A draft national code for corporate governance (NCCG), a framework which will guide and govern how Zimbabwean companies will be directed and controlled is now complete and currently going through refinement before it can officially be launched in October this year.
Report by By Henry Diya
This was revealed by Eve Gadzikwa at a recent corporate governance conference held at the Troutbeck Resort in Nyanga.
She is the director general of Standards Association of Zimbabwe (Saz), chairperson of the Zimbabwe Stock Exchange, vice chairperson of the National Corporate Governance Code Project for Zimbabwe Steering Committee and chairperson of CZI Standing Committee on Business Ethics and Standards. Gadzikwa said this while addressing directors and managers at a training workshop organised by the Institute of Directors Zimbabwe.
“This is a process that began sometime in September 2009, and like the constitution-making process, thematic committees had to go through a wide consultation process across the country so as to capture views from a variety of sectors, and now the most important thing is to refine it in view of the October launch,” explained Edward Siwela, executive director of the Institute of Directors Zimbabwe.
Currently there is no existing corporate governance code to guide the operations of local companies, which has seen rising cases of abuses and malpractices at a number of firms.
“Boards of directors are sometimes selected on the basis of who knows who, termed the ‘Old Boys Club’ and that negatively impacts on the effectiveness of the board,” lamented Johannes Mudzengerere, Chairman of the Institute of Directors Zimbabwe. “Board selection is critical as there are specific criteria that need to be employed to ensure the right board mix.”
Global trends in corporate governance have seen modern progressive institutions, countries and groups of countries attempting or having introduced corporate governance structures to try and improve the way corporations behave, protect stakeholder interests and safeguard the business operating environment. Examples of African countries that have developed and implemented National Corporate Governance Codes include Malawi, Nigeria, Kenya and South Africa. As such, Zimbabwe is lagging behind and pronouncements of the enactment of a local code are therefore a step in the right direction.
The Organisation for Economic Cooperation and Development (OECD) and the World Bank are key actors in promoting policy dialogue on corporate governance. OECD has been central in the setting-up of Corporate Governance Round Tables in Asia, Russia, Latin America, South-East Europe and Eurasia.
Indeed, Africa was not left behind. Through the New Economic Partnership for Africa’s Development (Nepad), African leaders introduced the African Peer Review Mechanism (APRM). The APRM covered issues such as regulatory frameworks, corporate social responsibility, and adoption of codes of ethics, stakeholder engagement as well as accountability of corporations, directors and officers.
Other efforts were the introduction of the King Report on Corporate Governance (CG) in South Africa, the initiative by the Commonwealth Association for Corporate Governance (CACG) Guidelines, proliferation of Institute of Directors or such other names – promoting Corporate Governance principles.
Zimbabwe is on a journey to formulate a national code on corporate Governance. The Promoters of this noble project are The Institute of Directors Zimbabwe, Standards Association of Zimbabwe and the Zimbabwe Leadership Forum. The State-Owned Enterprises and Parastatals (SOEPS) already have a corporate governance framework though its implementation is highly questionable, given the perennial down-performance of these entities.Economic challenges experienced by Zimbabwe between year 2000 and 2008, and the current indigenisation of the economy has ushered in a new breed of entrepreneurs, changing completely and supposedly irreversibly the structure of Zimbabwe businesses. A National Code on Corporate Governance is going to encompass a number of considerations to be relevant.
Foremost, the bulk of Zimbabwe’s companies are now informal entities, small to medium enterprises and SOEPs. Zimbabwe’s business landscape has seen a proliferation of family-owned businesses and these are playing a pivotal role in reviving the economy, so cannot be ignored.
We have in existence, pyramid business ownership structures where various individuals and/or families have shareholding in a various network of companies, and this presents unique corporate governance challenges such as related party transactions.
“Banks own shares in private companies, the question that arises is what is the lending practice to those entities the banks are involved in, is it transparent, prudent and are there arms-length dealings between the related entities?” questioned Mudzengerere.
The issue of the collapse of Renaissance Bank in Zimbabwe quickly comes to mind. Royal Bank also recently surrendered its banking license to the Reserve Bank of Zimbabwe (RBZ). According to the Herald of July 28 2012, serious gross irregularities were unearthed by the Banking, Licensing, Supervision and Surveillance arm of the RBZ.
In reference to the global financial crisis of 2008, Jennings Strouss (2008) said, “……in many of the major failures over the past decade, boards may have appropriate mechanisms in place that should have recognised and prevented the troubles, yet they failed to exercise independent judgment and oversight.” This resonates well with the challenges in our local banking sector.
The corporate governance challenges prevalent in Zimbabwe are on disclosure, ethical conduct, remuneration practices, conflict of interest, shadow directors and multi/cross directorships.
“Remuneration has remained an area of contention, disclosure is not forthcoming,” said Mudzengere, “Directors and senior personnel are rewarded handsomely, whilst the company is not performing well.” Remuneration surveys have often unearthed serious disconnections between what directors and senior personnel earn and the rest of the staff.
Closely tied to this issue which must be considered by our NCCG is the extended tenure of Chief Executive Officers (CEOs), Chairpersons of the board and Directors. Speaking at the same conference, Siwela said, “Some CEOs and board members have outlived their usefulness, you wonder what value they can give to the company in the next five years which they failed to give in the last ten years, surely the coming code must put a limit to tenure.”
“In some instances the CEO and Chairmanship roles are collapsed into one, resulting in too much concentration of power in one individual, which power people routinely abuse without noticing,” Mudzengerere said.
A National Code on Corporate Governance must address some of these issues for Zimbabwe businesses can no longer ignore the impact of competition from the Far-East; it is right on our door step.
“These days cash is scarce, and investors are only willing to part with their hard earned financial capital where there is assurance their investment will be safe,” said Mudzengerere. “Corporate Governance Codes do provide a framework, which if implemented, will provide the confidence required by investors and will enable entities to survive both the bad and the good times,” he said.
“Let us all embrace this noble journey and make Zimbabwe proud by having its own National Code on Corporate Governance that attends to the unique structure and culture of Zimbabwe,” Mudzengere said.