Business Daily (Nairobi)
James Makau
8 May 2008
As far as headhunting for the corner office goes, Old Mutual's botched attempt to poach a senior executive from rival British American Kenya will go down in history as the ultimate put down in corporate Kenya this year.
Picture this. Last October 2007, Old Mutual in a quiet, but surprising move announces that Mr Stewart Laird Henderson, the CEO of the Kenyan subsidiary is leaving.
The new leadership, from headquarters down in Johannesburg, in characteristic corporate politeness even offers a few kind words and plays a tribute to the man who has built the company from an also-ran to the top league.
Among Mr Henderson's achievements during his term is the acquisition of the country's largest asset management business from Barclays Bank, today with over Sh77 billion under its care and integrating it into local operations although its ran separately.
The exploits of the company in the unit business which delivered superior returns during the bull market on the Nairobi Stock Exchange has made Old Mutual one of the most talked about companies in many middle-class Kenyan homes, offices and social places.
With Mr Henderson's exit begins the hunt for a new chief in the local scene, which ends in February 2007 with the poaching of Mr Dominic Kiarie, the managing director of British American Asset Managers (BAAM), a subsidiary of the much bigger rival and a business controlled by billionaires Benson Wairegi, Jimnah Mbaru among other powerful and politically connected corporate chieftains.
All is quiet as Mr Kiarie, who had taken a month's leave from his employer as he served notice before ascending to the thrown at Old Mutual plays what is considered to be a premature April Fools joke on his new employers with the news that he had declined the job offer and would not report on April 1st as expected.
Then all the hell seems to break loose at Old Mutual-pointing to chaos that could have culminated with the exit of Mr Henderson in October.
It is in the wake of Mr Kiarie's snub that the company announced that the long serving managing director of the asset management division, Mr Rick Ashley was also leaving in April.
Sources say that Mr Ashley's division had been managing investments-particularly equities-on behalf of the Group, which had made the company very popular with the public and raised Mr Henderson's star within the firm. The company soon announced that it had merged the asset management division-which handles Sh77 billion of pension funds money-with the investment services division that marketed and operated collective investment vehicles such as unit trusts.
Previously, the heads of fund management, investment services and insurance services reported to Mr Henderson as the CEO.
Now, under a new structure announced last month, fund management was merged with investment services to form the Old Mutual Investment Group (OMIG)-an acronym, which some insiders have taken to jokingly call "Oh-my-God". This job was given to Mr Henderson's protégé Ms Laura Chakava, whom the company in its publicity material had glowingly paid tribute to for building the unit trust division and by extension revolutionalising the industry in Kenya.
According to Mr Grant Pote, acting CEO, this is the business model that Old Mutual is now using in other African operations to exploit the synergies that exist between the two businesses.
Slightly over a month since Mr Kiarie declined the job at Old Mutual, second-guessing what could have motivated an ambitious and Cambridge educated executive to leave such a huge opportunity on the table with one of the most prestigious insurer in the world and go begging back for his old job in a small division of a big local company has become the latest parlour game in Kenya's financial services industry.
What is it that Mr Kiarie, who had the privilege of reviewing Old Mutual's operations, saw for him to turn down the offer -even after his appointment had been publicized- and risk a backlash in the top corporate recruitment circles?
Inquiries by the Business Daily have largely been stonewalled by Old Mutual's management here, including declining to provide the annual report for 2007, though the company in the past distributed the reports freely despite being under no legal obligation to do so.
The company had by the time we went to press not published its balance sheet in the local press-though of all major insurers-it usually provides the bare minimal disclosures required by law.
Mr Kiarie declined to be drawn into the matter for the record.
However, interviews with several key players who are familiar with the events reveals a complex series of events that could have led to Mr Henderson departure and though they are specific to Old Mutual, they are emblematic of the Kenyan insurance sector and the fund management industry in the last one year after share prices suddenly collapsed on the NSE in March 2007 after the bubble of unusually high stock prices that are not supported by high quality profits burst.
Events that led to the ouster of these two executives point to the challenges that the company has faced growing the business in a year where the benchmark NSE 20 share index returned negative six per cent and underperformed other emerging frontier markets on the continent. This was a dramatic turn of events after a five-year period of uninterrupted growth in stock prices.
The events also highlight some of the risks that come with an aggressive investment strategy that leans heavily on quoted shares and a weak management structure that cannot deal with a fast expanding business in rapidly shifting financial markets.
Several high ranking executives in the know at Old Mutual who did not want to be named because they were not authorized to speak on behalf of the company told the Business Daily that Mr Henderson was politely asked to leave.
"He even realized that after staying on the job for too long that it was time to go in order to align the business with the changing strategy that the group wanted to pursue," a source said.
These people said that "certain legacy issues" had emerged in the business that was now being fixed.
Talk in the market, which insiders confirm, was that the two top managers were pushed from the jobs following pressure from headquarters in South Africa to deliver faster and bigger profit growth. Indeed, the profit performance of Old Mutual has remained luck-lustre compared to less diversified rivals with smaller asset management businesses.
With Sh77 billion worth of assets under its name, Old Mutual Kenya is one of the financial sector's heavyweights in the East Africa region spanning operations from insurance to asset management and investment management services.
Events at Old Mutual point to problems tied to the challenges that its executives have faced growing its three businesses-life insurance, fund management and investment services-in a rapidly shifting environment.
Old Mutual has now created a single investment company, Old Mutual Investment.
But the goings on at Old Mutual as well as the performance of the firm's Life business and fund management has more to them than meets the eye, a factor that has led to a management rejig by the South African office.
Mr Henderson is largely seen as the force that built Old Mutual's operations in Kenya having overseen the growth of the firm's life business in particular. From a portfolio of less than Sh1 billion in 1994, Old Mutual's life business is now estimated to be worth between Sh5 billion.
Old Mutual's life funds became amongst the most lucrative when it bought into stocks during the depressed years at the bourse between 1998 and 1999. This strategy would prove to be a blessing at the height of the bull market that started with the economic resurgence that followed President Kibaki's first year in office in 2003.
With between 50-60 per cent invested in stocks, the growth of the firm's portfolio has been phenomenal in tandem with that of the NSE equity market. By the close of 2006, data from the Insurance Regulatory Authority shows that Old Mutual had invested Sh2.4 billion out of its Sh5 billion in total assets in quoted shares. Though such an investment strategy can generate huge profits during good times and in a rising market, it can lead to a major erosion in the value of assets on the balance sheet in bad times and this usually depresses reported profits if international accounting rules are followed.
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