Corporate governance critical to attracting capital

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Taurai Mangudhla
President Emmerson Mnangagwa’s pro-economic thrust and drive to attract foreign and domestic capital under the new political dispensation could be hampered by the negative attitude of business, particularly failure to uphold good corporate governance practices.

There are fears that corporate malpractices, including brazen corruption, outright theft of shareholder funds and mismanagement, could undermine the Government’s efforts to woo foreign investors through the re-engagement of the international community.

An analysis of reports in our possession points to corporate governance shortfalls among listed firms on the Zimbabwe Stock Exchange (ZSE) and banks as well as State owned Enterprises and Parastatals (SEPs) casting doubt on their integrity, reliability and obligation to shareholders.

Investors are likely to drag their feet and think twice about committing, or rather risking, their funds to a jurisdiction with weak corporate governance practices.

Investment literature defines corporate governance as a system of rules, practices and processes by which a firm is directed and controlled, including balancing the interests of a company’s many stakeholders such as shareholders, management, customers, suppliers, financiers, government and the community.

It provides a framework for attaining a company’s objectives, encompassing practically every sphere of management, from action plans to internal control systems, to performance measurement and corporate disclosure.

The grey areas

According to findings by adjudicators in the 2017 Institute of Chartered Secretaries and Administration in Zimbabwe (ICSAZ)’s annual Excellence in Corporate Government Awards, corporates make minimal disclosures in their financial reports, putting into sharp focus their willingness to communicate with stakeholders such as client’s shareholders and regulators.

The seven-person Jury appointed by ICSAZ bemoaned the failure by many companies to provide detailed disclosures on the remuneration of their directors with only one out of the 57 counters on the Zimbabwe Stock Exchange providing detailed disclosures on remuneration of its directors.

Most companies, said the jury, did not avail policies on director remuneration either.

“The local stock exchange needs to address this shortcoming if our companies are to attract long-term foreign investment, “reads part of the adjudication report gleaned by the Business Weekly.

Apart from that, companies also failed to provide detailed profiles on their board members. The failure to provide detailed profiles on board members hampers the ability of monitories to have a meaningful say on election and or appointment of directors.

This means the board cannot be assessed effectively in terms of skills composition, age, gender and diversity. It also makes it difficult for one to assess board independence without detailed profiles and shareholding of board members being disclosed fully.

This, ICSAZ said, is a trend continuing from previous years.

Shareholding held by directors in most cases is not provided as has been shown by findings since 2013. Shareholding of directors helps users assess beneficial ownership.

Companies also failed to disclose their policies in respect of material inside information, a key facility to help stamp out insider trading and protecting interests of outside shareholders.

While most companies reported to have adopted global sustainability reporting frameworks, they failed to comply with their requirements in what is seen as misleading.

The balance between financial and non-financial information is poor which is given to International Financial Reporting standards (IFRS) over non-financial reporting areas. More than 75 percent of the information contained in the annual reports is mainly financial and IFRS notes, according to 2017 findings. This is, however, an improvement from 80 percent in 2016.

Sustainability reporting was a major challenge for banks while their corporate social responsibility seemed largely philanthropic and with no clear link to their business models.

SEPs were seen in even worse position with 30 percent of those assessed presenting unaudited statements. Despite failure to produce audited statements, a number of the SEPs held annual general meetings.

Most of the members representing Government on the boards of SEPs were not appropriately qualified or experienced for these positions.

The way forward

Government and industry regulators such as the central bank and the ZSE should introduce ways to compel their members to make more disclosures in line with international best practices.

This helps any interested party to assess the corporate governance and performance of a company without a hustle. After all capital is a coward and it helps when it has to go where there is transparency. Corporate websites must be updated with key information useful to shareholder relations. All companies, including these which won in 2017 should aim to do better given that in some cases the winners were just better among the lot not necessarily that their reporting stands out among the decent contenders globally.

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