By Gudu Kassa
I believe it is good to get information from various news sources than a single one. For the same reason, I often visit the Ethiopian Reporter website to see events from its perspective. The newspaper publishes lots of factual and sometimes bold information, but in the last couple of months the headline has been dominated by one issue. That is Ato Mohammed Al-Amoudi and Midroc Corporation.
To be frank, I see nothing wrong with a brave stand that the Reporter has taken to challenge the biggest corporation in Ethiopia. So a point could go to the Reporter as far as the Reporter is taking the issue as public service than a personal crusade.
I admit, we all have learnt something about Midroc and I am also sure that Midroc too have benefited from the feedbacks and critics it is getting from the Reporter to work harder and improve its performance and public image.
In fact, in the developed world, companies send customers’ satisfaction surveys to get feedback from consumers, suppliers, public and other interested groups such as authorities, media and social groups. The media in that respect provides a great service to corporate performance and brand image. At the same time, in this part of the world, I mean in the developed world, newspapers do understand the clear distinction between the company’s equity holders (owners), executives and the company.
While following the Midroc stories on the Reporter, I feel that the newspaper sometimes fails to understand the difference between the corporate, Midroc, and major equity holder (owners), Sheikh Al-Amoudi. It is this mix up that prompted me to write the following notes.
The Shareholders or Midroc, the legal entity?
From reading some of the articles on the Reporter, Al-Amoudi and Midroc Ethiopia appear to be used interchangeably either deliberately or due to lack of basic understanding of legal distinctions.
Business organisations are classified as sole proprietorships, partnerships, limited liability companies or corporations. Companies registered as limited or corporations are legally defined, artificial being (a judicial person or legal entity), separate from its owner. In fact companies have many of the legal protection and powers that people have. It can enter into contract, acquire assets, incur obligations, sue or get sued in law of court.
Corporate as a legal entity was first born in the U.S. court in 1819 during litigation between Dartmouth collage and New Hampshire legislators. Since then, in the U.S, companies enjoy equal protection under the U.S Constitution that a person enjoys (US Supreme court decision on Dartmouth Collage v. Woodward, 1819).
Though the Reporter needs to be encouraged to have investigative and factual reporting, it also needs to update its journalistic standard by making an effort to read basic corporate legal and business distinctions.
First, Al-Amoudi is not a sole trader in Ethiopia. He is a shareholder of Midroc. That is why it is wrong to use Al-Amoudi and Midroc Corporation interchangeably. This is legally indefensible. One is not equal to the other.
To illustrate with example, the Ethiopian Reporter is a registered limited company (I guess) and I also believe that Ato Amare Aregawi is a major or the only shareholder of the company. When we talk about the good and bad of the Reporter, we should not be implying or need to stick the picture of Amare Aregawi rather than the Reporter logo, unless Amare Aregawi is an employee of the company who is directly responsible for the article or the decision taken.
The same principle should be applied to Midroc Ethiopia Group and Sheikh Al-Amoudi.
If the paper is referring to any malpractices of Midroc then there is no need to stick the picture of its major shareholder unless the newspaper has personal point to score.
Hence, lesson number one that the Reporter needs to learn is, companies are legal entities separate and distinct from their owners; a company is solely responsible for its own obligations. Consequently, the owners of a corporation are not liable for any obligations the corporation enters into. Similarly, the corporation is not liable for any personal obligations of its owner.
Second, though I have followed Midroc/ Al-Amoudi issues on the Ethiopian Reporter, the newspaper appears to be totally oblivion as to where the responsibility lies. The primary objective of companies is to maximize shareholders’ wealth. The rest in a company report is simply a rhetoric for public consumption.
It is understandable that Ethiopia has not yet got over the Marxism hangover. Particularly those revolutionaries who once were worshiping Marxism-Leninism like a Holy Bible and who wanted to become revolutionary martyrs will not find it easier to let go easily. Wealth creation is the bottom line and what drives companies is profit. That is why I say everything you see on corporate mission or social responsibilities are for public consumption. Because if Mr. nice public image is created, it sells goods to maximise shareholders wealth.
Third, we should not forget that the primary responsibility of the government is to set the rules to facilitate the setting up and smooth running of businesses, monitor and regulate companies’ legal, social and environmental obligations. Of course, we all know governments in the third world countries see themselves not as facilitators but wealth givers due to prevailing feudal upbringing and influence of the leftist ideology and it will take time to get over it.
But the bottom line is that companies get into legal contract with relevant authorities to set-up and run businesses. Once a legal contract has been established, it cannot be changed at the whim of the authorities. But government authorities have responsibility to monitor pre-agreed contracts. If Midroc was handed assets and land without proper terms and conditions, then it was the fault of the authorities not the company.
Here is what the Ethiopian Reporter grossly misses; the fact that the responsibility rests on governmental bodies that are supposed to set the rules and regulations on how a business should be set-up and run in Ethiopia. Reporter’s excessive interest without addressing regulatory short-comings of various governmental agencies appears to me more of witch hunt against Midroc and particularly the owner than a public service.
I believe the public interest could be better served by addressing broader issues, like the terms and conditions that regulatory bodies often issue when they give business permits. How these authorities monitor progresses of projects deserve more attention than running a weekly commentary on the short-comings of a single company. I am not saying that it shouldn’t have been reported but when I see every issue of Reporter carrying the same topic, I find it very hard to accept that it is done with serving the public in mind.
Addressing these loopholes in the legal system and subsequent monitoring can help to close the door for malpractices not only on Midroc but to all companies. Do all big companies from political affiliated conglomerates like EFFORT to local small investors follow the law to the last dot? I do not know. Do they behave in different ways than Midroc? We do not know. From reading the Reporter, I see no comparison, no examples of best practices or reference to a legal or regulatory loopholes.
Inward investment is a new phenomenon. We are coming out of the last 40 years loony-left ideology where wealth and business men were considered as sinners. As a result, the business law and regulatory bodies in Ethiopia are not fully developed. Hence, newspapers like the Reporter could help the system grow up by focusing on the system rather than focusing on one company.
At the end of the day, if a company takes advantage of the system, then it is not the fault of the company but the fault of a body or the government that created the system. That is where the blame should rest. In that respect, Reporter is in total denial of the reality or getting personal with one person and one company.
As far as I can see it, Midroc is a company that can only survive by making profit or hope to make profit in the future. So it is within its right to speculate and position itself as long as the system allows it to do.
The name for companies that do not want to make profit is, “Not for Profit Organisations” (NPOs) or commonly registered as charities. Addis Ababa is full of NGOs (NPOs) and if we mistake investors as charities, then we are going to make life tougher for ourselves.
As far as I have read, I have not read on the reporter showing Midroc breaking the law of the land. As I can see it, the criticism against Midroc is that it hasn’t invested enough that it allegedly promised. In business world not all promises are honoured or need to be honoured for that matter. In a real business world, business environment changes, market changes, cash flow changes, priority changes, technology changes or risk and rewards ratio changes. So companies had to change their plan or drop it all together. It is the responsibility of regulatory bodies to pick this unrealised project and pass it to others who can make it happen.
It is naïve to expect companies to invest regardless of changing circumstances. It is also perfectly legal to speculate and position oneself to capture emerging business opportunities. Again it is the responsibility of the authorities to set-up a tighter investment pre-conditions and follow-up projects to make sure that promised development plans are realised and jobs and opportunities are created. Hence, it would be better for the reporter to focus on basic investment loopholes to help close these holes than dedicate every week front pages to Sheikh Mohammed Al-Amoudi pictures.
The fourth confusion I see in the Ethiopian Reporter reports is that mixing up of company liquidity with that of the shareholder’s wealth. I didn’t expect the Reporter to miss this basic business concept. The wealth of Al-Amoudi doesn’t mean liquidity of Midroc Ethiopia. To demonstrate with example, Reporter Ltd is a legal entity with its own assets, liabilities and owner’s equity. But the wealth of Amare Aregawi does not equal to Enterprise value of the Ethiopian Reporter Ltd. Ato Amare may have a car, a house, cash at a bank, a goat in backyard, chickens in a shade or expensive painting on his living room that has nothing to do with the Reporter Ltd. It doesn’t also mean Ato Amare has to pay wages for his company employees using from his personal savings. Of course, he must have put equity when he started the business but that doesn’t make him liable or has to continuously fund the company.
A shareholder net wealth does not mean the wealth of the company. The owner could have excess wealth while the company struggle under high Debt to Equity Ratio. Why companies chose to fund their growth through debt is a complex business school theory that cannot be explained in this article. Leverage is a cheep way of funding projects; it provides liquidity, maximise profit and reduces tax. The danger is when a company face cash flow problem shareholders could lose everything to creditors. By failing to put these basic concepts into perspective, I think the Reporter is misleading or unnecessarily confusing the public.
To be honest, I like the guy called Mohammed Al-Amoudi. I do not know him in person or I haven’t even seen him at a distance. I have no personal and business interest with him. I am an Ethiopian who feel proud when I see another successful Ethiopian.
What we miss is one cannot be a billionaire by being stupid. One has to be hard working, smart, and very calculative to balance the risks against the rewards before making decisions. To be among the top 100 wealthiest persons out of the 6 billion people on planet earth implies some innate talent and business instinct. As Haile Gebreselase is a talented athlete, I think Ato Al-Amoudi is also a talented businessman who deserves some respect.
I also see his good intention but I do not also see him perfect or a miracle maker because he is rich. Speaking in statistical terms, I know he must have done more right decisions than wrong decisions to reach the position where he is now but that doesn’t mean all his business decisions are right.
What I am not happy about is we should not undermine the net effect of his investment in terms of job creation, promoting the image of Ethiopia and spending his time with his poor countrymen in the local grocery. He can spend his time playing golf with rich or rolling down on Persian carpet in the Middle-East. Instead he chose to go back to his humble root to share his life. To me he is more humble than most of my countrymen I know who rush to build six foot wall around and an iron gate to keep poor relatives and childhood friends at the gate.
His recent interview with a radio station also shows his values, sense of humour, Abesha sense of irony, fun and down to earth personality.http://www.ethiofact.com/index.php?/News/20090325406/news/al-amoudi.htmlSo let’s give him the due credit he deserves. Midroc Ethiopia is the biggest employer in the country giving opportunities to thousands. http://www.midroc-ethiotechgroup.com/ . That is a fact.We should not forget that the guy is rich enough to spend the rest of his life at the golf course but he is still driven to do more, to invest more, create more jobs, develop the country and make profits. I do not know why we are expecting more out of him. Of course, he is not beyond criticism and we are free to do so. Criticism could be a feedback that is beneficial to the company, to the individual and to all stakeholders. There is always a better idea or a better way of doing things, but we should do our criticism not with malice but with degree of humility.