Speaking to the young accountants

Makokha Wanjala M. For Immediate Release June 10, 2011 Makokha’s Remarks On corporate governance and emerging issues to Members of Accounting and Finance Students Association, Kimathi University College of Technology Nyeri, I am happy to be here with you, I am happy to be back in a university setting, and I am very excited at the prospect of speaking to a generation whose future is just beginning to unfold. Students of this very aptly named university, I wish to address you on corporate governance and emerging issues in the profession of accountancy. It is well fitting that you invited ICPAK, the body that regulates the esteemed profession of accountancy in Kenya. For those Thomases who keep doubting everything Kenyan and preferring things foreign, it would interest you to note that Kenyan accountants, our very own CPA(K)s are at work presently in 39 countries around the globe. Ladies and gentlemen, this is a vote of confidence in the Kenyan accountancy profession. For those who will elect to spend the rest of their lives in this profession, I welcome you and congratulate you for one of the best career decisions one can make. My talk is Kenyan and practical. Let us start at Corporate governance, this refers to the systems that an organisation put in place to ensure that its operations remain true to the eventual owners who are shareholders. In other words, corporate governance is setting up structures or offices with the aim of limiting any possible misuse of resources. And so we may ask? Why corporate governance? Corporate governance is a major concern since not all shareholders can participate in the day to day operations of a business. Shareholders who provide capital normally trust a small group of people who have the time and the technical expertise to oversee the company. These members constitute the board of directors. The board which hires and fires the CEO, is expected to put in place mechanisms that ensure that the company is run to the greatest benefit of shareholders. But corporate governance gains more significance for firms that are listed on the Nairobi Stock Exchange. This is particularly important since firms quoted at the exchange have raised their capital by way of soliciting funds from the public. It is hoped or rather it is expected that the Board of Directors that is elected every year will put in place measures to ensure that the CEO and her team work hard enough ( i.e. they earn their pay) and their opportunities for mischief are limited. Without some of these controls some CEOs would easily engage in empire building and afford themselves the best of luxuries as they pass the cost to shareholders. In the Kenyan context, we have very little BOD material, I challenge you to do a study on all boards of companies listed at the NSE, It would interest you to note that with only 53 or so companies some individuals sit on more than five boards. This raises the question as to whether they have the time to provide strategic leadership that is expected of them. Some of the board members have been known to do business with the very companies whose boards the sit on or even chair. Keen students of business may very well know that Uchumi had such issues in the past and presently Nzoia Sugar is grappling with such concerns. In English, attempting to do business with a company on whose board you sit on is called conflict of interest. In Kenya it goes beyond mere conflict of interest, it is engineered mostly to pilfer funds from the company. Sometimes, and shockingly so, there has been instances of competitors sitting on boards of rival firms. I am raising these examples so that you appreciate the corporate governance challenges that we face as a nation. The case of National Bank recently where one board member was from a micro-finance that is also in banking business is a perfect illustration. Another interesting web of shareholding and presence on rivals boards in the cement industry. Of course, there are also concerns of corporate governance in quasi- government institutions. Parastatals are owned by Kenyans, but since we cannot all participate in their day to day affairs, we leave this role to government. The government through the relevant minster appoints a board, that ought to safeguard public interest. I need not go into details but you know more than me just how many times minsters routinely disregard the views of the very boards that they appointed. But there are other generic weaknesses in our context that lead to weak corporate governance. One, we have for lack of a better word ‘clever CEOs’. Sometimes our CEOs are just too bright for their boards, In some instances CEOs have opposed and done so very publicly the decisions of the board. As shareholders we are also guilty of electing people to boards who either have less appreciation of their tasks or people whose sole intention is to earn ‘sitting allowance’. Some have made the very meaning of a sitting allowance very true... they are rewarded for sitting rather than thinking and contributing to strategy. But is all hope gone? No I don’t think so. If anything I have said makes you look down upon ourselves then accept my regrets. I know we have the potential of making a contribution to better cooperate governance. For starters, never be too busy to attend an AGM. Attend the AGM and let your views be heard, they may ignore you but that should never confine shareholders to silence. Secondly and importantly, as future professional in Kenya’s financial system, what values are we carrying to the work place? What are the governance issues in your organisation? Are we carrying out our affairs openly? Or have we become experts in publicly condemning what we privately engage in? Are we as the young generation learning the language of ‘kitu kidogo’ with intentions of becoming expert in looting public property later? Governance is a culture, it begins by us knowing that institutions are greator than persons. It starts by our appreciation that your student association will be here for many many years to come. Governance and in a sense corporate governance starts with me and you. I get a sense in which this two topics were too much to bite in one presentation. Allow me then to turn my focus to the emerging areas in this profession. Many and for no fault of their own equate an accountant to a cashier, not that I am disparaging a cashiers job. Many others know that accounting is a boring back office task of manually filling on old-wide ledgers. Many others believe that it is either you are an accountant or an auditor. All these statements were true of our profession at different times in its very long history. I want to spend a moment with you so that we dream of the future, by the way what we dream of is already a reality in some nations; Allow me to share some of the emerging specialisations Business Valuers: Either for purposes of an outright sale or even for insurance purposes one would need to value the business. There are very few of these experts in Kenya. It would surprise you that some of our insurance companies rely on business valuations done by land valuers. Mergers & Acquisition Experts: Increasingly businesses are buying others or being bought sometimes in a friendly manner at other times in a very hostile way. As business students you must know something about Carbacid and BOC Gases, or for those of you who may not be very holly, then you know a thing about the EABL/Castle Debacle. Just recently MTN entered our local market by buying in a local company. But our companies too have been expanding and snapping other businesses, I know for example Equity Bank has bought some company in Uganda, Nation Media Group has bought companies in Uganda as well as in Tanzania. Kenya Airways, the company many still wrongly believe belongs to Kenyans bought Precision Air in Tanzania. The point here ladies and gentlemen is that transactions of this kind are becoming more common. Complex as they seem, somebody takes time to advise on what price to pay. You may not do this with only CPA or your first degree but the main point here is that it is an emerging field with very good prospects. Arrangers of syndicated loans; Big corporations also need loans, I am yet to see balance sheets of respectable companies without debt in their equity. By the sheer size banks normally come together in what they call a syndicated loan. I am no expert but those interested follow this, there are people who do this. I can’t remember names but there could be just one or two fellows who do this locally. Recovery Managers; The revised companies bill has moved solvency and recovery to a separate act. We are beginning to see companies face financial stress, struggle hard enough and recover fully. It managers grounded in knowledge of accounting and finance who are called on to lead in such difficult times. I may not be confident to state this , but maybe this is why accountants are thought of as mean people. Jonathan Ciano CPA(K) is a celebrated recovery manager in Kenya. Without accusing me of blowing the trumpet too much, Ciano is a CPAK and a member of ICPAK. But the story is not always this rosy, there is a another quasi-government company known as KENACTO TAXIs, it would interest students of business to study it as a case study of a company that has stayed the longest in receivership. Financial Consultants; People are beginning to pay for financial advice. Interest Rates Advisory Centre, that is associated the Hon. Donde is an example of a business which has focused purely on helping clients re-calculate their bank loans. Your see some articles in newspapers giving you advise on how to use your money, it is an emerging field too. Off shore financing experts; Differences in tax and disclosure requirements have made many companies to shop around the world for the cheapest place to locate themselves. Tax havens or names such as New Jersey, Bermuda, Cayman Islands must ring a bell for those who may be interested. In many of these jurisdictions you will not miss the company of Kenyans many of who are CPA(K)s Tax Consultants; Though a civic duty and an honour that we all owe to our nation, it is very hard to pay tax with a smile in Kenya. My intention is not to recycle the old story of who does not pay tax but to awaken you to a career in tax planning and advise. It is possible and it is purely legal to study the laws on taxation in order to minimise the tax burden. I pay my taxes and certainly I wish everybody else did, but I also need someone to advise me on how to minimise on the tax I pay. You can develop you capacity in this area and earn a living advising clients on actions that will result in less tax. Ladies and gentlemen, we can go on and go on, but I wish to end sharing with you my firm faith that Kenya is truly a great nation, with many great and noble people whose pre-occupation is a silence that lets the evil prevail. Thank you for inviting me, and thank you for allowing to speak in one of the few universities in Kenya that are named after a gallant Kenyan whose grave remains unmarked but whose spirit lives in some of our hearts.