Question

Recognizing the role that corporate governance plays in national socio-economic

development, the Government of Zimbabwe has in the last decade instituted measures to
facilitate improved governance of both public and private sector organisations. Identify
and conduct an assessment of the measures it has taken and make recommendations to
improve any gaps revealed in your assessment [100].

Introduction

According to the Cadbury Committee (1992), corporate governance refers to the system in which
companies are directed and controlled by the board of directors on behalf of the principals, who
are the shareholders or principal owners of the companies. The importance of corporate
governance transcends beyond the corporate entities in which good governance is practiced. It is
the main ingredient in the economic growth and social development of a country, which makes it
imperative for the government to champion good governance in both the private and public
sectors in Zimbabwe. Despite the benefits that accrue from good corporate governance, the
country has faced a myriad of corporate governance challenges in the recent years. Coupled with
economic decline, the corporate governance deficiencies have exacerbated the demise of many
companies in Zimbabwe, be it in the private sector or public sector. It is against this background,
that this study seeks to assess the measures instituted by the government to enhance the efficacy
of corporate governance in Zimbabwe.

Issues Identification

The government of Zimbabwe through the Zimbabwe National Code on Corporate Governance
(ZIMCODE, 2015), the Corporate Governance Framework for State Owned Enterprises and
Parastatals (2010), the Constitution of Zimbabwe (2013), and the Companies and Business
Entities Act (2019), has instituted a raft of measures that are tailor made to improve corporate
governance in Zimbabwe. The measures were instituted following a spate of corporate
governance malfeasance and corporate scandals in both the private and public sector in
Zimbabwe.

The measures which were promulgated by the government of Zimbabwe addresses quite a
number of principles of corporate governance. This includes inter-alia, the devolution of power
among shareholders, board of directors, and management as well as the recognition of
stakeholders within which the companies operates. The second measure instituted concerns the
board of directors and the directors. In this regard, the government outlines the roles that
directors should perform, their fiduciary roles, basis of appointment and the moral duties that
directors are compelled to perform.

The next measure to improve corporate governance pertains to governance and risk within
companies. The code provides that business leaders should have a mechanism to measure,
mitigate and manage the business risks that face an organisation. In the same chapter the code
provides for a whistleblowing system to report the misuse of funds within institutions.
Furthermore, the code also provides for measures concerning information management and
disclosure. The chapter contains multiple disclosure principles that are designed to address
disclosure deficiencies as well as disclosures concerning remuneration of board of directors and
senior management.

The government also instituted measures for conflict prevention and resolution to protect the
property and reputation of businesses. The government through the code suggested the setting up
of the corporate conflict resolution committee (CCR) by the board of directors. Moreover the
government also promulgated measures concerning the compliance and enforcement of the
above-mentioned principles and adopted the ‘apply or explain approach’. Madzirerusa (2015)
observes that the approach reflects an appreciation of the fact that it is not often a cause whether
to comply or not but a case of considering how the principles of a code and recommendations
contained therein can be applied in the particular circumstances of a given enterprise.

The government of Zimbabwe also laid out measures regarding the governance of stakeholder
relations, which have not been entirely addressed in the past by existing legislation. The code
recognizes the importance of striking a balance between shareholder wealth maximization as
well as the promotion of the interest of other stakeholders.

Discussion

The first measure instituted by the government addresses the ownership and control of
companies. The ZimCode provides for the rights of different classes of shareholders and it states
that there must be a balance of power between shareholders, who are the providers of capital, the
management and the board of directors. It also provides that corporate power should not be
concentrated in one person or a small group of persons because this will have a negative impact
on effective and ethical corporate leadership.

Furthermore, the code states that corporate power is represented by the right to vote on a one
share one vote basis and must be aligned with economic rights, which by all means must be
extended to all shareholders, including minority shareholders. This is aligned to the Organisation
for Economic Cooperation and Development (OECD, 2016) guidelines on equitable treatment of
shareholders. The King IV Report (2010) states that it is the responsibility of the board to ensure
the equal treatment of shareholders and that the interests of minority shareholders are protected.

The equal treatment of shareholders ensures that there is fairness within the organisation.
Fairness is defined in the Higgs Report (2003) as the reasonable and equitable treatment of the
sources of value including relationship capital as portrayed by the needs, interests and
expectations of the stakeholders of the organisation. The corporate Governance Framework for
State –Owned Enterprises and Parastatals (2010) outlines that the majority of shareholders and
members of the board should respect the rights of minority shareholders.

There is a notion which states that an attempt by organisations to satisfy the interests of all
stakeholders would leave it being accountable to none. There are some decisions which require
the approval of majority shareholders and such decisions cannot be held at ransom by a minority
group of shareholders in the organisation.

The company is viewed as an artificial person that acts through natural persons in the form of
board of directors who are saddled with the responsibility of managing and controlling the
business affairs of the organisation. The Combined Code (2003) maintains that the company
should be headed by an effective board, which is responsible for the success of the company. The
directors are expected to perform the fiduciary duties of skill, care and loyalty.

The measures addresses the board appointment and composition. The measures state that the
boards should be composed of the majority of non-executive directors who bring independent
judgment to the boards of companies (Cadbury Report, 2002). It is also stated that independent
non-executive directors must be independent in character and judgment and should not have
relationships or circumstances which are likely to affect their independence.
The appointment of directors in State-Owned Enterprises was not thoroughly addressed in as far
as political interference is concerned. Chambari (2017) observes that the appointment of
directors in most public entities is based on nepotism, political patronage, and cronyism, rather
than merit. As a result, there is lack of board independence in most state owned enterprises and
the continuous political interference compromise their effectiveness in providing leadership in
such entities. There is need to insulate most state-owned enterprises and parastatals from the
influence of the state.

The measures instituted with regards to the board and its directors have gone a long way in
ensuring board diversity in terms of qualifications, skills and experience. The Higgs Report
(2003) contends that the composition of the board is such that the members should possess
leadership qualities and core competencies required by the company including financial, legal
and managerial experience and expertise. However, board diversity in terms of gender, was not
addressed in the codes, but there seems to be the contention that corporate boards in Zimbabwe
are still dominated by males.

The ZIMCODE (2015) implores directors to establish an efficient and effective system for the
day to day supervision of the company’s financial and business operations. In addition, other
measures that are alluded to in the code include risk assessment, internal and external audits,
audit committees and whistle-blower policies. Madekutsikwa (2015) argues that the whistle
blower policies are commendable as it allows parties who are aware of the misuse of funds and
abuse of power in institutions, to report anonymously to an independent and trusted whistle-
blowing system.

The disclosure and management of information and its accessibility to stakeholders is vital to the
culture of building confidence, accountability and trust within organisations. The disclosure of
information is important for stakeholders for it assists them in making informed decisions. The
inclusion of stakeholders is an important step towards fulfilling the stakeholder theory of
corporate governance. In the same vein, the code recommends that the company’s remuneration
policy and directors’ remuneration in the form of salaries and other perks such as benefits,
bonuses, stock options should be fully disclosed by the companies. This is a valiant move
considering the ridiculous remuneration levels that directors of most state-owned enterprises and
parastatals awarded themselves in the past. Moreover, the disclosure of such information
promotes the principle of transparency and disclosure as elucidated in the OECD guidelines.

The recommendations enunciated in the corporate governance code (ZIMCODE, 2015)

pertaining to the disclosure of material and non-material information does not provide measures
that compel government departments to produce information needed for audits by the Auditor
General. This means that the disclosure principles and recommendations available do not carry
enough legislative power to ensure the disclosure of such information.

Despite the recommendations of the code on the levels of transparency and disclosure, most
state-owned enterprises and parastatals in Zimbabwe do not disclose annual reports of financial
performance on time as required by the Office of the Auditor General. The OECD (2015) states
that sate-owned enterprises should report material financial and non-financial information on the
enterprise in line with internationally recognized standards of corporate disclosure. The OECD
further states that annual financial statements should be subject to an independent external audit
based on high quality standards.

The prevention and resolution of corporate conflicts make it possible to protect the rights of
shareholders and to protect the property and business reputation of the companies. The measure
also implores directors and employees not to use their positions for an improper purpose or take
advantage of company opportunities to further their own interest. The code also recommends
against having the roles of board chairman and chief executive officer being assumed by one
person, as this is considered to a typical conflict of interest.

Despite these measures, there was a reported case at ZESA holdings where a director flouted a
conflict of interest when he opened his own private offices at Powertel premises without seeking
the necessary approval from the board. There are also reports of ZESA employees involved in
the pilferage and vandalism of power, transformer oil, copper and aluminum infrastructure. At
the very same institution, there has been accusations against the executive chairman of the board
with regards to abuse of office. This is against the recommendations of the corporate governance
codes which states that the board chairman should be independent of the company.

Concerning the governance of stakeholder relations, the government set the principles on the
identification, recognition, respect and the promotion of the legitimate rights of its stakeholders
by the company in its endeavours. It provides for mechanisms for engagement and transparency
between the company and its stakeholders. The principles and recommendations are consistent
with the OECD guidelines which state that there should be recognition of enterprises’
responsibility towards stakeholders and that it requires the enterprises to report on their relations
with stakeholders.

There is a culture of goods laws which cannot be implemented when it comes to the operating
atmosphere in Zimbabwe. For instance, shortly after the salary gate scandal, the government
responded by capping salaries of executives to only USD $6000 per month with other scenarios
considered in order to restore sanity. It is however alarming that that months later, a newly
appointed senior management member of Premier Service Medical Aid Society (PSMAS) who
had replaced the previous chief executive officer was earning USD $40000 which is four-fold the
USD 11000 he should have been earning. This was being done while the company was
struggling to pay service providers and employees.

Recommendations

Insulate state-owned enterprises from excessive state intervention

State-owned enterprises need to be insulated from excessive state intervention. This will increase
the operational and financial efficiency of state owned enterprises. This measure needs to be
backed by the recruitment of private sector directors with vast skills and experience in the
running of companies. In addition, the OECD guidelines on the state’s role as the owner calls for
the government to steer away from the day to day management of state-owned enterprises and
allow them full operational autonomy.

Increase transparency and disclosure

Zimbabwe’s transparency and disclosure mechanisms can be enhanced in order to restore public
trust in the manner in which state-owned enterprises are managed. In Zimbabwe, this measure
can be adopted for all state-owned entities depending on the costs of disclosure to each state-
owned entity. Information to be disclosed should include material and non-material information
and has to be disclosed to the state and the general public.

Conclusion
The success of corporate governance measures for state-owned enterprises and private
companies is very important for the success of the Zimbabwean economy. The measures
instituted by the government are mainly applicable for state-owned enterprises as they are crucial
for the growth and development of the economy. Since their promulgation in 2015, some of the
measures have been implemented successfully but there are some challenges being faced, for
example the disclosure of financial statements are still coming later after the due dates, which is
against the principles outlined by the state. It is also argued that there is need to strengthen the
office of the Auditor General so that the recommendations that it issues can be adopted by all the
state-owned enterprises. The private sector in Zimbabwe has been conforming to their own
corporate governance guidelines from international codes of best practices.
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