The Sunday Mail
NO matter how many times the issue of corporate governance has been discussed, it still refuses to escape public discourse simply because the irreverence towards this key practice remains.
Corporate governance is usually defined as a system through which organisations are directed and controlled.
Since time immemorial, developing a governance structure for managing both public and private institutions has always been a priority because misgovernance has tended to have serious consequences on companies.
At times, depending on the size of the company that was affected, corporate delinquencies have even threatened to have a systemic impact by threatening the mainstream economy.
Locally, there has been a number of high-profile corporate failures, particularly in the financial services sector.
Over the years, many banks have been found wanting.
So, too, have been local public officials at times.
But in April 2015 the country launched its own corporate governance code to try and establish a foundation through which institutions in both the public and private sectors could be administered satisfactorily.
Most importantly, this key code sets parameters on the role of the board, the quality of financial reporting and auditing, director’s remuneration, risk management and corporate social responsibility.
Despite these structures being in place, shareholders, particularly individuals who are heavily invested in a company, sometimes feel that they should have their way in the manner that these companies are run.
So, in many cases, if these shareholders’ roles are limited to the board, they eventually tend to overlap into management roles, even in cases when they are non-executive directors.
It is either they pick a management that is pliant, or they heavily hand-hold those that they chose to lead these organisations.
It is also therefore unsurprising that with time these boards become dominated by a single senior executive or a “small kitchen cabinet”, with other board members merely acting to rubber stamp decisions.
Also, due to the pervasive influence of the shareholder, it is uncommon for decisions to be railroaded through the board.
It remains a clear weakness that has to be addressed.
Many business owners are not aware that the company has a separate legal persona to themselves. It needs its own governance structures to exist.
In the same vein, it also needs to be protected from the excesses of the owner.
Therefore, a board really needs to be balanced.
However, there are cases where even if the company is not dominated by a single individual, there are inherent structural weaknesses in the board’s composition.
For instance, the organisation might be run by a small group centred on the chief executive and chief finance officer, and appointments made by personal recommendation rather than through a transparent, formal objective process.
Boards must be balanced in terms of skills and talent, age and expertise.
Issues pertaining to financial reporting and auditing are seen by many investors as crucial because of their central importance in ensuring management accountability.
They have been the focus of much debate and litigation.
Whilst focusing corporate governance solely on accounting and reporting issues is inadequate, the greater regulation of practices such as off-balance sheet financing has led to greater transparency and a reduction in risks faced by investors.
In some instances, external auditors may not interrogate senior management sufficiently, while internal auditors might at times fear to ask awkward questions because the chief executive officer might conveniently get rid of them.
Most often, company failures are accompanied by fierce criticism of external auditors and those that are supposed to exercise an oversight role over the institution.
In most cases, small to medium scale enterprises (SMEs) are the ones that suffer the most from insufficient audits as inexperienced individuals may be assigned to such clients and, as a result, these inexperienced external auditors might fail to identify key issues affecting the organisation.
There is another set of circumstances that makes it increasingly difficult for individuals to reverently practice good corporate governance and it has to do with remuneration.
The country’s economy has been under siege for the past 15 years and companies have not been performing quite well.
It has been difficult for many firms to declare dividends and so management has had to improvise by getting money from their entities through outrageous salaries.
This, however, is not peculiar to Zimbabwe alone as it has been happening all over the world.
But what has made it obscene is that such huge salaries have been drawn even in circumstances where the company has been underperforming.
Thankfully, the code of corporate governance seeks to address this anomaly.
If one person’s monthly salary and benefits can be enough to pay salaries for about 300 workers for a whole year, then what does this mean for the organisation and even the country at large?
This is clearly an excess of capitalism that needs to be eliminated.
Boards that fail to meet regularly and fail to consider the welfare of any organisation are clearly not fulfilling their responsibilities.
At a time when the country needs investment, it is prudent to continue to review the rights and responsibilities of shareholders, corporate social responsibility and business ethics, public and non-governmental bodies’ corporate governance, conduct of directors and compulsory regulations versus voluntary best practice.
Shareholders should have the right to receive all material information that may affect the value of their investment and vote on measures affecting the organisation’s governance.
Boards are also required to act with integrity, to supervise the body’s activities properly and ensure appropriate control and risk management and reporting systems are being maintained. This is paramount.
For their part, directors may be subject to organisation and sector- specific controls to ensure that they act in the public interest.
Certain guidelines that are voluntary best practice in the corporate sector, for example, maintenance of an internal audit department may be compulsory for other organisations.
Investors do want to invest in Zimbabwe and they must feel safe injecting their money into local enterprises, but this can only happen in an environment where local companies, even private local companies, appreciate that their balance sheets can only be healthy and attractive if there are sound administrative structures in place to drive them.
Though the country is moving in the right direction, merely putting the code on paper will not work; there is need to ensure that all these practices are followed through.
Taurai Changwa is an Articled Accountant and ACCA finalist. He is the managing director of SAFIC Consultancy. He writes in his personal capacity and can be contacted at [email protected] or visit our facebook page SAFIC Consultancy or whatsapp on 0772374784.
