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Fallacy of unobserved age and term-restricted tenures for CEOs serving in NSE-listed companies

Karugor Gatamah, CEO at the Africa Corporate governance advisory services, observed that tenure limits for CEOs and directors is not currently a big regulatory issue in Africa, especially French-speaking Africa

Age and term-restricted tenures for the Chief Executive Officers (CEOs) and board of director positions are conditions that most listed companies cherish globally, but in Kenya, it is valued but is never observed.

Capital Market Authority (CMA) CEO Wyckliffe Shamiah, says that whereas the age limit and term of office are issues of major concern, as at now there is no term limit set for the CEOs – which means they can serve as
long as they can still give shareholders value for their money.

“The board members determine the duration, terms, and conditions of the Chief Executive Officer subject to company retirement policy, while shareholders elect board members,” Shamiah said.

The conditions apply to all companies listed at the Nairobi Securities Exchange (NSE) in Kenya, but despite the requirements, players in the banking industry are not keen on implementing the requirement to the letter.

Karugor Gatamah, CEO at the Africa Corporate Governance Advisory Services, observed that tenure limits for CEOs and directors is not currently a big regulatory issue in Africa, especially French-speaking Africa.

Among those listed at the NSE, Gatamah says most similarly do not have it in their Human Resource (HR) policies.
However, some companies want CEOs or board members to have fixed tenure of office because of local conflicts or any potential issues they have in mind to solve.

Nevertheless, the same situation is not applicable for those appointed as chairpersons and independent directors in the board, whose terms vary depending on the organisations.

Shamiah acknowledges that those responsible for hiring the independent board – in this case the shareholders are the people who ensure that board members do not go beyond their age or term limit.

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In Kenya’s banking sector, out of the 38 existing banks in Kenya, 10 are listed at the NSE.

Among the notable perennially serving CEOs include James Mwangi, Group CEO/Managing Director at Equity Bank has been at the helm for 28 years, Nasim Devji, Group CEO & Managing Director at Diamond Trust Bank has
served in the same position for over 21 years.

Others who have also served for a longer tenure include John Gachora of NCBA who has served for 11 years.

George Odhiambo of National Bank, Paul Russo of Kenya Commercial Bank of Africa and Abdi Mohamed of Absa Bank have served for one, two and one terms respectively.

On the other hand, Kariuki Ngari of Standard Chartered, Robert Kibaara of Housing Finance, Gul Khan of I & M Bank and Joshua Oigara of Stanbic Bank have served for five, six, and single terms respectively.

Mwangi, who joined Equity in 1994 as the Finance Director and Change Agent and started by converting his deposits into shares, has previously downplayed concerns is facing succession dilemma, saying he is not about
to retire given the investment he has put into the lender and the value he has delivered.

This followed speculation the lender was facing a succession planning quagmire following the exit of top managers, including Group Executive Director Mary Wamae last year.

It is a view shared by Shamiah, who says what the shareholders want in the business is a CEO and board members who can bring value to the company. “As long as the people hired and board members elected bring value to their shareholders he can just work,” he says.

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However, Gatamah says the danger with this is that when CEOs or board members overstay their terms it can harm the company and its shareholders. It is therefore advisable that they leave once their term limit ends.

“They can start prioritising their own status over their duty to shareholders,” he says.

Such directors may not be regarded as independent simply because of overstaying in the office.

Globally, countries have different approaches to corporate governance issues. In India, for instance, the directors
are allowed to serve for five years and are eligible for another five years which if elapses the company passes a ‘special resolution’. They are also allowed to re-apply after a 3-year cooling-off period.

In Iceland, no tenure limits exist but independence explanations are required. In Israel, the board members are allowed to serve for a maximum of nine years and must then resign after completion.

In Singapore, the board of directors who serve the company for more than nine years are subject to shareholder voting approval to continue.

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