Home / Media Release / Loss of Moi car that got Ashok Shah’s deal with CMC cancelled

Loss of Moi car that got Ashok Shah’s deal with CMC cancelled

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Updated: November 18, 2011

 

When retired president Daniel arap Moi’s Range Rover was stolen from CMC’s industrial Area premises in 2008, the then chief executive of the motor dealing company, Martin Forster, filed a compensation claim with APA Insurance. When retired president Daniel arap Moi’s Range Rover was stolen from CMC’s industrial Area premises in 2008, the then chief executive of the motor dealing company, Martin Forster, filed a compensation claim with APA Insurance.

Ashok Shah, the chief executive of the insurance firm and a board member of CMC, refused to pay the Sh18 million claim for the luxurious sports utility car.

A furious Mr Forster promptly cancelled the insurance contract that APA had held with CMC for nearly two decades.

The incident soured the previously cordial relationship between Mr Shah and Mr Forster.

Months later, the board demanded a clean-up of CMC’s bank reconciliation accounts that culminated in the sacking of Shashi Shah, the group finance director, who apparently had the backing of Mr Ashok Shah.

This, to Mr Forster, marked the breaking point of the cordial relationship between him and Mr Ashok Shah, who allegedly declared a boardroom war against the chief executive.

“The departure of Mr Shashi brought me into total conflict with Ashok Shah. He wrote to the chairman in the strongest possible terms objecting to Shashi’s departure,” wrote Mr Forster in a letter to the CMC board dated May 30, two months after his dramatic ouster from the company.

“Needless to say, I gained another enemy and the board became progressively dysfunctional.”

Mr Shah did not respond to our multiple requests for comment on this subject. Though his war with Mr Forster may have passed as an unfortunate falling out of two friends, Mr Shah was not the only director on the CMC board to have had an interest in doing business with the motor dealer.

But neither is CMC the only Nairobi Securities Exchange (NSE) listed company whose directors have used their positions at the table to win lucrative contracts for personal businesses or associates.

Andy Hamilton, a British national, is both a director at CMC and CRB Africa, the agency that collects credit repayment information on borrowers  and keeps a data base of publicly available information on prominent business people and companies.

Sources within CMC said the motor dealer has contracted CRB Africa to provide information that it uses to vet potential customers.

Peter Muthoka, who chaired the board between March and September this year, handled CMC’s multi-billion shilling transport and logistics business for 17 years until last month when the new chief executive, Bill Lay, cancelled the contract in heat of a boardroom storm that has persisted to date. Mr Lay accuses Andy Forwarders of over-billing CMC to the tune of Sh2.5 billion in the past five years. He also accuses Mr Muthoka of selectively awarding pay increases to CMC managers who were close to him to protect his business interests in the company.

Jeremiah Kiereini, one of Kenya’s wealthiest businessmen who owns significant stakes in many of NSE’s blue chips, is also believed to have had a hand in CFC bank’s long-term relationship with CMC- which has seen the lender offer loans and advances to the motor dealer.

Mr Kiereini and Charles Njonjo, the former attorney general and long-time CMC board member, held major stakes in CFC — now CfC Stanbic Bank after it merged with South African financial conglomerate, Standard Bank Group.

Mr Njonjo also holds significant shares in Heritage Insurance, which manages CMC’s staff pension fund.

Being a capital intensive business, CMC relies heavily on short-term financing from banks for its operations.

The latest annual financial statements for the year ended September 2010 show the motor dealer had total borrowings of Sh5.4 billion in its books, up from Sh4.7 billion in 2009.

 These comprised of bank overdrafts of Sh564 million, bank credit lines of Sh807.5 million, an import financing facility of Sh3.4 billion and a commercial paper of Sh490.8 million.

The annual report shows the debts are financed at between 14 per cent for bank overdrafts and six per cent for the import financing facility.

Un-audited, half-year statements show CMC’s total borrowings had grown to Sh5.8 billion by March this year. Joel Kibe, the CMC board chairman who has been vocal in calling for a forensic audit on Andy Forwarders’ transactions with the motor dealer in the past five years, defended the directors’ multiple business contracts with the company.

He however said all contracts have to be tendered competitively, and directors should only be awarded deals on merit.

“The problem with Andy Forwarders’ contract is that it was not never competitively tendered,” said Mr Kibe.Asked whether the contracts with APA Insurance, CFC Stanbic Bank and Heritage Insurance had been competitively tendered, Mr Kibe said “all cases should be handled on their own merit.”

“If there is something wrong with the Heritage Insurance contract or any other then it should be investigated as well,” said Mr Kibe.
Corporate governance rules demand that board members oversee management of companies on behalf of other shareholders.

In instances where the directors do business with companies in whose boards they sit, they are required to disclose the potential conflict of interest to other board members.

Mr Muthoka, the single-largest shareholder in CMC with a 24.7 per cent stake, says he had all along declared his interest in Andy Forwarders to the CMC board.

Andy had handled CMC’s logistics business for 17 years, and Mr Muthoka says he does not see why it became an issue given that he joined the board only in 2006. Mr Muthoka adds that the Andy’s contract is with CMC Motors, which has its own board and not the group in whose board he sits. “It is all witch hunt.

There is a committee that handles procurement for logistics suppliers and I do not have any influence in its decisions,” said Mr Muthoka.

In addition to the business contracts with CMC, Mr Lay has accused Mr Kiereini, jointly with former CEO, Mr Forster, of stashing millions of shillings in a foreign currency denominated bank account in Jersey Island.

The account, currently holding an equivalent of Sh195 million, is said to have been used to top up salaries of senior managers and the two board members.

Balances in the account are not reflected in CMC’s financial statements. It was also not known to other board members and shareholders until after Mr Forster’s abrupt departure in March.

“The revelations coming from CMC are astonishing, it appears directors threw all corporate governance ethos right through the window,” said a Nairobi based executive, who did not want to be named as it would put his business with CMC in jeopardy.

“What you are seeing at CMC cuts across most listed companies at the NSE,” he added.

 

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