adminJohnathan Shoniwa Corporate Governance
Corporate governance is a key topic in Zimbabwe, and rightly so, especially as the country tries to rebrand itself. Therefore, when an opportunity presents itself, we should not miss the opportunity for key lessons arising from it. One such opportunity has been from PPC, the South African-based cement manufacturer, boardroom wrangles and fallout. Were it not for the public statements from both warring parties, one would have dismissed it as mere rumours and speculations. But alas, the drama has been backed by full official statements!
Talk of the proverbial washing dirty linen in public! While linen refers to various garments (Wikipedia to the rescue), I somehow have a feeling that they (“vakuru”) had a certain piece of garment in mind when they said this! Enough of that, after all this is supposed to be a serious discussion on governance).
What even makes this issue more interesting and relevant to Zimbabweans is the fact that PPC has a dual listing on the Zimbabwe Stock Exchange and therefore making this is an issue of high priority and public interest. As a business consultant, a patriotic one for that matter, I therefore seize the opportunity to interrogate the issues at play for the public edification on corporate governance.
The background: This week, PPC, the South African-based cement manufacturer issued a notice for a shareholders’ meeting. This was after investors representing about 10 percent of stock called for a vote on the board after chief executive Mr Ketso Gordhan resigned in September following a dispute with his fellow directors, and his subsequent attempt to reclaim his position (yes, you are reading it right! Though it sounds like a script from the movie “Taken 2”).
In a notice to shareholders, the investors who include Foord Asset Management, Visio Capital Management and Nedbank Private Wealth, said the current board was no longer “functional”.
According to the PPC Ltd notice to shareholders: “The current board needs to be replaced with a functional board with the correct expertise to run the company and this needs to be done as soon as possible in order to restore continuity to the operations and strategy of the company and it is in the best interests of all stakeholders including shareholders and employees.”
Wow! (Those that are dead (vakafa) saw nothing, I tell you).
The main issues being that the board blocked the CEO from firing the Finance Director and Chief Financial Officer, Tryphosa Ramano. (I had to google her photo, just to put a face to it all – believe me the smile is not disappointing – I hope my wife and my pastor will not take me to task on this one).
There are key lessons that arise from the above scenario.
The first one is that any board must have sufficient trust and confidence in its CEO to allow him or her to implement changes in management. If the board does not trust the CEO with such a decision, then the board must simply fire the CEO.
In the case at PPC, the board should have parted ways with the CEO earlier if it did not trust his judgment. Surely, a whole CEO must be allowed to fire any of his or her executives.
Anything else is a vote of no confidence on the CEO (I have a funny feeling I know what comes to your mind when you hear of “vote of no confidence”, but not that, forget that for now!). I therefore find that the board erred in this instance.
The second part is the separation of duties between the executive and non-executive. The appointment of a finance director or continued occupancy to such an office must be the final decision of the executive arm, with the board (non-executive) offering advisory services to him or her.
In the PPC case, the board tries to usurp the powers of the CEO. Again I find that the board erred on this point.
Thirdly, executive directors’ shareholding in a public institutions must be capped to avoid a situation where there is a conflict of interest between shareholders and executive interests, as there are always minority interests to protect.
Typically this has been a major issue which the former Reserve Bank of Zimbabwe Governor, Dr Gideon Gono, has rightly tried hard to address in the banking sector and my contention is that this should apply to all public listed companies. On this point, the mistake is on lax statutes which allow such conflict of interest to arise.
Fourthly is the moral persuasion of how any executive body works, whether political, NGO or private. Apart from the issue of qualifying for an executive position, the proper functioning of any executive team requires that there must be some workable “chemistry” between the CEO and his or her executive, notwithstanding how capable (skilled, qualified and experienced) the executives are.
This follows that the executive can only continue in their offers if the CEO deems such a chemistry to be in existence, fluid and workable.
In the PPC saga, there was clearly no such chemistry and therefore it was unwise for a board worth its salt to force a finance director on its CEO.
According to the board statement “the board was of the view that the reasons advanced by Mr Gordhan were not substantive and did not warrant the termination of the chief financial officer”.
What hogwash! (I know I’m beginning to sound like a “political analyst’ – who, by the way, I define as: someone who is operating way below their capacity level, around 36 percent) Read between the lines, there was no workable working chemistry (duh), a key ingredient for results at this level. The board, therefore, in my view, erred on this point by ignoring the relationship issues that are crucial at this level.
Interestingly, there is similar discussions in ruling on whether the key executive positions within the party structures should be elected or appointed.
This is through the realisation that the current elective scenario though appearing democratic, at face value, can fail the chemistry test, without which attention quickly shifts from the work at hand to personal politics. This equally applies to boardrooms.
Corporates can borrow from football governance too where the team manager is allowed to pick his bench and backroom staff. See what happened to Sir Alex Furgerson’s management team when he left. The story is the same the world over in corporate restructures.
A competent CEO, whilst being given these powers to make sweeping changes, will also be aware of the need to preserve certain institutional memory and positive cultural identities for continuity. It therefore follows that the board interrogate capabilities, in particular the emotional intelligence, of any new CEO before appointment. From these two points, it is clear that the appointment of Gordhan fell short of these benchmarks as his post resignation period has demonstrated that he is emotionally immature and unintelligent. Verdict: the board erred in appointing such a character as its CEO.
One positive thing which Gordhan did do was to resign, but his biggest mistake at that level was going public with his fight in his quest to rescind his resignation (utter madness). It was so unnecessary. But what was worse was the board’s response of equally going public with boardroom issues in the name of public relations/interest. This is a serious failure on the board’s part as certain boardroom etiquette must, not only be observed, but be nurtured. Board deliberations must remain privileged and confidential, that is why in public offices they take an oath of loyalty (which includes confidentiality, they call it secrecy, I think).
Consequently, from the above facts, norms and practices, I find serious corporate governance failures and therefore conclude that Gordhan was never a fit character for such a CEO position. I must agree with the board that in his public utterances “he demonstrated a complete disregard of the board, governance processes and the interest of shareholders”.
I equally have to conclude that the board is not competent and therefore I am in sympathy with and support of the minority’s shareholders’ call to replace the board. This is even more so when one considers that the previous CEO, Paul Stuiver, also complained that “the board lacks the necessary skills”. Yes, corporate governance issues must be respected and there must be the same level of public outcry as that which hear on political governance issues, i.e. democracy, rule of law, etc. (read chii-chii).
But before I conclude, I would have done serious injustice to this article if I do not address the supposedly innocent victim, the CFO Ranamo (This name is interesting too similar to Renamo, the Mozambican dissident movement that destroyed Mozambique; and I can’t help but wonder at the striking semblance in characteristics). Information in the public domain suggests that this is a very difficult character to work with, and whether the shareholders’ resolution prevails or not, she should be removed from office as a matter of urgency. Therefore the honourable thing for her to do before the shareholders meeting, is to resign (am I sounding like someone you know?: not at all because I didn’t say now, now or forthwith!). For how is the new CEO supposed to work with such a domineering, non-team player?
This is a key lesson to all executives, that your organisation is bigger than you are and when it’s time to go it’s time to go. The best you can do is to ensure you negotiate the best deal (soft landing – in war it’s called ‘safe passage’ ) and not stand in the way. I also find the media obsession (in the name of transparency) with boardroom negotiated exit packages (and reasons for exit) for executives misplaced. It puts egos in the way; it’s never meant to be about individual governance but about corporate governanceeeeeee (I must go before I get carried away and begin to sound like Sharuko on Saturday or whatever it’s called).
Hope this piece sets a new dimension on corporate governance agenda in Zimbabwe.
(Johnathan Shoniwa is an independent management consultant and writes in his personal capacity. He can be contacted on email [email protected]).
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