CORPORATE GOVERNANCE

Report
CORPORATE GOVERNANCE
 PRESENTED BY OBERT SIFILE
 (Researcher and Candidate in DPhil specialising in
Corporate Governance)
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CHINESE PROVERB
 If you think you are leading and noone is
following, you are simply taking a walk.
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Introduction
 Corporate governance is premised to be the panacea to the
survival of an organisation. While Western and Eastern countries
are far advanced in terms of the development and implementation
of corporate governance codes, Africa is lagging far behind.
 Zimbabwe does not have CG code (IoD has a draft).
 For corporate governance, Zimbabwe uses the Companies Act
Chapter 24:03 and some provisions of codes like the South
African Code (King 1, 2 and 3). The historical and iconic
Cadbury Code and its successors that led to the instituting of
the UK Combined Code on Corporate Governance are also
a source of corporate governance practices that are used by
Zimbabwean companies.
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DILEMMAS we face
 1. Is Corporate Governance only to be practiced by
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corporates?
2. Can corporate governance (CG) be practiced in
parastatals / State owned Enterprises?
3. Do NGOs require corporate governance?
4. Can CG be practiced in universities?
5. Is the term Corporate Governance relevant to all
sectors?
6. Is CG a “cliché” of our time?
Is Corporate Governance new to
Zimbabwe?
 Traditional governance (Dare – The chief’s Board)
 Chief (mambo) – Chairman (Sachigaro) of the court / dare
 Headman (sadunhu / makurukota)
 The mission of the dare is to promote harmony, sharing of ideas,
settling of disputes, sharing resources (minda, proceeds of
zunde ramambo), setting standards of engagement (kudzika
mitemo) and giving counsel to the chief.
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FOCUS OF CORPORATE GOVERNANCE
Interactions, expectations and perceptions of
internal and external stakeholders of the
board (LEADERSHIP).
What board actors ought to do to optimise
board cohesion and effective performance leadership.
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Definition of terms
Corporate Governance
The word governance is derived from the Latin verb
gubernare which means to steer (Ferkins, McDonald and
Shilbury, 2008).
The traditional definition of corporate governance given in
the Cadbury Report and Recommendations states that:
Corporate governance is the system by which businesses
are directed and controlled (Cadbury, 1992).
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CG Definitions Cont...
 Sami, Wang and Zhou (2011) see corporate governance as a
set of mechanisms that affect how a corporation is operated and
that it deals with the welfare and goals of all the stakeholders,
including shareholders, management, board of directors, lenders,
regulators, and the economy.
 Brennan and Solomon (2008) define corporate governance as the
system of checks and balances, both internal and
external to companies, which ensures that companies
discharge their accountability to all their stakeholders
and act in a socially responsible way in all areas of their
business activity.
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CG Definitions Cont...
 Miller and Triana (2009) define corporate governance as the
determination of the resource deployment and conflict
resolution among the diverse interests of
organizational stakeholders.
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Good corporate governance is a deterrent
to corruption and unethical business
practices that scar Africa’s business image
(Armstrong, 2003).
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Theories of corporate governance and
Relevance to Leadership
 Stewardship – According to stewardship theory,
founded on a positive view of human behaviour, people are
not inclined to opportunism, and managers want to sincerely
pursue shareholders’ interests (Davis, Schoorman and
Donaldson, 1997). Read Matthew 25:14 - 30
 In this view, boards of directors are groups of
competent people that help managers to enhance their
decision-making process, e.g. contributing to the boardroom
debate through their experiences, competences and different
viewpoints. In other words, board members provide advice
and support to top managers, and thus represent a valuable
resource for corporate boards (Donaldson and Davis, 1991).
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Stakeholder Theory
 Stakeholders – Dewhirst (1992) defines a stakeholder as
any individual or group who can affect or is affected by, the
achievement of the organization's objectives.
 A firm's objectives are to identify various key stakeholders
concerned, balance conflicting interests and manage all key
stakeholder groups, and enhance corporate social
performance through the board of directors who represent
various constituency groups. [As managers, who are your
stakeholders?]
 As leaders, if you fail to identify your stakeholders, how
do you determine their needs if you do not know them?
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Resource-based theory or view
 Resource-based theory or view (RBT / RBV) has
emerged as a promising new framework for analysing the
sources and sustainability of competitive advantage
(Smith,Vasudevan and Tanniru, 1996).
 Barney (1991) has defined organizational resources as all
assets, capabilities, organizational processes, firm
attributes information, knowledge, etc. controlled by a
firm and that enable it to conceive and implement strategies
that are efficient and effective. [What kind of resources
are you?]
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Resource dependency Theory
 According to the resource dependence theory (Daily
and Dalton, 1994; Pfeffer, 1972; Pfeffer and Salancik, 1978),
boards of directors perform a service task and are supposed
to bring different types of resources to the firm.
 Among the different potential benefits provided by corporate
boards, advice and counsel on the one hand and
external legitimacy and networking on the other are
considered to be particularly valuable (Hillman and Dalziel,
2003).
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Sources of good corporate governance
 UK’s CG Codes (Apply or explain)
 Cadbury Report (1992)
 Greenbury Report (1995)
 Hampel Report (1998)
 Turnbull Report (1999, 2005)
 Higgs Report (2003)
 Smith Review (2003)
 UK Combined Code on Corporate Governance (2008)
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South African King Reports (Apply or
explain)
 King 1 (1994) – 2 years after Cadbury Report(1994)
 King 2 (1998)
 King 3 (2009)
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Sarbanes Oxley Act (2002) (Comply or
explain)
 The Act was precipitated by the Enron
collapse in 2001. The Act is a combination
of best practice and the USA Companies
Act.
 The only legalised code in the world.
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Major Issues emerging from Codes
 Corporate
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governance codes provide structures and
prescriptions which dictate issues like board size,
composition, CEO duality, ownership of shares, committees
and board interlocks.
In our Context
School/departmental committees (expertise, size, tenure)
Duality of roles
Interlocks (belonging to many committees)
Frequency of meetings
Mandate of committee
The Board ( Council, Senate)
 The roles of the board are as follows:
 to set direction and approve strategy.
 to provide proper performance and risk oversight.
 to select, develop and reward leadership.
 to set the tone at the top, to shape values and ensure that they
stakeholders know them. Here too it is clear that in
many institutions the fish was rotting from the head
(Haspeslagh, 2010).
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The Board Cont...
 The board of directors is preoccupied with the monitoring role
on behalf of the shareholders (Hashim and Devi, 2008; John and
Senbet, 1998) and has the main duty of leading and directing the
firm to achieve corporate goals by closely monitoring
management activity so that the interest of the shareholders is well
protected (Abdullah, 2004).
 Creating a board that is effective in monitoring management
actions is dependent on the composition of individuals who
serve on the board of directors (Fama and Jensen, 1983).
 Boards of directors need to be active to meet their corporate
governance commitments, particularly in ensuring high-quality
and transparent reporting.
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Recommendations to University
Leaders
 Your role is to lead ( as good stewards)
 You are there to control (as custodians of Regulations)
 You are there to set the tone at the TOP for the
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department / section (avoid – Fish rots from the
head)
 You are there to satisfy needs of all stakeholders (by
meeting the expected quality standards –e.g. ZIMCHE)
 Quality assurance (you want to stay at the top – a
CUT above the rest in standards).
 Avoid dictatorship (use the many ideas that come from
the board – a grouping of experts).
Conclusion
 Mostovicz et al. (2011) critiques extant research by arguing
that there is nothing wrong with the organisation,
since it is a virtual entity only. Hence, corporate
problems are those created by the individuals
working within it and should be addressed
accordingly.
 This buttresses the idea that a study of corporate
governance is a focus on boards and its actors and
how their behaviour affects stakeholders.
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The END
 THANK YOU
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