THE latest audit findings by Auditor-General Mildred Chiri paint a picture of a shambolic state of financial management and flagrant disregard for corporate governance principles in state enterprises and parastatals (SEPs).
The Brett Chulu Column
Past audit reports by the same auditor-general have been very adverse. That recipients of about half a billion dollars’ worth of loans could not be identified is a serious indictment on the state of the quality of financial management and corporate governance in our SEPs. No professional financier will extend lines of credit to our SEPs with such financial recklessness. Financial losses have doubled, yet there is evidence of profligacy in SEPs. The revelation last week that one state enterprise is prepared to shell out US$1,3 million to acquire 17 top-of-the-range cars is an indicator of misplaced financial priorities in our SEPs. That such malfeasance continues unabated despite adverse audit findings year in year out is as puzzling as the lack of financial probity in the SEPs themselves.
A few weeks ago, Finance minister Patrick Chinamasa was on record as stating that a new corporate governance framework for SEPs is being finalised and will be codified into law. That is a welcome development. What happened to the corporate governance framework that the former minister for state enterprises, Gorden Moyo, championed and was lauded by our state president, appending his signature to endorse it?
In July 2010, I wrote an article in the Zimbabwe Independent, a few weeks after Moyo was appointed the minister for state enterprises and parastatals: “In my opinion, Moyo should push for a Bill enabling the formation of a central SoE (state-owned enterprises) authority and the adoption of a SoE governance code crafted along the lines of the OECD (Organisation for Economic Co-operation and Development) guidelines, niftily deferring final arbitration to parliament. Taking the route of amending the specific acts governing each parastatal will more than likely give rise to legislative and procedural logjams.”
The former minister took the advice proffered in that article and went on to craft the Corporate Governance Framework for State Enterprises and Parastatals. Seven years down the line, the framework has not been given legal force. Though the corporate governance framework the former minister spearheaded is far from being perfect in many respects, giving it legal teeth would have gone a long way in bringing sanity to our SEPs. Here are three examples of the governance reforms that the forgotten corporate governance framework introduced which are now in the political museum.
First, the framework envisaged all SoE holding annual general meetings (AGMs). This was a well-thought-out intervention. On paper, it would have forced our SEPs to produce audited financial statements to the shareholders in a formal accountability session. This annual spotlight on SEP accountability would have opened our SEPs to rigorous public scrutiny with analysts and the media getting access to hard data to critique the performance of SEPs. With the corporate governance framework seemingly archived the moment the pioneering minister left government, AGMs in SoE have fallen between the cracks.
Second, Moyo’s framework put it to the SEPs to put audited financial reports in the public domain. What happened in the era of the Government of National Unity was that those SEPs that were under progressive ministers took up the requirement and published financial statements in newspapers.
Sadly, only a few of those SEPs have continued with the practice, TelOne being a shining example. The case of TelOne is instructive. Last week, TelOne published its audited financial report for 2016 in newspapers. It’s not a rosy financial performance: TelOne is practically insolvent, with a negative equity position of a staggering US$111 million. TelOne was bold enough to bare its financial weaknesses in public, leaving the public to judge. Warts and all, SEPs must be as transparent as TelOne.
Such transparency helps potential investors to assess how they can help to restructure the balance sheet of an honest but struggling state enterprise such as TelOne. Lenders have a favourable disposition towards honourable entities. If the Moyo framework were to be given legal legs, we would have all SEPs publishing their audited financial statements.
Such statements would be made available to international credit ratings agencies to rate each SEP’s creditworthiness.
This lamentation about closed SEP lines of credit is a convenient cover for gross incompetence. Can you blame a debt investor for ignoring you if you cannot produce an audited financial statement? Investors do not lend you if they are not sure about your ability to pay back and if you are not honourable (malfeasance and lack of financial probity).”
Another positive intervention in Moyo’s framework was making it explicit that the chief executives of SEPs could not make their own decisions on remuneration. Unfortunately, this provision does not have much in it to enforce this in that neither the framework nor the governing frameworks require SEPs to have comprehensive remuneration policies that are voted for by the shareholder. Neither the framework nor the specific SEP governing acts require remuneration proposals to be brought to the shareholders for debate and vote.
The new National Corporate Governance Code does not help matters in that it requires remuneration proposals to be subjected to a non-binding shareholder vote. In my opinion, this is inappropriate for Zimbabwe in that the rot in remuneration practice in our SEPs cannot be solved with a non-binding shareholder vote. The thinking behind the non-binding advisory vote, a practice our national code lifted from other countries is to embarrass the board in the case shareholders vote down a remuneration proposal, forcing them to revise the proposal.
However, the board can still choose to ignore the unhappiness of the shareholders towards its remuneration proposals.
Giving our SEPs this option is unwise. What SEPs need is a binding vote on remuneration proposals at an AGM. The whole point of citing these three examples is to show that if we had the political will, we would have brought sanity to our SEPs by giving legal effect to Moyo’s corporate governance framework. The most unfortunate thing about Moyo’s framework which technically is still in force is that it scored an own goal and undid some of its most progressive provisions. Its overarching provision that where the framework is in conflict with the specific SEP governing act, the framework would defer to the provisions of the act, arms SEPs with legitimate excuses to revert to archaic corporate governance provisions. That loophole needs to be closed. It is not too late to give the framework statutory force.
My gripe with the National Code of Governance is that it is an apply-or-explain code. The corporate governance and financial misdeeds are too deeply ingrained to be given the wide berth of apply-or-explain. Our SEPs need a comply-or-else regime. You do apply-or-explain or apply-and-explain in countries where there is a culture of respecting corporate governance principles where entities find that it is in their favour to abide by corporate governance principles. In a place like ours where there is overwhelming evidence that entities have little or no respect for corporate governance principles, something tougher than apply-or-explain is needed.
Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.