The last 3 chapters of the Code deal with Compliance and Enforcement, Stakeholder relationships and the role of government in corporate governance. They tackle the importance of compliance and the mechanism that is ideal for Zimbabwe, importance of understanding stakeholders and acting in their best interests and what role government should play.
Chapter 7 – Compliance and enforcement
The nature and extent of compliance or enforcement of corporate governance principles depend on whether they are required by Law or best practice. The Code then differentiates between the “comply or explain” and “apply or explain” approaches to compliance and specifies that Zimbabwe adopted the “apply or explain” approach. This is because it reflects an appreciation of the fact that it is often not a case of whether or not to comply, but rather a case of considering how the principles of a code and recommendations contained in it can be applied in the particular circumstances of a given enterprise.
Principles
The board is responsible for the company’s compliance with applicable laws and non-binding rules, codes and standards, it should ensure that the company, at large, complies with and adheres to them. Risk of non-compliance should form an integral part of a company’s risk management framework.
The board is also tasked with ensuring that compliance is understood more than mere observance of laws and regulations but an ethical imperative for the governance of the company, rights and protections afforded to the company must be understood. Information disclosed by the Board about compliance should enable investors and other stakeholders to assess the governance of the company when making investment decisions.
Recommendations
The board, in its disclosure, must give adequate and verifiable reasons for the extent of any non-compliance. And where the board delegates its compliance verification function to management or one of its committees, such delegation must be led by the Board’s assessment of the knowledge, effectiveness and experience of the committee or management.
The board should disclose in the integrated report details on how it is discharging its responsibility to ensure efficacious processes and an effective compliance framework. A company should understand the context of the Law within which it does its business and how other applicable laws interact with its business.
The Code specifies that compliance should be pro-actively and systematically managed and compliance issues must appear on board meeting agendas regularly. Management should develop a compliance policy for the approval of the Board and be responsible for implementing the policy and reporting to the Board regarding compliance. The company is recommended to develop a compliance culture and have adequate resources to discharge its responsibilities.
Chapter 8 – Stakeholder relationships
The Code recognises that a company is a multi-interest enterprise that binds to contracts where it can be held legally responsible for its actions. It has many stakeholders that can affect or be affected by a company’s operations. Stakeholders are the raison d’etre (most important reason) for corporate governance and the prime constituency of the company.
Principles
The legal rights and legitimate expectations of the company’s stakeholders should be identified, recognized, respected and promoted in the course of creating wealth and jobs and sustaining a financially sound business enterprise.
The Board should appreciate that stakeholder perceptions affect a company’s reputation. To that end, a company must ensure that all its stakeholders are treated fairly and equitably. The Code recognises that stakeholders have different expectations and so the board must strive to achieve an appropriate balance of interests between the various stakeholders in the best interest of the company. Corporate transparency should be considered with reference to the company’s stakeholder policies, relevant legal requirements, and the maintenance of the company’s competitive advantage.
Recommendations
The communication to stakeholders should use clear and simple language and should set out all relevant facts whether positive or negative, not only what is required by law but also matters of material importance to decision making. Minority shareholders should be protected from abusive actions done by or in the interests of controlling shareholders.
The Board should engage stakeholders informally or formally, at least once a year or as often as is necessary to gather their opinions, views and input in order to make informed decisions to reduce the risk of confrontation. Alternative dispute resolution mechanisms should be used in dealing with stakeholder differences, litigation should only be used as a last resort.
The Code, essentially, encourages that the Board and company understand their stakeholders and interests, and seek to run the entity in such a way that balances stakeholder and company interests.
Chapter 9 – Role of government in corporate governance
Government plays both an administrative role and a coordinating role through its agencies at every level. Government is to provide an enabling environment within which the private and public sector can thrive. It is fundamental of government as the biggest employer in the economy to observe corporate governance principles in government Ministries, Parastatals and State-controlled companies.
Government must ensure that there is fair play in business and combating corruption. It should provide relevant infrastructure and basic service enablers and permit the private sector to do the same.
There must be will-power to combat corruption on the part of the top leadership of the country which should cascade down to the ordinary man and woman. Government should introduce legislation and other measures to combat and set up anti-corruption commissions with the necessary legal powers.
The Code specifies that government should consider and adopt the most effective legislative measures to enforce good corporate governance, all the while upholding and playing a meaningful role in instilling good values and ethics.
The Code closes off with two annexures, A and B. Annexure A deals with the provisions of the New constitution relating to Corporate Governance; B contains a list of Organizations and individuals who supported in Drafting the Code.