Good corporate governance essential for survival



yText style="MARGIN: 0in 0in 0pt; tab-stops: .25in 27.0pt 4.25in">HARARE - Since the start of 2004 when a number of financial institutions collapsed, many people were quick to blame the weak corporate governance systems, while some pointed this was not limited to the financial sector alone but the whole economy. Though the management style of many companies played a role in their ultimate demise it is also true that the declining economy was a major factor. (In fact during the last 6 years the economy has declined by almost 50%) 

During the past one and half decades the corporate world has witnessed increasing irregularities in the tendering processes, while the composition of directors in private and public companies seemed to moving against the spirit of good corporate governance. For example, directors had no term limits while a number private as well as public companies had CEOs who doubled up as executive chairpersons.  This had the effect of giving excessive powers to such individuals.

In fact many companies folded because essentially you had a situation where company executives had to police themselves - something impossible given our basic human nature. While many, particularly Zimbabweans back home, are now accustomed to this, it augurs badly for a country that needs to attract major investment.

However this unhealthy situation was allowed to continue and gradually corporate governance became a thing of the past. Another major cause of a poor corporate governance culture may be linked to the policy of transferring the country’s wealth from the colonial minority to the majority. While I must point out that such a policy was essential, the way in which it was implemented caused a deterioration of good corporate governance standards.

The major beneficiaries of this policy were either not acquainted with good trade practices, since they had no prior training, and there was no code of conduct to guide them. Many new company owners and directors led very extravagant lifestyles and, in some cases, company assets were used for private purposes.

This high life was not matched by performance and firms faced serious viability problems. Gross financial indiscipline was a serious problem.

Before 2004 very few people were concerned with the deteriorating governance standards.  The collapse of these poorly governed companies began before the fateful year of 2004, but it was the low profile companies that went first. By the time banks and asset management companies joined them, the damage had been done.  Many began to question the management styles of these companies. I remember an article in the press in which one analyst was questioning a certain director of an asset management company who had 22 personal vehicles.

Throughout 2004 banks and asset management companies that appeared profitable on the surface, suddenly became insolvent while the directors simply vanished. Many people lost their lifetime savings.  Good corporate governance are not a luxury. They are essential.