HomeInternationalGolden Handshakes Fuelling Corruption –– Analysts

Golden Handshakes Fuelling Corruption –– Analysts

FORMER Zupco chief executive officer (CEO) Gwinyai Chikowore was last year sent on forced leave on allegations of financial impropriety involving nearly US$1 million which the bus company had generated between February and May.

The Zupco board resolved to relieve Chikowore of his duties, allegedly for failing to deposit the money into the company’s bank account, as well as buying “sub-standard” bus accessories. Only US$210 000 was found in the company’s account.

Chikowore was sent on leave with full benefits until the expiry of his contract last December.

Analysts questioned the move to continue paying Chikowore when there were serious allegations against him. They argued that the decision reflected poor corporate governance at Zupco.

Last week Happymore Mapara, the group CEO of Aico Africa Ltd, left the company with a golden handshake estimated to be US$1 million.

Mapara also left with top-of-the-range vehicles as part of the settlement after falling out with key shareholders in the company after auditors — KPMG –– produced a damning report on the company’s operations.

Among the findings of the audit were shocking underhand deals.

Many companies and parastatals have over the years paid senior managers golden handshakes even when they would have committed fraud or acts of misconduct.

Huge severance packages are also rampant in South Africa where most executives in parastatals are rewarded for running down state institutions. A case in point is that of the South African Broadcasting Corporation (SABC) ex-CEO Dali Mpofu who was forced out of the company and later paid huge sums of money as a severance package.

This was despite the fact that during Mpofu’s tenure, SABC suffered huge losses and is currently looking for R1,2 billion for recapitalisation.

Questions have been asked why companies give these golden handshakes. Are minority shareholders consulted when such decisions are reached? Why would such companies opt to pay out such large sums of money at the expense of declaring a dividend to shareholders?

Institute of Chartered Accountants in Zimbabwe (ICAZ) CEO Sonny Mabheju said paying out golden handshakes if not properly managed could lead to corruption.

“People can underperform knowing very well that if they get dismissed, they will still get a golden handshake,” Mabheju said. “This prejudices shareholders and other stakeholders in that they can be stuck with a non-performer who will cost a fortune to get rid of.”

ICAZ is one of the major accounting bodies in the country and in Africa.

“It is important in all these (golden handshakes) cases to ensure that the legal aspects are got right at the time of employment to avoid further problems at the point of termination,” Mabheju said.

Economist Eric Bloch said the paying out of a golden handshake depends on whether or not the executive has a contractual entitlement, and charges are of substance.

“If the latter, no golden handshake should be paid unless and until the executive has been cleared of the charges, except if contractual obligations render it obligatory that payment be made,” Bloch said.

Bloch said unless the golden handshake is of such magnitude as to have a material impact upon the company, there is no obligation to consult shareholders, the decision being in the purview of the board of directors, except if the recipient is a director, in which event it is generally mandatory that approval be sought of shareholders in general meeting.

Some analysts said golden handshakes should be inline with good corporate governance.

Economist Brains Muchemwa said good corporate governance requires that payment only be made if contractually prescribed or the charges of improper conduct are unfounded or  if the recipient is a director. Payment should be approved in terms of the charges being laid down.

“Non-compliance with that constitutes corruption,” Muchemwa said.

Mabeju said although good enterprise governance would require a manager to comply with corporate governance and make the company achieve good business governance it is necessary for the company to ensure that these are included in the employment contract for them to be used as a basis for termination without complying with the contract of employment.

“Otherwise a golden handshake may need to be paid to save the company from further loss and avoid being sued by the employee for breach of contract unless negligence or gross incompetence can be proved,” Mabeju said. “Where an employee is guilty of improper conduct, the employer has a right to charge them of that misconduct.  The employer needs not to resort to paying a golden handshake to get rid of the employee in the circumstances unless negligence or gross incompetence is proved.”

Mabheju said there may be instances where the contract is silent on performance.

“It may be improper to terminate that contract on performance-related issues,” he said.

The Australian government this year outlawed excessive “golden handshake” payments amid outrage over huge bonuses collected by company executives.

Under new legislation, termination payouts would require shareholders’ approval, and curbs on severance pay could be linked to job losses.

“Golden handshakes, particularly when companies have not performed or where workers are being retrenched, are simply a means of rewarding failure and are absolutely unacceptable,” Australian treasurer Wayne Swan told the Australian parliament in March. “So we are sending a very clear message to corporate Australia — your actions are under scrutiny.”

Current Australian laws allowed company directors to receive termination payments of up to seven times their total annual remuneration, which is often much more than base pay, before shareholder approval is required.

The Australian government’s crackdown came amid outrage in the United States after insurer AIG granted huge bonuses to employees who brought the giant firm to the brink of collapse.

Swan called the payouts “frankly sickening”.

“What we have seen for the past decade, under laws we have inherited from the former government, is the retirement gold watch replaced by a truckload of gold bullion,” said Nick Sherry, Australia’s corporate governance minister.

The move will extend the rules to cover a wider range of executives and will place criminal penalties on those who flout the law. The government’s productivity commission also held a nine-month inquiry into executive remuneration and bonuses.


Paul Nyakazeya

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