But even as I finally sit to prepare for this exam that separates the boys from the men, I wonder, will it separate the rogue from the honest. What ais happening around the world with regard to the financial failure contagion has been the creation of those with the intricate knowledge of finance that I am seeking.

Their success has primarily stemmed from the complexity of investment matters which they have mastered and the greed for quick money that everybody else had. I say greed because it is only greed that would make one spend what he/she does not have.

But even so, I would have expected the integrity of financial professional to safeguard against what happened. But it did not. this to me meant either of two things. That integrity is an illusion, or that integrity gets lost along the way as financial deals get bigger, and bonuses start to making people blind to irregularities.

But that is worldwide. My dilemma is also local. Too many institutions in this area that I seek to study have crushed under the weight of  bad management, illegal trading and manipulation. I have heard barks of reform but the thieves just walked by the dogs without even a bite. Some were licked, and when the pressure increases, the worst these thieves should expect is for the dogs to piss on them.

It is for these reasons that I very much had to question the wisdom of sending my hard earned  KES 90,000 for a course whose practitioners (investment bankers and brokers) are under attack. They actually now rival lawyers in the sleaze list and hatred barometer.

But the businessman that I am sees an opportunity in this. With so much sleaze going around, business will go only to the few whose integrity will remain intact. Fashioning ones company as such is the new edge. This means not only abiding by the CFA Institute codes of professional conduct, but also getting the Global Investment Performance Standard (GIPS).

That may be where business for me will come from. Helping existing firms to meet standards set for one to receive the GIPS certification.

There is hope afterall. Wish me lack as I commence studying.

Below is the overview of the CFA Institute Standards of Professional Conduct. But for this post, I will restrict myself to the first one, especially in light of the recent unfortunate developments in the Kenyan Capital Markets.

I. Professionalism

II. Integrity of Capital Markets

III. Duties to Clients

IV. Duties to Employers

V. Investment Analysis, Recommendations, and Actions

VI. Conflicts of Interest

VII. Responsibilities as a CFA Institute Member or CFA Candidate

Professionalism cover four key areas, as shown below (extracted verbatim from the CFA Institute Standards of Professional Conduct).

1. PROFESSIONALISM

A. Knowledge of the Law. Members and candidates must understand and comply with all applicable laws, rules, and regulations (including the CFA Institute Code of Ethics and Standards of Professional Conduct) of any government, regulatory organizations, licensing agency, or professional association governing. In the event of conflict, members and candidates must comply with the more strict law, rule or regulation. Members and candidates must not knowingly participate or assist in and must dissociate from any violation of such laws, rules and regulations.

B. Independence and Objectivity. Members and candidates must use reasonable care and judgment to achieve and maintain independence and objectivity in their professional activities. Members and candidates must not offer, solicit, or accept any gift, benefit, compensation, or consideration that reasonably could be expected to compromise their own or another’s independence and objectivity.

C. Misrepresentation. Members and candidates must not knowingly make any misrepresentations relating to investment analysis, recommendations, actions, or other professional activities.

D. Misconduct. Members and candidates must not engage in any professional conduct involving dishonesty, fraud, or deceit or commit any act that reflects adversely on their professional reputation, integrity, or competence.

By virtue of the fact that those in the investment profession should adhere to the more strict law, blame for the shoddy investment activities should not be put squarely on the CMA, but that should not be taken to mean that CMA is excused. Blame lays squarely on those who did no comply with the laid down Code of Ethics and Standards of Professional Conduct, both of which know no borders. The more strict law was put in place to guard against such cases as we now see in Kenya, and for the benefit of those who do not know of it, it means that in the event where the local laws are nonexistent or lax, members and candidates should abide by the CFA Institute Standards of Professional Conduct, and that in the case where the local laws are more strict that the CFA Institute, Members and Candidates should adhere to the local laws hence the phrase, “the more strict law”. That means that either way, activities such as front running and trading of clients shares where the accounts are not discretionary accounts – very well defined here in InvestorWords.

On the other three topics, I think it is straight forward. Our investment institutions have on many occasions proven that they are not independent and objective, they have misrepresented themselves especially when it came to getting new clients, and misconduct is the reason many have complained, and also the reason I am writing this today.

I hope that this will help you the next time you choose your investment firm. I would implore you to ask them to furnish you with a copy of their Standards of Professional Conduct. That may just save your investments from sinking down the drain.

Posted in Business in Kenya, Nairobi Stock Exchange, The Capital Markets, The Kenyan Economy ]]> http://marvinktumbo.wordpress.com/2009/02/18/professionalism-in-nse-still-a-long-way-off/feed/ 0 marvintumbo http://marvinktumbo.wordpress.com/2009/02/13/security-costs-drive-up-cost-of-doing-business-in-kenya/ http://marvinktumbo.wordpress.com/2009/02/13/security-costs-drive-up-cost-of-doing-business-in-kenya/#comments Fri, 13 Feb 2009 08:33:24 +0000 Marvin K. Tumbo http://marvinktumbo.wordpress.com/?p=76 ]]> Security is one of those crucial indexes that must be ascertained and assured in order for anybody to put forth any investment in an estate, town, city or country.

You must then understand my shock after I was old enough to understand what went on TV, other than cartoons. Then, I raked my small mind for reasons why those people on TV had windows with no bars. I wondered how come they only had this light excuse of a door as the external door as opposed to a metal reinforced door. I was amazed at how the shops on their streets had clear windows with no bars behind them. Of course there was the security officer, but we also have security officers here, but the metal bars are still a must. I never really got any answers to these questions, but I think that I finally get it.

Ever since we were young, the one thing we have never been assured of is police protection, and the reason we put all these barricades up is simply to make sure that we do not need the police officers, who are rarely there anyway. We came to accept armed robbery and theft as those things that naturally take part in any society, and hence, going forward, decided to reinforce everything that we created. This has become so normal that we no longer think of it as extra cost.

Have you ever asked yourself why every house we construct must have metal grills? Have you ever wondered why for every wooden door, we always add a metallic one outside? Have you ever wondered why virtually all cars must have alarm systems and track-it devices? Have you ever questioned why the boxes we carried with us to Secondary School were those metal boxes with at times as much as three locks? Have you ever been curious about the humongous reinforced steel locks that we purchase and use in our homes, business etc. ? Have you seen the size of the fences that we have around our houses, let alone the size of the broken glasses that we have put on them? Or  for the ones that can afford it, electric fences (Do you know that electricity costs in Kenya are some of the highest on the continent)? Have I mentioned the gates?

In some countries, where security is assured, their embassies are the only structures with the kind of security that we accord our houses and offices. But even with this kind of security, we are still vulnerable to robberies since our thieves have also moved with the times. They initially used stones to break our houses but as we reinforced, they now come prepared with Power Saws, Lock Cutters, and on one extreme case, grenades. They actually work hard to rob us.

We are therefore a country in which the cost outlays of setting up any business go several notches higher because of security. If and when we finally have our security forces doing the work that they are there to do, we may finally see this cost go down, and hence making it easier for investors to invest in the country.

Security is that an important an index for investment in a country.

What these guys have done is take the cost of doing business in Kenya a notch higher. No! a notch sounds like a pinch, too small. It is exponentially higher sine corruption cartels exist in almost all sectors of the Kenyan economy. For starters, our energy costs are among the highest in Africa, forcing industries to move from to shift base to Egypt and South Africa where energy costs are negligible. Secondly, our infrastructure has proved wanting across so many sectors it is not even funny. Traffic jams means so many hours are lost enroute to work, and even more lost as people leave early to avoid the evening jams, and also in fear of hijackings, the way my big brother was just a few nights back. And that is just infrastructure and energy issues.

But even as we try to tackle the infrastructure issues (though only in visions statements), another cost has crept up and is proving more costly to business than the even the infrastructure issues. That is the cost of corruption. Siemens recently revealed that it factored in their cost outlays the cost of corruption for the different countries they sourced multi-billion dollar contracts from. Similarly, the same is happening in Kenya, and corruption has finally become a cost in and of itself, for doing business in the country.

A while back, there was a choice between paying bribes and braving the long bureaucracies and red tapes. Those with a clear conscience and a lot of patience managed, but only barely since they had to operate way behind schedule. Today, it is not even a matter of choice. Business has become so competitive that the little time that is left after horrid traffic jams, is of so much essence hence the greater willingness to bribe just to get things moving. I am saying that bribery has become an index for business competitiveness in Kenya. It is now bribe and remain competitive or…

Kenyans now bribe for their children to be admitted to the best schools, they later bribe for them to be admitted to polytechnics and nursing colleges. To get Government jobs, your willingness to bribe, and by how much is now almost a requisite part of one’s CV. Unfortunately, delicate institutions such as the Police and Army, whose mandate is to serve and protect us are also not corruption free zones. No wonder we have police committing robberies, extra judicial killings, and topping the most corrupt institution in the country for three years in a row. Our tribes depending on the sector you are seeking employment in are also acceptable currencies for employment (nepotism).

I am foreseeing a situation, if corruption proceeds unabated, where the companies that remained despite the high energy costs will finally leave due to excess cost of doing business that is corruption driven. It would be a sad day for Kenya indeed.

Kenya is the country that lost over 40 per cent of its GDP to corruption, since our independence half a century ago. This is the country that has been resilient enough to emerge as the Launch Pad to the rest of Africa despite our systemic corruption.

Kenya, while not yet largely affected by the Global financial crisis, it is suffering in a big way from a crisis of its own. While the rest of the world lost their money due bad investment policies (spending what you do not have and cannot afford,) Kenya has lost similar amounts of money to corruption.

And while the rest of the world grapples with how to revive their once vibrant economies, many answers have come forth and few of them have been the solutions. On the other hand, one answer is what the Kenyan leaders know best (Commisions) and from history, we are sure it is not the solution.

Thus, while the rest of the world emerges from their crisis, albeit slowly, Kenya will continue to be stuck in this quagmire that is corruption.

They say that every crisis has a silver lining, and the financial reforms that are currently place worldwide is the silver lining for those who are reforming. In kenya, the silver lining has been stolen and sold as crap metal, hence why we might never catch up with the developing nations.

Our corruption has become a tumour in deed.