10 December 2012

Kenya: KQ Court Ruling Unacceptable in the 21st Century

The Kenya Private Sector Alliance, the umbrella body of the private sector notes with concern the recent court decision reinstating the 447 KQ staff laid off in the company's recent restructuring.

As the body representing the private business community, we would like to express that Kenya Airways is a company quoted on the Nairobi Securities Exchange .

Last Thursday, any investor, Kenyan or foreign, could have bought its shares at that exchange, if they were available, for about Sh11.30. The par value of these shares is now Sh5.00.

Accordingly, Kenya Airways is not a private company in the strict legal sense. It is a public company, most of whose shares are held by ordinary investors, some of whom do not live in Kenya and others who have never even flown on any of its aircraft.

As it should be for any public company, the singular organ which holds the mandate for its strategic and day-to-day management is its Board of Directors, which selects a particular and specific set of managers to carry out this task on its behalf.

That is the guiding and overarching principle. But there are other critical factors involved here which make this particular High Court decision wanting.

One of the most basic legal principles holds that personal service contracts should not be enforced by specific performance if they happen to be breached beyond repair by any of the parties.

The most important objective of any business or commercial entity is to remain alive. This is not unlike the most important business or objective of any human being. So, in whatever capacity or state, a business takes any step or action that is likely to it alive.

After careful and wide-ranging deliberations, the Kenya Airways Board of Directors came to the conclusion that it had to cut down its workforce if it was going to remain alive in the air transport sector.

On this Board sits various directors, including those who represent the government in its capacity as a major shareholder in the airline and those who represent KLM, the Dutch national carrier and its principal foreign shareholder.

Within days of this decision having been taken, the airline's fears were confirmed when it was revealed that it had lost almost Kshs. 5 billion over the first half of the year.

In other words, if nothing was done to rationalize its costs, the airline stood to lose almost ten billion shillings during the current financial year.

Two consecutive loses like that would almost certainly ground the airline, leading to the dismissal of all its employees, not just the few it had laid off.

But if it laid off those the High Court is now forcefully reinstating, it could save at least Sh1.2 billion a year, giving it some very valuable time to breathe, streamline and modernize its operations so as to build a stronger and bigger business enterprise which could, in time, employ hundreds or thousands more Kenyans.

This is the 21st Century. Our business enterprises must learn to compete with the best around the world. To do so, their boards of directors and management teams must be left a free hand to take and enforce all critical decisions in real time.

Carole Kariuki is the chief executive officer at Kepsa.

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