Unpoliced corporate corruption

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By Skamo Loltianya

Integrity will continue being an elusive virtue in a society where the vice of graft and associated gains are not only celebrated but highly glorified by perpetrators and both primary and auxiliary beneficiaries. It is also glorified by those waiting on the sidelines for their opportunity to steal from a nation where the stench of corruption comes from every corner and every sector of the economy.

While The Ethics and Anti-Corruption Commission has firmly trailed its guns on the public sector corruption pundits, the private sector has remained completely unpoliced and tragically so with catastrophic economic consequences to the economy. While skeptics continue to hammer EACC on its lackluster nature of doing
business, there is still much one can write home about with regard to the output of EACC in terms of prosecutions and asset recoveries compared to the zero activity witnessed in the fight against corporate

The existence of this lapse in the war against graft continues to abate corporate fraud, with corporate corruption thriving even at the highest echelons in far too many corporates in Kenya. Due to the
powerful nature of the perpetrators and/or their connections with powerful corporate players, corporate fraud remains a taboo subject to talk about as the consequences to the employees who are knowledgeable
about the happenings therein can be catastrophic and immediate.

The existing gap in the fight against graft in the corporate sector has emboldened corporate fraudsters, especially in organizations with weak shareholder bases where the boards of directors and top
management almost have a blank cheque in decision making, with weak reporting structures to the shareholders or members. Effectively, these corporate fraudsters have developed systems to sustainably run what has slowly turned into thriving economic activities in the corporate sector from
stage-managing Annual General Meetings to rigging in “friendly” board members during board elections into their file and rank.

As investors continue to struggle with the agency challenges without direct corporate control, they can only hope and sometimes against hope that their boards of directors are fundamentally representing their interest in approving corporate strategy and in supervising management to implement the same and run day to day operations with full decision making powers fully delegated to the agents (management).

Given the

macroeconomic” corruption environment in Kenya and the glaring gap in fighting corporate fraud, investors have been left unprotected from corporate fraudsters more tragically so, when the
board of directors is either incompetent, is colluding with management, and/or have conflict of interest leading to corporate fraud against the interest of the shareholder. Under this un-policed business
environment, investors are suffering economic losses running into billions of shillings caused by corporate fraudsters and their boards of directors. The investors have thus been left struggling, prosecuting
perpetrators of corporate fraud through proxy managements at their cost, without a well-coordinated

market wide strategy” to shoulder this mess and the associated cost. Few companies like Safaricom PLC
have come out openly in public reporting corporate fraud to their shareholders and clearly segmenting employee perpetrated fraud in their end of year financial reporting but have still to shoulder the burden of
prosecuting these criminals while the state watches on the sidelines without possibly clearly internalizing the overall cost of this kind of graft on the economy as a whole. Hopefully, other transparent organizations
more so in the banking sector, will follow this example to improve their corporate image as an nhancement of their corporate governance.

The Blue Company Project spearheaded by Jubilee Insurance, Nation Media Group and supported by KEPSA as well as Kenya Association of Manufacturers is another glimpse of hope in the right direction but conspicuously without any direct government support. This project will quite literally draw a line in the sand
and clearly in no uncertain terms mark territory and curve a coveted niche for straight edge corporates and their top professionals in a not so distant future if successfully embraced in the corporate circles.

As the Ethics and Anti-Corruption Commission continues to try to expand their legal mandate in the fight against graft, especially through prosecutorial powers which has remained the biggest sign of lack of commitment by the political class to fight graft, it is inevitably time that the anticorruption czars took
the fight against graft to the corporate crime scene and to the next level of this war against corruption.

EACC should therefore add to its portfolio a new “product” in the form of a department to handle corporate
fraud cases to protect investors, jobs and the economy at large. The Ethics and Anti-Corruption Commission
should also actively engage the private sector in deterring corporate fraudsters and shouldering the cost of prosecuting corporate criminals to protect the bigger economic picture in the country.

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