20 June 2014

Zimbabwe: Proposed Zimcode Bill Progressive


Parliament and Government clearly need to take action over how parastatals, State enterprises and local authorities are run after finding recently that a clutch of chief executives were being grossly overpaid for doing a poor job and that a small group of people, through holding multiple directorships while sometimes also being a CEO of a similar enterprise were using each other as examples.

On the other hand there is need not to overreact and not to create highly inflexible systems that cannot adapt to changing circumstances and which treat all organisations that the State controls identically. Some affected organisations, such as Harare City Council, can never be profitable and in fact exist solely to raise taxes and spend the money on providing services.

Others, such as the National Railways of Zimbabwe or the CMED, are potentially profitable and provide services that could, in theory, be provided by companies in the private sector. It seems at first sight that these two groups need to be treated differently, although some common principles must obviously apply.

Years ago every State enterprise, using that term in the widest sense, was either a parastatal set up and governed by an Act of Parliament, or was a local authority run under another Act of Parliament with strict rules set by the local government ministry. The Acts governing each parastatal went into a great detail of how boards would be appointed, senior managers hired, the sort of accounts that had to be submitted each year to Parliament and the powers of the line minister.

Corrupt practices and abuse of office were rare and quickly uncovered, but the parastatals tended to be quite inflexible and needing regular infusions of taxpayers money.

Then came commercialisation and privatisation. This converted many of the old parastatals from an entity that was governed by its own law to a company governed by the Companies Act. Sometimes this worked well, but usually success was only assured when the State diluted its shareholding to some degree by floating the enterprise on the Zimbabwe Stock Exchange.

The strict rules that ZSE companies have to follow, including a detailed annual external audit by tough-minded accountants following international rules and the opportunities shareholders, the biggest of whom are usually financial institutions with access to high-grade business analysts, have at general meetings to grill directors, provide adequate safeguards.

The problems we have seen come from those converted parastatals that are just private companies with a 100 State shareholding. In the private sector a private company and there are tens of thousands of these, are almost all small entities, often family owned. Once a private sector company reaches a certain size it is expected, by its creditors if no one else, to be converted to a ZSE company; the laws for private companies are not really designed to cope with large organisations such as we see with many State enterprises.

We agree that something needs to be put in place by the Government and Parliament that upgrades the public accountability of State enterprises and imposes a far higher level of transparency, without returning to the fossilising rules that killed so many of the old statutory parastatals. We need to keep the baby when we throw out the bathwater.

The outline principles now approved by the Cabinet are a good starting point. These principles appear to have been drafted to ensure that there is a high level of accountability and transparency, the required dedication and competence of boards and managers and a way of finding, firing and jailing greedy thieves.

Yet the principles still retain the nimbleness required by honest and competent boards and managers to operate in a rapidly changing economy.

Those responsible for turning a page or two of principles into a detailed Public Sector Corporate Governance Bill now have a difficult job, as do our Parliamentarians when they debate and fine-tune the Bill.

We hope the drafters explore the multitude of methods already found to work around the world in both public and private sectors to fulfil all requirements of good governance.


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