RE-BUILDING CORPORATE GOVERNANCE STRUCTURES AND SYSTEMS IN ZIMBABWE 28 SEPTEMBER 2009 HARARE, ZIMBABWE By : Shepherd Shonhiwa Chief Executive, Gateways Business Consultants

CHANGE PRE-REQUISITE “ You have to be prepared to leave sight of land and sail afar to discover new shores”

“ You have to be prepared to leave sight of land and sail afar to discover new shores”

OVERVIEW Time for change = NOW! Why Corporate governance? Zimbabwe business environ profile Corporate governance pillars Corporate governance systems CG code implementation process Adopt a “wet baby” attitude!

Time for change = NOW!

Why Corporate governance?

Zimbabwe business environ profile

Corporate governance pillars

Corporate governance systems

CG code implementation process

Adopt a “wet baby” attitude!

CORPORATE EVOLUTION 19 th Century = 20 th Century = 21 st Century = Century of the Entrepreneur. Establishment of Corporation Concept. Century of Management. Management theories/gurus. Century of corporate governance. Focus on legitimacy & effectiveness. Checks and balances on Management Power.

19 th Century =

20 th Century =

21 st Century =

Century of the Entrepreneur. Establishment of Corporation Concept.

Century of Management.

Management theories/gurus.

Century of corporate governance.

Focus on legitimacy & effectiveness.

Checks and balances on Management Power.

CORPORATE EVOLUTION (continue) To Prevent: WORLD FINANCIAL CRISIS - 2008/9 LERMAHN BROTHERS Inc - 2008 USA USA AUTO INDUSTRY - 2008 ENRON ) - WORLDCOM ) - REGAL BANK - SOUTH AFRICA - 2001 LEISURENET - SOUTH AFRICA - 2002 A.N.G. BARING BANK - MALAYSIA - 1998 BANK OF COMMERCE & CREDIT - 1990s 2002 USA

To Prevent:

WORLD FINANCIAL CRISIS - 2008/9

LERMAHN BROTHERS Inc - 2008 USA

USA AUTO INDUSTRY - 2008

ENRON ) -

WORLDCOM ) -

REGAL BANK - SOUTH AFRICA - 2001

LEISURENET - SOUTH AFRICA - 2002

A.N.G. BARING BANK - MALAYSIA - 1998

BANK OF COMMERCE & CREDIT - 1990s

CORPORATE GOVERNANCE : is concerned with holding the balance between economic and social goals; between individual and commercial goals …… the aim is to align as nearly as possible the interests of individuals, corporations and society. Sir Adrian Cadbury Corporate Governance Overview 1999 World Bank Report

VALUE OF GOOD CORPORATE GOVERNANCE Prevent management sins of greed/sloth and fear - McKinsey Survey 2000. Good governance = good business management. Investors pay premium for well governed company. Board practices = financial performance. Management enhances Shareholder value. Preempts shareowner activism. Jim Wolfensohn, World Bank President “ The proper governance of companies will become as crucial to the world economy as the proper governing of countries”

Prevent management sins of greed/sloth and fear - McKinsey Survey 2000.

Good governance = good business management.

Investors pay premium for well governed company.

Board practices = financial performance.

Management enhances Shareholder value.

Preempts shareowner activism.

“ If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere” Arthur Levitt, former chairman, US Securities & Exchange Commission.

“ If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere. If a country opts for lax accounting and reporting standards, capital will flow elsewhere”

EXTERNAL BOARDROOM VIEW OF ZIMBABWE Inherent long term economic potential Undervalued assets Innate skilled labour Low entry barriers High country risk for investment No rule of law No property rights Excessive government controls Patronage system prevalent Unstable economy Poor corporate governance Unclear investment policies Excessive brain drain Political instability

Inherent long term economic potential

Undervalued assets

Innate skilled labour

Low entry barriers

High country risk for investment

No rule of law

No property rights

Excessive government controls

Patronage system prevalent

Unstable economy

Poor corporate governance

Unclear investment policies

Excessive brain drain

Political instability

Why Corporate Governance System in Zimbabwe? Avoid “Big Brother” global spotlight Improves unsolicited governance rating Re-kindles FDI interest Impacts on cost of capital Reduces cost of doing business Facilitates economic recovery Enhances brand name Zimbabwe Defines Government-Business relations

Avoid “Big Brother” global spotlight

Improves unsolicited governance rating

Re-kindles FDI interest

Impacts on cost of capital

Reduces cost of doing business

Facilitates economic recovery

Enhances brand name Zimbabwe

Defines Government-Business relations

ZIMBABWE CORPORATE GOVERNANCE REVIVAL TEMPLATE Build the ship while sailing – URGENT Boards & Directors to change first Marshal all stakeholders support Agree common approach and interests Don’t re-invent the wheel Define project critical path upfront Conform to timeline and procedure Business sector drives/owns the process Do not politicize Corporate Governance

Build the ship while sailing – URGENT

Boards & Directors to change first

Marshal all stakeholders support

Agree common approach and interests

Don’t re-invent the wheel

Define project critical path upfront

Conform to timeline and procedure

Business sector drives/owns the process

Do not politicize Corporate Governance

CORPORATE GOVERNANCE REVIVAL IN ZIMBABWE “THE PLAYERS” Private sector committee at helm Neutral professional secretariat Moral and philosophical political support Forums for critical corporate governance areas External advisory reference point Keep end goal in mind Hype up continual by-stander interest= communication Produce fit-for-purpose code initially.

Private sector committee at helm

Neutral professional secretariat

Moral and philosophical political support

Forums for critical corporate governance areas

External advisory reference point

Keep end goal in mind

Hype up continual by-stander interest= communication

Produce fit-for-purpose code initially.

CODE OF GOOD CORPORATE PRACTICES & CONDUCT Must apply to: ZSE listed companies All financial institutions State owned commercial enterprises All formal organizations encouraged to conform Guiding principle = “COMPLY OR EXPLAIN”

Must apply to:

ZSE listed companies

All financial institutions

State owned commercial enterprises

All formal organizations encouraged to conform

Guiding principle = “COMPLY OR EXPLAIN”

SEVEN CHARACTERISTICS OF GOOD CORPORATE GOVERNANCE Corporate Discipline : Senior management commitment to universally accepted behaviour. Transparency : Candid, accurate and timely information. Independence : Minimising potential conflicts and dominance. Accountability for Board and management decisions. Responsibility : Board responsiveness to all stakeholders. Fairness : Balanced systems for all stakeholders. Social Responsibility : Responsiveness to social issues.

Corporate Discipline : Senior management commitment to universally accepted behaviour.

Transparency : Candid, accurate and timely information.

Independence : Minimising potential conflicts and dominance.

Accountability for Board and management decisions.

Responsibility : Board responsiveness to all stakeholders.

Fairness : Balanced systems for all stakeholders.

Social Responsibility : Responsiveness to social issues.

PARAMETERS OF CORPORATE GOVERNANCE Board and Directors responsibilities. Accounting and Auditing practices. Internal Audit, Control, Risk management Functions. Integrated Sustainability Reporting. Compliance and Enforcement guidelines.

Board and Directors responsibilities.

Accounting and Auditing practices.

Internal Audit, Control, Risk management Functions.

Integrated Sustainability Reporting.

Compliance and Enforcement guidelines.

BOARD COMPOSITION Effective leaders and controllers. Adequate executive directors. More non-executive directors. Includes Independent Directors. Transparent appointments. Staggered rotation for continuity. Independent non-executive chair. Induction and development vital. Appropriate Board committee appointees. Company Secretary central role

Effective leaders and controllers.

Adequate executive directors.

More non-executive directors.

Includes Independent Directors.

Transparent appointments.

Staggered rotation for continuity.

Independent non-executive chair.

Induction and development vital.

Appropriate Board committee appointees.

Company Secretary central role

BOARD RISK MANAGEMENT FOCUS Company exposure areas for assessment : Physical and operational risks (HSSE) Human resources. Technology (obsolescence/sabotage). Business continuity threats. Disaster recovery effectiveness. Credit and market failure. Compliance issues. Reputational and sustainability issues. Board Committee appointment vital.

Company exposure areas for assessment :

Physical and operational risks (HSSE)

Human resources.

Technology (obsolescence/sabotage).

Business continuity threats.

Disaster recovery effectiveness.

Credit and market failure.

Compliance issues.

Reputational and sustainability issues.

Board Committee appointment vital.

Ethical behaviour means……… Truth and honesty Concern with public interest Helpful action & contribution Lawful and correct Improving good & positive Observing established unwritten rules WALK THE TALK! ETHICAL BEHAVIOUR “THERE IS NO PLACE TO HIDE”

Ethical behaviour means………

Truth and honesty

Concern with public interest

Helpful action & contribution

Lawful and correct

Improving good & positive

Observing established unwritten rules

WALK THE TALK!

CORPORATE GOVERNANCE SUSTAINABILITY EMPHASIS Board Accountability Risk Management Management Systems Performance Monitoring Reporting Stakeholder Interaction

Board Accountability

Risk Management

Management Systems

Performance Monitoring

Reporting

Stakeholder Interaction

CHALLENGE “ The only person who welcomes change is a wet baby !”

“ The only person who welcomes change is a

wet baby !”