Corporate governance is the foundation upon which successful enterprises are build on and economies have made strides to provide frameworks for corporate governance practices. In Zimbabwe although behind, strides have been made to have our own corporate governance frameworks specifically by the launch of the National Code on corporate governance and also the recent Corporate governance bill. In this article we look at progress that we have done to date with the National Code on Corporate Governance and in the part two of this article we look at the corporate governance bill. In future issues we will also consider corporate governance and Financial reporting (IFRS and IPSAS)
The National Code on Corporate Governance Zimbabwe was launched in April 2015 by the then Vice President Cde Emmerson Mnangagwa amid fanfare and pomp at the Rainbow Towers Hotel in Harare. For many, the launch of the code signified a new dawn in the corporate culture in Zimbabwe, given the background of company failures mainly due to corporate governance deficiencies. This article, therefore, seeks to answer some very important questions, “how far have we gone as a country in adopting the national code on corporate governance? For those that have adopted the code, are they seeing any change in the corporate culture of the businesses? Are there any implementation challenges that corporates may be facing in adopting the principles and recommendations of the code?”.
Before answering the above key questions, I will briefly identify and explain the key underlying philosophies of the National Code. The code focuses on corporate disclosures, communication, mechanisms for creating trust between shareholders, boards of directors and management, performance measurement standards, accountability, sustainability and moral duties and ethical conduct of directors. These areas which are extensively covered in the code were expected to result in a corporate culture of the highest standards which ensures the sustainability of businesses and ultimately benefit Zimbabwe as a whole.
The other key founding principle of the code is that it is on an “Apply or Explain basis”. The implication of this is that where an entity fails to apply a principle or recommendation in the code it would need to explain why it did not apply the principles and any countermeasures put in place to ensure the set governance objectives have been met. The “Apply or Explain approach” was put in place largely to make the code scalable from large, medium to small businesses since, given the size of each entity, it may be impractical to apply all the principles and recommendations within the code.
The first question is how far we have gone as a country in the adoption of the national code on corporate governance. From my brief analysis of companies listed on the Zimbabwe Stock Exchange (ZSE), I noted that a significant number of companies are yet to adopt the National Code on Corporate Governance but are still applying other frameworks developed in other jurisdictions such as the King 3 report on corporate governance in South Africa. The low uptake levels of our code is ascribed to a number of reasons. On enquiry from various stakeholders, the following are some of the reasons for the poor uptake:
- There was no implementation plan in place after the code was launched which meant that after the fanfare of the launch, no steps were taken to implement it.
- The lack of funding for the role out of the national code has also posed a challenge, given the current economic challenges that we are facing as a country; and
- Experts on governance matters are of the opinion that there has not been a change in mind sets of corporate leaders in Zimbabwe to embrace the code ahead of other codes like the King 3.
- The economic difficulties have taken away the minds of corporate leaders from matters of corporate governance to pertinent and critical activities to do with survival.
However, on a positive note, Corporate Governance is now offered at Zimbabwean universities either as an independent degree or in modules under degree programs. For example, Midlands State University offers a Master of Commerce in Strategic Management and Corporate Governance degree, where they have adopted the national code on governance as part of the degree curricula.
The second question, “For those that have adopted the code, are they seeing any change in the corporate culture of the businesses?” is a bit difficult to answer given the low uptake of the code as alluded to earlier on. Also to date, the timeline from the launch of the code is still too short for me to be able to pick out noticeable changes in corporate culture arising from the implementation of the code.
There is already some talk in some circles of coming up with a second edition of the National Code on Corporate Governance with a view of enhancing and improving it. However, I believe it is still too early/premature to come up with a second edition as the current one has not been given a chance to be fully adopted and test its applicability. I also believe that before we even think about coming up with a second edition, post implementation reviews should be done to assess the effectiveness and success of the current code. Also, these post implementation reviews will allow feedback to be gathered from stakeholders over any gaps which may exist in the code and stimulate discussions over implementation problems which may have been encountered. Given the low uptake of the national code at this stage, doing a post-implementation review may fail to yield intended objectives.
In conclusion, though the National Code on Corporate Governance is a good initiative, work still needs to be done to ensure that it is being adopted by businesses in Zimbabwe and the onus is therefore on the various professional bodies to spearhead this process. At this stage, it is also important that businesses be able to see beyond the current economic challenges and start to sow the seeds of good corporate culture.