The saga surrounding the governance of CMC Holding Ltd that has unfolded starting March last year is unprecedented in the history of corporate Kenya. It has led to the banning of 7 company directors in one wave including people named in the same breath as the nation’s founding fathers. The extent of fraud and corruption by the company’s leaders has given Kenyans a glimpse into the possible goings on in “old money” boardrooms across local blue chip companies. Regulatory penalties dished out to those involved have reinforced that our government’s thin tolerance of corporate shenanigans.

However, the story has been told through the press as every new detail unfolded, leading to a scattered mess of twists and turns to the story. In this four part series, we will tell you the CMC saga story in one go to give you the full gist. But first, let’s have a history lesson.

Short CMC History Lesson

Cooper Motor Corporation (CMC) was incorporated in 1948 with an authorized share capital of £10,000 (KES 1.36 million back then and around  KES 29.4 Million today) by Mr. Desmond Allen and Mr. Cooper who saw an opportunity to sell Land Rovers in East Africa. The year after CMC was formed, the firm had sold a total 600 Land Rovers. Relying mainly on government contracts for the supply of Land Rovers, CMC even supplied some to Idi Amin’s army in Uganda and Nyerere’s in Tanzania by establishing regional branches there. In 1956, CMC became a public corporation providing vehicle parts, sales, service and administration.

CMC’s mode of operation from early on was to acquire already established smaller businesses to add to its line of business, necessitating a company restructuring to holding company CMC Holdings Ltd in 1971.  By 1970, CMC had acquired the local John Deere tractor franchise. CMC’s 1973 acquisition of Benbros Motors added the Leyland brand of passenger cars and commercial vehicles to its franchises which apart from Land Rover, grew to include Volkswagen, Audi, Jaguar, Nissan Diesel, Nash, Marine Crafts and Evinrude.  In addition, the Benbros acquisition gave CMC its strategic location on Lusaka Road.  Other noteworthy acquisitions were of 33 percent of Leyland Kenya in 1974 which added vehicle assembly to CMC’s range of services and taking over the Ford and Mazda franchises in 1984.

Today, NSE listed CMC Holdings Ltd owns 8 subsidiaries within motoring and aviation services and has the largest distribution network for sales, parts and service in East Africa apart from being a leading motor vehicle dealer.

Scandal Breaks, 33 Year Serving CEO Fired

CMC’s net profit for 2009/2010 halved to KES 406 million from KES 927 million posted in 2008 despite strong economic growth in the year which ought to have resulted in growth, if anything. Furthermore, its market share in the motor vehicles sector dropped to 13.7 percent in 2010 from 15.4 percent in 2009 . This sparked off shareholder-led restructuring in the company’s board & management beginning March 2011 that saw board chairman Jeremiah Kiereini and CEO Martin Forster – who had served as CEO for 33 years – sacked from their positions in a bid to turn CMC’s fortunes.

Enter Mr. Peter Muthoka who took over departing Mr. Kiereni’s seat as chairman of the CMC board of directors. Since 2008, Mr. Muthoka had been growing his stake in CMC until he was the second largest shareholder through logistics company Andy Forwarders where he is the principal shareholder and chairman as well. Andy Forwarders by this time owned a 22.6 percent stake in CMC while also being its main service provider; handling the bulk of CMC’s supply chain logistics.

New CEO, Revelations

Categorical in their search for a new company CEO with “international experience”, the newly re-arranged CMC board appointed Mr. Bill Lay to the post in early June. Mr. Lay was fresh out of General Motors East Africa with a reputation for being a skillful government lobbyist – something CMC needed to drive government vehicle contracts. Just before he left General Motors, Mr. Lay had steered the former into beating long-standing market leader Toyota East Africa to become the top auto dealer by market share in Kenya. Barely one month into his appointment at CMC, Mr. Lay announced plans to spend 1 billion shillings of CMC’s cash reserves in a turn-around strategy to grow its waning earnings.

The ouster of Mr. Muthoka as CMC board chairman in early September is what broke the lid off the CMC scandal; plunging the motor dealer into a protracted scandal that continues to unfold to date. Mr. Muthoka’s conflict of interest through Andy Forwarders, alleged fraud through the same and disagreements over the strategic direction of the company led a faction of large shareholders to vote him out and replace him with businessman Mr. Joel Kibe who himself owned a significant stake in CMC. Through his affiliation with fellow CMC shareholder Mr. Paul Wanderi Ndung’u, Mr. Kibe jointly albeit indirectly controlled 20.7 percent of CMC Motors.

On Wednesday September 14^th , CEO Bill Lay released a statement to the press revealing the results of an audit study done on CMC starting late 2010 that showed how Mr. Muthoka’s Andy Forwarders had overbilled CMC by between 300 million and 500 million shillings every year for logistics services rendered. The next day, Mr. Lay convened a press briefing reiterating the same. Mr. Lay said CMC would undertake to recover between 1.5 billion and 2 billion shillings approximately lost to Andy Forwarders since 2005. Mr. Muthoka didn’t take these accusations lying down, and published a statement in the local dailies countering Mr. Lay’s claims as “…utterly inaccurate and not based on fact.”, among other things.

Crucially, it was in his September press briefing Mr. Lay first brought to public light the extent of fraud and corruption by some of the company’s board and management even involving secret foreign accounts held in the British ruled island of Jersey off the coast of France. From then, the CMC scandal would draw in regulatory intervention that would ultimately uncover one of corporate Kenya’s biggest breaches of corporate governance by an era of corporate leaders thought too powerful to go against.

Stay with us for part 2 of the series.