State Corporations Chocking Due To Meddling Ministers

Date: Wed 21st February 2007

Mediahouse: Daily Nation

Page: 10


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The current issue of Sunday Nation carries a juicy story on the intrigues surrounding the changes recently effected by the Treasury on the board of the Consolidated Bank of Kenya where all directors have been replaced.

Clearly, the running of parastatals in this country is still in a mess. Despite all that talk about performance contracting and a new corporate governance regime for parastatals, appointments to parastatal boards is still based on pork barrel politics and patronage. When you come to power, you must appoint your own people to these plum jobs who almost invariably, will be your tribesman. It does not matter whether they merit the appointments or not.

Provide key utilities

Yet, as we all know from experience, this governance regime fosters incompetence, indiscipline, and inefficiency in delivery of services to the people, especially in cases where the parastatals provide key utilities.

It is how we ended up with the proliferation of too many inefficient and debt-plagued parastatals under the regime of former President Moi. Here is a brief rendition for those who may have missed the Sunday Nation story. In December last year, the board of this state-controlled bank met to review and discuss the performance of the managing director, Mr Wachira Ndegwa.

After hours of deliberations, and having looked at performance benchmarks, such as growth of the business, profitability and quality of service, they concluded that the man was not a performer. Consequently, they wrote to the Treasury, the parent ministry of Consolidated Bank Ltd, recommending that the man be sacked.

Two weeks later, the whole board was replaced even as Mr Ndegwa's contract was extended. It was a remarkable display of the power of patronage. If we allow ministers and permanent secretaries to continue running parastatals as if they were their personal property, the much-touted system of performance contracting will collapse. Which is a pity because the performance contracting system is the most significant policy innovation to be introduced by the Kibaki administration in regard to public sector management.

Its centrepiece is delegation of power to the boards of parastatals by allowing them to make strategic decisions without reference to the parent ministry.

Under the arrangement, the CEO signs a performance contract with the board committing him or her to deliver on agreed on a given set of measurable targets. In turn, the board also signs a contract with the shareholder obliging it to meet specific targets.

Is it not incredible that in the case of Consolidated Bank, one of the accusations against the CEO is that he refused to sign a performance contract with the board?. Performance contracting is all about modern corporate governance: the shareholder leaves the actual running of a company to its management and board. Directors retire by rotation during annual general meetings.

How can we claim to be practising modern corporate governance when we still allow ministers and permanent secretaries to hire and fire directors of parastatals arbitrarily. Consider recent developments within the board of the Kenya Power and Lighting Company (KPLC).

Last month, the ministry of energy woke up one morning and decided that it did not want two directors, Mr Saleh Imo and Mr Aram Mbui on the board of KPLC. It did matter that the appointment of the two had just been confirmed by shareholders at the last annual general meeting and that going by the company's articles and memorandum and association, their positions do not come up for retirement by rotation until the next AGM.

Can't the ministry wait until December? Why have these changes suddenly become urgent? In the case of Mr Mbui, the man is on the board of the company as a nominee of the Federation of Kenya Employers (FKE) through one of KPLC's large shareholders, the National Social Security Fund (NSSF).

I gather that the Energy ministry has actually written a letter to the NSSF telling them to withdraw Mr Mbui's nomination to the board. I also gather that the board of the FKE has convened a special meeting this Friday to discuss the matter. Apparently, the reason why the ministry want Mbui out is that they want to create an ethnic balance on the board.

Embarrassing moment

Mr Imo has maintained that he will not surrender his position in the board until the next AGM. Two weeks ago, there was an embarrassing moment when he turned out at a board meeting uninvited and insisted that he was still a board member according to the law.

These two directors have one thing in common: they were part of a board committee which was selected to investigate the interdiction of former managing director, Jasper Oduor. My sources tell me that that report seriously indicted the ministry for meddling into the affairs of the company and seeking to micro-managing it.

Whether or not this is why somebody wants them out of the board is not clear. Performance contracting is a novel idea. We should not allow permanent secretaries and ministers to kill it.

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Last Edited: Wed 21st February 2007 at 04:54:12 PM


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