The Sunday Mail
Corporate governance is considered, globally, as a key element that drives economic growth, efficiency stability and encourages domestic and foreign direct investment into a country.
According to the United States-based Global Corporate Governance Forum, “Corporate governance has become an issue of worldwide importance. The corporation has a vital role to play in promoting economic development and social progress.
“It is the engine of growth internationally and is increasingly responsible for providing employment, public and private services, goods and infrastructure.
“The efficiency and accountability of the corporation is now a matter of both private and public interest and governance has, thereby, come to the head of the international agenda.”
According to the World Bank 2012 Corporate Governance and Development Report, “It is evident that although corporate governance may not be the sole driver for sound economic performance, it is a significant contributor and we only have to see the devastating consequences of poor corporate governance practices to appreciate the importance of corporate governance to economic development and its benefits for jobs and wealth creation.”
There is convergence in the above quotations, corporate governance is critical in sustainable economic development.
Wealth and job creation, for example, resonate with both the World Bank and Global Corporate Governance Forum submissions and are critical by products of good governance.
The supreme law in Zimbabwe, the National Constitution, under Chapter 9, focuses on “good governance”.
The Constitution recognises the importance of good governance and provides that the State is required to “adopt and implement policies and legislation to develop efficiency, competency, accountability, transparency, personal integrity and financial probity in all institutions and agencies of Government at every level.”
The importance of good governance, in both the public and private sectors, is as critical to the economy as the central nervous system is to vertebrates.
State Enterprises and Parastatals (SEPs) play a pivotal role in the development of our country and currently, at constrained capacity, account for 25 percent (50 percent at peak) of the country’s Gross Domestic Product (GDP).
Infrastructure development and service provision is dominated and often monopolised by SEPs in areas such as roads, aviation, rail, water and sanitation, power generation and distribution, health, tourism, telecommunications, agriculture, education, financial services and so on.
In pursuit of Vision 2030, SEPs cannot achieve their statutory objectives for advancing political, social and long-term economic growth while at the same time operating viably and efficiently if they are poorly governed.
Ministers should ensure that the SEPs in their ambit uphold the highest standards in corporate governance, to enable them to play a pivotal role in the attainment of Vision 2030.
Undue Government interference in running of SEPs often drives boards, CEOs and management to failure as they are not given enough room for decision making and to formulate or implement turnaround strategies. Government, represented by the line Ministers, should not be involved in the day to day management. The running of SEPs should be left to boards and management.
Many SEPs are hamstrung by lack of skilled manpower, resources, debt overhang, poor debt recovery strategies, lack of credit lines, low capacity utilisation, antiquated equipment and undeveloped infrastructure, among other problems.
To allow SEPs to operate efficiently, the Government should thus ensure that they apply corporate governance standards and are supported with adequate resources to enable them to achieve their statutory obligations.
Lead by example
We cannot look at corporate governance in isolation from national governance.
National governance sets the right political tone, the so called “tone from the top”.
Good corporate governance can only thrive in an environment where the Government itself fosters a culture of transparency and accountability.
Good corporate governance requires the Government to create an enabling environment conducive to the conduct of business in both public and private sectors.
The Government should create a stable political, social and economic system, which allows businesses to flourish and grow.
In addition, Government should put in place appropriate legal and institutional frameworks that promote good corporate governance.
It is the Government’s role to put in place regulations and laws to govern the conduct of business in order to maintain a stable economy. Economies that operate without adequate government regulation and oversight are prone to bouts of instability that leads to chaos and their collapse.
Local stock and capital markets, for example, require rigorous regulation by the Securities and Exchange Commission of Zimbabwe (SECZ) in order to maintain investor confidence.
Investors can only invest in public companies if they are managed and governed in a transparent and efficient manner and also if the security of their investments is safeguarded.
Corporate scandals, many of which are attributed to lapses in good corporate governance, scare away both domestic and foreign investors. This adversely affects economic stability, growth and the attainment of Vision 2030 goals.
The Government, through the legislation, has made bold steps to introduce laws directly dealing with corporate governance.
Public Entities Corporate Governance Act
The Public Entities Corporate Governance Act is seen as a milestone in fostering good corporate governance in SEPs, public entities, certain constitutional commissions and other commercial entities controlled by Government.
This Act, together with other legislative instruments, should be used as a tool for enhancing corporate governance in public entities and curb corruption.
However, the Act will only be effective in enhancing corporate governance standards in SEPs and other public entities if there is political will to implement its provisions.
If provisions of the Act are not applied, we will continue in the same state of poor corporate governance in SEPs and other public entities and it will be difficult to weed out wanton abuse of State resources and corruption.
The Government, therefore, needs to urgently restore public confidence in public entities through strengthening their governance structures to ensure transparency and accountability, stopping malpractices and abuse of public resources as well as taking appropriate disciplinary action, including prosecution of offenders to deter corruption.
The Companies Act
The review of the Companies Act (Chapter 24:03) needs to be expedited. A new Companies Act should be promulgated sooner rather than later to ensure that it covers issues relating to corporate governance in companies.
The current Companies Act is silent on corporate governance, this is retrogressive.
The South African government recently reviewed its Companies Act. The new Act now incorporates specific provisions on corporate governance.
In many respects, the new Companies Act, currently before the legislature, heavily borrows from the South African Companies Act.
It also contains specific provisions relating to corporate governance, this is a welcome and progressive development.
In 2020, corporate governance should be used as a tool to foster sustainable economic development as envisioned under Zimbabwe’s Vision 2030.
Allen Choruma can be contacted on [email protected]