Corporate governance in turmoil

Source: Corporate governance in turmoil | The Financial Gazette June 9, 2016

By Allen Choruma

RECENT waves of corruption scandals in strategic State-owned enterprises (SOEs) and parastatals has revealed serious corporate governance lapses, suggesting that the directors in these public sector organisations are “sleeping on the job” and failing to discharge their fiduciary duties effectively.
As high-profile corruption cases in key SOEs and parastatals spiral out of control in Zimbabwe, one wonders whether some of these public sector enterprises have boards of directors in place.
If the boards are in place, have the directors simply abandoned the ship and let it sink? Have the boards simply left chief executive officers (CEOs) and management “to party and dip their hands in the till” without any one reprimanding them? Have directors simply gone on vacation forgetting that they have fiduciary duties to superintend over operations of these public organisations?
Corporate governance is in turmoil in the public sector as corruption cases continue to escalate daily in some strategic SOEs and parastatals.
On the forefront are entities such as NetOne, the National Social Security Authority (NSSA), the Zimbabwe Revenue Authority (ZIMRA), ZESA Holdings, and its subsidiaries such as the Zimbabwe Power Company (ZPC), the Zimbabwe Electricity and Transmission and Distribution Company (ZETDC) etc, which have been making media headlines recently, embroiled in mega corruption scandals involving millions of dollars of looted public funds.
What is also of concern is that we are setting a very bad precedent in Zimbabwe.
Despite wide media coverage, perpetrators of corruption simply go “scot free” and are hardly prosecuted for their offences, irrespective of the amounts involved!
People loot millions of dollars of public resources and its business as usual the next day!
ZESA presents a very interesting case study. Going by the spate of recent media publications, corporate governance is in turmoil at the power utility.
ZESA handles huge chunks of public funds, billions of United States dollars, given the nature of their operations, which require enormous capital outlays.
The billions of dollars that ZESA handles attract deviant behaviours from unethical and unscrupulous people, who then connive with insiders to loot public funds through corruption scams.
A few years ago, ZESA Holdings unbundled into the following companies: ZPC, ZETDC, Zimbabwe Enterprises (ZENT) and Powertel.
The objective was to improve efficiency in power generation, transmission and distribution channels and consequently improve on service delivery.
Sadly, ZESA Holdings and its subsidiaries have been embroiled in corruption scams which threaten to derail the very objective of its restructuring process and Zimbabwe’s economic development agenda.
Wave of scandals
ZESA subsidiaries have been involved in tender scams and some gross irregularities involving billions of US dollars as reported in the media.
On May 22, 2016 one weekly newspaper reported: “Corruption spirals out of control” as controversial power generation projects have been inflated by more than US$500 million, raising suspicion that ZESA managers and senior government officials could have corruptly benefitted through price escalations.
On May 16, 2016, one State daily had reported that a subsidiary of ZESA, ZPC is embroiled in a US$5 million tender scandal involving Intratrek, which was not sanctioned by the board.
It was then reported by the weekly referred earlier that ZPC paid US$5 million to Intratrek in advance as part of the US$200 million Gwanda Solar Project, and sucking in the Minister of Energy Samuel Undenge on allegations of facilitating the corrupt payment.
ZPC was also accused in the same article of underhand deals in the Dema US$170 million diesel power project awarded to Sakunda Energy and an Italian company (at a bid price of US$90 million, despite it not meeting all tender requirements).
There was also mention of irregularities in the awarding of the US$190 million Mutare Power Peak Project to Halcraw Electrical.
Another subsidiary of ZESA, ZETDC was reported by the same weekly as having lost US$200 million between February and March 2015 through un-procedural overtime payments.
Then a State-owned weekly of June 5, 2016 mentions controversy surrounding the award of a public relations (PR) contract to Fruitful Communications, despite ZESA having a fully-fledged PR department.
The corruption scams at ZESA are so alarming and leave one wondering whether ZESA and its subsidiaries have boards of directors that superintend them.
If these boards are in place, what are they doing to stop graft? Why are all these corporate scandals happening under their nose? Do the directors lack oversight capacity? Are they incompetent? Do they understand their role? What is exactly going on in ZESA corporate governance structures? Could it be that ZESA directors are also part of the rot or that they are benefitting from graft to an extent that they cannot stop it? People are baffled. I am baffled too.
Additionally, what is the Minister of Energy, who represents government (the shareholder), doing to stop the rot and corruption at ZESA? It was reported that Undenge sanctioned the US$5 million payment to Intratrek without board approval and in violation of government tender procedures.
Why would the Minister of Energy be involved in operational issues at ZESA, in violation of corporate governance structures within ZESA? Could it be that the Minister is also compromised to an extent that he cannot stop graft at ZESA?
In a nutshell, all corporate governance facets have fallen off at ZESA, from the shareholder, boards of directors, management and employees. Corruption has permeated all ZESA governance structures to an extent that all the tenets of good corporate governance have been aborted.
The ZPC company secretary was reported in one of the newspapers as having gone to the extent of writing to the board as far back as November, 2015 expressing concern over shady deals in ZPC and in particular the Intratrek deal and how such shady deals were negatively affecting the reputation of ZESA.
One wonders whether the lone voice of the company secretary was heard in the ZPC boardroom or whether his advice was heeded to by ZPC directors as scams continue to dog the ZESA subsidiary, notwithstanding such interventions.
What baffles us is that we have not heard of the shareholder, the Ministry of Energy, dissolving any board within the ZESA stable or tasking the boards to take action to stop rampant graft at ZESA.
We have also not heard ZESA Holdings or ZESA subsidiary boards dismissing CEOs and management over corruption.
We have also not come across criminal prosecutions against offending ZESA officials in the courts.
In the end, there is no deterrence and corruption keeps rolling down the hill at ZESA like molten lava from a ferocious volcanic eruption.
Role of the board
Boards of directors are not there for window-dressing or meeting the requirements of corporate governance best practices.
Directors are there to safeguard the interests of the organisations they preside over.
As stewards, boards of directors are expected to uphold the highest standards of good corporate governance in order to safeguard the interests and resources of organisations they lead.
It is a well-established corporate governance principle that the board has a fiduciary duty to act in good faith and in the best interests of an organisation and not put their own interests or interests of those who appointed them ahead of those of the organisation they lead.
Directors should have a conscience and act responsibly. Directors should provide effective leadership based on ethical foundations and should discharge their oversight functions over management effectively to ensure that organisations they lead prosper and realise value for to their shareholders.
The board should ensure that at all times vices such as corruption are unequivocally condemned and those who are involved in it in an organisation are dismissed.
Where the directors have not exercised their oversight functions effectively they should simply step down.
Calibre of directors
The calibre of directors in SOEs and parastatals should be high standards, given the role that these public sector entities play in the economy of our country.
SOEs and parastatals provide key infrastructure necessary to drive the economy. The selection and appointment of directors who superintend these institutions should be done above board in a transparent manner.
Distinguished men and women who have proved that they are dedicated to serve and are qualified and experienced to do so should be allowed to serve on boards of SOEs and parastatals.
What we see instead is that some responsible ministers appoint these directors using other criteria best known to themselves resulting in their cronies, friends and relatives taking up the board seats.
In the end, these directors lack dedication and are often compromised and conflicted in exercising their fiduciary duties.
The manner of selection and appointment of directors for SOEs and parastatals needs to be changed. These positions should be advertised and short-listed candidates should be interviewed publicly to ensure transparency and that the best candidates are appointed. This will enhance good corporate governance and performance of SOEs and parastatals in Zimbabwe.
As of now, corporate governance remains in turmoil in some key SOEs and parastatals in Zimbabwe, unless immediate interventions are made by government.
Allen Choruma can be contacted on email:


  • comment-avatar
    TJINGABABILI 6 years ago


  • comment-avatar
    msana we ngombe 6 years ago

    What is in the public domain about Zesa companies is the perseption of newspapers not outcomes of investigations by competent authorities. Entering into deals with organisations whose directors the newspapers might not be comfortable with or have a bone to chew with doesnt not point to rampant corruption on the part of Zesa companies.