Public Entities Corporate Governance Bill: An HR perspective
Before delving deeper, it should be clear that violations of governance globally are not done by people who are ignorant of what needs to be done.
GOVERNMENT should be applauded for taking steps to address corporate governance issues in public entities through the Public Entities and Corporate Governance Bill. However, it should be noted that the major perennial problem with State entities has not been lack of legislation to deal with violations of standards.
It has been, rather, lack of political will to implement remedial measures in existing statutes.
It is unclear how this Bill will address this lack of political will.
Before delving deeper, it should be clear that violations of governance globally are not done by people who are ignorant of what needs to be done.
These violations are perpetrated by people who are educated and knowledgeable about how businesses are run.
At the core of most of corporate governance problems in state enterprises is the selection of people of low integrity who easily “morally disengage” and find themselves involved in illegal activities.
The second challenge is that there is no mechanism in Government to select people based on merit. This problem affects all State entities. Unless the above two problems are addressed, the Bill (when it becomes law) is likely to have very little impact on how State enterprises are run.
And in setting remuneration for board members and executives, the Bill references experience and qualification instead of referencing both the entity’s performance and the individual performance of Board members/executives.
The Bill shows that nothing has changed from the current practices of running State entities except that there will be a penalty for not complying with the Act.
While penalties are a deterrent, Government will have a tough time implementing them considering the apparent lack of political will and interference from parent ministries. What has not changed? Well, the Bill still empowers ministers to appoint board members of State entities they supervise. This has always been the practice. The only variation is that they must avail the names of the proposed members for inspection by the Corporate Governance Unit. Secondly, ministers still fix fees for board members and any other allowances. This has always been there. Thirdly, boards fix salaries for executives, but ministers approve salaries for executives.
Again, that is not new as boards have always sought approval from their respective ministers.
It’s highly likely that the status quo will continue.
Everything highlighted above has been the source of the current problems, meaning problems of pay governance, for example, will not go away.
The problem of not appointing people on merit will not go away.
While the Constitution says appointment to State entities should be based on merit, it is well-known that this has never been implemented.
The Bill also introduces new areas that are likely to present new problems.
The first problem is that it allows boards to fix exit packages for executives in advance.
This is an archaic practice that will be too costly for Government.
The Labour Act is very clear that on exit, an employee is entitled to two weeks’ salary for every year served (minimum).
Why would Government want anything more than this to be fixed in advance?
This will leave room for boards and appointed executives to negotiate exorbitant exit packages.
This practice is not there in the private sector because it’s costly.
Why would Government, with its limited resources, want to introduce such a practice?
In addition, the Bill makes it difficult for board members to resign.
Board member resignations will be “probed” to check if they are not running away from governance problems.
The proposed law also provides for the involvement of Cabinet in checking whether a board member’s dismissal was justified (in the event of a dispute).
Why not follow what most private sector organisations do when dismissing board members?
You can imagine the whole Cabinet discussing the dismissal of board members of many State entities.
The introduction of regional balance in the appointment of executives seems good on paper.
However, it brings an unnecessary burden on the entities administratively, and will give rise to accusations and counter-accusations.
Yes, the Constitution talks of bringing in regional balance in the appointment of people to public entities, but the overriding factor should always be merit. It is interesting that this Bill does not give the Corporate Governance Unit enough power to ensure compliance as ministers still hold most of the power in relation to the management of State entities.
The Unit will be run at Permanent Secretary level.
How much power will this person have to enable them to supervise work done by ministers?
The Bill proposes to set up a Corporate Governance Unit in the President’s Office, staffed by civil servants who will offer advisory services regarding compliance with this Bill. Civil servants are already “underpaid”; naturally, it will be difficult for them to supervise these public entities.
It is better to set up the Unit as an independent body with board members from both the private and public sectors.
Such a Unit would need independent people who are experienced and knowledgeable about corporate governance and human resources issues.
The other big question is: Who qualifies to be in the database of board members?
Is there an objective method for selecting these people?
If so, why has it not been outlined in the Bill?
The Bill says, “Persons will have to be appropriately qualified and experienced before they can be appointed to a board, and board members will have to have an appropriate diversity of skills.”
This clause is vague; it can mean 100 different things to 100 people.
The profile of an ideal board member should be stated explicitly.
The Bill also allows a board member to be on the board of a public entity and that of its subsidiary.
This violates normal corporate governance practices.
Further, the role of ministry in the management of public entities has not changed.
This has been the major source of most governance problems in public entities, especially interference by ministry staff in the running of public entities.
Clause 20 gives the responsible minister power to cap executive salaries.
This same clause seems to be giving the power of fixing remuneration to the board while also empowering the minister to “formulate model conditions of service for such officers”.
The board will have to follow this model.
When have ministers become experts in fixing remuneration?
This is the same system currently in operation; it is just being put into statutes.
The Bill talks about capping remuneration of executives. This does not work. It has been tried and failed locally. State entities will lose qualified staff to the private sector, especially second and third level executives.
The overriding factor in fixing remuneration at whatever level should always be affordability and sustainability.
Clause 22 gives a framework for strategic plans.
This, again, will not work as by the time the plans are presented to the National Assembly, they will have been overtaken by events.
The problem is not not having strategic plans; the problem is implementation, which is going to be made even more difficult by this new clause.
Clause 23 (Performance Contracts) stands to fail as the structure of governance proposed in the Bill makes it complicated. There is just too much interference by line ministries in the running of State entities, and that will make it difficult to hold any CEO or board member accountable.
Part VI talks about governance and adds nothing new. This has been the standard practice. The reason why this will be difficult to implement is because of interference by ministries. This Bill makes the interference worse.
The requirement to have Board Charters and Codes of Ethics for inspection is empty as it will not force a change in behaviour.
Only an empowered independent entity that manages/supervises all State enterprises will bring the much-needed sanity.
This same entity will use best practice in corporate governance and pay governance for public entities.
The entity will then lead in the selection and appointment of board members and senior executives of State entities based on merit.
The selection criteria should be made public for all Zimbabweans to participate. Mr Memory Nguwi is a Harare-based human resources consultant. He wrote this article for The Sunday Mail.