Good corporate governance key to success of MPS

Martin Tarusenga

The commentary on January 2016 Monetary Policy Statement (MPS), published by the Herald under the title “Co-operation, Diligence, hard work key to success” suggests that the RBZ Governor could more appropriately have couched banking system failures cited in the MPS under the more encompassing and precise theme of “Economic transformation through Good Corporate governance”.This is opposed to the MPS theme “Economic transformation through transparency and accountability”.

These banking system failures as the MPS seeks to resolve, cover externalisation of funds from Zimbabwe, poor practices in auditing, accounting and no disclosure standards of reports from the latter two practices, all-too frequent bank failures which take with them funds placed by the public in banks, usurious loan interest charges, bank charges which amount to swindling the banking public — these among other failures that lead to loss of public confidence in banks.

The banking system failures to be resolved as exemplified above, suggest corporate governance failure in the banking system as the overall cause.

In accordance with founding definitions, good corporate governance is the system by which companies are directed and controlled, upholding the principles of transparency, accountability, fairness and responsibility.

Good corporate governance thus outlined, is better known to have evolved from the Cadbury Committee of the United Kingdom.

The Committee was set up in May 1991 by the Financial Reporting Council, the London Stock Exchange and other interest parties on the back of concerns about “ . . . low level of confidence both in financial reporting and in the ability of auditors to provide the safeguards which the users of company reports sought and expected . . .” the latter being a consequence of “ . . . the looseness of accounting standards . . .” among other shortcomings.

“These concerns about the working of the corporate system were heightened by some unexpected failures of major companies”, not least the wallpaper group Coloroll and Asil Nadir’s Polly Peck consortium, the collapse of the Bank of Credit and Commerce International, and the misappropriation of £440 million from pension funds set up for the Maxwell Group companies (then filing for bankruptcy in 1992).

In recognition that the competitiveness of any economy depends on the drive and efficiency of its companies, and hence the effectiveness with which their boards discharge their responsibilities, the Cadbury Committee brief was ultimately focussed on the essence of a system of good corporate governance.

This allowed companies to be free to drive their companies forward, but requiring the exercise of that freedom within a framework of good corporate governance as a whole. The Cadbury report became a landmark, providing the first serious template for all other international Corporate Governance frameworks, including those which were to follow in the USA (Sarbanes-Oxley), South Africa (Mervyn King), among others.

On examining the core principles of corporate governance as outlined above, they can be recognised as those same tenets necessary to generate correct incentives and trust among incumbent parties, for any business transaction to proceed, and hence for any business to thrive — trust that all parties will deliver as per agreed quantities and standards being paramount.

For this reason Corporate Governance principles and practices have therefore become more widely applicable and useful for small organisations, projects, as well as the large corporations for which corporate governance was originally meant.

In corroboration with this widespread application, many research projects are in trend to check the relative success of businesses, projects that comply with corporate governance practices and those that do not.

Put more simply, Corporate Governance is inherently relevant in all circumstances and situations where people organise themselves into structures, and especially where these structures have attendant respective obligations to owners, staff, customers, among other parties.

Now the resolution of the banking system failures that the RBZ Governor is currently engaged in, is in fact trivially in obligation to the Zimbabwe banking public and to the Government — and trivially this resolution project obliges banks to operate in the interests of the Zimbabwe banking public, of the Government, and of the development of the economy overall.

The latter are trivially circumstances that the RBZ and the banks are structurally organised with attendant obligations to the banking public, the Government, and other stakeholders — corporate governance is therefore inherently relevant for this MPS.

While engaged in the resolution of banking system failures, it is therefore pertinent to check whether there is that commitment, in the MPS, to live in the true spirit of good corporate governance.

To the extent that corporate governance must be inherent in all economic (value-adding) activity, in small organisations, projects, the assessment can best be conducted by reviewing work ethics in Zimbabwe in engaging in the latter economic activity, and by reviewing efforts/strategies in tandem in the country to improve the work ethics, including those work ethics implied in the MPS.

The anti-corruption drive led by the  Vice President Emmerson Mnangagwa, in launching the campaign against corruption in Zimbabwe, is a public statement that the nation work ethics fall far short of good corporate governance standards i.e. corrupt.

The VP’s exemplification of the extent of corruption in the level of daily public complaints being lodged against legal officials in the Justice, Legal and Parliamentary Affairs Ministry, is a crude measure of the extent to which work ethics in Zimbabwe are diametrically opposed to principles of good corporate governance.

It is reasonable to conclude from the VP’s symbolisation of corruption in the country, that officials in this Ministry and other Ministries work without any delivery standards, and are not regularly assessed for performance — for how else can complaints to authorities such as the VP persist if the officials are bound to work to deliver specific outputs, to specific standards, in zero tolerance?

On considering the rather persistent banking system failures, the latter conclusions taint the RBZ.
The complaints and bank system failures can only persist if officials in these ministries resist working in transparency as regards agreed standards and deliverables, with accountability, in fairness and with due responsibility to the various stakeholders.

When such resistance to good work ethics in good corporate governance prevails at the overarching ministerial governing/regulatory levels, resistance to good governance is bound to pervade the various governed economic sectors in the country, with the result that the economy slides into stagnation.

In corroboration of the resistance to the corporate governance practice of job performance assessment in transparency, at both the Ministerial levels and at private sector levels, the nation has witnessed manifestly faltering industries, evidence of lack of innovation, low to zero productivity.

In resolving the banking system failures through adopting principles and practices of established financial reporting standards, through the setup of financial reporting councils, through implementation of Basel regulatory framework, and through other measure as proposed in the MPS, it is instructive for RBZ

Governor to wholeheartedly embrace good corporate governance in zero tolerance.
This requires the Governor to steer away from the notorious tactics used to evade corporate governance in the country, which tactics have seen the troubling stunted economic development that we are now in.

Martin Tarusenga is General Manager of Zimbabwe Pensions & Insurance Rights, email, [email protected]; telephone; +263 (0)4 797020; Mobile; +263 (0)772 889 716.
Opinions expressed herein are those of the author and do not represent those of the organisations that the author represents.


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