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Time to consider reform of state enterprises governance
20/11/2014 00:00:00
by Brian Sedze
 
 
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WE still think we have state enterprises and we entertain the notion that they somehow can deliver social and economic justice with checks and balances. But the notion is a fallacy because the sad truth is that, after many decades of our marriage to these state enterprises, we are in a stale union, still legally married but sleepwalking through a prescribed, uncomfortable and predictable routine of non-delivery of service, perennial losses, shoddy products, worst breed corporate governance, non-payment of salaries, loud-sounding-nothing turn around strategies, customer service deficiencies, dependency and dysfunction which mostly ends with begging for government’s fiscal intervention.

The fiscal intervention, by extension, is actually part of the state enterprises’ attempt to foist a tax burden on Zimbabweans to finance their apparent failures. These fiscal intervention requests are done without any shame at the irony that the enterprises are a failure by any measure – whether measured by the number of employees, share of GDP, profitability, loss reduction, balance sheet growth, return on investments, tax receipts, growth or even the often abused notion of delivery of social and economic justice.

I have always espoused the concept that freedom and liberty cannot exist in the absence of private property and that money should be considered private property which state enterprises must not gain without limitations and without reason .The existence of private property is the antithesis of every centralized, statist political philosophy. 

It is wrong that we are still bound to these state enterprises; even in dependency and dysfunction, we still are inexorably linked by this feeling, this affection, this love for the idea of a state run enterprise. We lament even as we know deep down that we must split up. We eventually look at each other and like Jack Twist in 2005’s "Brokeback Mountain", say to each other “I wish I knew how to quit you. But we haven’t quit each other. Each and every year we regret our decision not to quit.” I think it’s time we take the bold decision to quit most of these enterprises, have an exit strategy on the others and implement new governance and strategic direction on those that have national strategic importance.

So, like a fading marriage, we should go out looking for a counsellor, an expert, to fix us, a strategy Dr. Phil of sorts in our quest to ensure stability, consistence and performance. We want someone to tell us that it is going to be OK and that the sun will come out tomorrow as long as we are factually backed by brutally honest assessment of performance of our state enterprises. We want someone with the wisdom to guide us through the tough times with good advice.



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This counsellor must do a comprehensive audit of the state of all state enterprises including but not limited to audit of business model efficacy, performance, human capital, corporate culture alignment, innovation funnels, corporate governance systems and structures, strategic alignment, internal control systems, information systems, finance and investment, corporate reporting, customer service and marketing systems, return on investments and product-customer fit.

This will inform us the wrongs within our marriage which, by extension, dictate the strategies going forward. We adopt a somewhat GE matrix to make deliberate choices to either divest or invest or harvest or selectively develop these ‘enterprises’. The national strategy imperatives of the Zimbabwe Agenda for Sustainable Economic Transformation should also be used to measure the strategic fit of these enterprises as well as informing invest, divest, harvest and develop strategies.

Some state enterprises are worth to keep but for them to be successful it requires the united efforts of the government, shareholder representatives (the line ministry), directors, management team and employees. To get these state enterprises out of the intensive care unit and enable the delivery of financial prosperity, there is a real need to transform the governance and strategy systems. Here is my take on such a transformation:

  • Government must demonstrate the highest level of political commitment necessary to enforce good corporate governance through design and adoption of “comply or explain” corporate governance standards. These standards should be through an act of parliament to ensure compliance. Amendment of the Company Laws as relates to these public interest enterprises should be a consideration.
  • There is need for governance overhaul as relates to board and senior management appointments. It will be ideal that the shareholder only appoints a third or less of members of the board to ensure independency of board decisions from excessive political inclination without due consideration of economic outcomes. The majority of board members must be independent non-executive members appointed using independent recruitment agencies. The board applicants must then, in addition, undergo thorough vetting by a parliamentary committee specifically established to oversee state enterprise board appointments. The independent non-executive directors should hold key positions in committees including but not limited to audit and compensation committees. Independent shareholders must not represent the shareholder but be appointed to ensure objective judgement and expression of unbiased views independently.
  • Board appointments must be done after competence profiling. The board members must fit the pre-designed competence profiling. Balance in experience, expertise and background must be maintained to enable the board to make decisions “as a board” not over-reliance on a few enlightened or politically more connected members.
  • The minister must ideally not be responsible for appointing the board chairperson. The board chairperson must ideally be appointed by the board at the first board meeting. Chairpersons appointed by the shareholder often become super board members who then usurp the power and authority of the Board and that of the Chief Executive. In most instances, it often results in blurred separation of management and directing. The chairperson must not have ex ante and ex post decision-making roles. This will enable the board to govern effectively through independence, mutual respect, openness, constructive dissent and equal participation.
  • To ensure that regulations relating to corporate governance are strictly followed, there will be need for amendment of the Company Law to ensure state assets are safeguarded.
  • All board members must undergo mandatory board training by renowned corporate governance institutions such as the Institute of Directors, Institute of Chartered Secretaries and Administrators and Internal Control Institute on roles, responsibilities, strategy of governance, management vs. directing, risk and audit, financial oversight and reporting, effective board chairing, board practices and procedure, and effective board chairing amongst other identifiable “must know” board practices and procedures.
  • Boards should be subject to independent performance and governance reviews and audits.
  • Boards must publish audited financial reports as it is my belief that they are public interest institutions. A detailed and “comply or explain” disclosure regulation or law must be entrenched in the corporate governance amendments.
  • A code of ethics must be designed and deployed to reasonably deter wrong doings.
  • All executive or ministerial orders must be subject to scrutiny and debate by a committee of independent board members and be part of disclosures in published accounts.
  • Chief Executives and senior management must not be subject to salary caps but, instead, should be subject to performance-based salary dictates. Labour is subject to market dictates. It’s not feasible to employ the best breed managers who are subject to salary caps … they will simply be employed somewhere else if they are in demand.
  • Retiring and leaving directors and senior management must go through an auditing process. All directors and senior management must declare all assets and liabilities to enable life style change audits. These audits must be done by an independent audit firm.
  • Directors must not be dismissed or resigned enmasse due to a change of the responsible minister. Board members must have a rotational retiring system to ensure stability and injection of fresh thinking
  • Boards must design and implement an independent inclusive innovation funnel in which society; employees, managers and directors can contribute in bettering governance and strategy.

Reform in strategic state enterprises will enable success in profitability, loss reduction, tax receipts, customer service excellence, growth and delivery of social and economic justice. Zimbabweans should not be taxed to their last cent because the cost of government matters to them and for the good of the country these state enterprises must just function.

TO BE CONTINUED …

Brian Sedze is an author on Innovation, President of Free Enterprise Initiative and Chairman of Africa Innovation Hub. He can be contacted on brian.sedze@gmail.com


 
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