National Code, Public Entities Code or King IV …3 codes. Which one should you apply??

Investopedia defines corporate governance as ”the system of rules, practices, and processes by which a firm is directed and controlled. Corporate governance essentially involves balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community…..“

From this definition, it is clear that every company follows some sort of corporate governance principles, knowingly or unknowingly. Formally in Zimbabwe, most people have gotten acquainted with 2 Codes, i.e. the King IV and National Code of Corporate Governance but last year the Public Entities Corporate Governance Act (Chapter 10:31) was introduced. This brings in the dilemma for those who may be confused about which Code to apply.

King IV

Before Zimbabwe had its own Code, most companies would default to using the King Code from South Africa as they had already made strides in coming up with principles that entities could “apply and explain” i.e. based on the current Code that is in effect since November 2016.

This code is not legally binding. However, for entities with a primary listing on the Johannesburg Stock Exchange (JSE) Limited securities exchange certain aspects are binding by virtue of the listings requirements imposing obligations on issuers to comply therewith. In respect of those matters in King which the JSE does not consider mandatory, an issuer is nevertheless required to describe the extent of its compliance, and explain any non-compliance, in its annual report to shareholders.

Apply Principles

All principles are phrased as aspirations and ideals that organisations, should strive for in their journey towards good governance and realising the governance outcomes. The principles are basic and fundamental to good governance and application thereof is therefore assumed

Explain Practices

The explanation should be given in the form of a narrative account, with reference to practices that demonstrate the application of the principle. The explanation should address which recommended or other practices have been and how these achieve or give effect to the principle.

National Code of Corporate Governance

In April 2015, the National Code on Corporate Governance Zimbabwe was launched. The Code applies to all business entities regardless of the manner of their incorporation or establishment but recognises that sector-specific codes, whose principles derive from the Code, should be put in place by the appropriate sectors.

Chartered Accountants Academy Managing Director, Elliot Wonenyika notes that “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 principle 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”

As compared to the JSE in South Africa, the Zimbabwe Stock Exchange (ZSE) has included section 7.F.5 from its Regulations  which requires an entity to show “a narrative statement of how it has applied the principles set out in the Code of Corporate Practice and Conduct as set out in the King Report or Cadbury Report on Corporate Governance providing explanation which enables its shareholders and potential investors to evaluate how the principles have been applied.”

The National Code and the KING IV have various similarities that have resulted in many companies in Zimbabwe using a hybrid for the 2 when implementing the principles and practices.

Public Entities Corporate Governance Act

The Public Entities Corporate Governance Act  as issued in 2018 provides “ for the governance of public entities in compliance with Chapter 9 of the Constitution: to provide a uniform mechanism for regulating the conditions of service of members of public entities and their senior employees….”

The public entities include i.e. all statutory bodies (parastatals) certain constitutional commissions and commercial entities that are owned or controlled by the Government.

Section 26 of the Public Entities Corporate Governance Act prescribes Public Entities to honour Good Corporate Governance Code and prepare board charters and Code of Ethics. The Good Corporate Governance Code is defined as the National Code on Corporate Governance.

The Act also includes different sections for

  • appointment, tenure, conditions of service of boards of public entities,
  •  appointment, tenure, conditions of service of senior staff of public entities
  • Strategic plans and performance contracts
  • Board charters, code of ethics  and national code of corporate governance
  • Conduct of business by boards of public entities and
  • Other General issues

Zimbabwean entities are not short of a framework to use for good corporate governance principles. From the brief analysis above, the National Code is a focal point in good corporate governance practices for both public entities, listed entities and private entities with some of its principles and practices borrowed from the King Reports on Corporate Governance

As the Public Entities Corporate Governance Act was recently issued, there is a need in the market for preparers and reviewers to understand it and be able to implement it.

TAS is on the verge of helping you with the process with an online course for Public Entities Corporate Governance Act. This process will also assist with the understanding of the National Code of Corporate Governance as it is an integral part of Public Entities Corporate Governance Act.

Watch this space for the Course !!!!!

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About the Author : Cleopatra

Cleopatra is a Technical Manager at Training and Advisory Services. She is an expert in both IPSAS,Audit and IFRS. You can contact her at cleo@tas.co.zw

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