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Board the disease tormenting hospital as audit reveals decay



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The Nairobi Hospital is in the middle of a deep corporate governance crisis. The evidence is in the uncouth and unorthodox manner in which the board effected the suspension of the CEO, Mr Gordon Odundo, in December, ostensibly to pave the way for a board-commissioned forensic audit on the finances by EY.

By the way, a similar forensic audit by the very same consultants covering 2013-2016 — long before the current CEO was hired — was conducted and completed as far back as August last year. But despite the audit having catalogued several scandalous revelations on procurement practices, the findings were swept under the carpet.

When a board falls into the habit of commissioning one forensic audit after another within short periods, it engages in a fishing expedition to provide the ammunition it is seeking to punish ‘enemies’.

The latest sign of the crisis at Kenya’s — and, indeed, the East African region’s — most advanced hospital is the move last week by a group of senior doctors and members of the Kenya Hospital Association to recall some board members.

But what is ailing the elite private hospital?

Unlike your ordinary limited liability company that is owned by shareholders, The Nairobi Hospital is owned by a loosely structured corporate formation, namely, the Kenya Hospital Association. Indeed, the association is an open-ended membership outfit with diverse and dispersed members. This ownership structure is what has left the hospital vulnerable to capture by a small section of the more organised members of the association.

When ownership rights are thinly dispersed across almost 2,000 members, it is only the individuals with vested business interests in the company who will follow its affairs keenly.

In limited liability companies, shareholders will always be putting pressure on the board. But with outfits such as the Kenya Hospital Association, directors face no such pressure, especially in the period between elections.

In the old days, individuals who sat on boards of associations, clubs and not-for-profits were respected public figures — men and women of character and calibre whose only interest in serving was the consciousness and satisfaction from doing good to society.

You joined the board of The Nairobi Hospital to network, make friends and do good. Today, a good number of board members of associations and clubs are individuals who do business, or will have done business, with not-for-profits.

The upshot is that the quality of corporate governance has suffered.

Going through the minutes of a recent meeting of the board of directors of The Nairobi Hospital, all I could see was adversarial behaviour, hostility and unpredictability. Instead of focusing on broad issues of strategic direction for the hospital, the directors tend to concentrate on nit picking executive decisions.

You don’t get to appreciate the depth of the corporate governance crisis into which the hospital has fallen until you get to read EY’s forensic audit report of 2013-2016.

For a moment, I thought I was reading an audit report on one of those corruption-ridden parastatals. It is a catalogue of blatant tender rigging, stalled projects and irregular variations of projects. In the period covered by the audit, cost overruns on projects amounted to a massive Sh1.7 billion.

Major weaknesses in financial management are also revealed in the report. For instance, there were cases where forensic auditors reported accounting weaknesses as elementary as inaccurate bank reconciliations!

Between 2013 and 2016, the hospital was on a spree committing billions of shillings in non-core activities. The Anderson Centre, a 12-storey building, including a convention centre with a 400-seat auditorium, was completed in 2016. A massive kitchen block built to serve a 1,000-bed hospital was also completed at the time.

Also completed was the biggest laundry in Africa, which, unfortunately, operates at 25 per cent of capacity, and a four-storey corporate services centre.

The owners plan to build a 1,000-bed hospital.

All the spending on concrete was financed by internally generated revenues.

When they tell you that The Nairobi Hospital is a not-for-profit, they are lying. The battle to remove the CEO, and the threats by doctors to recall board members, is all about control of lucrative projects.

The Kenya Hospital Association had better look at their bylaws afresh and tune them to address corporate governance issues — such as ethnic diversity on the board, conflict of interest by board members and tenure. For instance, is it not incredible that a fellow who has been debarred by a statutory regulator from serving as a director in another sector sits on the board of the hospital?[email protected]