Wednesday, June 24, 2009

Fear, loathing, intrigue and impending bankruptcy at the Standard Group

From the outside, Kenya’s oldest media company is a prosperous entity turning in profits and growing in leaps and bounds. Every other month, the management announces this or the other achievement, having surpassed targets or scaled new heights in the competitive publishing arena or acquired one or the other technological platform. Yet, every attempt to countercheck the declarations of runaway success is routinely stonewalled by management,which prefers one-way communication to the public.

According to inside sources, the group is yet again in a quandary occasioned by a series of miscalculations, faulty projections and boardroom squabbles.

Despite the hype and chest-thumping about its profitability, insiders say the company is facing its leanest financial period in recent years in its determination to stabilize. Nearly every of the last five years, the group has either been re-launching, repositioning, restructuring, cost cutting, re-sizing or even expanding; an array of management lexicon that is difficult to understand.

While it is probable that these actions have partly helped keep the company afloat, and even given it the desirable outlook of a prosperous company in the market, compared to what it was up to 2003, these achievements seem to be continuously undermined by infighting and factionalism among top management and shareholders. Suspicion between the three main shareholders –former President Daniel Moi (36 per cent), his son, Gideon (20 percent) and his former aide, Joshua Kulei (16 percent)–is at the centre of the instability that has now become the Achilles heel of the company. According to sources familiar with the management, the Moi family is distrustful of Kulei and has been trying hard to push him and his proxies out, which has driven a wedge in the company’s management, split depending on one’s allegiance either to the Moi or the Kulei faction.

The infighting between the two groups started just two years after Moi left power. While it is not exactly clear what triggered the suspicion, two reasons have so far been offered for the acrimony. The first and more plausible reason is that while he was in power, Moi entrusted all his business interests, including Baraza Limited (the holding company for KTN) and Standard newspapers, to Kulei. Save for Gideon, who has access to some family businesses, the rest of the Moi sons are engaged in their own, some not so prosperous, businesses and wonder why their father should vest control of his business empire in Kulei’s hands. They also fear that, in the event of Moi’s death, Kulei may shortchange them on family wealth, in which he is either custodian or shareholder with their father.

The situation has degenerated into serious suspicion and acrimony between Moi’s sons and Kulei, that is manifested in the boardroom games at Standard Group, and an attempt by the Moi family to wrest from Kulei the 20 percent shareholding at a leading cement factory earlier in the year. Another confidential source attributes the acrimony to Kulei’s arrest over corruption allegations in 2004. It is speculated that Kulei agreed to trade his freedom with the former president’s business secrets, some of which are said to have been included in the Kroll Report on the whereabouts of foreign funds allegedly fleeced from the country. The report was supposedly used by the government to armtwist Moi to support Kibaki’s bid for a second presidential term last year.

But other sources close to the Moi family have argued that this may just have been propaganda passed to former President Moi by his sons and allies, who are trying hard to outdo Kulei and win their father’s favour and thus gain control of family businesses. Of all the Moi businesses, the primary battleground has been The Standard Group, with Kulei precariously hanging onto his shares against all odds, a situation that has left his allies on the board and editorial department highly vulnerable. Indeed, at one time, Kulei had reached the point of selling his shares in the company to other investors, but the plan was scuttled by intrigues. Up to 2004, Kulei had been tightly in control of The Standard Group (KTN and Standard newspaper) and his appointees held key positions on the board and management. At that time, his nephew Chris Kisire, the Group Financial Director, literally ran the show to the extent of even overruling the CEO on many issues, backed by Ben Chepkoit, his brother who was the board vice chairman.

But the entry of Paul Melly, an appointee of the Moi family, as the Standard Group vice chairman and strategy advisor in 2004 tipped the scale against the Kulei camp and set the stage for their departure, one by one. The Moi group argued that, comparatively, Kulei was a minority shareholder who should not take up key positions on the board and management. Although he was recruited as CEO after competitive interviews in 2003, Tom Mshindi later came to be perceived as a Kulei proxy, even though ironically the Kulei group inside the Standard equally had little time for him. Most of Kulei’s allies in the editorial department were unhappy with Mshindi for edging them out in favour of what was described as his dream team–Mutuma Mathiu, David Makali, Pamela Sittoni, Kwamchetsi Makokha and John Bundotich – that was meant to revamp a newspaper whose fortunes had already dipped.

After so much speculation and intrigues that almost stalled the turn round of the group, Mshindi eventually left The Standard in May 2006, three months before the expiry of his three-year contract. Mutuma Mathiu, David Makali, Kwamchetsi Makokha and Pamela Sittoni had already left for various reasons, thus scuttling the dream team and the new bold editorial direction the newspaper had tried to take. Earlier in 2005, Mshindi had tried to elevate Mutuma Mathiu, then the Managing editor of the Standard daily, to the position of Group Managing Editor, but this was vetoed by the Kulei group, with Chris Kisire threatening not to honour the financial demands of the position. That would have meant the GME serving without a salary. Mutuma left soon after, back to Nation, where he was deployed as Group Managing Editor of the group’s Tanzanian operations.

The infighting continued quietly amid speculation over the future of the company in the face of not only clear internal instability, but also its fragile relationship with the government. The fragility of its relationship with government was to manifest itself in the March 2006 commando-style raid on The Standard by hooded policemen, an act that was easily interpreted, whatever the reasons given at that time, as revenge against the group for refusing to support the proposed new constitution and siding with the opposition.

But, even though its coverage of the referendum was subject of much debate and complaint in government circles, 2005 was a little easier to navigate for The Standard Group, since both the Moi family and Kulei supported the Orange (No) campaign against the proposed new constitution. But the 2007 General Election was to prove tricky since, while Moi and his son Gideon supported the Party of National Unity (to which Kanu was an affiliate) and President Kibaki’s re-election, Kulei backed ODM where his key political ally, William Ruto, pitched tent. While Moi and Gideon supported Kibaki and PNU, the Standard Group was perceived to be leaning towards ODM. When Gideon lost his parliamentary seat in Baringo, and Moi faced unprecedented hostility during the campaign and subsequent post election violence, the Standard newspaper and KTN were on the firing line for perceived ‘biased’ coverage.

This view was also advanced by the PNU and Kibaki’s allies, which prodded the Moi family to effect changes at the group to instill some editorial “discipline”. Intense pressure was put on KTN news head Farida Karoney and the daily’s managing editor Kipkoech Tanui, who were perceived as sympathetic to the Orange Democratic Movement. When he visited the offices of the Standard Group in late January, Gideon Moi was heard grumbling to some acquaintances in the lift that some employees had campaigned against him in Baringo. A few days later, a memo signed by Group CEO, Paul Wanyaga, announced that Finance and Administration director Chris Kisire’s contract had expired on January 31. This angered Kulei who, in February, took Wanyaga to task over his mandate to write such a memo against his nominated director. Wanyaga may just have been exacting his revenge on a man who had recruited and subjected him to so much pressure as commercial director. Attempts by Kulei to return Kisire to his old job hit a snag, partly because Kisire was also reluctant to go back and work with Paul Melly, the overseer of the interests of the Moi family.

According to inside sources, the group is yet again in a quandary occasioned by a series of miscalculations, faulty projections and boardroom squabbles.

Soon after Kisire’s departure in February, Wanyaga asked Group Editorial Director Kwendo Opanga and KTN’s Managing Editor (Production) Farida Koroney to take leave. In his tenure, Opanga had played his cards evenly with both camps but Karoney was perceived to belong to the Kulei camp, being a close ally of William Ruto. While she completed her leave and returned safely to her job (although there was speculation that she was on her way out, along with another perceived Kulei ally, Kipkoech Tanui), Opanga was summoned to a meeting at I&M Tower a day before the end of his leave.

To his surprise, the meeting had been called to discuss his “retirement", nearly ten years before his mandatory retirement age. As they emerged out of the meeting to allow Opanga time to write a letter officially requesting to “retire”, he was surprised at how his former colleagues on the board had pulled the rug from beneath his feet. A press conference had already been called by the group at which he was to announce his “retirement” and for others to bid him farewell.

In a nutshell, such changes, along with many others not mentioned here, eventually handed the Moi camp on the board total control, with the two Pauls running roughshod over everyone and organising media hype for every small decision they make. By April, Kulei had acceded to pressure to offload his 16 percent shareholding, but the Moi family was insisting that those shares be offloaded to Gideon.

But things are not looking too rosy for them at the moment. First, they had to fight off allegations by Kisire that, soon after he left, close to Sh10 million was irregularly withdrawn that ended up in the pockets of individuals. Secondly, they had to contend with the Kenya Revenue Authority that was threatening in July to shut down the company for failing to remit taxes. Luckily, hours before the deadline, they found relevant documents to prove they had remitted taxes for the period in question. Thirdly, tension started building between the two Pauls, as Melly insisted on being a signatory to all financial transactions in what was seen as a reaction to allegations of financial impropriety from Kisire. Paul Wanyagah reluctantly acceded to this surprise move, rightly arguing that he was the CEO and Melly, a non-executive Vice Chairman, had no right to such powers. But this merely confirmed the notion that nearly no member of the board at Standard is able to stand up against Melly.

The fourth challenge to the Moi camp that has taken full control of the company has been the fragile financial situation of the company, which they have worked very had to conceal. The tricky financial situation the company finds itself in is basically a product of overzealousness and miscalculation, especially with regard to the launch and commissioning of the new plant and head offices on Mombasa road.

The Mombasa road project, initially estimated to cost one billion Kenya shillings and financed through bank guarantees, was projected to be complete by December 2007 and a new look Standard launched soon after. But by that time, it had been realised that the cost of the project had been under estimated and a further sh300 million was needed to complete it.

As it happens, the company does not have that money and it had to consider two options: Either the main shareholders pump in money or secure another bank guarantee for the sh300 million. Shareholders declined to pump in more money, leaving only the option of another bank financing, which is yet to be secured. This means the project has effectively stalled.

This has put the management in a precarious position. First, all management projections from this year onwards had been pegged on the understanding that the project would be complete and thus the group, having moved to Mombasa road, would not be paying rent for I&M building. Now the company finds itself in a situation where it does not only still pay the rent, but has also to start servicing the bank loan used to put up the incomplete Mombasa road facility. Besides, the group seems stuck with the 12 year contract for the lease of the I&M premises, an agreement that Paul Melly, upon joining the group in 2004, condemned and chided those who had signed it that same year, arguing that the group shall have spent is enough to put up four such buildings by the end of the period. Now, sensing that The Standard Group wants to free itself from the tenancy contract and move to its own offices once the facility is completed, the I&M landlord has dug in, arguing that the 12 year contract is irrevocable: Either they have to serve the full term or pay full rent for the remainder of the contract before shifting.

This setback has jolted the Standard Group management, which had prepared expensively for the new era by heavy recruitment (twice last year and once more in February this year) and also, after several postponements, launched an expanded 78-page newspaper in July. It means that the company now has to bear the burden of an expanded staff portfolio for a project that has aborted. Yet signs that the company was facing major financial problems were evident. First, the much anticipated launch of the new-look Standard newspaper had been put off four times following what was said to be difficulties in raising Sh7 million for the event.

Further, the supply of up to 45 computers as part of the preparation for the launch was delayed for several months when the management could not raise an LPO for the Sh7.6 million needed. The LPO was later revised downwards to sh5.2 million. Once the LPO was raised, the unsuspecting supplier delivered the 36 computers immediately in late June. But by early September the supplier had only been paid Sh2 million.

The other sign that the company was in financial trouble is in the so-called declaration of profits and dividends paid out to shareholders. The company declared Sh423 million profit in March and offered to pay shareholders profits of up to Sh73 million, but there was no money in fact. By June, the company was still trying to secure a bank guarantee to enable it pay the dividends. Then there was the sudden decision to retrench staff just a few months after recruiting. Each department has been given a budgetary ceiling, which the retrenchment must realize. Some departments, like commercial, have chosen to go about reducing the costs in a strange way...

A few months ago, the management wrote to mainly advertising staff, most of whom were recruited in the last one year after another mass lay off in the department, that the retainer of Sh45, 000 - 60, 000 they had been receiving for close to a year was a mistake; that the letter of appointment that gave them the retainer was also a mistake, and thus they were required to refund the money to the company.

This created a stand-off between the management and the advertising staff, which the company paid for dearly, as there were literally no adverts in August. At the end of August when everyone else was being paid, employees in the commercial department were left out for over a week as management were deciding on the way forward. And the way forward was that the money they had been paid for close to a year was now to be treated as a loan they would repay the company within 12 months. Instructions were also issued to departmental heads in early September that all promotions had been frozen. As all this was going on, the company declared profits of Sh51 million for the first quarter of the year.

For a company that has a penchant for making news, even if it is in its own media, the fact that the management has assiduously declined any approaches for interviews bespeaks volumes about the veracity of its institutional information. Both vice chairman Paul Melly and the CEO Paul Wanyagah ducked being interviewed for this article for one month...

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