NEWSDAY (ND) Business Reporter Victoria Mtomba spoke to Institute of Directors of Zimbabwe (IoDZ) chairperson Eve Gadzikwa (EG) on corporate governance issues being faced by the country.
The interview comes against the backdrop of exposés on the huge salaries paid to some company executives such as Premier Service Medical Aid Society (PSMAS) chief executive officer Cuthbert Dube and ZBC Holdings chief executive Happison Muchechetere.
Below are the excerpts.
ND: Since January the country has witnessed bad corporate governance issues especially in the public sector where huge salary envelopes that go as high as $400 000 a month have shocked the nation. What is the situation in the private sector and is it the same as in the public sector?
EG: While I am not privy to all the salaries in the private sector which vary significantly depending on the size, performance and reward policy, the trend of late is for companies to adopt salaries linked to performance.
Executives are usually tied down to performance contracts which are reviewed bi-annually, time-bound and reviewed annually. Most companies have adopted performance management systems such as the balanced scorecard (BSC) performance management system which has key performance measures under four key perspectives that are financial, customer, business processes and learning and growth. These perspectives are weighted according to expected contribution of the individual working in the company. For instance, chief executive officers are usually required to be all-rounders and thus their weighting on all the four perspectives of their scorecard may require them to score 25% in each of the four identified areas. The BSC is an objective means of measuring performance against targets. The performance contract is signed alongside the employment contract. Performance-related pay is the norm these days in the private sector which makes it easy for executives to be held accountable for their performance. In the private sector, most companies are adopting the“eat-what-you-kill concept”. The variable component of your pay is determined by what you are bringing to the table and people now understand that if you don’t perform, you are out. Gone are the days when companies were prepared to pay just because you showed up. Executives are being made to deliver on their promises ND: What do you think is the problem with both the private and public sector in terms of corporate governance issues? EG: There is not enough disclosure on issues to do with salaries especially in the public sector. Companies both in the private and public sector must establish robust systems which allow for remuneration committees to make recommendations to the board on issues to do with salaries. Formal approval processes must be adhered to in line with good corporate governance. Market-related pay structures must be observed and upheld to ensure that salaries are not paid in shrouded secrecy. Cost of monetary and non-monetary benefits (total cost to the employer) for executives and non-executive directors must be subjected to scrutiny by the board and shareholders and must be aligned to the organisation’s vision. Relevant information must be disclosed to avoid unsustainable salaries being paid to a few people at the expense of the whole organisation. Rationalisation must also be observed so that the difference between the lowest and highest paid worker is not out of sync, but is in line with good corporate governance. Most companies do not have a remuneration committee whose mandate is to set and make recommendations to the board on issues to do with compensation. Today, many companies – both private and public-quoted companies – are not paying out dividends due to economic challenges and depressed economy. ND: Can you say the problem of corporate governance issues in Zimbabwe has to do with government, boards or the management since most of these boards were appointed by government? EG: When gaps are created be they in government or private sector, they are filled. Greed is the biggest challenge today. Corporate governance is a collective responsibility of the entire company, but the board has the overall responsibility to the shareholder. The boards are entrusted by their shareholders to ensure that they provide adequate oversight and information. If this oversight is not upheld and managers withhold relevant information, things go wrong. Organisations, whether public or private sector, must uphold good corporate governance for sustainability and economic development. Good corporate governance demands a review of the institution’s structures, systems and cultures. Directors and managers entrusted with positions of high authority must be vetted to ensure that they are ethical and uphold principles of good corporate governance such as accountability, fairness, transparency and responsibility. Those who do not uphold these principles must be removed since they do not have a place in the organisation. ND: Do you think the issues that have been published show the root cause of corporate governance problems in this country? EG: The issues raised so far are a barometer of the bigger picture and should sound alarm bells of what lies below. As the saying goes, “there is no smoke without fire”. It is regrettable though that these negative issues have painted good people with the same brush. ND: NewsDay has realised that some board members are on three or more boards. Are these individuals the most competent people that we have in the country? Why is one person sitting on many boards? Is it that the country has less qualified personnel? EG: The danger of recycling the same old people is that, independence is lost and in some cases the same people implicated in corporate governance cases are found in a number of organisations making it difficult to deal with the rot. Appointments must be on the basis of merit, and not on “boys’ club” basis. Women in particular are reluctant to serve on boards due to the additional pressure resulting from their multiple roles. More emphasis must be placed on training of executives on corporate governance to increase the pool of eligible potential board members. There is need to spread the net of competent persons eligible to be appointed to boards. Organisations such as IoDZ have a big role to play in training and preparing executives to serve on boards and to maintain a database of competent and skilled persons. ND: Recently, the Minister of Information appointed Dennis Magaya as chairperson of the ZBC board. The same week he was removed because of an alleged shady past. Does it mean that there is no due diligence before one is appointed to a board? EG: Before a person can be appointed to a board, the appointing firm must do their homework and thorough due diligence to ensure that the appointee meets the stipulated requirements in terms of the law, character traits, skills and experience. Reference checks must be done as well as police clearance to avoid unnecessary headaches. Declaration of other board appointments must be done at the time of appointment and inconvenience throughout the tenure of office. It is also good practice to include “declaration of interests” as a standing item on the agenda to avoid conflict of issues arising in terms of related party transactions. A register of executive interests must be maintained by the company secretary and updated as and when necessary. ND: What are the requirements for one to be appointed as a board member? EG: Relevant skills, experience, educational qualifications, ability to add value to the goals of the organisation, corporate governance training are all important for one to effectively serve on boards. Independence is a very necessary ingredient as well and therefore appointees must disclose relevant information from the outset to avoid these issues coming up later. ND: What needs to be done to resolve these corporate governance issues? What is it that you are doing as IODZ to resolve some of the issues? EG: IoDZ is a key promoter of the National Code on Corporate Governance and works with all stakeholders in government and private sector to promote good corporate governance in Zimbabwe.
