Will new govt uphold corporate governance?

via Will new govt uphold corporate governance? | The Financial Gazette by Paul Nyakazeya 26 Sep 2013

WHEN AB Communications, the company that owns ZiFM Stereo and television production company Mighty Movies, announced the “immediate” stepping down of its chief executive officer, Supa Mandiwanzira following his appointment as Deputy Minister of Information, Media and Broadcasting Services, many thought other ministers and Members of Parliament who sit on various company and parastatal boards would follow suit.

Mandiwanzira’s stepping down illustrates an exemplary desire to be transparent and objective in his operations in order to proactively avoid conflict of interest.

In addition to being a deputy minister, Mandiwanzira is also a ZANU-PF MP.

There has not been any public stepping down since, even though parastatal and company boards are   filled to the brim with men and women in public office.
History has shown that whenever allegations of conflict of interest involving public officials arise, the person being accused never seems to have a problem justifying or correcting the activity that gave rise to the allegation by stepping down.

In Zimbabwe, only the late Edmund Garwe resigned as education minister in 1996 after his daughter was found in possession of exam papers she had accessed after he had taken them home in what many said was a rare example of the upholding of corporate governance and avoidance of conflict of interest.

Officials in public offices are expected to act on behalf of and in the best interest of the citizenry.
A conflict of interest arises for someone in public office when that person acts, or appears to act, on behalf of someone other than the citizenry; and has, or appears to have a self interest that the citizenry is unaware of and that is actually or potentially adverse to the best interests of the citizenry.

For some ministers and MPs it has been business as usual if a similar event or even worse happens to them.
When a person’s conflict of interest results in economic, financial or other loss to a government or public entity, then fraud has occurred.
Public servants and those doing business with government can be held criminally liable for official misconduct, receiving a bribe or reward for official misconduct, receiving unlawful gratuities, and coercive use of official position.

All of these crimes involve conflict of interest.
Julius Chikomwe, a corporate lawyer with Thompson Stevenson & Associates, said conflict of interest is a key corporate governance issue in both the public and the private sectors which, if left unmanaged, can impose unwarranted costs on a country’s economy, distort competition, undermine fair use and allocation of a country’s resources, and degrade citizens’ trust in public institutions.

In Zimbabwe, corporate governance in the public sector is regulated by the Public Finance Management Act (Chapter 22:19) PFM Act) and by the Corporate Governance Framework for State Enterprises and Parastatals (CFGF).
Section 50 of the PFM Act stipulates that “Every public entity shall adhere to and implement the principles of sound corporate governance, policies, procedures and practices.”
These principles are encapsulated in the CFGF, whose primary objective, among others, is to “minimise conflict of interest”.

The question arises: Is the CFGF capable of  effectively supporting public officials to serve public interest, support transparency, promote individual responsibility and create organisational cultures that do not tolerate conflict of interest?
“In its present form, the CFGF does not have adequate tools for identifying, managing and resolving conflict of interest in a transparent way. Privatisation and the advent of  new forms of co-operation such as public/private partnerships (PPPs), which often entail sponsorships and attendant movement of key persons across the traditional public and private sector divide, has created a fertile breeding ground for the opaque and biased decisions,” said Chikomwe.

He said this has consequently created grey zones in the country’s regulatory framework, thus providing public officials with opportunities to abuse their positions for self-gain or corruption through furthering their private business interests.
“This they do by not declaring their affiliations to bidding companies or as key employees in those companies,” he said.
Cases of conflict of interest cut across borders.

In other countries, some of these cases have resulted in sharper outcries than we see at home.
In August 2010, Botswana’s government announced the resignation of Ramadeluka Seretse, a cousin of President Seretse Ian Khama over conflict of interest after the country’s opposition alleged corrupt acts.
The opposition Botswana Congress Party and Botswana Alliance Movement had demanded an official investigation into defence contracts won by a company owned by Seretse’s wife.
Seretse denied any wrongdoing.

Botswana Congress Party was quoted saying, “Seretse has seen the need to resign because of accusations we have levelled against him. We regret that the minister took so long to resign despite a possible conflict of interest.”
In May 2009, South African tycoon and then ‘recently’ appointed housing minister Tokyo Sexwale was reported to have received legal advice about potential conflicts of interest between his business and his new job.
Then Sexwale was the executive chairman of Mvelaphanda Group, which has investments in construction firm, Group Five, Absa bank and  property.

The media quoted Sexwale’s spokesman Chris Vick as saying at the time: “It is a priority for him, he does not want any uncertainty around these issues,” Vick said.
In view of the foregoing, the CFGF should at the very least require public officials to undertake upon their appointment that during their term as public officials, they shall not allow private interests, potential or                      actual, to improperly influence their discharge of official duties.

Notwithstanding, Section 42 (3)(a) of Part V the PFM Act stipulates that all accounting authorities (that is the board or other controlling body or chief executive) have a fiduciary duty to “disclose to the other members of the accounting authority any direct or indirect personal or private business interests that member or any spouse, partner or close family relation may have in any matter before the accounting authority” .

“The above provision is evidently inadequate in terms of its scope as it appears to be only concerned with matters that come before the accounting authority. By implication, it does not concern itself with any underhand dealings that do not have to be sanctioned by the accounting authority, that is the board or executive body. Thus it leaves room for public officials to, as it were, fly under the radar. The proper wording should have been ‘any dealings with the parastatal or state enterprise in question,” said Chikomwe.

Another corporate governance lawyer with the Attorney General’s Office said the PFM Act does, in Section 42(3)(a), require disclosure of conflicts of interests by board members and employees of state owned enterprises.
According to Section 86 (a) of Part IX of the PFM Act, failure to disclose conflict of interest as required   under Part IV of the PFM Act constitutes financial misconduct by an accounting authority for which every member of a board or body is individually liable (Section 86(2).

“What we see here is that negligent or wilfull non-compliance with the provisions of sections IV and V of the PFM Act results in members of a body or board incurring personal liability. By imputing collective culpability, that is group punishment for an offence committed by one person (Section 42(3)(a) of the PFM Act), the lawmaker clearly wanted to compel boards and bodies running state-owned enterprises to institute sound corporate governance, policies, procedures and practices to detect, manage and enforce, among other things, cases of conflict of interest,” said the government lawyer.

More importantly, in Section 86(4) of Part IX, the PFM Act penalises non-disclosure of conflict of interest. Failure to do so could lead to the dismissal or other disciplinary sanctions for both executive and non-executive body or board members of the state- owned enterprise.
Zimbabwe’s chartered secretaries will tomorrow discuss how stakeholder value can be enhanced through good corporate governance, when  they meet in Victoria Falls during a three-day conference.