The Continuing Woe’s At The NSE
There’s an interesting story in BD Africa today about the resignation of the CEO at the NSE. Mwebesa hasn’t been at that job for a long time (about 3 years) — so why is he running away? Does he want to use the connections his made to make more more money? Who knows.
Every time I read about these supposed reforms at the NSE, I get that feeling that the people who are running it view the institution as somehow being separate from the larger society. What do I mean? if the larger society (aka the entire country) has a weak rule of law system, the NSE, regardless of what it tries to do, is going to be affected by this lack of fundamental structural reform that exists within the country.
Afterall, isn’t this disrespect for the rule of law what largely contributed to America’s financial crisis? Bush came into power and immediately started getting rid of many of the securities laws that were supposed to regulate the behavior of greedy people.
Anyang nyongo tried to warn people about this, but then he got stuck at that irrelevant ministry.
I think Kenya needs to start prosecuting people who committ white collar crimes and attach jail time to these offenses. That will send a message to some people who are thinking about stealing clients money. Prisons are not just for people who steal cows and goats. You then (also) have to find a way to ensure that people will be able to recover at least some of their stolen money. For instance, many of the directors of the firms that have collapsed in America are going to be facing years of civil lawsuits from shareholders. If they are lucky enough to avoid jail time, they’ll be stuck paying millions of dollars to lawyers who’ll be defending them in these lawsuits and using some of their money to settle many of these cases. Many of these directors are not going to get off scott free. This is the price you pay in America for running a public company. The rewards may be enormous, but the risks, if things go wrong, can be equally enormous.
This system of law does not presently exist in Kenya and that is why the NSE will be unable to reform itself. The members of parliament are going to have to write these laws and then force the Attorney General to prosecute white collar crimes (without this, you’ll continue to have rogue brokers).
What do you think is the problem at the NSE?
I can understand the righteous indignation when it comes to white collar crime, but I think you’re a bit off when you cite the example of the US. If the directors escape jail, cui buono? Who benefits? The investors have still lost all of their money, people have lost their jobs, and the only people who collect anything are the lawyers!
Far better would be rigorous regulation and increased shareholder activism, where the board is actually held to account and can be removed by the shareholders if they are seen to be failing in their duties to maximise shareholder value. The law should remain a last resort; it is up to those of us who entrust them with our money to hold directors to account. After all, we’re the ones paying their salaries.
Inari:
Aren’t the civil lawsuits I mentioned a good example of shareholder activisim?
I can see why the government might not bring a case against many of the directors of these failed public companies. It’s hard to prove “corruption” especially when many of the executives will simply say that their mistakes were honest business decisions that just didn’t work out (& this argument might work especially because the laws were changed and these new laws gave them enormous leeway to do what they wanted).
So, they could successfully argue that they were “technically” operating within the law and if the law is bad, then it’s not their fault since they don’t write the laws. The politicians do that.
This is where the civil lawsuits by the shareholders come in because the burden of proof in civil suits is much lower than that in criminal cases. Why? because in a civil suit, you don’t face jail time. Whenever you face jail time, the burden of proof will be much higher.
Besides, if you’re a large shareholder who’s lost a significant amount of money and the CEO of that company is sitting on a $500 million dollars pay check, you’ll want to get some of that money from his pocket and the only way to do it is to sue his ass and hope he is driven into a settlement.
In Kenya, we’re stuck with Amos Wako, a man who has never met a criminal he ever wanted to prosecute.