4 July 2007

Zimbabwe: Corporate Governance Reforms in Zim


Harare — CORPORATE governance has undoubtedly improved in Zimbabwe over the last five years. As a nation we have made significant progress in creating awareness and raising corporate governance standards in all sectors of our economy.

Most organisations in Zimbabwe can now boast of having basic corporate governance structures such as a board of directors and board committees. Some organisations have even gone steps further by voluntarily adopting best international practices of good corporate governance as enshrined in international corporate governance codes.

Embracing reform

Although nationally we have made significant strides in embracing corporate governance reforms enshrined in international corporate governance codes, some organisations are still lagging behind. I will restrict my focus to companies.

It is unfortunate that a lot of companies still lag behind in embracing international best practices in corporate governance. Many companies have good governance structures on paper, but when it comes to practice, it is a different story. Many companies seem to follow the letter rather than the spirit of reform. In some companies, a "tick box approach" to corporate governance seems to be the norm as opposed to a company voluntarily adopting good corporate governance practices.

Corporate governance reforms will succeed if companies voluntarily accept the need to embrace change as opposed to following the letter of the law. Prescriptive measures, yes, they are necessary but corporate governance should be driven by voluntary practices that individual companies impose on themselves. It's a matter of ethics rather than compliance.

Tick Box Approach

As indicated above, corporate governance should not be a tick box approach. Companies should not just focus on compliance (adherence) to codes, regulations and so on. Instead companies should focus on how best the business can be controlled and directed, performance of company, adoption of best practice principles and voluntary compliance.

Corporate governance should be driven by principles as opposed to instruction. As Mervin King puts it: "principle is better than instruction". What this means is that directors should adopt a "principles-based governance approach".

A principles-based governance approach is about: ethics and values, self introspection, voluntary compliance, self regulation, voluntary application of best practice principles and so on.


International corporate governance codes such as the South African King 11 Report, the UK Combined Code on Corporate Governance, Commonwealth and OECD Codes, just to mention the key ones, are very important because they have set the stage for corporate governance reforms internationally.

Most companies in Zimbabwe are striving to embrace reforms enshrined in these codes. A lot of pressure for companies to comply with international codes is coming from investors, foreign aid donors, international companies, regulatory authorities (like the Reserve Bank of Zimbabwe) and so on.

As companies strive to meet international best practices in corporate governance as enshrined in codes, this should be done with caution. Most of these codes are designed for American and European countries and are compatible to their level of socio-economic and political development. Adopting best practices enshrined in these codes en masse would be a big mistake for Zimbabwean companies.

Certain corporate governance practices enshrined in international codes would be difficult to adopt in Zimbabwe without changes. The following are examples.

Independent directors

The requirement that boards should have a majority of independent directors could be unrealistic in Zimbabwe. The definition of independent directors itself in these codes makes it difficult to find directors who can meet the requirements of "true independence".

Independent directors are defined as those directors who have no material relationship with the company (either directly or indirectly) taking into account all relevant facts and circumstances considered by the board.

In the USA for example, the NYSE Listing Rules set forth the following relationships that would automatically result in a director not being deemed independent:

lA director who is a former employee can only be independent until after five years after the employment ended.

lA director who receives or has an immediate family member who receives more than $100 000 a year in direct compensation from a listed company.

lA director who is an executive officer or employee of another company, subject to certain exemptions.

lA director who has in the past five years been affiliated or employed an audit of the company, until five years after the end of such affiliation or employment, etc.

Given the above requirements of independence and also given our extended family relationships, a small market etc it may be extremely difficult in Zimbabwe to find truly independent directors.

The pool of qualified and experience independent directors is very small in Zimbabwe. It may therefore not be feasible to have a majority of independent directors on our company boards. We could have a few independent directors, but to say they should be in the majority may not be feasible. In practice, our boards should have a mix of directors be they non-executive, executive, independent and so on.

Besides, there is also a lot of confusion in the market between non-executive and independent directors. Non-executive directors, to the contrary are not necessarily independent.

Lead directors

There is also another creature called lead directors. They are very common in the USA. To ensure objectivity and transparency, most US listed companies appoint "lead or senior" independent directors. This approach is employed where the roles of chairman and CEO are split but where the chairman is not an independent director.

In such a scenario, the lead director should not be a member of management or have any conflicting ties with the CEO. The function of the lead director would be to chair executive sessions, serving as the principal liaison between management and the independent directors and working closely with the chairman to finalise board agendas.

In view of the above, the question is: should we have lead directors in our corporate governance arrangements? Does our business practice accommodate lead directors? This is why I said earlier on merely adopting international best practices en masse is a mistake for Zimbabwe.

I could quote other international practices that may not be applicable to Zimbabwe. In Zimbabwe yes, we need to embrace reform, but it's better to adopt certain reforms than to adopt all reforms wholesome.


Zimbabwean companies need to adapt to corporate governance reforms in a manner that suits our environment. International codes are good because we can use them to benchmark our corporate governance standards. But let us be practical when it comes to adopting change.

Companies should embrace corporate governance reforms to strengthen their governance systems. Our priority should be to embrace corporate governance reforms that:

Improve transparency and accountability.

Create stronger and purposeful boards.

Enable boards to carry out their oversight functions effectively.

Protect the interests of shareholders including minority shareholders.

Improve financial reporting and accounting standards.

Improve efficiency and viability.

What ever reforms we undertake in corporate governance will not be complete without government support and interventions. Our government should provide a robust legal and regulatory framework that supports these corporate governance reforms.

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