Business Unpacked

Corporate governance in reforms era

Much has been said and written about corporate governance. To a greater extent, it appears corporate governance is mostly linked to or associated with enterprises in the private sector.

In our Malawian context, there has been little or no talk about corporate governance related to public enterprises.

The situation is compounded by the apparent political interference by authorities in running affairs of some public or State-owned businesses. This is usually evident, for example, in the recruitment of the top brass, especially chief executive officers (CEOs) and their boards. True, some of the enterprises are strategic, but we can still do better.

Many advocates of improved corporate governance argue for separation of powers and transparency. They suggest that posts of CEO and board chairperson should not be held by one individual because such an arrangement is not healthy as it concentrates power in one individual, leading to poor corporate performance in most cases.

The King Report III, the South African corporate governance code, also emphasises on the importance of separating roles of CEO and chairperson of the board: “The board should elect a chairperson of the board who is an independent non-executive director. The CEO of the company should not also fulfill the role of chairperson of the board.”

There has been a renewed interest in corporate governance since 2001 when the world witnessed high-profile collapses of large corporations such as Enron and MCI Inc. in the United States with business schools and executives being abuzz with talk of corporate governance practices.

There are many misconceptions regarding corporate governance. In a nutshell, corporate governance should go beyond issues of disclosure to improve decision-making in business enterprises and make the boards accountable for their decisions.

Perhaps, Deloitte’s corporate governance services division, in an article published few years ago on the topic, ably outlined the importance of corporate governance: “The misconception [about corporate governance] is the tendency to see corporate governance mainly as a requirement for annual report purposes, a tendency to treat corporate disclosure as an end in itself. We believe this is putting the cart before the horse and, taken to extremes, could result in organisations seemingly complying with good corporate governance, but in truth deriving very little benefit from it.”

With the Public Service Reforms currently underway, I feel it is high time government embraced corporate governance in all of its enterprises if, as a shareholder, it is to realise its worth instead of forever subsidising most of them.

This should start with open and competitive recruitment for directors general or CEOs of State enterprises.

For some time I have observed that positions for CEOs for parastatals such as the Electricity Supply Corporation of Malawi (Escom) and the five water boards are openly advertised yet the same government, through the head of the Executive, the President, of course backed by some laws, hand picks people to similar positions in other State-owned ventures. Why the double standards? Would it be far from the truth to suggest this is one reason many State-owned enterprises or parastatals perform poorly as the appointees, despite having relevant qualifications, see their role as first and foremost to please the appointing authority? In raw terms, boot-licking?

Honestly, there are about 17 million of us in this country. Unemployment rate is very high. There are many brilliant young men and women, some with post-graduate qualifications in business administration from reputable universities worldwide, who are loafing yet, given a chance, they have the potential to turn-around some of the ailing State enterprises.

If we cannot open such positions to all who qualify and continue our hand-picking of senior managers, I foresee continued losses and poor performance by government-owned businesses.

Parastatal CEOs should be hired on merit, given targets and goals to achieve if we are to move forward.

In corporate governance, boards of directors are supposed to be the stewards of the shareholders. The boards make decisions on behalf and in the interest of the shareholder and they are accountable to the shareholders. This is the bottom line in corporate governance.

In their spirit, the public service reforms seek to create benchmarks through which performance in the sector can be measured. Recruitment, on merit, should be one of the factors. In most of the reforms approved by the Executive for the parastatals, I have not seen something closer to this.

 

Related Articles

Back to top button