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Assignment On Corporate Governance
Assignment On Corporate Governance
MPPA PROGRAM
REG NO C153/CTY/PT/27575/2014.
Introduction
Corporate governance can be defined as the system by which companies are
directed and controlled" (Cadbury Committee, 1992).
Corporate governance involves a set of relationships between a companys
management, its board, its shareholders and other stakeholders. Corporate
governance also provides the structure through which the objectives of the
company are set, and the means of attaining those objectives and monitoring
performance are determined.
Corporate governance means how to make the balance between the board
members and their benefits and the benefits of the shareholders and the other
stakeholders. (M.Tarek Youssef, 2007)
Corporate governance is concerned with creating a balance between economic and
social goals and between individual goals while encouraging efficient use of
resources, accountability in the use of power and stewardship and as far as possible
to align the interests of individuals, corporations and society.
According to the bank, the tax accrued from benefits of a car valued at Sh2.9
million, Sh10 million insurance premiums with Sh3.2 million tax, and Sh4.5
million school fees and air-tickets for his children amounting to tax worth Sh 474,
241.
The court was told that Sh11.2 million was in taxes imposed by the Commissioner
of Income Tax on the former CEO in accordance with the provision of the Income
Tax Act chapter 470. The money was paid to Kenya Revenue Authority (KRA) on
behalf of Mr Mureithi when he served as the banks CEO between 1998 and 2001
for unpaid taxes on his monthly benefits and allowances.
The court directed Mr Mureithi to pay the bank Sh11.2 million and interest since
year 2003, pushing the payout to about Sh25 million.
d) There was a plan to convert the bank from a society to a company and list
the bank shares in NSE in 2008.
The AGM adopted the chairmans speech granting a blanket approval to the bank
to issue and sell undisclosed number of class B shares to its senior staff.
A total of 2,522,376 new class A and class B shares were allegedly sold to insiders
who included the banks directors, senior staff and co-operative societies for Kshs
252 Million. Before listing the shares were split in the ratio 1:100 and after the IPO
the share price was Kshs 9.5. The share allocated to insiders would fetch 2.4
Billion.
Table showing how the shares were allocated
No
Beneficiary %
Shares No
Par Value
IPO Value
1.
Directors
55%
1,389,960
138,996,000
1,320,462,000
2.
Senior
44%
1,109,650
110,965,000
1,054,167,500
Staff
3.
Co-op
1%
22,766
2,276,600
21,627,700
societies
Total
100%
2,522,376
252,237,600
2,396,257,200
Directors acquired 1,389,960 class B shares of Shs 100 each that would fetch Kshs
1.32 Billion at Kshs 9.5 after the share split in the ratio 1:100 in the banks IPO
which was to be in December 2008.
The directors also granted themselves contrary to CBK rules and regulations loans
totaling to 74 Million in 2007 and 2008 to facilitate the acquisition of said shares.
The managing director Dr Gideon Muriuki acquired 681,121 class B shares of
Kshs 100 each. This would fetch Kshs 650 Million at Kshs 9.5 after the share split
and IPO at NSE. The MD used 68 Million to purchase the shares thereby fixing the
bank and making a personal profit gain at the expense of the bank of Kshs 580
Million.
Mr Muriuki is ranked as the second highest shareholder of the bank after the cooperative saccos and the highest individual shareholder. The senior staff members
were offered 1,109,650 by the directors for 111 Million with the sole aim of
winning their support and co-operation.
The middle and junior staff were denied the shares and compelled by the MD to
buy the shares through the Initial public offer. The staff members were compelled
to borrow loans through the bank to buy its own shares.
Director
Share
Amount paid
profit
68,121,000
49%
68,121,000
579,028,500
8,000,000
6%
8,000,000
68,000,000
7,700,000
6%
7,700,000
65,450,000
5,110,000
4%
5,110,000
43,265,000
5,090,000
4%
5,090,000
13,126,450
holding
1
Gideon
Muriuki
Stanley
Muchiri
Julius
Riungu
Macloud
Malonza
Rosemary
Githaiga
However, Sarsa and Kuscco oppose the reasons given for stopping the deal. The
two blame what they term as an invisible hand, conflict of interest and fear of
competition saying there are forces out to frustrate Mwalimu Saccos expansion
into banking. Industry insiders point an accusing finger at the Co-operative Bank
as the invisible hand. They claim the bank fears competition and loss of business
from a major client.
The conflict of interest arises because Co-operative Alliance of Kenya is the apex
umbrella body for the co-operative movement which is opposed to mwalimu
acquisition of Equatorial bank. Three of Cooperative Alliance board members are
all linked to Co-op Bank. Co-op Bank chairman Stanley Muchiri also doubles up
as Co-operative Alliance chairman while CIC Insurance chairman Japheth
Magomere is the alliance vice-chairman. Co-op Bank holds 25 per cent stake in
CIC Insurance.CAKs chief executive, Mr Daniel Marube, remains an employee of
Co-op Bank to date, implying that he is on the lenders payroll.
Conclusion
One of the major pillars of corporate governance is transparent and open leadership
with accurate and timely disclosure of information relating to all economic and
other activities of the corporation. It is evident that the board of directors of cooperative bank contravened this key pillar before the listing of the banks shares.
The directors did not act with integrity and fairness in allocating themselves huge
chunks of shares at the expense of the shareholders.
The behavior of the directors is well captured in the agency theory which states
that people are self interested rather than altruistic and cannot be trusted to act in
the best interests of others. The theory states that superior information available to
managers allows them to gain advantage over owners of a firm. This conflict of
interest has been well captured through co-operative bank shares listing and
mwalimu sacco vision of growth into a bank which is being frustrated.
References