BY TAURAI MANGUDHLA
INVESTORS’ interests have perennially suffered at the hands of corrupt executives and board members who engage in fraudulent activities. Zimbabwe Independent chief business writer Taurai Mangudhla (TM) speaks to corporate governance expert Bradwell Mhonderwa (BM) on the country’s corporate governance landscape and how it affects both the private and public sectors. Below are excerpts:
TM: As a corporate governance expert, what is your assessment of Zimbabwean corporates’ reporting standards in terms of disclosures in general?
BM: In Zimbabwe, like is the case the world over, the corporate sector has its own local reporting standards as set out in the National Code on Corporate Governance (ZIMCODE) for private entities, and the Public Entities Corporate Governance Act (Chapter 10:31) for state enterprises and parastatals.
The Zimbabwe Stock Exchange provides further listing requirements for its members and these include Integrated Reporting. The Reserve Bank of Zimbabwe has a set of banking corporate governance standards for the banking sector. While these local benchmarks may match any best practice standard anywhere in the world in terms of content, most corporate entities in the country have failed to fully abide by the set disclosure standards.
The commitment to disclosure is generally weak and those assigned the role of monitoring and ensuring compliance seems disinterested in assuring conformity. Both regulators and the regulated give a lip service to the requirements and love to play to the gallery. Material disclosure works well within a morally upright and inspired leadership. When a firm discloses material information effectively and in a timely manner, it endears itself with stakeholders making sure stakeholders have information they need at the right time to make informed decisions.
TM: Looking at listed companies, in what areas are they lagging on corporate governance practices and reporting using international benchmarks?
BM: The saddest part of the Zimbabwean story is the reality that of all the listed firms only a handful have taken seriously the need to match their corporate governance processes with international standards, with the rest of them unfortunately remaining glued to simply reporting on financials without any regard for integrated reporting as demanded by best practices.
Of note, none of the listed firms in Zimbabwe have over the years been able to embed strong ethics in their operations as dictated by global standards including its comprehensive disclosure.
ZIMCODE and King IV Code on Corporate Governance which ZSE listed firms interestingly reference in their annual reporting requires implementation of measurable organisational ethics and full disclosure of the ethics function, but instead, companies choose what to report on and what not to report.
TM: In your expert opinion to what extent does corporate governance impact the performance of an organisation?
BM: The purpose of corporate governance is basically to optimise performance and return on investment, including meeting reasonable expectations of all stakeholders. So to perform effectively, an organisation needs a properly constituted board with the right skills mix, expertise, size, independence and diversity, among other key governance variables.
TM: Zimbabwe has witnessed a series of corporate governance scandals, including embezzlement and corruption, both in the private and public sector. What is the impact of such developments on the country’s attractiveness to foreign and domestic investment?
BM: Poor corporate governance results in corruption, and corruption in Zimbabwe is causing capital flight. Surely, no serious investor whether foreign or domestic wants to invest in a corrupt environment because corruption increases the cost of doing business and paralyses value chains. Corruption is an albatross to serious investment because it undermines property rights, weakens the rule of law, and it signals doom and gloom to whole nations making investment a real risky undertaking in such nations.
TM: Government has got its code on corporate governance, what is your assessment of its implementation so far?
BM: While the Public Entities Corporate Governance Act and theq7 PECG Act have come at the right time, my concern is that public entities still choose what to apply and not to apply, without consequences. Public entities and their principals must embrace a culture of good corporate governance leveraged on strong ethics and ethical leadership. They should give equal attention to ethics as they give to corporate governance. Under the PECG Act, public entities continue to reel under the stranglehold of debilitating corruption and the latitude to pillage is quite frightening. The fact of the matter is, corruption in public entities is systemic so it therefore calls for a holistic approach that addresses its underlying causes. Indeed, the need for strong ethics and ethical leadership in public entities has never been as strong as it is today.
TM: You have written extensively around corruption, in your view why is corruption still rampant in Zimbabwe and what needs to be done to deal with it?
BM: To me corruption in Zimbabwe has remained a huge challenge mainly because of our lukewarm approach to addressing the scourge. Government seems to think that by condemning corruption and threatening to arrest the perpetrators they will have done the job, worse still when some in government view fighting corruption as a tool for crushing their political opponents. To me this is superficial and improper as this will never get the job done. A lasting solution demands addressing corruption from its underlying causes. Zimbabwe needs a holistic and comprehensive approach that not only views corruption as part of the problem, but unmasks its underlying causes which are masked in institutional improprieties such as nepotism, regionalism, cronyism, and patronage. To nip corruption in the bud we need strong ethics and strong institutions in both the public and private sector. A research we carried out at Ethics Institute Zimbabwe discovered that in every organisation, morally there are three types of people you find, namely the morally sound (10%), the morally weak (10)%), and the morally unstable (80%). The morally sound are those with a good upbringing, principled and incorruptible such that when they join organisations they are very much receptive to organisational ethics and want to live by them encouraging others to do the same. The morally weak (10%) are people with a poor upbringing and have a strong propensity to steal and engage in unscrupulous business dealings including outright criminal activities. They are ethically challenged. The last type, the morally unstable (80%) are those who form the largest group and are easily swayed by the direction of the wind. They focus on the now, and when the organisation or society they belong to is corrupt, they also become corrupt justifying their behaviour on statements like, “It’s the way things are done these days”, or “If everyone is doing it, why not me”.
Their strength however lies in that they are quick to adapt to new settings. Which means when strong ethics are introduced in a once corrupt organisation or society they are smart enough to notice that it’s no longer business as usual so they quickly adapt to new settings and ensure they abide by the new rules. Apparently this is the group any organisational or national endeavour in fighting corruption must focus on more, by ensuring its members are migrated upwards to join the morally sound, in the process exposing the criminals hiding in the group who can then be dealt with in terms of the law through arrests and prosecutions. But of course, achieving that requires a strong ethics agenda and a committed leadership. So, it takes strong ethics and an ethical leadership to stop corruption. This research has clearly shown that the majority of the people become corrupt not necessarily because they want to be corrupt, but simply because the environment will have become corrupt.
TM: Globally there is now a push for transparent and comprehensive information about remuneration to check for sustainability and benchmark against best practices, what is your personal opinion on this and why?
BM: Indeed, executive pay must be sustainable, and as you rightly point out the issue is currently under intense global scrutiny especially by governments, media and financial analysts because pay perks for leaders must ensure business sustainability, not the opposite of it, as we witnessed here in Zimbabwe through the salary scandals that rocked public institutions in the last decade.
TM: Based on your assessment of Zimbabwean practices for listed firms, do minorities really have a say on how the company is run?
BM: Minority shareholders have always been at the whims of majority shareholders because by law companies are democratic institutions that are run by majority shareholders. However, of late globally there has been concerted efforts to protect the interests of minority shareholders. In Zimbabwe the recently promulgated new Companies Act has introduced a raft of measures aimed at protecting the rights of minority shareholders.
TM: What is your assessment of ethical standards in both private and public sector governance in Zimbabwe?
BM: Ethical standards in both private and public sector institutions in Zimbabwe fall way below both regional and global standards, both in terms of practice and disclosure. Indeed, the value of managed ethics and ethical leadership in our economy today cannot be overemphasised. General practices in the country have been to improve adherence to good corporate governance but without giving equal attention to ethics.
We should understand that while corporate governance is about rules and procedures, ethics speaks to the value systems of those governance rules and procedures, forming building blocks for sustainable governance imperatives. It is critical that we embrace strong ethics in the way we conduct business, and start asking ourselves tough questions that bring the change we want to see. Imposing more corporate governance rules without creating a strong ethical culture will not grow responsible behaviour at all.