Critique of Public Entities Corporate Governance Act of 2018

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By Dr Tafataona Mahoso

THERE is a glaring need to critique the recently gazetted Public Entities Corporate Governance Act of 2018 because the chorus of uncritical approval from the press and the so-called private sector is suspicious and simplistic.
First, the private sector is conflicted in the matter because it hopes to acquire privatised public entities.
As for the press, it is today one of the havens for corruption and cannot be relied upon to carry out critical reviews of controversial legislation on corruption.
At the recently concluded Zimbabwe Media Commission (ZMC)-Zimbabwe Electoral Commission (ZEC) workshop on reporting elections, journalists and media associations admitted that powerful interests routinely bribe journalists.
This contribution is therefore aimed at provoking patriotic citizens to take a more analytical view of the new law than we have received from the press and the private sector.
The first criticism of the Act is that it assumes that public entities operate within their own macro-economy.
Therefore, for them to produce great results, they need remedies quite separate and different from those being suggested for the rest of the corporate sector.
My view is that public entities have to grapple with the very same challenges which face private companies for the simple reason they operate within one economy. Much of the corruption which has affected public entities arose from shrinking opportunities and a collapsed job market in the entire national economy.
The perception of parastatals, which has built up over decades and was escalated in 2014, is wrong.
In the press and among some politicians, all the problems in state enterprises are blamed on mismanagement, alleged incompetence and corruption, while the comatose state of private industry is explained differently.
For instance, after the 2017 Zimbabwe National Chamber of Commerce (ZNCC) indaba, The Herald obligingly put the blame for the failures of industry on foreign direct investment (FDI) on October 23 2017 under the heading: ‘Low FDI slows down growth’.
This reportage can actually get worse.
The Sunday Mail for October 29 wrote an editorial opinion on behalf of the private sector campaigning against state enterprises using the rhetoric used to promote the Public Entities and Corporate Governance Bill.
“The cry-babies must grow up: Industry wants Government to stop mollycoddling state enterprises and parastatals (SEPS), saying the heavy losses the entities post are largely due to gross mismanagement.
This was one of several submissions by the Confederation of Zimbabwe Industries (CZI) and the ZNCC towards the 2018 National Budget.”
The astute reader should go from this Sunday Mail verbatim acceptance of industry propaganda to The Financial Gazette of October 26 page 5: “Thirty percent of (private sector) firms face collapse: Thirty percent of the country’s manufacturing companies are on the brink of collapse due to a vexing foreign currency crisis and ‘pervasive lack of confidence that is hurting new investment,’ Confederation of Zimbabwe Industries (CZI) warned yesterday.”
In other words, the very same people represented by The Sunday Mail opinion attributing SEPS problems to gross mismanagement, incompetence and corruption are telling us in fact that ‘the vexing foreign currency crisis and pervasive lack of confidence that is hurting new investment’ only apply to the explanation of their problems but not to problems facing SEPS in the very same national economy!
Now, is it really honest or wise to argue in such a manner?
It is therefore wise to be critical of assumptions about the new law on public entities because its history and background were unnecessarily poisoned and grossly distorted by interested parties.
The reporter, the private sector and even ministers jumping on the SEPS reform bandwagon assume that the public does not know that so-called industry is in fact in a worse condition than the SEPS and that in 2012 the Government of Zimbabwe then set up what was called the Distressed Industries and Marginalised Areas Fund (DIMAF)) to which at least 28 private sector firms in Bulawayo alone applied for ‘social welfare’.
The same reporters now doing public relations for so-called industry actually complained at the time that 28 broke industry applicants for this fund by Bulawayo firms alone was actually too low a number! There were many more broke companies in Bulawayo then than just 28!
There were far too many more such distressed firms.
Most did not apply because they were too hopeless to expect recovery from injections of DIMAF cash alone.
However, the press never called the Government hand-outs to the private sector ‘mollycoddling’ and the reasons so many companies were distressed beyond hope were not explained.
Gross mismanagement and corruption were never mentioned in connection with the collapse of the private sector and the resulting demand for DIMAF!
Yet our readers know that if they go back to 2009, they will find many more private companies reported as collapsed or collapsing every year up to now!
Therefore a holistic look at public entities in their proper context is necessary for the success of the new reforms.
The implications of this contradictory reporting are many:
– First, it is as if there are in fact two separate and unequal economies in Zimbabwe: One in which private sector companies exist and operate, and another in which SEPS operate; this is wrong;
– Second, it is assumed that a completely separate culture prevails in the private sector, unrelated to the culture prevailing in SEPS; and that top managers from one sector are unrelated to those from the other.
This is not the case.
The second criticism of the Act is that it foregrounds an expanded chain of bureaucratic controls as one of the key solutions to the problem of poor governance of public entities.
For instance, Parts III and IV of the Act are dedicated to the these bureaucratic controls on parastatals ranging from the Permanent Secretaries of line ministries, to line ministers and the minister responsible for the Corporate Governance Unit (which is currently in the office of the President and Cabinet) to the minister responsible for Finance and the President and Cabinet.
In some provisions of Part III, boards and CEOs of parastatals would have to wait for the President’s written approval to implement certain decisions.
The dismissal of a board, for instance, would involve the Permanent Secretary of the line ministry, the line minister, the minister administering this Act, the Corporate Governance Unit, the President and Cabinet. Parts III and IV have the effect of making Part V seem like an afterthought. Part V is on planning for results: What is problematic is not the principle but the emphasis.
The emphasis should be on measures to develop and strengthen an effective corporate culture and corporate leadership in the public sector.
In a thriving and fully recovered economy, these would be drawn from specialised university departments and from the corporate sector.
The private sector is being promised implementation of the policy of ‘Ease of Doing Business’ while parastatals are being burdened with more bureaucratic controls which will be worsened by the new Public Procurement Act.
The danger of relying on controls by a small number of bureaucrats in the state structure is obvious: The real economy in which state enterprises must operate and compete is going to become more and more complex and specialised.
The sophistication and specialisation should come from industry, from polytechnics and universities at home and abroad.
A small number of state bureaucrats cannot provide the corporate leadership needed to make parastatals productive and efficient in a fully integrated economy.
Government officials should exercise oversight, mainly to regulate how to reward performance measured by results.
They should develop strategies for attracting the best corporate leaders into public enterprises so that the latter can compete locally and globally.
The Act is misguided because it seems to be trying to enforce a culture of discipline through bureaucratic control to the extent of making the results-based planning also subject to bureaucratic prescription.
According to Jim Collins in Good to Great: Why some Companies Make the Leap and Others Don’t:
“Bureaucratic cultures (in private and public sectors) arise to compensate for incompetence and lack of discipline, which arise from having the wrong people on the bus in the first place.
If you get the right people on the bus, and the wrong people off, you don’t need a stultifying bureaucracy (for the bus to find direction).
A culture of discipline involves a duality.
On the one hand, it requires people who adhere to a consistent system; yet, on the other hand, it gives people freedom and responsibility within the framework of that system.”
This new Act has no room for freedom and responsibility.
It almost renders boards redundant.
Therefore the reforms may not attract the calibre of chief executive officers (CEOs) needed for the leadership of public entities in the 21st Century.
The third criticism of the Act is that it fails to provide for a smooth transition in parastatals from the old regime to the new.
It fails to provide a framework for the cordial disposal of existing contracts in order to enable boards to hire new corporate executives. In fact, it appears to criminalise long service prior to the enactment of the new law.
The fact is that most long-serving CEOs and managers in the public sector were invited by Government from their jobs and professions, in some cases to come and start public entities from scratch.
The fact that the CEOs and managers have remained in their positions for long periods in most cases has to do with lack of a proper retirement policy with predictable and adequate retirement packages.
In many cases, the resources for such packages were wiped out by the financial meltdown of 2006-2009.
Yet still, the packages should be provided to pave way for reforms.
The Act should have included a framework for such smooth retirement instead of appearing to seek to punish long service as Section 46 of the Act seems to show.

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