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ZSE: The case for more regulation

LAST week, JSE CEO Russell Loubser took delegates at a function in the capital back into the past; a century ago and took them through the milestones and problems the exchange went through right up to the present day.

But it was just a chronology of events where the JSE traded manually, bad business years, political years, demutualisation, listing and the use of automated system right to the complex market that it is today.
Now, more than ever before, Loubser says there is need for effective regulation. Loubser says his exchange does not like regulating companies but has to do nonetheless.

He highlighted how he has had to deal with his clients’ companies listed on the JSE that were failing to meet listing requirements.

“We have to regulate. We don’t like doing it but have to,” says Loubser.  “My friend says, ‘for every complicated problem there is a nice little solution.’ But the problem is that the ‘nice little solution’ never works.”

ZSE CEO Emmanuel Munyukwi could do with a lot of tough-guy attitude in terms of enforcement of regulations.

Unlike on the JSE, the ZSE listed companies get away with murder. For instance, there are some companies that have either not released their financials or are always late with their numbers despite clear rules that figures should be published inside three months after an interim or full reporting period.
No action has been taken against such companies, at least publicly.

Though the exchange has intervened in the past to either protect shareholders or to ensure compliance with listing regulations, of late the ZSE has been rigid in its application of rules.

The ZSE suspended trade in David Whitehead’s shares after the company failed to produce audited financial accounts. Then First Mutual Ltd was suspended in 2004 amid concerns management could have manipulated a share option scheme when the company demutualised and listed to their benefit. Now, rules are being broken at every turn.

Also the case of Rainbow Tourism CEO Chipo Mtasa buying equity into a rival group presented a case of conflict of interest after Econet Wireless sold its shares.

Even Farai Rwodzi’s movement from African Sun board to chair the board of Meikles Ltd, its competitor would have guaranteed a not so social meeting with ZSE bosses.

Instead of the ZSE taking a more prominent role in ensuring that listed companies play ball, the exchange wants the “nice little solution”  its South African counterparts are opposed to.

Munyukwi denied companies on the exchange were failing to publish financials on time saying those that fail to meet the reporting deadlines have always asked for an extension.  He also said the ZSE will not hesitate to take action against companies that do not stick by the bourse’s rules.

He said: “As far as I am concerned our rules are being followed except in cases where companies ask for an extension for one reason or the other. In such cases, we allow them a grace period of a month. All the companies have been playing ball.”

While the ZSE and securities commission are taking a back seat, government through the treasury has come up with a statutory instrument discouraging the chairing of multiple boards by individuals saying it is against good corporate governance.

Even so both the ZSE and the treasury are still to get tougher. The statutory instrument merely discourages the practice and there is no force of law behind this, which means that individuals can still continue chairing multiple boards.

Individuals chairing multiple boards include Muchadeyi Masunda and Oliver Chidawu who share more than 10 listed and non listed companies as well as different organisations between them.
Both men have acquired various skills in the corporate world, with Masunda being one of the leading legal minds in the country.

But analysts say the move restricts the best brains to chairing only one company. The move, analysts argue, would pay dividends as the country strives to revive the economy.

Corporate governance has been traditionally defined as the “ways in which a firm safeguards the interests of its financiers (investors, lenders, and creditors)” but given the changes in the operating environment this has been evolved to mean “framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm’s relationship with its all stakeholders.”
Good corporate governance is driven mainly by the Institute of Directors (Zimbabwe), a body which is gaining recognition in the country largely due to its efforts of promoting the principles set out in the Cadbury Report of UK, the King Report of South Africa and UK Code of Best Practice developed by the Commonwealth Secretariat.
IODZ together with the Zimbabwe Leadership Forum are the main drivers of the corporate governance code which was expected last month before the date was changed to October. This code is expected to address the issue of chairing several boards among other issues pertaining to corporate governance.
In preparing this code, world renowned corporate governance expert Mervyn King said Zimbabwe would not be able to legislate “competency and honesty”.

King advised that that it was important that the “comply or explain” philosophy underlying codes in many other countries should be adopted in legislation, not just as a code. This would ensure a legal effect which is absent at the moment.


Chris Muronzi & Leonard Makombe    

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