In part one of this article we looked at progress that Zimbabwe has done to date with the National Code on Corporate Governance and in the part two of this article we look at the important aspects of the corporate governance.
The code is aligned to Chapter 9 of the Constitution i.e. the State to “adopt and implement policies and legislation to develop efficiency, competence, accountability, transparency, personal integrity and financial probity in all institutions and agencies of government at every level and in every public institution…”
The code is broken down into 9 chapters. In each chapter the Code identifies the relevant principles and recommended practices that can be implemented to achieve the good governance principle.
Chapter 1: Application of the Code and its derivatives
The code to apply to all types of business entities but encourages that sector specific codes e.g. financial services, small and medium enterprises be derived from the main code where applicable. This has seen the Public Entities Bill being prepared which makes references to sections of the National Code. The government has been holding public hearings on this bill.
Any provision of a sector-based code that is inconsistent with any principle with the National Code on Corporate Governance, this Code prevails to the extent of that inconsistency.
Chapter: Two
Ownership
Corporate power should not be concentrated on one individual or group and must be aligned with economic rights. This led to the recommendation of rights to vote being extended to all shareholders and rights of minority shareholders being respected. It also recommends that full, timely and transparent disclosures to stakeholders be made in the annual report.
Control
It highlights that final authority should rest with shareholders, which authority is exercised in annual general meetings or extra ordinary general meetings and nominee shareholders to disclose beneficial owners of the shares if requested to do so. This can be practised through
- Implementation of share ownership schemes for employees;
- Need to have a shareholder’s agreement
- Major or majority shareholder must not be involved in the day to day Management of the company – but if inevitable this should be regulated by an agreement and approved by shareholder;
- Access of information to shareholders;
- Chairpersons of board committee should attend board meetings;
- Notice for election of directors to be accompanied by CVs;
- Anti-takeover measures must be approved by shareholders with additional references for further measures on mergers and acquisitions in the code.
The recommended practices from the code seem to have been included to ensure transparency by owners to all shareholders without infringing rights of the minorities.
Chapter 2: Board of directors and directors.
The code details the roles, functions and conduct of the Board i.e. to include the following
- effective and entrepreneurial leadership based on compliance and respect for applicable laws;
- conduct itself with honesty and integrity and act in the best interest of the company;
- legal duty of good faith, loyalty, care, skill and diligence in discharge of their functions
- should be comprised of members with good leadership qualities and core competencies
Recommended Practice
- Appoint an independent non-executive chairperson;
- Establish policy for appointing and dismissing the CEO and other executives;
- Should be accountable to all shareholders and other stakeholders;
- Should have a board charter.
- Board member responsibilities should be set out in the charter;
- Monitor performance of the company;
- Ensure that the company’s accounting and financial reporting systems are sound.
- Should not engage in selective corporate disclosure
- Should have board members who are:
- Mature and with relevant academic qualification;
- Have integrity;
- Up-to date with tax obligations;
- Have not been convicted of a serious criminal offence by a court of law.
The code defines independence based on independence in character and judgement and provides for annual evaluation of independence of board members.
The emphasis on the moral duties, conduct and competence of the Boards may see a shift in the performance of Boards in relation to the company performance.
Director selection and appointment should be
- Done via a formal and transparent process;
- Based on Board recommendation;
- Shareholders election and appointment;
This can be achieved through making use of a nomination committee were appropriate and
- Confirming appointment by a written contract between director and the company;
- Nomination committee to be made up of only non-executive directors and chaired by an independent non-executive director;
This selection and appointment will remove bias and a lack of serving the entity`s best interests when selecting board members.
Board Composition
The code recommends the following Board composition which serves the best interest of the company in terms of dedication of time from the directors, balance of power, assessment of performance of the chairperson, delegation of board responsibilities.
- Majority of board members to be non-executive members, the majority of whom should be independent;
- Board chairperson’s tenor to be confirmed annually;
- Board chair should not also be the CEO’
- At least 60% of the board should be made up of non-executive members, majority of whom must be independent;
- Board should be assisted by the following committees at a minimum:
- Audit committee;
- Remuneration committee;
- Nomination committee;
- Risk and compliance committee;
- Dispute resolution committee.
- At a minimum there should be two executive directors appointed to the board i.e. the CEO and director responsible for finance;
- Minimum of three non-executive members;
- Board members should not serve on more than six boards at the same time;
- An individual should not be appointed as a chairperson on more than four boards;
- A director of a subsidiary company should be appointed as a board member of the holding company
The Chairperson is then given the following responsibilities
- Not be a member of the audit committee;
- Not chair the risk or remuneration committee but may be a member of these committees;
- Chair the nomination committee;
- meet directors at least twice a year in the absence of the CEO and senior management.
Remuneration Related Issues
These recommended practices from the code may see a decrease in the many scandals that related to CEO and executive officers’ remuneration and benefits packages and executives working more to drive the company performance as a direct relation to their reciprocal benefits.
- CEO’s remuneration should be performance and incentive based and should be approved by shareholders;
- CEO should not take directorship outside the company or group without the written approval of the board;
- CEO or members of senior management must not chair boards of subsidiary companies but may be non-executive directors thereof.
- Remuneration for the board and senior management should be fair and should ensure goal congruence with the company.
- Establishment of Remuneration committee for setting and administering remuneration policy;
- Remuneration committee should be composed of independent non-executive directors;
- Significant portion of executive directors’ remuneration to be linked to company and individual performance;
- Non-executive director fees to be made up of a base fee and an attendance fee;
- Chairperson and non-executives should not receive share options unless these has been approved by a special resolution of at least 60% of the shareholders present at a meeting convened for that purpose;
- Non-executives’ directors’ fees to be approved in advance by shareholders;
- Options in a share option scheme must not be exercisable before end of three years or after 10 years from grant date.
Company Secretary:
The code recommends that ordinarily the company secretary should not be a director of the company.
Board’s method of work
- Board must meet at least once every quarter in a financial year;
- Board should attend at least 75% of board meetings and committee meetings in a year;
- Board meeting should be held within one month after the date of the AGM;
Board member evaluation
- Board should have an annual formal process of evaluating its performance and those of individual directors.
- Annual report must disclose results of the evaluation of the Board and its committees;
- At least once a year the board chairperson should evaluate the performance of the CEO and other executive directors;
The other Chapters will be reviewed in the parts to come