CORPORATE GOVERNANCE

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 PRESENTED BY OBERT SIFILE

(Researcher and Candidate in DPhil specialising in Corporate Governance)

CHINESE PROVERB

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If you think you are leading and noone is following, you are simply taking a walk.

Introduction

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Corporate governance is premised to be the panacea to the survival of an organisation. While Western and Eastern countries are far advanced in terms of the development and implementation of corporate governance codes, Africa is lagging far behind.

Zimbabwe does not have CG code (IoD has a draft).

For corporate governance, Zimbabwe uses the Companies Act Chapter 24:03 and some provisions of codes like the South African Code (King 1, 2 and 3). The historical and iconic Cadbury Code and its successors that led to the instituting of the UK Combined Code on Corporate Governance are also a source of corporate governance practices that are used by Zimbabwean companies.

DILEMMAS we face

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1. Is Corporate Governance only to be practiced by corporates?

2. Can corporate governance (CG) be practiced in parastatals / State owned Enterprises?

3. Do NGOs require corporate governance?4. Can CG be practiced in universities?5. Is the term Corporate Governance

relevant to all sectors?6. Is CG a “cliché” of our time?

Is Corporate Governance new to Zimbabwe?

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Traditional governance (Dare – The chief’s Board)

Chief (mambo) – Chairman (Sachigaro) of the court / dare

Headman (sadunhu / makurukota)

The mission of the dare is to promote harmony, sharing of ideas, settling of disputes, sharing resources (minda, proceeds of zunde ramambo), setting standards of engagement (kudzika mitemo) and giving counsel to the chief.

FOCUS OF CORPORATE GOVERNANCE

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Interactions, expectations and perceptions of internal and external stakeholders of the board (LEADERSHIP).

What board actors ought to do to optimise board cohesion and effective performance -leadership.

Definition of terms

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Corporate GovernanceThe word governance is derived from the Latin verb gubernare which means to steer (Ferkins, McDonald and Shilbury, 2008).

The traditional definition of corporate governance given in the Cadbury Report and Recommendations states that: Corporate governance is the system by which businesses are directed and controlled (Cadbury, 1992).

CG Definitions Cont...

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Sami, Wang and Zhou (2011) see corporate governance as a set of mechanisms that affect how a corporation is operated and that it deals with the welfare and goals of all the stakeholders, including shareholders, management, board of directors, lenders, regulators, and the economy.

Brennan and Solomon (2008) define corporate governance as the system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all their stakeholders and act in a socially responsible way in all areas of their business activity.

CG Definitions Cont...

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Miller and Triana (2009) define corporate governance as the determination of the resource deployment and conflict resolution among the diverse interests of organizational stakeholders.

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Good corporate governance is a deterrent to corruption and unethical business practices that scar Africa’s business image (Armstrong, 2003).

Theories of corporate governance and Relevance to Leadership

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Stewardship – According to stewardship theory, founded on a positive view of human behaviour, people are not inclined to opportunism, and managers want to sincerely pursue shareholders’ interests (Davis, Schoorman and Donaldson, 1997). Read Matthew 25:14 - 30

In this view, boards of directors are groups of competent people that help managers to enhance their decision-making process, e.g. contributing to the boardroom debate through their experiences, competences and different viewpoints. In other words, board members provide advice and support to top managers, and thus represent a valuable resource for corporate boards (Donaldson and Davis, 1991).

Stakeholder Theory

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Stakeholders – Dewhirst (1992) defines a stakeholder as any individual or group who can affect or is affected by, the achievement of the organization's objectives.

A firm's objectives are to identify various key stakeholders concerned, balance conflicting interests and manage all key stakeholder groups, and enhance corporate social performance through the board of directors who represent various constituency groups. [As managers, who are your stakeholders?]

 As leaders, if you fail to identify your stakeholders, how do you determine their needs if you do not know them?

Resource-based theory or view

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Resource-based theory or view (RBT / RBV) has emerged as a promising new framework for analysing the sources and sustainability of competitive advantage (Smith, Vasudevan and Tanniru, 1996).

Barney (1991) has defined organizational resources as all assets, capabilities, organizational processes, firm attributes information, knowledge, etc. controlled by a firm and that enable it to conceive and implement strategies that are efficient and effective. [What kind of resources are you?]

Resource dependency Theory

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According to the resource dependence theory (Daily and Dalton, 1994; Pfeffer, 1972; Pfeffer and Salancik, 1978), boards of directors perform a service task and are supposed to bring different types of resources to the firm.

Among the different potential benefits provided by corporate boards, advice and counsel on the one hand and external legitimacy and networking on the other are considered to be particularly valuable (Hillman and Dalziel, 2003).

Sources of good corporate governance

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UK’s CG Codes (Apply or explain)Cadbury Report (1992)Greenbury Report (1995)Hampel Report (1998)Turnbull Report (1999, 2005) Higgs Report (2003)Smith Review (2003) UK Combined Code on Corporate

Governance (2008)

South African King Reports (Apply or explain)

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King 1 (1994) – 2 years after Cadbury Report(1994)

King 2 (1998)

King 3 (2009)

Sarbanes Oxley Act (2002) (Comply or explain)

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The Act was precipitated by the Enron collapse in 2001. The Act is a combination of best practice and the USA Companies Act.

The only legalised code in the world.

Major Issues emerging from Codes

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Corporate governance codes provide structures and prescriptions which dictate issues like board size, composition, CEO duality, ownership of shares, committees and board interlocks.

In our ContextSchool/departmental committees (expertise,

size, tenure)Duality of roles Interlocks (belonging to many committees)Frequency of meetingsMandate of committee

The Board ( Council, Senate)

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The roles of the board are as follows:to set direction and approve strategy.to provide proper performance and risk

oversight.to select, develop and reward leadership.to set the tone at the top, to shape values

and ensure that they stakeholders know them. Here too it is clear that in many institutions the fish was rotting from the head (Haspeslagh, 2010).

The Board Cont...

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The board of directors is preoccupied with the monitoring role on behalf of the shareholders (Hashim and Devi, 2008; John and Senbet, 1998) and has the main duty of leading and directing the firm to achieve corporate goals by closely monitoring management activity so that the interest of the shareholders is well protected (Abdullah, 2004).

Creating a board that is effective in monitoring management actions is dependent on the composition of individuals who serve on the board of directors (Fama and Jensen, 1983).

Boards of directors need to be active to meet their corporate governance commitments, particularly in ensuring high-quality and transparent reporting.

Recommendations to University Leaders

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Your role is to lead ( as good stewards)

You are there to control (as custodians of Regulations)

You are there to set the tone at the TOP for the department / section (avoid – Fish rots from the head)

You are there to satisfy needs of all stakeholders (by meeting the expected quality standards –e.g. ZIMCHE)

Quality assurance (you want to stay at the top – a CUT above the rest in standards).

Avoid dictatorship (use the many ideas that come from the board – a grouping of experts).

Conclusion

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Mostovicz et al. (2011) critiques extant research by arguing that there is nothing wrong with the organisation, since it is a virtual entity only. Hence, corporate problems are those created by the individuals working within it and should be addressed accordingly.

This buttresses the idea that a study of corporate governance is a focus on boards and its actors and how their behaviour affects stakeholders.

The END

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THANK YOU