BINDURA UNIVERSITY OF SCIENCE EDUCATION

GRADUATE SCHOOL OF BUSINESS (GSB)

FACULTY OF COMMERCE
Programme : B212501B
Course Title : Human Resource Management
Course Code : 525
Assignment Number :2
Lecturer : Dr Rusike
Due Date : 25/10/2021
Student Names : Feshilla C. Mutize
Topic

A) What are the main causes of these problems (25 Marks)?

B) What are your recommendations to the country's VP? (25 Marks)
PART A
1 INTRODUCTION
The phrase "corporate governance" refers to the network of official and informal interactions
between the company's management and its stakeholders, which include employees, customers,
creditors, local communities, and society as a whole. In the public sector (State enterprises and
parastatals, SEPs) and the financial sector, Zimbabwe has had a variety of corporate governance
failures, including boardroom squabbles, scandals, abuse of office, and corruption. There are
currently 107 SEPs in Zimbabwe, contributing less than 2% of the country's Gross Domestic
Product (GDP). In the mid-1990s, SEPs accounted for more than 40% of the country’s GDP and
employed thousands. Political interference in the running of state entities has contributed to their
declining performance & escalating debts. As of July 2018, state enterprises and parastatals
owed the Zimbabwe Revenue Authority (ZIMRA) over US$491 million. According to Auditor
General’s Report (2020), State enterprises and parastatals incurred losses of about US$1 billion
in 2019 due to corruption, mismanagement and bad corporate governance, pushing a majority of
them to the brink of collapse. This assignment seeks to look at the causes of such bad
governances followed by the recommendations to the VP.

2 DEFINITIONS OF KEY TERMS

Corporate governance - Corporate governance is the system of rules, practices, and

processes by which a firm is directed and controlled. Corporate governance essentially involves
balancing the interests of a company's many stakeholders, such as shareholders, senior
management executives, customers, suppliers, financiers, the government, and the community
(Atuobi, 2007).

Parastatal - A state-owned enterprise or government-owned enterprise is a business enterprise

where the government or state has significant control through full, majority, or significant
minority ownership. Defining characteristics of SOEs are their distinct legal form and operation
in commercial affairs and activities (Berg, 2006).

3 CAUSES OF POOR CORPORATE GOVERNANCE

Highly publicized scandals in Zimbabwe that have shaken state-owned enterprises have been
ascribed to deficits in corporate governance. While reporting on State Enterprises and Parastatals
(SEPs) to Parliament in 2016, the Auditor-General agreed that challenges afflicting the public
sector entities in the main are corporate governance in nature (OAGZ, 2016). This should be a
wake-up call for policymakers to the veracities of a feeble corporate governance framework.
What is obtaining currently in the SEPs does not reflect a good picture with reports showing that
senior managers and directors are living large while there is poor service delivery and a
deplorable state of employee welfare. Those in senior management reward themselves huge
salaries approved by their board members when service delivery is pitiable and the public
feeding on humble pies.

Accounting and auditing Problems

Cain (2016) argued that lack of accountability in both performance and operations coupled with
cut off of accounting processes, unsound internal control and inadequate safe keeping and
security of documents has contributed to so many corporations to fail. Furthermore, the inability
of audit reports to provide early warning signal to owners and regulatory bodies has
tremendously affect so many businesses, and questioned the integrity and adequacy of audit job
in general. For example, Concerns were also raised over the Zimbabwe Electricity Transmission
and Distribution Company (ZETDC) which incurred losses totaling ZW$924 576 859
(Computed to ZW$2 348 661 135 in 2018). The power utility’s liabilities exceeded its current
assets by ZW$5 168 114 975 (2018: ZW$4 794 391 397).
lack of Transparency

Transparency is increasingly a more topical, broadly relevant, but also more under-researched
enterprise. Bozec (2012) added that the recent financial crises and corporate scandals in Asia,
Europe, and America have highlighted the welfare consequences of corporate transparency, and
linked this relatively narrow problem to the broader context of transparency in governance.
Further, they are symptomatic of a lack of effective corporate governance and transparency in
Zimbabwe’s financial markets and individual companies.

Companies holding a strong position on a given market while being managed without the
necessary degree of transparency and prudent corporate governance policies are exposed to be
the hotbeds of abusive market practices. Chavhunduka (2015) was quick to chip in saying that, if
abusive market practices are followed by leading business participants with strong market
positions, the consequences will most likely hurt competition as well. For example, REA levy
outstanding as at 31 December 2019 amounted to ZW$224 392 693 (2018: ZW$108 465 723). 
The Company had debtors amounting to ZW$2.2 billion as at December 31, 2019 (2018:
ZW$1.1 billion). The debtors age analysis revealed that 45% of the Company debtors were aged
90 days or more. The Company received loan amounts from Ministry of Finance and Economic
Development. However, there was no agreement for the loan amounts. As a result, there were no
stipulated terms of repayments and interest. As at December 31, 2019, the amount outstanding
was ZW$1 179 454.

Absence of Accountability

Zimbabwe’s predisposition to corrupt innuendoes is not new as history always repeats itself.
Zhou (2012) suggests that the credibility of the Zimbabwean government to assume an
accountable and transparent public enterprise reform meant to enhance an equitable resource
distribution got derailed by corrupt government officials. The history of the country of elite
predation using public entities has been punctuated with the desire for gripping social and
political power (Batalla, 2000). As a result, enterprises like the PSMAS, ZBC, Air Zimbabwe,
and the Zimbabwe United Passenger Company (ZUPCO) have been used as institutions of
looting or instruments of established predation (Chimbari, 2017). Apparently, all this taking
place in the eyes of the Minister responsible and Board members. The relationship between the
government and the people governed rests on accountability on the part of those who were
elected by the people to serve the nation in any capacity. When the leaders no longer care about
the opinions of the people in respect of decision making, there is a breakdown of that cordial
relationship. This results into making of arbitrary decisions, taking questionable actions which
are more often than not contrary to the interests of the populace. For example, 34 state-owned
enterprises failed to submit their financial statements for audit, while 54 audits were still in
progress and 52 audits had been completed.

Corruption

Dzomira (2015) maintained that, this has undoubtedly been the biggest problem facing
Zimbabwean parastatals. But how can one describe corruption? There are many variations of
corruption. As far as governance is concerned, corruption is when a leader uses his position to
place himself and chosen individuals at a higher advantage than others without merit. Zimbabwe
Parks and Wildlife Management Authority (ZimParks) was awarding each board member 300
litres of fuel per month, without ministry approval. There was no evidence to show that the
monthly 300 litres of fuel per board member had been approved by the parent Ministry. The fuel
allowance was given from January to September 2018. I also noted that the fuel allowance was
not taxed.

Disregard of the Rule of Law

When a person in authority begins to act outside the scope of his powers, there is the certainty
that what follows next will be the trend of horrendous administration. African governments
especially in some countries have little or no regards for the law, court decisions and
fundamental human rights (Mashavave. 2017). The issue of corruption can be attributed to the
election of non-credible leaders into different offices. For example, Infralink (Private) Limited
received a garnishee order for understated Income Tax and Value Added Tax (VAT) of US$46
977 476 in 2015. Management did not accrue for these amounts because they contend that the
tax status of the Company is still to be established.

Incompetence in Leadership

One of the factors behind bad governance in African States is the unappealing sight of the
political sector filled with nonchalant leaders. Politics here should be addressed in a wider and
more general view. Maune (2018) added that, a good political structure is one that is built upon
the regard for persons qualified to lead to be afforded the right opportunity to justify the
qualification. In simpler words, if a person is entitled to appointment or to run for an election, the
person should not be restricted because of gender, ethnic or religious background and other
insignificant considerations. The Mining Promotion Corporation had no substantive Chief
Executive Officer since 2016 whilst Petrotrade did not have a Board of Directors since 2015. 
Some parastatals were paying board allowances that had not been approved by the minister while
others grossed up board fees and also paid board members sitting allowances for attending
workshops

Mismanagement

According to Zimbabwe’s Ministry of State Enterprises and Parastatals (MoSEPs, 2010) the
SEPs can contribute close to 40% of the Gross Domestic Product if well managed. No adherence
to statutes, ineffective boards and role ambiguity currently affect the SEPs governance
contributing to the poor performance and a drain to the fiscus. As further noted by the MoSEPs
(2010), every SEP shall stick to and apply the principles of sound corporate governance in terms
of section 50 of the Public Finance Management Act (PFMA) (Chapter 22:19). Section 91
provides for penalties for non- compliance of the same. In addition, the Procurement Regulatory
Authority of Zimbabwe had to write off US$2. 39 million due to inadequate contract
information, which resulted in the failure to adequately collect amounts owing. Auditor general
was not convinced with the accuracy of administration fees amounting to US$1 514 280 (in
2016) and US$1 329 650 (2017) and the existence and valuation of related trade receivables
amounting to US$2 380 983 (2016) and US$717 200 (2017).

PART B

4 RECOMMENDATIONS

1. Improvement of corporate legislation in order to ensure a balance of interests of all

participants in corporate relations.
2. Ensuring reliable specification and protection of property rights, balance of interests of
majority and minority shareholders, shareholders and managers, shareholders and
creditors, as well as strict adherence to modern methods and principles of corporate
governance.
3. Maintaining constant contacts with shareholders, ensuring the protection of their rights
and legitimate interests, improving the work of the board of directors or the SB as a body
representing the interests of shareholders, defining a long-term development strategy and
monitoring its implementation by management. Mashingaidze (2014) advised that, in
order to ensure this, it is necessary to create an Audit Committee under the Board of
Directors or a Supervisory Board with the function of reviewing and controlling the
activities of the accounting department, the Nominating Committee with the function of
selecting candidates, the Strategy Committee with the function of developing a long-term
strategy, the Ethics Committee with the function of preventing corruption, the Committee
on implementation of digital technologies in management and the Committee on
attracting investors, etc.
4. Implementation of a system for assessing the performance of Board of Directors (BD) or
Supervisory Board (SB), which will not only identify and eliminate shortcomings in the
 work of this body, but also fully realize the professional potential of BD or SB and
thereby significantly increase the efficiency of company management, regardless of its
size or structure of owners and include BD or SB independent members and women in
the number of up to 30 percent each of the total number of BD or SB as well as provide
increased power of independent members (Growther, 2011).
5. Using digital technology, ensure the scale of disclosure of information about the
company and its current activities, ensure the proper level of information transparency,
form and develop corporate governance standards. The corporate governance system of
the company should include the Corporate Governance Code, documents regulating the
work of the governing bodies, procedures for disclosing information and internal control
over financial and economic activities, and organizing the compliance control system
(Maune, 2015).
6. Implementation of digital information technologies in the management of JSC in order to
ensure effective management of the company in the process of overseeing the activities
of top managers in the areas of implementation of the corporate strategy, implementation
of the "compliance control" system, maintaining proper relations between the corporation
and its stakeholders. The peculiarities of introducing digital technologies into
management and control are as follows: conducting interactive Internet forums in
addition to the traditional ones organized on the eve of the placement of new issues of
securities, which are much cheaper, saving the physical strength of managers, which
allows the company to convince the prospects of its business more a wide range of
potential buyers of stocks and bonds - not only institutional investors in large financial
centers, but also individual investors (Fan, 2014).

Online broadcasts of telephone and video conferences of senior officials and their
speeches at the most important corporate, industry and other events play a special role in
companies with dispersed structures of equity capital and credit resources mobilized in
the form of bonded loans, electronic voting at general meetings of shareholders, ensuring
growth share of owners participating in the adoption of critical corporate.
 (For reference: In the United States and other developed countries of the world, voting by
paper ballots is rapidly becoming a thing of the past; such high-tech companies as Dell,
IBM, Intel have achieved the greatest success in this direction. Benefits: Savings on each
shareholder voting over the Internet is around 40 cents).

Decisions, shareholders who can easily and quickly vote on agenda items on the website
can become interested in the merits of the products manufactured by the company and
become their buyers, online purchase of shares and reinvestment of dividends directly on
corporate websites, automatic distribution of notifications, (For reference: According to
Share Builder Corp., direct share purchase plans are used by about half of Fortune 500
corporations. This increases the activity of stock trading and stimulates demand from
individual investors, including foreign investors).

5 CONCLUSION

If the government is serious to improving accountability in the strategic management of public

resources, there is yet hope for Zimbabwe. The UNDP emphasizes the importance of corporate
governance in promoting transformative change toward sustainable development (2014).
Zimbabwe's SEPs reflect the constraints identified by Motter (2015). SEPs with poor corporate
governance pose a severe threat to the public sector's expansion and long-term viability. The
assignment shows how governance concerns sabotage the sustainability and risk nexus. A slew
of recent corporate governance scandals highlights the public sector's inability to self-regulate.
This provides a strong case for adopting the above recommendations including the rules based
corporate governance approach for strategic management towards sustainable development.
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