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Mines minister offside on Hwange Colliery Company
09/03/2016 00:00:00
by Brian Sedze
 
 
RELATED STORIES
How come our govt doesn’t get this?

THE Minister of Mines and Mining Development Honorable Walter Chidhakwa’s directives to Hwange Colliery Company (HCC) management shows a dismaying contempt of good corporate governance. The minister has given himself opaque authority to be a shareholder, the board and management - all rolled into one. It is not the minister’s role and responsibility to direct strategy through an ultimatum, nor is it his prerogative to order an arbitrary salary ceiling. His instructions are unlawful, ill-informed, unreasonable and bad precedent.

The minister’s role in the governance matrix is limited to driving government policy. He should drive policy by causing the appointment of competent board members who shall be responsible for governing strategy and setting executive remunerations amongst other roles. He should not be both the shareholder and board of director of the SOE he superintends, that’s if (HCC) is even a state owned enterprise. If things are not well at HCC, the ball rests in the board’s court. If the management is incompetent, it is, further, the board’s role to deal with that.

Unlike in politics, in business “one centre of power” is a sign of bad governance. Management should be accountable to board members and, in turn, board members should report to the shareholder. The issuing of gang nailed directives to management by one shareholder creates governance chaos.

You can imagine the chaos if Mittal Steel, Messina and other institutional investors of HCC are to issue their own directives to management outside the precincts of the board. A minister with no respect for good corporate governance illustrates to the world reasons why the world should not consider investing in Zimbabwe especially on a Private-Public-Partnership platform.

Discord with other investors and unilateral actions by one shareholder increases the governance risk factor which results in company value destruction, premiums on capital, increase in country investment risk factor, increased investment flight and low Foreign Direct Investment. Governance discords also send negative messages to myriad stakeholders like suppliers, financiers and customers.

The uncertainties caused by legally unsound instructions have a negative impact not only on the company but to the general investment climate. Investors will no longer be sure of what other instructions the minister will dream of. Investors require certainty and good corporate governance is a guarantees that.



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Government interference is the cause of myriad failures of State Owned Enterprises like Zisco, CSC, NRZ and many other firms. Politicians are not necessarily great directors as they, at times, set wrong precedents whilst playing to the gallery as a pretention of hard work. Hard work should be delegated to a stratum of the company in the form of the board. There should be separation of roles of the shareholder, the directors and management; the minister, as a shareholder representative asserting authority through the board, at annual general meetings and extra ordinary general meetings.

The simultaneous and sequential message of a minister who is the shareholder, the board, the board chairperson and most senior executive is that private public partnerships are toxic, that investing in government related enterprises is a high risk business and that equity participation in any public company with some level of government shareholding is an investment in the abyss, as the government will unilaterally impose its will and proffer instructions without restraint.

The minister and, to a large extent, the cabinet have a rather unhealthy fixation with salary ceilings. We are often given to believe most corporate challenges and failures have everything to do with huge salaries and nothing else. It’s a Cuthbert Dube driven knee jerk reaction and is an ill informed decision.

The responsibility to determine executive and management salaries should be reserved for the recommendation to the board by the remuneration committee. The remuneration committee decisions on remunerations are informed by the need for internal and external equity. Remuneration should be performance-driven rather than based on a minister’s arbitrary ceiling. Salaries should also be set to enable organizational entry and retention of skilled, competent and performing executives.

When salaries are set at artificially low ceilings the undesired consequences are often nagging agency problems. The agency problems often manifest in rent-seeking behavior, corruption and financial malfeasance by the executives.

I believe ministers’ energy and intellect should rather be applied to causing the appointment of competent board members to represent its interests at HCC. The minister will further do Zimbabweans a favor by reforming the way these board members are appointed by empowering an independent board appointing firm or authority to make such appointments.

History in the ministry has shown that the immediate past minister of mines had career board members and beneficiaries of his largesse who moved with the minister from one ministry to the other as SOE board members. These board members are also even appointed to the minister’s private company boards. The board members become more loyal to the minister instead of the company and the nation. Without an independent board appointing firm or authority, the companies continue being run by loyalty driven appointees without consideration of any merit.

To get the best out of HCC, the company must have the majority of its board members being independent from loyalties to politicians and political machinations. Its chairperson must be independent including chairpersons of the critical committees. The board must be a balance of skills, knowledge and abilities. The boards must have a mandatory training to enable them to grasp directing as opposed to managing.

Brian Sedze is the Chairman of Africa Innovation Hub and President of Free Enterprise Initiative. He is research fellow at UR.He can be contacted by email on brian.sedze@gmail.com


 
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