Corporate governance law now overdue

agent with those of the principal.
One common denominator appears to be the collective failure of gatekeep­ers and monitors to properly assess the needs of their organisations due to either the prevailing economic or political conditions.

Fama and Jensen (1983) stated that the Board of Directors is a control mechanism of “professional referees” designated to discipline the top man­agement of an organisation and if need be, replace them with more effective individuals (Hermalin and Weibach 2003).
It is interesting to note the Board of Directors are being described as “refer­ees” — but I prefer to look at the Board of Direc­tors as “gatekeepers and moni­tors” of any organisation.

I have noted and accepted that the term “corporate governance” has no particular accepted definition.
It is, however, generally understood to incorporate how an organisation is managed, its corporate and other structures, its culture, its policies and strategies, and the ways in which it deals with its various stakeholders.

The notion of corporate governance encompassing a wide range of stake­holders is also shared by Sir Adrian Cadbury, one of the foremost intellec­tuals in corporate governance, who stated that corporate governance also includes the relationships among the many stakeholders involved and the goals for which the organisation is gov­erned.

Sir Adrian (1999) further defined corporate governance as being con­cerned with holding the balance between economic and social goals and between individual and commu­nal goals.
The aim being to align as nearly as possible the interests of individuals, corporations and societies as they all form part of the wider stakeholders in a business environment.
The principal stakeholders are the Board of Directors, employees, cus­tomers, creditors, suppliers, and the community at large.

As such an organisation must be seen to ensure the accountability of certain individuals in an organisation through mechanisms that try to reduce or eliminate the principal agent prob­lem.
Corporate Zimbabwe has in the last year reportedly experienced notable corporate governance failures at Afre Corporation and CAPS Holdings.

However, we are yet to experience massive corporate scandals and fail­ures such as those that engulfed Europe and the United States with giant conglomerates like Enron, Par­malat, Poly Peck International, Mirror Group Media, Tyco and WorldCom collapsing overnight.
The main cause for such collapses has been acknowledged as being the absence of solid governance structures which in the end contributed to seri­ous conflict of interest being ignored, which in turn resulted in poor record keeping, poor accounting and poor reporting procedures across all the companies identified above.

One can therefore agree that the lack of a corporate governance code that is adhered to by all organisations in Zim­babwe definitely contributed to the failures locally.

A home-grown code that builds on the international corporate governance codes and the King III code could oth­erwise emphasise the importance and separation of the chairman and CEO roles as too much power vested in one individual does compromise good governance.
The aftermath of Enron, WorldCom corporate failures resulted in the United States bolstering, albeit in a knee jerk reaction manner, their cor­porate governance requirements by enacting the Sarbanes Oxley Act (2002).
In the United Kingdom, where a more formal process of governance had already been in existence the then Combined Governance Code was also bolstered to ensure that each and every organisation had robust governance policies, systems and procedures in place.

In addition, it also ensured that the boards were fully accountable for embedding good governance across their organisations.
The only drawback in my own per­ception of the approaches formalised in the USA and the UK at the time was that they only initially bound organisa­tions that were listed on the stock exchanges thereby ignoring small to medium private organisations not listed on the stock exchange.

This has, however, changed.
For example, in the UK where differ­ent sectors have eventually adopted the now renamed Corporate Governance Code and adjusted it to fit their pur­pose with the requirement that all organisations operating within all sec­tors adopt and embed the code of gov­ernance as part of their modus operandi. An example that quickly comes to mind is the National Housing Federation which is the umbrella organisation for all housing providers in the UK.

It has since to date developed its own Excellence in the Code of Governance that generally encompassed the requirements set by the UK Corporate Governance Code and made it manda­tory for all its members to either adopt and embed in their operations or use the national code of governance.
The second example is the health­care sector where all organisations that are defined as being healthcare have to ensure that they embed clinical gover­nance as part of their operations.

This is aimed at ensuring that there is safe accountable and excellent deliv­erance of healthcare services by all healthcare organisations including the National Health Service, which is gov­ernment run.
My wish is that the crafting of our own National Corporate Governance Code should now come to its finality so that governance processes in the country are broadly directed by this framework.

The process of implementing our own corporate governance code should also be the gateway for an opportunity to have the long overdue legislative changes be done for example to the archaic Companies Act.
In addition, such changes will enable the code to bolster other new pieces of legislation that promote corporate gov­ernance, for example the Anti-Bribery Act, and the Anti-Money Laundering Act.

The precedence of enacting legisla­tion that promotes corporate gover­nance has already been set for Zim­babwe to follow by the King Report (1994). 
King III has gone beyond the cor­porate governance codes developed in other countries by not only empha­sising and focusing on the financial and regulatory aspects of corporate governance but also advocating for an integrated approach to good gover­nance.
This has been done in the interests of a wide range of stakeholders with regard to the fundamental principles of good financial, social, ethical and envi­ronment practice.

• Terrence N. Chimanya, MSc, LLB (Hons), BSc, ACIS, MCMI is a corpo­rate governance practitioner and sen­ior manager — governance, risk and compliance with PricewaterhouseC­oopers Zimbabwe He writes in his personal capacity as a corporate gov­ernance practitioner. Terrence can be contacted on ter­[email protected]