6 Kenyan CEOs Who Bet Big On Their Own Stock

In a recent blog post, African stock market pundit, Coldtusker, argued that Kenya Airways’ dismal share returns can be at least partially explained by the fact that its CEO owns zero shares of the company.

His reasoning is that a boss with no skin in the game has little incentive to manage a company in shareholders’ best interests.

Putting Their Money Where Their Mouths Are

Intrigued, I dusted off some old annual reports and put together a list of the six Kenyan CEOs who owned at least $250,000 worth of their own companies’ stock at the end of 2008. They appear in the chart below.

CompanyCEOValue of Stake in Company (December 31, 2008)Percent of Company Owned (Dec 31, 2008)
AccessKenya GroupJonathan Somen$6,681,063.0014.96%
Athi River MiningPradeep Paunrana$18,829,535.0018.1%
Co-operative Bank of KenyaGideon Muriuki$6,712,098.001.95%
Equity BankJames Mwangi$3,471,373.005.37%
REA Vipingo PlantationsNeil Cuthbert$264,100.002.29%
Scan GroupBharat Thakrar$10,953,845.0020.63%

As you can see, these aren’t just token amounts. The financial interests of each of the above CEOs were clearly aligned with those of other shareholders.

Taking Care of Business

So, in theory, the average return of these companies should have crushed the market since then.

Photo by World Economic Forum


Why?

Because many listed companies are managed by CEOs who don’t eat their own cooking. Managing Directors without substantial ownership stakes tend to be motivated by a paycheck or prestige — not share performance.

Let’s see if the theory worked in practice.

The below chart shows the share performance of each stock since 2008.

CompanyReturn Since December 31, 2008 (Local Currency)
AccessKenya Group-73.4%
Athi River Mining109.7%
Co-operative Bank of Kenya33.5%
Equity Bank45.0%
REA Vipingo Plantations38.1%
Scan Group181.9%
Average Return55.8%

Apart from AccessKenya Group, that’s very solid performance.

Let’s see how a portfolio comprised of these six companies would have fared against the return on the entire Kenyan stock market over the same time period.

dyerware.com


After a sluggish start, five out of the six CEO-owned stocks outperformed the market’s 26.7% return, and together they beat it by a whopping 29.1%!

Granted, this is a very small sample, but it did not run counter to the theory that CEO-owned companies tend to outperform the market over the long-term.

What Do You Think?

Does this theory hold water? Do you know of other African companies with heavy CEO-ownership that we should compare to the overall market? Let us know in the comments!

Comments

  1. That is some good data you have there.

    It is worth noting however, that the CEOs of Kenya Commercial Bank, Martin Oduor Otieno purchased stock in the bank recently. Then there is Pradeep Paunrana, CEO of Athi River Mining. The case of Pradeep may not have caught your attention since this was an inheritance issue from his late father’s estate. The Paunranas stock in the cement maker however remains the same.

    Hoping you will include that data in your next post on this.

    • Many thanks, Jug, for catching this and for providing me the data on Paunrana’s shareholding. I’ll update the story to include him.

      Also very interesting about Otieno. Because this is a recent purchase, however, we will have to wait and see if his bet on the company actually pays off.

      • You are most welcome. I had forgotten about Jacob Segman, CEO Kenol Kobil. Problem is, getting relevant data.

        As for Martin Oduor, KCB CEO, lets wait and see how it pans off, though the bank has been posting impressive returns.

  2. Great stuff as always. It is a significant sign of confidence in the business. I think in ARMs Pradeep Paunrana case, he owns 18% and has huge family backing of about 28% in Amanat Investment. (http://www.armafrica.com/public/arm-audit2011/ARM-Annual%20Report-2011-FINAL.pdf) page 33. I’ve had opportunities to hear CEOs speak and Pradeep Paunrana has always stood out to me in terms of honesty and passion for his business.

  3. Jan Schalkwijk says:

    Thanks Ryan, that’s interesting. It also seems that the excess return all comes from 2009, which was a strong year in the market. Not sure how to interpret that, but perhaps the CEOs were more willing to take risk when they saw things improving..? Or perhaps investors have more confidence in companies that are run by CEOs with skin in the game and when money comes back into the market it goes to those companies disproportionately..?

    • You’re right. They almost move in lockstep apart from that one year. Would be interesting to do an earnings growth analysis for these six companies versus the market at large in order to help determine what the excess return can be attributed to — fundamentals or sentiment.

  4. It is very true. A sense of ownership in what one is doing is a good motivating factor to performing well. Such a CEO is not only accountable as a corporate governor but also is interested in share value appreciation.

  5. I like your article. Its really informative. I was thinking about investing and this really is an eye opener. Thank you.

  6. Eric Omwansa says:

    I believe there is a correlation between share ownership and performance because there is a lot of mismanagement in government owned firms, or where it has a shares

  7. The Somens did a-OK. In 2013, they sold the firm to Dimension Data at 14/- per share. And Martin Oduor-Otieno did very well too. KCB traded at 40 or more when he left KCB as CEO.

  8. Eric Omwansa says:

    What about cmc where the former chairman held a significant stake but misused his powers to overcharge the company using Andy forwardes

Speak Your Mind