HomeBusiness Digest‘Zim needs a corporate governance code’

It’s a Weird World

The saga, which took several months to unfold, left a trail of battered careers, including Timba’s own and those of a coterie of others who had trusted him enough to work with him.

The bank was only rescued by NSSA after a lot of kicking and biting in a costly US$24 million transaction.

Many analysts still believe the price was an overpayment for an asset whose value depended primarily on good reputation.

Through contagion effect, the problems at the bank negatively affected business at other subsidiaries in the Afre stable such as First Mutual Life and Tristar Insurance, according to recent statements by Afre management. The allegations against Timba were tantamount to fraud against the company which he substantially owned and led, which ultimately led to fellow shareholders  losing substantial amounts of money, whilst customers were subjected to the financial and emotional stress associated with funds being locked up in a bank under curatorship.

In a similar case in November 2011, Fred Mutanda, CEO of the then listed pharmaceutical entity — Caps Holdings — was reportedly arrested on allegations of defrauding his company of various amounts of money and fraudulently registering drugs with an offshore company called Caps International.

Corporate Zimbabwe has over the last 20 or so years experienced a fair share of corporate scandals dating back to the Access to Capital fiasco of the early 90s to the First National Building Society and ENG scandals of the early 2000’s. What rings common amongst the few examples cited is the fact that major shareholders, or people with significant influence over the day to day management of these institutions, have been at the forefront of those accused of fraud against the companies they are entrusted to govern.

Some analysts have attributed these unfortunate incidents to corporate governance failures within these institutions but others think that these cases are a tip of the iceberg and are symptomatic of failures at the regulatory level.

An analyst asked: “How does one person acquire more than 70% of a pharmaceutical company whilst there are very clear regulations in the country about ownership thresholds and ownership structures within the pharmaceutical industry?”

In most, if not all cases, very senior executives with significant and often controlling stakes have perpetrated these frauds, clearly abusing their privileged positions in the companies.

The powerful owner-managers have usually elevated themselves to positions where it is often difficult for fellow executives and even board members to question their actions and to adequately interrogate transactions they originate and promote.

Most of the board members are usually hand-picked by the CEO, who in the case of Afre happened to be the executive chairman of the board and majority shareholder.

Such boards lack the required level of independence and, more often than not, will solely serve the purpose of rubberstamping the executive management’s views. They will not pay sufficient attention to the broader needs of other stakeholders, who then suffer the consequences of lack of adequate fiduciary oversight over the companies’ affairs.

Other senior executives will often be rendered powerless and will not exercise independence of action and thought, being reduced to mere implementation tools for the CEO’s decisions.

Analysts argue that having strong institutional shareholders is a better option as opposed to powerful individual shareholders. The say institutional investors are the route to good corporate governance for Zimbabwean companies. Recently NSSA took control of Afre and management was upbeat about this development.

Douglas Hoto, the new Afre CEO, said they were pleased that NSSA now owned about 54% of Afre. Institutional shareholders do not only offer deep pockets for companies in times of trouble, but because of the wider stakeholder base that they represent are often more demanding in terms of corporate governance and fiduciary care.


This ensures that they appoint directors of proper repute to the boards of investee companies. Institutional investors tend to be more risk averse as they have deep institutional memories and vast experience from the diversity of investments they make over multiple time horizons and even in different geographical areas.


Individual shareholders sometimes are not patient enough to slowly build long term value that institutional shareholders are inclined to, preferring instead rapid short term gains that are normally fraught with high risks. Indeed, as is the case  in Zimbabwe, the individual shareholders have been so keen to reap dividends quickly by ripping off the companies they run through insider trading, self dealing and outright fraud.

Whilst regulators such as the Securities Commission of Zimbabwe  and the Reserve Bank of Zimbabwe have been accused of being overzealous and heavy handed when dealing with issues of governance and disclosure in the markets, these cases merely reinforce the need for closer scrutiny of the shareholder profiles of our public companies and a more thorough interrogation of transactions engaged by public companies. These regulators have to satisfy everybody so that the interests of all stakeholders, particularly minorities and customers are protected.

“We have been talking a lot about a corporate governance code for the country and to date nothing is binding, except for what the RBZ and Sec are doing. We at Sec have a corporate governance code which binds all our licensees and will soon (after amending our Act) be applicable to all listed companies. We need a code that is enshrined in the Companies’ Act,” a senior official with the Sec said.

Analysts say the major weakness with our laws at the moment is that the perpetrators have still not been brought to book, leaving room for more incidents in the future.

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