The genesis of the case is the Annual General Meeting of East Africa Portland Cement Company Limited that was held on the 17th December 2013. Various resolutions were passed in that meeting including resolution number 4 which provided for re-election of directors. In this resolution Mr. Didler Tresarrieu was elected the director of the company but his election was marred with doubt due to allegations of conflict of interest.
Also, the NSSF and the Treasury who are majority
shareholders in the company alleged that they were denied the right to call for
a poll. The Capital Markets Authority was seized of the matter and suspended
the resolutions arising from the 17th December 2013 Annual General
Meeting pending investigation and determination of the complaints.
East African Portland Cement Company Limited moved
the High Court to quash the order of Capital Markets Authority which suspended
the resolutions of the Annual General Meeting. While the matter was pending
before the court an injunction was issued by the court to maintain the status
quo until the matter was heard and determined by the court. While there was an
order for maintenance of the status quo, the President appointed Mr. William
Lay as the director and chairperson of the board of the company through Gazette
Notice No. 821 under section 7(3) of the State Corporations Act.
Mr. Ole Karbolo was dissatisfied with the decision
of the President and made an application to court to declare the appointment
null and void so that he could continue remaining in office. The court made a
finding that the application was without merit and dismissed it in the first
ruling of Petition No. 600 of 2013. The court held that he had conflated his
personal interests with those of the company.
In Ruling No. 2 of the petition the court ruled that
the petition was nullity since it was filed without authority of the company. The
resolution to file the petition was contrary to article 110 of the company’s
Memorandum and Articles of Association. The resolution was not approved by the
minimum number of directors as required by the company’s constitutions.
Corporate Governance
Issues from the Case Corporate governance is the process and structure used to direct and manage business affairs of the company towards enhancing prosperity and corporate accounting with the ultimate objective of realizing shareholders long-term value while taking into account the interest of the stakeholders[1]. The definition captures essential aspects of corporate governance including the role of directors, rights and duties of shareholders and Annual General Meeting. Corporate governance can be grouped into two categories, that is, principles of good corporate governance practices and best practices in corporate governance.
The analysis below gives the corporate governance
issues in the case and the proposed solutions to the issues. The issues relate
to the role played by the director(s) in the 17th December 2013
Annual General Meeting. Also, the analysis examines whether the AGM was
conducted in accordance with the guidelines on corporate governance and the
role played by the shareholders in the said meeting.
Directors
Section 2.1 of the Guidelines on Corporate
Governance provide that every public listed company should be headed by an
effective board to offer strategic guidance, lead and control the company and
be accountable to its shareholders. There are allegation that some of the
directors of the company were colluding with some outsiders to influence the
election of new directors and management of the company’s affairs, a move that
was detrimental to the shareholders. If this allegation is proven to be true,
then the directors that were party to the collusion acted in contravention of
the Principles of Good Corporate Governance Practices.
Section 2.1.5 of the Guidelines provides that there
should be a formal and transparent procedure in the appointment of directors to
the board and all persons offering themselves for appointment as directors
should disclose any potential area of conflict that may undermine their
position or service as director. There is an allegation of collusion between Mr.
Mark Ole Karbolo and the company’s managing director, with director from
Lafarge limited, which is a shareholder in the company. The directors of the
company did not disclose this alleged conflict of interest and if this is the
case, then, the re-election of the directors was not in accordance with the
guidelines on corporate governance. Also, the court made a finding that Mr. Ole
Karbolo was conflating his interests with that of the company, an interest that
he did not disclose. This also defeats the principles of good corporate
governance practices. Section 2.5.1 provides for public disclosure and states
that there shall be public disclosure in respect of any management or business
agreement entered into between the company and its related companies, which may
result in a conflict of interest. If the allegation are true then the former
chairperson failed to act in accordance with the guidelines on corporate
governance practices.
Section 3.1.1 of the Guidelines provides that the
board of directors should assume a primary responsibility of fostering the
long-term business of the corporation consistent with their fiduciary
responsibility to the shareholders. By allegedly engaging in some collusions
which are detrimental to the shareholders the director breached best practices
relating to the Board of Directors.
In Ruling No. 2 the court held that there was filing
of a petition without the authority of the company. The authority of
instituting a suit on behalf of the company is vested with the board of
directors who can lawfully authorize institution of the suit. Instituting suits
without authority defeats the very essence of effective control of the company,
which is against principles of good corporate governance practices.
Shareholders
Section 2.3.1 provides for approval of major
decisions by shareholders. There should be shareholders participation and the
board should provide the shareholders with information necessary for this
participation. There is an allegation that the resolution in question was not a
true reflection of what majority shareholders wanted. There was also an
allegation that the previous chairperson of the company and the previous
company secretary denied majority shareholders their right to call for a poll
at the AGM held on 17th December 2013. NSSF and the Treasury alleged
they were denied their right to call for a poll. If the allegations are true,
then, the directors acted in contravention of the guidelines on good corporate
governance practices.
Section 3.3 on best practices relating to the rights
of the shareholders states that the essence of good corporate governance
practices is to promote and protect shareholders rights. Best practice entails
treating all shareholders in equal terms and the right of every shareholder to
participate and vote at the general shareholders meeting including the election
of directors. If the allegation that some shareholders were denied the right to
vote are true then the former chairman of the company and the previous
secretary acted in contravention of the guidelines on corporate governance best
practices.
Conduct at the
Annual General Meeting
Section 3.4 of the guidelines on corporate
governance practices provides that the Board of a public listed company should
ensure that shareholder’s right of full participation at Annual General
Meetings are protected through various means including giving the shareholders
an opportunity to place items on the agenda at the AGM. Also, vide section
2.3.2 the board should provide all shareholders sufficient and timely
information in relation to the meeting including full and timely information
regarding issues to be decided during the general meeting. It is has alleged
that the board failed to meet this requirement and if that the case then the
board acted contrary to the guidelines on corporate governance practices.
Suggested
Solutions
Section 23 (3) of the Capital Markets Act provides
that a person approved by the authority to carry out any business required by
the Act shall comply with all requirements of the Authority. East African
Portland Company Limited is a public listed company thus it is subject to the
guidelines and requirements of the Authority.
The Authority through section 11(3) v has the power
to prescribe guidelines on corporate governance of a listed company. The
Authority issued these guidelines through Gazette Notice No. 3362. The
Authority has power under section 11(3) h to inquire, either on its own motion
or at the request of any other person, into the affairs of any person which the
Authority has approved or to which it has granted a license and any public
company the securities of which are publicly offered or traded on an approved
securities exchange or on an over the counter market. The Authority, therefore,
should investigate the allegations and take appropriate action against any
officer of the company that is found culpable.
If the allegations are proved to be true the
Authority should take the following actions:
With respect
to the previous secretary of the company, in accordance with section 25(1) b of
the Capital Markets Act, the Authority should require the company to take
disciplinary action against the former secretary, and disqualify such employee from
employment in any capacity by any licensed or approved person or listed company
for a specified period of time.
The Authority should, in accordance with section
25(1) c of the Act, disqualify the former director from appointment as a
director of a listed company or licensed or approved person including, a
securities exchange. Also, the Authority should recover from such former
director an amount equivalent to two times the amount of the benefit accruing
to him by reason of the breach and levy financial penalties in such terms as the
Authority may prescribe.
[1] Section 1.2 of the
Guidelines on Corporate Governance Practices by Public Listed Companies in
Kenya
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