News / National
Mnangagwa and King speak on corporate governance
18 Nov 2016 at 14:37hrs | Views
Good corporate governance, which calls for transparency, integrity and accountability on the part of executive directors and managers, could result in the development of blue chip companies able to attract global capital, Vice-President Emmerson Mnangagwa said on Thursday.
This could help grow the company's economy, he told guests at the fourth edition of the Excellence in Corporate Governance Awards dinner held by the Institute of Chartered Secretaries and Administrators in Zimbabwe at the Rainbow Towers hotel.
He said the country's economic challenges between 1998 and 2008 came about mostly because of poor corporate governance, which resulted from inadequate oversight and regulation of banks.
"This allowed bank directors and managers to siphon depositors' money and lend it to each other and to those that they had connections with, even when they did not qualify for such loans," he said, adding that this resulted in a number of banks failing.
The theme of this year's awards ceremony, ‘Good Corporate Governance for Sustainable Economic Development', was, he said particularly germane, as government, through the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zimasset) programme and the 10-point plan articulated by President Robert Mugabe, was implementing various initiatives meant to grow the economy.
He drew attention to three of the points in the 10-point plan, which he suggested should be of particular interest to those attending the awards ceremony. These were: restoration and building of confidence and stability in the financial services sector; joint ventures and public-private partnerships to boost the role and performance of state-owned companies; and pursuing an anti-corruption thrust.
The restoration of confidence in the financial services sector was, he said, a function of good corporate governance. He highlighted the need for depositors to feel safe keeping their money in banks, especially on a long-term basis. Long-term deposits would allow banks to lend to needy business entities and other sectors of the economy, including for infrastructural growth that would stimulate employment growth and create employment.
He said poor corporate governance contributes to the proliferation of corruption, which impairs investor confidence and negatively affects the operating performance of firms by raising the cost of capital, in the process reducing a firm's value.
"Corruption acts as an implicit tax on investors. Costs associated with negotiation and paying bribes and fees to intermediaries add up to large amounts, to the extent that investors end up giving up on profitable projects," he said.
He added that income gained from corruption was normally spent or invested in secrecy, mostly outside the country, resulting in capital flight.
Bureaucratic bottlenecks exacerbated the scourge of corruption, he said.
"The ease of doing business reforms are expected to help reduce incidences of potentially corruptible interfaces in business transactions," he said.
He pointed out that in some instances, as a result of weak corporate governance practices, corruption could be systematised, through the creation of a network of relations of directors or managers and suppliers, making it difficult to detect.
He said government was concerned about the quality of members of some boards. It was also worried about the frequency with which some board committees sit, adding a significant cost to already struggling organisations without a corresponding improvement in performance.
He said private sector companies could play a role in the fight against corruption within the public sector by not being accomplices.
"In nearly all reported cases of public sector corruption, the private sector players have been exposed as viable conduits to siphon off public funds," he said.
The Vice-President said good corporate governance, innovativeness, efficiency, market execution and branding had the potential to improve a company's image and brand value, allowing it to earn additional income streams through low cost cross border investment strategies, such as licensing or franchising.
"In this way, Zimbabwean companies can certainly help the country to grow its economy," he said.
He pointed out that the contemporary view of corporate governance had been broadened. Corporate governance was now seen as a process or set of systems designed to ensure that companies are managed to satisfy the best interests of all stakeholders, who might include employees, stockholders, customers, creditors, bankers and government, though with the aim of maximising shareholder wealth.
Internationally renowned corporate governance guru Professor Mervyn King, who was guest speaker at the awards dinner, and whose committee played a key role in broadening the view of corporate governance, explained how this change had come about.
He said when Henry Ford, the famous motor vehicle manufacturer, had wanted to increase the wages of employees, minority shareholders went to court to prevent this, arguing that shareholders must be paid first before the wages of employees could be increased. They won their case.
He asked rhetorically how such a view would be received in present day Zimbabwe. He said in 1992, the year before he was asked by the Institute of Directors in South Africa to chair the first official committee in South Africa on corporate governance, the world still embraced the notion of the primacy of the corporate shareholder.
It was a view that in the changed circumstances of South Africa his committee started to question. In its first report, which was a comprehensive code of corporate practices and conduct, the King Committee on Corporate Governance became the first such committee in the world, he said, to come up with a stakeholder model of corporate governance.
People started talking about the King I report all over the world. The concept of a stakeholder model took root internationally.
"People started looking at not so much how much money a company made as how did it make it," he said.
It became accepted that the effects of a business on society, the economy and the environment had to be taken into consideration. He gave the example of a company disposing of chemical waste cheaply by dumping it in a river. This might help the company make a lot of money but it would kill large quantities of fish in the river.
The King Committee recently came out with its fourth report, King IV. Professor King said the report had distilled 75 principles in the King III report into just 16 principles essential for sound corporate governance.
It had also identified four outcomes. The four outcomes were ethical culture and effective leadership; adequate and effective controls/oversight; value creation (performance) in a sustainable manner; and trust and confidence, good reputation and legitimacy.
"In South Africa," he said, "there is a company that has lost nearly 70 percent of its value on the Johannesburg Stock Exchange because the perception is that they have not achieved those outcomes," he said. "That company is Oakbay."
This could help grow the company's economy, he told guests at the fourth edition of the Excellence in Corporate Governance Awards dinner held by the Institute of Chartered Secretaries and Administrators in Zimbabwe at the Rainbow Towers hotel.
He said the country's economic challenges between 1998 and 2008 came about mostly because of poor corporate governance, which resulted from inadequate oversight and regulation of banks.
"This allowed bank directors and managers to siphon depositors' money and lend it to each other and to those that they had connections with, even when they did not qualify for such loans," he said, adding that this resulted in a number of banks failing.
The theme of this year's awards ceremony, ‘Good Corporate Governance for Sustainable Economic Development', was, he said particularly germane, as government, through the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zimasset) programme and the 10-point plan articulated by President Robert Mugabe, was implementing various initiatives meant to grow the economy.
He drew attention to three of the points in the 10-point plan, which he suggested should be of particular interest to those attending the awards ceremony. These were: restoration and building of confidence and stability in the financial services sector; joint ventures and public-private partnerships to boost the role and performance of state-owned companies; and pursuing an anti-corruption thrust.
The restoration of confidence in the financial services sector was, he said, a function of good corporate governance. He highlighted the need for depositors to feel safe keeping their money in banks, especially on a long-term basis. Long-term deposits would allow banks to lend to needy business entities and other sectors of the economy, including for infrastructural growth that would stimulate employment growth and create employment.
He said poor corporate governance contributes to the proliferation of corruption, which impairs investor confidence and negatively affects the operating performance of firms by raising the cost of capital, in the process reducing a firm's value.
"Corruption acts as an implicit tax on investors. Costs associated with negotiation and paying bribes and fees to intermediaries add up to large amounts, to the extent that investors end up giving up on profitable projects," he said.
He added that income gained from corruption was normally spent or invested in secrecy, mostly outside the country, resulting in capital flight.
Bureaucratic bottlenecks exacerbated the scourge of corruption, he said.
"The ease of doing business reforms are expected to help reduce incidences of potentially corruptible interfaces in business transactions," he said.
He pointed out that in some instances, as a result of weak corporate governance practices, corruption could be systematised, through the creation of a network of relations of directors or managers and suppliers, making it difficult to detect.
He said government was concerned about the quality of members of some boards. It was also worried about the frequency with which some board committees sit, adding a significant cost to already struggling organisations without a corresponding improvement in performance.
He said private sector companies could play a role in the fight against corruption within the public sector by not being accomplices.
The Vice-President said good corporate governance, innovativeness, efficiency, market execution and branding had the potential to improve a company's image and brand value, allowing it to earn additional income streams through low cost cross border investment strategies, such as licensing or franchising.
"In this way, Zimbabwean companies can certainly help the country to grow its economy," he said.
He pointed out that the contemporary view of corporate governance had been broadened. Corporate governance was now seen as a process or set of systems designed to ensure that companies are managed to satisfy the best interests of all stakeholders, who might include employees, stockholders, customers, creditors, bankers and government, though with the aim of maximising shareholder wealth.
Internationally renowned corporate governance guru Professor Mervyn King, who was guest speaker at the awards dinner, and whose committee played a key role in broadening the view of corporate governance, explained how this change had come about.
He said when Henry Ford, the famous motor vehicle manufacturer, had wanted to increase the wages of employees, minority shareholders went to court to prevent this, arguing that shareholders must be paid first before the wages of employees could be increased. They won their case.
He asked rhetorically how such a view would be received in present day Zimbabwe. He said in 1992, the year before he was asked by the Institute of Directors in South Africa to chair the first official committee in South Africa on corporate governance, the world still embraced the notion of the primacy of the corporate shareholder.
It was a view that in the changed circumstances of South Africa his committee started to question. In its first report, which was a comprehensive code of corporate practices and conduct, the King Committee on Corporate Governance became the first such committee in the world, he said, to come up with a stakeholder model of corporate governance.
People started talking about the King I report all over the world. The concept of a stakeholder model took root internationally.
"People started looking at not so much how much money a company made as how did it make it," he said.
It became accepted that the effects of a business on society, the economy and the environment had to be taken into consideration. He gave the example of a company disposing of chemical waste cheaply by dumping it in a river. This might help the company make a lot of money but it would kill large quantities of fish in the river.
The King Committee recently came out with its fourth report, King IV. Professor King said the report had distilled 75 principles in the King III report into just 16 principles essential for sound corporate governance.
It had also identified four outcomes. The four outcomes were ethical culture and effective leadership; adequate and effective controls/oversight; value creation (performance) in a sustainable manner; and trust and confidence, good reputation and legitimacy.
"In South Africa," he said, "there is a company that has lost nearly 70 percent of its value on the Johannesburg Stock Exchange because the perception is that they have not achieved those outcomes," he said. "That company is Oakbay."
Source - Agencies
