ADV ISIAH MURERIWA LLB (UP) LLM (UP) (Advocate of the High Court of South Africa)
The legal realty is that in Zimbabwe, as in many other economies, those who own companies (shareholders) are different from those who are involved in the day-to-day operations of the companies (managers and directors). This position thus put the managers and directors in a fiduciary relationship vis-a vis the actual owners of companies and providers of capital. The basic duty that managers and directors assume, having accepted this fiduciary relationship implies that managers and directors shall carry out their duties of management and direction of companies in the best interest of their principals with the ultra-most good faith.
Unfortunately the past decade, which many would want to label, the dark error in the economic history of Zimbabwe, bore witness to widespread disregard and violations of this fiduciary relationship by several managers and directors. This is very clear from the spate of corporate frauds and scandals that rocked our media during that period.
In this paper, based on a presentation I gave at the Mt Carmel Institute’s Workshop on Business Ethics and Corporate Governance, in Harare, 11 – 13th of August 2011, I seek to evoke a debate on the role that the law can or does play in the protection of the actual owners of companies against their at-times misguided and often capricious agencies.
In a paper presented to the Mandel Training Centre’s Annual Symposium on the 31 of January 2011, Senior Partner of Scanlen and Holderness, Sternford Moyo started by stating as follows:
“The law defines the environment in which business is conducted. It ensures that players are regulated by pre-determined rules of conduct. It reduces the potential for capricious conduct, defines the limits of power exercisable by those in positions of power and control and furthermore defines the manner in which power and control may be exercised to ensure that decisions by those in authority are just, fair and predictable and I would add, sustainable.
He went on to state that;
. . . the law ensures the protection of all role players and imposes obligations which ensure a workable co-existence.
And concluded by stating that;
. . . . business is thus inconceivable without the law.
We would all agree with the conclusion reached by Sternford Moyo in the current business environment in Zimbabwe given our recent history dating to the past decade as well as the challenges that the recent decade presented to our business community. We would also agree that what Zimbabwe need at this juncture is a culture of good corporate governance if we are to regain any confidence from the international investing community.
Corporate governance is generally used broadly to refer to the rules, processes and or laws by which corporates (businesses) are regulated and controlled. Sir Adrian Cadbury (1992) identified corporate governance as a system by which companies are directed and controlled and where boards of directors are held responsible.
In a very business-like definition, LL Tshumba of the Reserve Bank of Zimbabwe quoting from Shleifer, Andrie and Vishny Robert (1997) “A Survey of Corporate Governance” Journal of Finance, Vol L11 No 2 pages 737 stated that;
“corporate governance, is therefore rightly often defined as the ways in which suppliers of finance assure themselves that they will receive a fair return on their investments”
It is internationally accepted that good corporate governance is key to the integrity, and is central to the health of any economy as it creates business ethos and thereby assures investors (supplier of finance) that they will get a fair return on their investment.
Rachel Kyte, the Vice President, Business Advisory Services of the International Finance Corporation wrote:
“ Good corporate governance practices...