THE-STAR.CO.KE

It is widely accepted that a company’s reputation is perhaps its most valuable asset. Reputational risk is the possible loss of the organisation’s reputational capital.

Imagine that the company has an account similar to a bank account, that they are either fi lling up or depleting. Every time the company does something good, its reputational capital account goes up and every time the company does something bad, or is accused of doing something bad, the account goes down (FT).

Recent developments in South Africa (where President Jacob Zuma is hounded by 783 corruption charges and saved, for now, by the immunity conferred on him by his offi ce) are a cautionary tale for any company that takes its reputation seriously. " e world is fl at, news spreads like wild-fi re and what happens at the periphery creates real time blow-back at the centre before you can say Bell Pottinger, KPMG and McKinsey. " e bell has tolled for the PR fi rm Bell

Pottinger. In Bell Pottinger’s case, the reputational hit was terminal. Bell Pottinger ran a racially divisive campaign (on behalf of the Guptas’ Holding Company) whose code words were ‘’White Monopoly Capital’’.

KPMG was an auditor and advisor to the Guptas’ companies for 15 years until last year. KPMG chose to overlook a $3.3m diversion of public funds for a family wedding and wrote a report into the so-called Sars spy unit. " is report was self-evidently a paid-for ‘’hatchet job’’ and KPMG last week rescinded the fi ndings and recommendations contained in the report, which saw the removal of several senior offi cials at the revenue service. It also cleared out its South African leadership, including the company’s CEO. KPMG is seeing a signifi cant hit in its South African business and has had to decapitate its senior SA leadership.

McKinsey took a juicy contract with Eskom, a state utility, that involved working with a consultancy linked to the family. Eskom paid McKinsey $73m for nine months work ending in July 2016, and at one point the consultancy anticipated receiving a payment of up to $370m over four years. One internal McKinsey document noted the risk of being criticised for “exorbitant fees” (Africa Confi dential). McKinsey have yet to take any action against any of its offi cers." ere is an old adage in the markets, that

of greed versus fear. What has happened in South Africa has moved the dial from greed to fear. If KPMG and Mckinsey were listed on the markets, both would have tanked big. What this scenario informs us is that, clearly, both global businesses have insuffi cient oversight over what have become far-fl ung operations and that the bottom-line has blinded headquarters to what is going on on the ground. " is is a startling situation.

“I sincerely apologise for what went wrong in KPMG South Africa. " is is not who we are,” said John Veihmeyer, the chairperson of KPMG International, in a statement on Tuesday evening. He is to be commended for getting ahead of the curve.

By contrast, Mckinsey (whose reputation has been built on the reputation of its intellectual capital) are still trying to fi nd their moral compass.

Aly-Khan is a fi nancial analyst

Monday, September 25, 2017 14

NEWS BUSINESS

IN THE WOODS

KQ debt conversion plan almost complete - Joseph

EXPERT COMMENTALY KHAN SATCHU

Reputational risk and a

cautionary tale from SA

Kenya Airways chief executive offi cer Sebastian Mikosz with chairman Michael Joseph during an introductory roundtable media briefi ng in Nairobi last week. /ENOS

TECHE

In July, Equity, Jamii Bora and Ecobank, who are owed by the airline Sh5.2 billion, Sh412 million and Sh824 million respectively, moved to court to stop the deal

Kenya Airways is fi nalising the deal to convert its Sh50.2 billion debt into equity as part of its fi -nancial recovery plan.

Speaking to journalists on ! ursday last week, KQ chairman Michael Joseph said big progress has been made and that the deal will be an-nounced soon.

He hinted that the arrangement would see the government increase its stake in the airline to 46.5 per cent, up from the current 29.8 per cent, while 11 banks will replace KLM as second largest shareholders at 35.7 per cent.

Although he declined to provide further infor-mation, saying that the deal was tied to a court

VICTOR AMADALA@ItsAmadala

NEWS BUSINESS

RITA DAMARY / Geothermal exploration work in Baringo will take longer than ex-pected due to limited funds, the Energy Regulatory Commission estimates." e commission’s acting director general, Pavel Oimeke, said delays in licensing,

fi nancial closure and technical hitches have contributed to delays in the setting up of the power plants by the Geothermal Development Company.

“" ey are still looking for a lot of support from the government, but we expect before the end of this year, they will be able to make good progress and the power plant will be under construction,” said Oimeke last week in Nakuru.

He said GDC has contracted three independent power producers to build three power plants in the project to tap and produce 105MW of electricity under phase one.

“GDC have been making good progress in drilling a number of wells. About 105 mega watts have been tendered and three companies are in the process of setting

up the power plants to generate power from those wells,” he added.GDC is undertaking geothermal development in four phases, each with an ap-

proximate 100MW of capacity. " e estimated potential of the Menengai Geother-mal Project is 1600MW.

Phase one of the project commenced in February, 2011. GDC has seven deep drilling rigs that are used for drilling geothermal wells.

So far, GDC has realized 160MW of steam at the well head." e geothermal projects, which were supposed to start generating power by

December this year, are said to be operational with over 105 mega watts.He however lamented the many challenges GDC is facing in its exploration

works. “One might drill a hard rock for power but turns out to be none there, which is

another challenge GDC is facing in their operation,” he said.

SCARCE RESOURCES

Limited funds delay geothermal development works in Baringo

case, a source privy to the negotiations told the Star the deal got an a" rmative vote from direc-tors who hold 75 per cent of unsecured debt and is already fi led by the court for approval as per the Companies Act.! e source further revealed that the airline was

negotiating with creditors to slash their interest, with claims that some of them hiked interest rates.

In July, Equity Bank, Jamii Bora and Ecobank, who are owed by the airline Sh5.2 billion, Sh412 million and Sh824 million respectively, moved to court to stop the deal, claiming they had not been consulted enough.

Both the High Court and the Court of Appeal have since dismissed the case, with the latter giv-ing KQ a nod to proceed with the debt conversion plan.! e 11 banks, which include Equity, National,

Co-operative, CBA, NIC, DTB, KCB, Chase, Jamii, Ecobank and I &M, are jointly owed Sh22.8 bil-lion. ! e National Treasury, besides holding a 29.8

per cent stake in the national carrier, is owed Sh27.2 billion in debt.

Although new KQ chief executive o" cer Se-bastian Mikosz stayed away from the topic while addressing media for the fi rst time since his ap-pointment in June 1, fi nancial restructuring will be among his fi rst major assignment even as he plans to reclaim the airline’s past glory.! e proposed restructuring will see Kenya

Airway’s long-time partner KLM cut its second largest stake from the current 26.7 per cent to 13.7 per cent.! e airline’s employees will convert their ac-

cumulated bonus into shares, getting a 1.9 per cent stake in the national carrier as a result.