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.
|Company||CEO||Value of Stake in Company (December 31, 2008)||Percent of Company Owned (Dec 31, 2008)|
|AccessKenya Group||Jonathan Somen||$6,681,063.00||14.96%|
|Athi River Mining||Pradeep Paunrana||$18,829,535.00||18.1%|
|Co-operative Bank of Kenya||Gideon Muriuki||$6,712,098.00||1.95%|
|Equity Bank||James Mwangi||$3,471,373.00||5.37%|
|REA Vipingo Plantations||Neil Cuthbert||$264,100.00||2.29%|
|Scan Group||Bharat Thakrar||$10,953,845.00||20.63%|
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.
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.
|Company||Return Since December 31, 2008 (Local Currency)|
|Athi River Mining||109.7%|
|Co-operative Bank of Kenya||33.5%|
|REA Vipingo Plantations||38.1%|
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.
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!