• +263 77 173 5370
  • info@takudzwagwazem.com
  • 32 Lawson Ave, Harare, Zimbabwe

Good Corporate Governance: Private and Public sector enterprises reforms in Zimbabwe.

  • 5 months ago

Global market forces will sort out those private and public enterprises that don’t have sound and effective corporate governance in the private sector, where the term good corporate governance is widely used. It is a term applied to the networks of formal and informal relationships with the management of the company and the company’s stakeholders, including employees, customers, creditors, local communities, and society in general. Effective corporate governance can positively affect shareholder confidence by reassuring them that the company is making smart business decisions and is well organized internally. Confident shareholders are likely to invest more significant amounts of money in an effectively governed company because a positive return on the investment is expected. This can increase market confidence in the company, increasing its overall stock value. When a company's stock value rises, so does its overall value.

 

On the other handa public enterprise's corporate governance is the leadership and control method that involves a set of clear rules and principles such as integrity, honesty/sincerity, transparency, and responsibility, transparent risk management and control mechanisms, and elements needed to achieve the purpose of public entities, which is satisfying general needs. Conrad Black once said, "like all fads, corporate governance has its zealots.” Newspapers have been flooded with cases of corporate governance breaches in Zimbabwe. Scandals, abuse of office, corruption, and boardroom disputes in private and public sector enterprises. The corporate governance zealots have played significantly into the current economic and governance crisis bedeviling private-public sector enterprises in Zimbabwe. In this article, I borrow the concept of corporate governance used in the private sector and link it with the public sector, which has been a subject of debate due to high corruption, nepotism, and political interferences. 

 

Within the public sector and at the international level, corporate governance emerged in the context of severe fraud and financial abuse in countries with developed capital economies such as the USA, UK, and Italy. It was mentioned in the 70s, following the Watergate scandal, when American private companies were discovered to have been involved in politics through illegal financing of political parties in the USA. In 1992, the Cadbury Report developed the UK's first public sector corporate governance guideline. Cadbury Report identified three essential principles of corporate governance “openness, integrity, and accountability.” This Cadbury Report is a report to the Cadbury Committee, a formal committee to address the financial aspects of UK private sector corporate governance. This report was the foundation for the first public sector corporate governance framework developed by the British Chartered Institute of Public Finance and Accountancy in 1995.


The numerous corporate scandals, scoundrels, crises, and collapses that have made headlines around the globe over the past decade have awakened renewed discourse about corporate governance in Zimbabwe. In 2010, the Ministry of State Enterprises and Parastatals in Zimbabwe issued the Corporate Governance Framework for State Enterprises and ParastatalsYet, inadequate corporate governance practices remained rampant in SOEs; with major parastatals such as Premier Service Medical Aid Society (PSMAS), Zimbabwe Broadcasting Corporation (ZBC), Zimbabwe Revenue Authority (ZIMRA), Air Zimbabwe, and the Municipality of Harare becoming archetypes of severe corporate misconduct over the past years. The system has not provided the basic checks and balances essential for sound corporate governance in public sector enterprises in Zimbabwe, creating a fertile ground for corporate misdemeanor.  

In Zimbabwe, however, there is an undeniable interplay between politics and the governance of the SOE. This results from the state's involvement in appointing parastatal boards of directors. More often than not, these board appointments have been riddled with cronyism, where the work of members of the panels has primarily been based on political expediency and rarely on pure merit. The situation is exacerbated when appointed board members have political connections. Such a situation opens the door for undue influence and political interference in the day-to-day running of the SOE.  The constitution of Zimbabwe Section 9 states that ‘The State must 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 every public institution.’ In the public sector in Zimbabwe, political unwillingness to institute and enforce corporate governance reforms to enhance integrity, transparency, accountability, and good governance has become rife. 

The Corporate Governance Unit (CGU) in the Office of the President and Cabinet (OPC) has taken some positive steps in strengthening corporate governance in public entities, for example, by enacting the Public Entities Corporate Governance Act. The most notable of these was 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 revised Companies Act in 2020. Unfortunately, public sector enterprises in Zimbabwe still lag in embracing and applying best practices in corporate governance. Adopting these reforms is hampered by attitude, cultural dynamics, resistance to change by the authorities, costs associated with compliance, and challenges by regulatory authorities. The challenges identified by the Auditor-General’s Report 2018 on Air Zimbabwe, Allied Timbers, GMB, CMED, ZINARA, and NSSA are associated with such challenges. 

Zimbabwe lacks a proper legal framework and mechanism for good corporate governance. The country’s anti-corruption board, the Zimbabwe Anti-Corruption Commission (ZACC), which draws its mandate from the Constitution of Zimbabwe, has been undermined by political forces. Despite being given the powers to rein in corrupt activity in the country’s public and private sectors, ZACC has failed to enforce the criminalization of exposed malfeasance and to secure the conviction of several highly-placed individuals who have been implicated in some of the recent high-profile corporate scandals. In my view, most government projects, be they in natural resource exploitation, agriculture, commodities procurement, transport, or even Covid-19-related purchases, are characterized by rampant corporate-driven corruption and mismanagement. The US$28 million Drax International scandal that plagued the ministry of health and child care in Covid-19-related procurement in the middle of 2020 and the US$54 million bus procurement scandal which sucked in a top advisor to President Mnangagwa, Kuda Tagwirei, which various media outlets extensively covered are exemplary examples. The current corporate governance practice has not effectively improved the efficiency and effectiveness of the public entities. This results from corruption, inconsistencies, lack of commitment, absence of the rule of law, anexcessive political interference. 

Recommendations

Across the global divide, the concept of sustainable development and sustainable businesses has been raised. These cannot be easily achieved without the effective integration of good corporate governance in state enterprises. For sustainable development and business, the extent to which state-owned enterprises adhere to the fundamental values of good corporate governance is essential to attract investment capital and encourage growth and economic stability. Zimbabwe has been saddled with the challenges of attracting an investor-friendly environment, hence the need for public entities to exemplify good corporate governance. Highly publicized scandals that have shaken state-owned enterprises have been ascribed to deficits in corporate governance. Below is my strategic, operational framework to reform the public sector in Zimbabwe; however, within the private sector, some of these recommendations can also be applied with a no one size fits all approach. 

a.     Adopting a principle-based approach.

b.     Effective Board

c.     Separation of powers

d.     Setting an effective whistle-blowing procedure, e.     Review the role and composition of ZACC