As Zimbabwe emerges from the shadows of financial crises and corporate scandals, the imperative for stronger corporate governance has never been clearer.
The economic turmoil of the early 2000s exposed significant vulnerabilities within the country’s corporate landscape, prompting stakeholders to call for a reassessment of governance frameworks that ensure transparency, accountability, and integrity.
With continuous reports of financial mismanagement tarnishing the reputation of major entities, the essential question arises: can Zimbabwe restore trust in its corporate environment and pave the way for sustainable economic growth?
The roots of Zimbabwe's corporate governance challenges can be traced back to the financial crisis of 2003.
This tumultuous period unveiled serious deficiencies in the nation's fiscal and regulatory systems, ultimately leading to the collapse of numerous companies.
In response, policymakers initiated a transition towards a hybrid governance model, adopting practices from developed markets to strengthen oversight.
By joining the African Corporate Governance Network in 2013, Zimbabwe signaled its intention to improve corporate governance standards while struggling to combat deep-seated issues that have persisted over the years.
Despite these initiatives, the current state of corporate governance remains fraught with concerns.
High-profile scandals involving major entities in key sectors have raised alarms about executive accountability and the integrity of auditing processes.
Reports indicate that financial mismanagement and a culture of looting have taken root, with directors and executives allegedly reaping benefits from dubious financial arrangements.
Tinashe Moyo, a corporate governance expert, asserts, "The integrity of corporate governance in Zimbabwe is under siege.
There's a growing perception that boards are more committed to preserving their positions than serving the interests of shareholders."
The creation of public oversight boards, such as the Public Company Accounting Oversight Board (PCAOB) in the US serves as a model for Zimbabwe.
The emergence of public oversight boards aims to provide a safety net for shareholders, ensuring that firms engage truly independent auditors.
However, skepticism remains regarding the effectiveness of these auditors amid allegations of complicity in financial impropriety.
“If audited financial statements cannot be trusted, what does that mean for shareholders and the broader economy?” questions Susan Chikoko, an investor relations officer at a leading Zimbabwean conglomerate. “A lack of transparency breeds mistrust and allows malpractices to flourish.”
The changing landscape is further underscored by the rise of activist shareholders who are increasingly demanding transparency and accountability from corporate boards. Institutional investors are no longer passive entities; they are leveraging their influence to advocate for more democratic governance models.
“Shareholders are sending a clear message that excessive executive pay, especially during times of corporate mismanagement, will not be tolerated,” emphasises James Collins, a prominent activist investor.
His sentiment echoes a broader call for change, as stakeholders assert their rights to engage in corporate decision-making.
Nevertheless, challenges persist as the traditional governance frameworks struggle to adapt to these evolving dynamics.
Criticism has been directed towards poison-pill defenses, historically utilised to deter hostile takeovers, which many now view as mechanisms that entrench management at the expense of shareholder value.
"The balance of power is clearly shifting, and boards must recognize the importance of implementing necessary checks and balances," advises Moyo. “Otherwise, we risk regressing to previous negligence
Despite the apparent hurdles, the landscape of corporate governance in Zimbabwe is not without hope. Initiatives led by the Institute of Chartered Governance of Zimbabwe (ICGZ) are actively promoting higher standards of governance through recognition programs that commend exemplary practices.
The ICGZ awards serve as vital benchmarks, encouraging improvements among listed companies and fostering a culture of accountability.
"Since their inception, these awards have played a significant role in establishing benchmarks and inspiring enhancement in governance standards," notes the adjudication report.
As Zimbabwe confronts ongoing economic challenges, the path towards effective corporate governance demands a concerted effort from all stakeholders.
Boards must embrace transparency and accountability by electing competent members who prioritise the interests of shareholders. Combating the culture of mismanagement necessitates unity and collaboration across various sectors, compelling stakeholders to demand accountability.
Sound corporate governance is essential for companies to attract investors and achieve economic growth and development. According to World Bank (2017), sound corporate governance is about striking the optimal balance between controlling shareholders, minority shareholders, company managers, and market regulators. This balance provides investors with the comfort needed to finance business ventures without exerting direct control over the company's affairs.
The benefits of sound corporate governance are numerous. It results in easier access to capital, company growth, generation of tax revenues, and employment creation. Furthermore, sound corporate governance enhances economic growth and development through its association with financing and investment and economic system efficiency. In contrast, poor corporate governance increases the risk of financial mismanagement and poor decision-making, disrupting business operations and leading to lower profits and a weaker financial position.
A study by the World Bank found that well-governed companies had lower financial and non-financial risks, as well as higher shareholder returns. On the other hand, poor governance can cause a decline in the company's stock price, making it harder to raise capital or make investments. Companies with poor corporate governance are also at a higher risk of fraud and financial scandals.
Measuring corporate governance is a daunting task. With few objective indicators to track, it's challenging to get a clear picture across companies and countries. However, the World Bank has provided steps. Its "Investor Protection Index" aims to measure how well minority shareholders are protected from directors who might misuse company funds for personal gain. The index is broken down into two sets of three indicators each: Conflicts of Interest and Corporate Governance Practices
Conflicts of Interest
This set focuses on preventing directors from using company funds for their own benefit, especially in related-party transactions.
Corporate governance practices
- Shareholder rights
- Protection from share dilution
- Ownership structure and control
- Managerial compensation
- Audit transparency
As Zimbabwe continues to grapple with economic hardships, the path toward effective corporate governance necessitates a collective approach. It requires boards to recognize their limitations and actively elect competent members who prioritize shareholder interests. Stopping the looting culture demands a united front against complacency. Stakeholders must come together to demand accountability.
In conclusion, the evolution of corporate governance in Zimbabwe reflects a broader societal shift toward accountability and ethical conduct in business practices. As the nation moves forward, the lessons learned from past controversies offer critical insights into the necessity of transparency, accountability, and stakeholder engagement.
This collective commitment is essential for ensuring that the mistakes of the past are not repeated and for fostering long-term value creation that benefits all stakeholders in the economy. The stakes are high, and the journey forward will require vigilance, wisdom, and a shared dedication to doing what is right.
- Nyawo is a development practitioner, writer and public speaker
- These weekly articles published in the Zimbabwe Independent and coordinated by Lovemore Kadenge, an independent consultant, managing consultant of Zawale Consultant (Private) Limited, past president of the Zimbabwe Economics Society and past president of the Chartered Governance and Accountancy Institute in Zimbabwe . Email – kadenge.zes@gmail.com or Mobile No. +263 772 382 852
