Zesa rebundling firmly on course

LEADING audit firm Ernst & Young, which has completed its consultancy report on the unbundling of Zesa, has recommended that the role of executive chairman be abolished at the State power utility.

Zesa is currently headed by Dr Sydney Gata in an executive chairman capacity.

Dr Gata was first appointed to the helm of Zesa in 2000, as chief executive, before becoming executive chair in 2003.

He left the state power utility in 2006 and returned in 2019, again assuming his previous role of executive chair, which attracted criticism from corporate governance experts.

In what however, indicates progress in the proposed rebundling of the power entity, Ernst & Young has completed its report on the unbundling, which now awaits Cabinet approval.

Globally, it has become common for shareholders to attach more value to the quality of corporate governance structure through clear separation of powers.

Proponents of good corporate governance say shareholders must rely on appropriate corporate governance structures, risk management systems and board processes to safeguard their interests and enhance shareholder value.

They believe ensuring an effectively functioning board may seem obvious, but in order to achieve this, it is important to attend to the balance of leadership and structuring of the board of directors.

Notably, the role of executive chairman is a dying concept globally, popularised in the United State by large corporations owned by their founders.

But reports say the percentage of S&P 500 companies whose chief executives also serve as chairman reached 45,6 percent in 2018, compared with 48,7 percent the year before, the lowest percentage in at least a decade.

Zesa unbundled its operations in 2002 in a bid to improve efficiencies and leverage on economies of scale.

This resulted in the formation of six companies, owned by a holdings group.

But the Cabinet in 2018 directed its rebundling after noting that the structure had failed to yield the desired results as its implementers of the system did not understand it.

This resulted in separated entities running from centralised control, leading to a lack of cohesion, which negatively affected the smooth and efficient running of the power utility.

For instance, this spawned bloated senior and middle management at the unbundled entities, which did not add value to Zesa and the delivery of power to customers.

In order to arrest the deteriorating situation, amid perennial losses, poor performance and service delivery, the Cabinet in 2018 directed that the Zesa be rebundled.

Part of recommendations by Ernst & Young, commissioned to work with Zesa for the rebundling process, is that the utility should have 9 non-executive board directors, including its chief executive, but headed by a non-executive chair.

"For all the proposed designs, one board structure has been proposed. This is based on key governing regulations and guidelines," the renowned global audit firm said.

"As a minimum, three non-executive directors should be appointed to the board, the majority of them being independent.

The board currently complies with these requirements and hence this structure can be maintained with any option chosen.

"The company's chief executive officer (CEO) shall not also be the chairperson of the board hence separation is required."

Ernst & Young said according to the Companies and Other Business Entities Act, every company shall have at least one secretary ordinarily resident in Zimbabwe.

The audit firm said the company secretary may be a chartered accountant, a legal practitioner, a public accountant or public auditor.

It also said the board of any public entity should establish an audit committee that has at least two independent board members.

"The audit committee should be responsible for improving management reporting by overseeing audit functions, internal controls and the financial reporting process."

Further, it recommended that the board shall establish an audit committee composed of at least two non-executive board members other than the chairperson of the board.

Ernst & Young also recommended that the board shall also be expected to establish a risk management, technical, finance and remuneration committees.

The campaign to separate the positions of CEO and chairman is rooted in the notion a stand-alone chairman can act as a counterweight to a stand-alone chief executive.

Recent investigations into high-profile executives have fanned the conversation.

Giant electric US car marker Tesla Inc chief executive Elon Musk last year relinquished his chairmanship of the electric car maker to settle a lawsuit by regulators alleging inappropriate conduct.

Renault SA, meanwhile, in November untethered its CEO and chairman positions after Carlos Ghosn, who held both positions, was arrested in Japan on allegations of financial misreporting at partner company Nissan Motor Co.

The growing trend of businesses employing a separate CEO and chairman brings US companies more in line with their European counterparts.

The percentage of Stoxx Europe 600 companies with the roles combined was 9,2 percent in 2018, down from 11 percent in 2013, according to media reports.