QUESTION 2 B

EXAMINE THE CAUSES FOR POOR CORPORATE GOVERNANCE AND

PRACTICES?

PRESENTATION BY
SIMANGO TARIRO B230126A
GWEJE TENDAIB226867B
KAGURABADZA LOYCEB227234A
LOICE RUFU B227569A
PELAGIA MBANDA B227760A
 introduction
• Models of governance can be defined as an internal
framework of a firm or an organisation that controls the
process for model development, validation and usage as it
assigns responsibilities and roles. The purpose of these models
is to help build an environment necessary for fostering long
term investment, financial stability and business integrity
• A systematic failure of corporate governance means the
failure of the whole set of regulatory market, stakeholder and
internal governance. Businesses need to ensure they remain
disciplined, transparent, accountable so as to avoid poor or
failed corporate governance.
 Models of corporate governance

• Traditional governance model

• Carver Board governance model
• Cortex Model
• Census Model
• Competency Board Model
• Policy Governance Model
 PRINCIPLES THAT LEAD TO GOOD
CORPORATE GOVERNANCE
• TRANSPARENCY
• ACCOUNTABILITY
• RISK MANAGEMENT
• INYEGRITY
• WELL DEFINED RIGHTS OF SHAREHOLDERS
 CAUSES FOR POOR CORPORATE
GOVERNANCE
• Socio economic and political unrest
• Managerial inefficiency and ineffectiveness
• Poor financial management
• Ineffective sales force
• Fraud/corruption
• Weak corporate governance
• Lack of transparency
Socio economic and political unrest
• The environment in which a company operates determines its
survival.
• In an environment that has uncontrollable social unrest or the
political atmosphere is uncertain or there are persistent changes in
the macroeconomic policy, all these will adversely affect the growth
of a business
• Investment in weak governance zones raises a broad range of ethical
issues which include management of corruption, protection of human
rights and labour and environmental management (OECD 2005).
• Investors tend to avoid investing in these businesses as there wont
have confidence in the organization that it will yield profits for them
 Ctnd
• In their article they were giving an analysis of risk
associated with venturing into business with DRC as it
was a time when there was war and political as well as
economic instability. They wrote “OCED and non OCED
experience shows that weak governance of state owned
enterprises can be a mechanism for lowering public
wealth through waste or questionable business practices”
• So according to this analysis investors see it as a waste to
invest in countries with unstable economic and political
unrest.
 Managerial inefficiency and ineffectiveness
• Inefficient managers lack a well-articulated corporate strategic plan
• Technical incompetence of board and management will also result in lack of
prerequisite skills and competences to effectively redefine, restrategize,
restructure, expand and refocus the enlarged entities in area of change, new
business acquisition, and expansion and product development
• Policies affecting sales especially credit sales should be carefully evaluated
since such could lead to debt build up and by implication liquidity crises.
Ineffective boards suffered from limitations on skills and competence, as well
as on the nonexecutive directors’ ability to monitor and control senior
executives effectively
• For example PSMAS medical aid which has failed to adequately provide
proper services to its clients due to managerial inefficiency
• There are reports of embezzlement of funds by top management and yet
service delivery is very poor
 Poor financial management
• A firm whose financial management take effective financial
decisions is bound to experience acute liquidity problems
• Poor management of finances also leads to excessive expenses
when there is inadequate revenue, can lead to over ambitious
targets that will lead to over expansion, excessive floating debt,
and unwise dividend policies
• This could happen because of poor malfunctioning of the credit
department for example expanding the business without provision
for adequate working capital, through the acquisition of fixed
assets by short term notes, or even by the effect of inadequate
banking facilities. Funds which should be used for maintenance or
as reserves are sometimes diverted to other use.
 Ineffective sales force
• When sales force is ineffective it means sales
force is not properly trained and developed
• Companies may find it difficult to sell it’s
product if it’s being sold in a highly
competitive market
• Gilman(2001) further explains that such a
situation will create cash flow problems and
by implication solvency problem
 Corruption/ Fraud
• Corruption is when people work in a dishonest manner
• They advance personal interests more than attainment of organisational
goals
• In most cases where there is no good governance principles and structures,
systems are prone to abuse and provides greater opportunity for Corruption
• For example parastatals in Zimbabwe like ZESA, ZUPCO, ZINWA are failing to
adequately provide services to the public yet the big bosses of these
parastatals are living large. In light of this it shows that bodies like the anti
corruption commission have a lot of issues that need to be addressed as no
one is answerable to the question why are these bodies failing to provide
proper services.
Weak corporate governance frameworks

• All organisations are governed by various rules

• Laws dictate how an organisation is supposed to carry it’s
operations
• Mashingaidze (2014) “Africa Attractive Survey is seen by
international investors as being a high risk. The economies are
shrouded with weak institutions in terms of property rights,
judiciary systems, stringent regulations that hamper economic
activities.”
• This shows that in Africa the issue of proper legal frameworks is
hindering a lot of potential investors from doing business.Legal
frameworks help attract investors and where frameworks are
favourable and clear investors will not hesitate invest.
 Lack of transparency
• Lack of transparency is a major issue in many organisations including countries as it
can inhibit the free flow of information and leads to corruption ,oppression AND
mismanagement of resources
• Where there is no transparency there is no proper accountability of issues
• Lack of accountability in both performance and operations coupled with cut off
accounting processes, unsound internal controls and inadequate safe keeping of
security documents has contributed to corporate failure
• Ben Mcclure (2021) “ companies with impossible to understand financials and
complex business structures are riskier and less valuable investments”
• An example the Enron scandal of 2001 the Enron Corp. a company that reached
heights only to face a dizzying fall. At its peak its shares were worth $90.75 and just
prior to declaring bankruptcy in Dec2001 they were trading at $0.26. This was one
of the largest companies in USA, up to today it is difficult to fathom how its
leadership managed to fool regulators with fake holdings and off the books
accounting Troy Segal(2021).
Examples of poor corporate governance
• In contemporary examples we have NSSA their manner of
recruiting board members is compromised because most of
their board members will be conflicted and will be away to
further the interests of the organization.eg the case of Percy
Toriro.
• Another example is that of the GMB saga where they sold
subsidized mealie meal to Zambia and DRC whilst there were
shortages in Zimbabwe.
• Ugandian Airline in 2021-2022 the auditor general of Uganda
discovered that the airline had not kept good records during
the year 2021 into 2022 and incurred a loss of 45mil USD.
Remedial measures of minimizing corporate failure

• The most effective measure of averting corporate

failure is the institution of a very effective management
• The responsibility of management would be to look at
all areas of operations to see how efficiency could be
induced, such areas include:
1. Staff training and development
This is important in the sense that the employees are
expected to lead all areas of job performance and the
essence of training is to make them improve on job
performance.
 Measures cntd
2. Enhancement of productivity and business process
re-engineering. These consist three important areas
which are:
a)improvement in productivity, application of
appropriate financial structure, increasing the level of
competitive advantage in the market place.
b)Effective management of the product and product
market.
c)Compliance with the provisions of the Companies Act.
 Measures cntd
• Continuously monitor the following factors to see how they
could be brought under control. These are:
a) Sales price variance, Sales volume variance.
b)Sales mix variance.
c)Sales quantity variance.
d)Market size variance.
e)Market share variance.
 Conclusion

• In conclusion it can be noted that corporate governance

plays an important role in a country as well as an
organisation.
• Weak corporate governance system may not only restrict
economic growth is causes corruption, cronyism, volatile
currency fluctuations, financial crisis and collapse of
continuity in organizations.
• A sound corporate governance system is possible if
companies apply the principles of corporate governance
which are accountability, transparency, integrity as well as
clear stated roles of share holders.