Directors' Shareholding at Cooperative Bank of Kenya: A Stink to High Heaven

Like other Kenyans, I am proud of our country's cooperative movement, which is a shining example around the world. And I am proud of the Cooperative Bank of Kenya (CBK), a state institution which had its IPO only last December. Before the IPO, only cooperative societies had a real chance of buying CBK shares in bulk. For retail investors, there was one over-the-counter route to obtaining CBK shares, for a good number of years. This was what is now Suntra Investment Bank, which is presently weakened by scandal of huge proportions.

I have just had a look at CBK's Annual Report and Accounts for 2008, which has just been released. I am talking in particular of pages 144 to 146, which, thanks to an aspect of Kenya's corporate law, obliges the bank and other publicly quoted companies to show the distribution of shares among the bank's top 10 shareholders, the bank's own Directors, and different categories of the bank's shareholders. If you peruse those pages too, you will, as I do, smell a rat that stinks to high heaven.

CBK has a total of 3,492,369,900 issued shares, and a total of 116,068 shareholders. That averages at 30,088 shares per shareholder, regardless of category. More importantly, Kenyan individual shareholders own 939,112,300 shares, and there are 112,774 of them. This averages at only 8,327 shares per Kenyan individual shareholder. Alas, among CBK'S seventeen Directors (who own a total of 138,995,700 shares), the average is a staggering 8,176,217 shares (that's more than 981 times the number owned by the average Kenyan investor).

In fact, if you compute the average for Kenyan individual investors without including the shares held by the Directors: the total number of shares held by Kenyan individuals (non-directors) drops to 800,116,600 shares, and the average among the 112,757 of them drops to 7,095 shares per individual (which is 1,152 times less than the average for the Directors).

We can look at the directors' allocations to themselves in even starker light, as follows:
1. The Managing Director owned, as at the end of December 2008, a total of 68,121,000 shares.
2. The Chairman of the Board owned 8,000,000 shares
3.The Vice Chairman owned 7,700,000 shares
4. The Company Secretary owned 5,090,000 shares
5. The Commissioner of Cooperatives owned 2,750,000 shares
6. Five other Directors also owned just over 5 million shares each
7. Three other Directors owned exactly 5,000,000 shares each
8. One Director owned 2,750,000 shares
9. One Director owned 2,310,000 shares, and another owned 2,300,000 shares
10. The "poorest Director", representing the Permanent Secretary at the Ministry of Finance, owned what you may call a "token" of 1,000,000 shares! [Currently each share sells at around KES 6.50, or US$0.083]

The circumstances under which these stupendous amounts were allocated and paid for require a forensic investigation. The Directors should step aside while this happens, for, clearly, there has been no transparency here. Previous annual reports of the company may suggest where these shares came from over the years. For at least a couple of years after the bomb blast, annual reports showed significant amounts of issued shares, without explanation as to who was receiving them. The public has reason to need to know now. At the SACCOs, and at the bank's registry, officials did not seem to ever know that additional shares were being made available each year for purchase by members. What Suntra did over the counter, as far as one knew, was to match retail buyers and retail sellers who had owned their shares for some time, perhaps even since before the bomb blast, which nearly reduced the bank to a rubble, in August 1998.

The shares previously held by individual cooperative societies, amounting to 64.56% of the total, were (wisely in my view) grouped together, just before the IPO, under a corporate entity called Co-opholdings Co-operative Society Ltd. This ensured, and still does, control of the bank by the country's cooperative movement. However, the then acting Minister for Finance, John Michuki, issued a strange edict prior to the IPO which keeps secret for some five years or so the identities of the societies (and perhaps other "entities") brought together under that corporate entity. Let us hope that there are not even more rats under cover there. Five years may be too long to find out the truth!