Corporate governance remains a challenge

INCREASED cases of corporate governance breaches as reflected through boardroom squabbles, corporate scandals, abuse of office and corruption, especially in the public sector (State enterprises and parastatals) are a handicap to Zimbabwe’s economic growth and development aspirations under Vision 2030.

Although corporate governance may not be the sole driver for economic performance and development, it is a significant contributor.

Poor corporate governance has devastating consequences to Zimbabwe’s economic development.

Recent media reports on corporate governance failures and scandals in the public sector clearly show that embracing good corporate governance principles and best practices is a challenge for many organisations in Zimbabwe.

This needs to be addressed quickly as good corporate governance is a critical enabler to the attainment of Vision 2030.

Reforms

Over the last five years we have witnessed important corporate governance reforms and milestones.

The most notable being the adoption of the first Zimbabwe National Code on Corporate Governance (Zim Code) in 2015, the promulgation of the Public Entities Corporate Governance Act in 2018 and the Companies Act in 2020.

These governance frameworks are very comprehensive and in line with international best practices on corporate governance.

Our Constitution recognises the importance of good governance as a tool for fostering national development and social cohesion.

Chapter 9 of the Constitution specifically focuses on good governance.

The Constitution provides that the State is required to “adopt and implement policies and legislation to develop efficiency, competence, accountability, transparency, personal integrity and financial probity in all institutions and agencies of Government at every level”.

Government has made significant progress in creating awareness and raising corporate governance standards in all sectors of our economy.

A lot of organisations in Zimbabwe, be they in the public or private sector, can now boast of at least meeting the minimum corporate governance practices and having functional structures such as the board of directors.

Some organisations, where applicable, have even taken further steps by voluntarily adopting additional best practices enshrined in international corporate governance codes such as the South African King IV Report on Corporate Governance, and other sector specific governance codes.

Embracing reform

Although nationally we have made significant strides in promulgating laws and adopting a national code on corporate governance, embracing change and compliance to best practice still remains a challenge for many organisations.

Embracing reform is hampered by attitude, resistance to change, cultural dynamics, oversight challenges (enforcement of law) by regulatory authorities, costs associated with compliance and weak shareholder activism, among other factors.

It is unfortunate that a lot of organisations still lag behind in embracing and application of best practices in corporate governance.

Many companies, for example, have good governance structures on paper, but when it comes to implementation and compliance with best practices, it is a different story.

A tick-box approach to corporate governance seems to be the norm as opposed to voluntarily adoption and compliance with good corporate governance practices.

Tick-Box Approach

Corporate governance should not be a tick-box approach. Organisations should not just focus on meeting the minimum standards outlined in codes, regulations and laws. Good corporate governance should be driven by principles as opposed to instruction.

What this means is that directors should adopt a principles-based corporate governance approach.

As Mervin King, chairperson of the King Committee on Corporate Governance South Africa puts it, “principle is better than instruction”.

A “principles-based” governance approach is about ethics and values, self-introspection, discipline, voluntary compliance, self-regulation and voluntary application of best practice principles, etcetera.

Ethics

Ethics is the central nervous system for good corporate governance.

Every organisation should be guided by good business ethics such as discipline, transparency, independence, accountability, responsibility, fairness and respect.

Directors and CEOs are entrusted with huge responsibilities as stewards of public resources in public entities and as custodians of shareholder investments in private companies.

As trustees, directors and CEOs are required to exercise their fiduciary duties with seriousness and responsibility.

Directors should take business ethics seriously and lead from the front by upholding high standards of ethical behaviour.

Directors should take personal responsibility for their own actions individually and collectively as a board.

Non-adherence to good ethical standards leads to corruption and looting of resources, which in turn handicaps performance of companies and erodes public resources and shareholder investments.

Transparency, accountability

Transparency and accountability is a big corporate governance challenge for most corporate entities in Zimbabwe.

Some directors are of the view that once they are appointed to a board they cease to be accountable to the shareholders or the appointing authority.

We have read in the media lately cases of directors who refuse to account for their actions to shareholders or board chairpersons who usurp shareholder responsibilities of appointing and dismissing directors.

Some directors and CEOs have a tendency not to disclose material information to shareholders as and when it is needed to enable shareholders to make informed decisions.

In some companies, the CEO and management collude to disclose inaccurate information to the board and shareholders in order to conceal criminal activities.

Disclosure of material financial and non-financial information provides shareholders, investors, members of the public and other stakeholders with useful information about companies which they can use, for example, to make informed investment and other strategic business decisions.

Disclosures also help create transparency in the manner in which companies conduct their business and consequently this improves on their accountability to shareholders, key stakeholders and regulatory authorities.

Zimbabwean organisations, be they public entities or private companies, should embrace corporate governance reforms that were introduced by the government in the last five years in order to strengthen their governance systems, improve performance and safeguard shareholder and stakeholder interests.

A well-governed public and private sector plays a pivotal role in fostering Zimbabwe’s economic development, national stability and social transformation in line with the aspirations of Vision 2030.