Why morals must return to the market

November 11, 2008
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, NAIROBI, November 11 – Flashback to the Great Crash of the stock market in 1929; that lasted one month and the events that followed!

Other than the big consequences and the impact that the Wall Street depression, which started on Thursday October 24th, had on the United State economy, an unusual thing stood out. There were several cases of suicides among stockbrokers that were reported.

One guy who took his life is reported to have left a note saying “……sympathy to my creditors.”

Analysts agree that the deaths occurred because stockbrokers felt that they were responsible for causing misery to hundreds of thousands of people who had invested their hard earned money in the stock market. And so this was their way of expressing their guilt and shame.

Fast-forward to 2008 and the on-going financial meltdown and you want to ask yourself, so why aren’t brokers and bankers jumping out of their skyscrapers’ windows or locking themselves in rooms full of choking gas?

Analysts say it’s because there is a death of conscience and morality among the financial sector fraternity. The world, particularly the United States, has seen big companies (some bigger than several African economies combined) go under with investors’ funds worth trillions of shillings.

Lehman Brothers, one of the biggest investment banks in the US went bust despite an asset base exceeding $800 billion in February 2008 (which is equivalent to the combined GDP of the member states of COMESA, Southern African Development Community and the East African Community and a few other countries).

Had this happened in the 1930s, senior managers of such a corporation would have been the first to lead the onset of the ‘mass suicide’ but……no.

Closer home, its common knowledge that the same people who held management positions in companies that later collapsed are the same ones now heading stockbrokerage firms some of which are facing financial woes.

Last year, Kenya saw two brokerage firms, Francis Thuo and Partners and Nyaga Stockbrokers sink, while Discount Securities is having financial problems. It is estimated that Nyaga Stockbrokers went down with close to Sh1 billion of hard earned investor money.

You would think that the senior management in the firm would be feeling guilty for losing such a huge amount of clients’ money and they would be at the fore front trying to calm investors and promising to pay back the money (at least in the long term). But NO!

We have become a society that glorifies thieves, and the more they steal the more heroic they become! It is no wonder they don’t feel the slightest sting of guilt when a company goes under.

So the question begs; what can the government and especially the Capital Markets Authority do to tame these selfish, immoral brokers and restore investor confidence in the market?

Some suggest that besides having regular internal audits, there is a need to vet people who want to start a brokerage firm to ensure that they have the right credentials and are conversant with operations of the stock markets.

International standards of corporate governance need to be enforced in order to jealously safeguard the citizens’ resources and wealth.

But while admitting this is barely enough, one analyst adds that there’s a need to have multiple regulations where about three regulators check and supervise not only the operations of the brokers but also those of all the players in the financial sector.

An auditor who does not wish to be named cites the example of banks that are regulated by the Central Bank of Kenya Act; registered under the Companies Act and the Banking Act, all at the same time.

However, Neil Ribeiro a Country Manager at Winton Investment which is an offshore company disagrees with the view of multiple regulations arguing that it would translates into a higher cost of doing business.

He’s of the opinion that what the country needs is better regulation and better transparency where an investor can buy or sell his shares online without going through a broker.

“When you know what shares you are buying, when you are buying and at what price, then you eliminate some of the issues we are currently witnessing,” he says pointing to the allegations of brokers shortchanging their clients by selling shares at a higher price than what they present to their clients.

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