and the resulting incest that prevents fresh ideas from entering the boardrooms.

But some boardroom operators defend the appointment of serving and retired CEOs to boardrooms, saying they have a wealth of executive experience that can be tapped cheaply.

“CEOs cost companies a few million Shillings per month while in employment and hiring them at Sh200,000 or less upon retirement is a bargain for their kind of knowledge,” said Mr Robert Bunyi, the CEO of Mavuno Capital – who is also a director at Centum Investments.

Cross-ownership

Multiple boardroom presence by a few is further driven by cross-ownership by large shareholding interests that usually take up one or more boardroom seats in companies.

“The skills of good executives can be transferable across sectors,” he said, adding that the key is in getting the right people.

Analysts say State-owned corporations have an even higher exposure to corporate governance lapses as their board composition is tightly controlled by the prevailing political environment.

The State Corporations Act gives the President the power to appoint chairpersons of State corporations who assume either executive or non-executive roles.

The permanent secretary of the parent ministry and the permanent secretary to the Treasury are board members by default, irrespective of their qualifications and professional background.

The Act further vests the line minister with the power to appoint up to three board members.

This leaves the constitution of the boards to rely heavily on political exigencies that shifts with each new administration.

Additional reporting by George Ngigi