It has become apparent to work up any day to news headlines announcing the dissolution

of a local authority or parastatal board of directors by authorities blaming governance and

unethical conduct. Identify any one such institution and discuss institutional governance
challenges and issues that affected it, making reference to local and international codes and
guidelines (100)

According to Sir Adrian Cadbury (1992), Corporate governance is defined as a system by which
companies are directed and controlled. Knell (2006) further expanded the definition of corporate
governance as the regulating influence applied to the affairs of a company to maintain good
order and apply predetermined standards. Solomon and Solomon (2004) concluded that
corporate governance is a 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.

Saez and Yang (2001) describes a state-owned enterprises or parastatals as commercial entities
controlled by arms of the state machinery. Mumba B.D (2019) posits that such enterprises are
incorporated as companies by virtue of a statute and are either fully or partially owned by the
government. These commercial entities occupy the strategic sectors of the economy are
established with the aim of assisting the development of the country through the nationalization
of key sectors of the economy such as energy, water and sewer reticulation, transport, mining,
health, among others.

Zimbabwe has a total of 107 state owned enterprises which currently contribute to less than 2%
of the Gross Domestic Product, but at their peak in the mid-1990s, these entities contributed
around 40% of the domestic income and employed thousands of employees. The country has
been rocked with a series of corporate governance breaches especially in the recent years which
have left the public dumbfound given the billions of dollars of taxpayers’ money that are pumped
into these entities every fiscal year by the government.

This write-up focuses on the corporate governance challenges at Zimbabwe Electricity Supply
Authority Holdings (ZESA Holdings) making reference to the Zimbabwe Code for Corporate
Governance, Reserve Bank of Zimbabwe Corporate governance guidelines, the King IV Report,
The Higgs Report, The Cadbury Report, The Combined Code among other relevant codes of
corporate governance.
Background of ZESA Holdings

The Zimbabwe Electricity Supply Authority is a state-owned company whose mandate is to

generate, transmit and distribute electricity in Zimbabwe (www.zesa.co.zw). Its footprints can be
traced back in 1985, when an Electricity Act was passed and led to the amalgamation of five
Zimbabwean owned utilities and the Zimbabwean based generation and transmission facilities of
the CAPC into the present-day Zimbabwe Electricity Supply Authority. Since 2002, the holding
company was unbundled to form some subsidiaries namely Zimbabwe Electricity Transmission
and Distribution Company, Zimbabwe Power Company (ZPC), Zesa Enterprises and Powertel
Communications, Zimbabwe Electricity Regulatory Commission (ZERC), Rural Electrification
Agency.

Corporate Governance Challenges at ZESA Holdings

The complex structure of most state-owned enterprises has exposed them to bad governance due
to a lack of clear separation of ownership from control. The government acts as a regulator
through the parent ministry, is a shareholder whose interests has to be protected by the board of
directors and also active in the appointments and dissolution of the very same board of directors.

Political interference. It is public knowledge that in Zimbabwe the state is heavily involved in
the business affairs and appointment of state-owned enterprises’ board of directors which breeds
a fertile ground for bad governance through interplay between politics and governance.
Madekutsikwa (2015) posits that the role of the state is to ensure that governance is carried out in
a transparent and accountable manner with necessary degree of professionalism and
effectiveness. Chambari (2017) maintains that the executive appointments have been riddled
with cronyism where appointments and disappointments of board members is based on political
expediency and rarely on pure merit.

The political appointments affiliation of the board of directors has since clouded their
independent judgement. The King IV Report on Corporate Governance (2016) describes
independence as the exercise of objective, unfettered judgement. There is a clear indication that
the ZESA board does not have independent decision making due to the fact that appointment is
based on political affiliation rather than meritocracy. Ncube H (2021) laments that “it is
disheartening to find a minister dissolving the board of a parastatal before their term expires,
leaving the executives who are the architects of mal-governance, worse off, goes and appoint a
group of dishonest officials, with political muscles into the board, heading the entities into
demise”.

Hefty salaries and packages. The combined Code (2003) proposes that the levels of
remuneration should be sufficient to attract, retain and motivate directors of the quality required
to run the company successfully. The code also points that executive directors’ remuneration
should be structured so as to link rewards to corporate performance. The board and senior
management of ZESA holdings have been fingered in the remuneration scandals where
outrageous salary and other perquisites were awarded to directors and senior employees. There
are also prevalent demands for salary reviews upwards despite the entity making losses and
experiencing operational challenges as witnessed by the failure of the power utility to meet the
electricity requirements of the country, with power outages and blackouts being the order of the
day.

Flouting tender procedures. Zesa and its subsidiaries have been caught up in scandalous
procurement and tender procedures over the recent years fleecing the power utility with millions
of dollars. In 2016 Zimbabwe Power Company (ZPC) paid USD $5.6 Million to Intratrek
Holdings for the Gwanda Solar Project which was never implemented and the power utility has
not yet recovered the money it paid to the supplier. It is alleged that the payment was not
sanctioned by the board but rather was approved by the energy minister at that time without the
board’s ratification.

The Auditor General Report of 2018 on State Enterprises and Parastatals revealed that the
Zimbabwe Electricity Transmission and Distribution Company (ZETDC) procured transformers
worth USD $5 Million in April 2010 from a company called Pito Investments. The transformers
have not been received 12 years after the supplier received payment. In the same vein,
Zimbabwe Power Company (ZPC), another subsidiary of ZESA holdings entered into a supply
agreement in 2016 with the same supplier and paid USD$562 000 for transformers that were
never received.

One case that epitomises corporate governance decay at ZESA and corruption in Zimbabwean
parastatals is the Dema Power Project which was controversially awarded to Sakunda Holdings
in 2016 despite the fact that the company had not participated in the tender process. The project
involving the installation and construction of the diesel power plant was won by an American
Company called APR Energy Holdings. However, it was handed over to Sakunda Holdings, and
after winning the tender, the inexperienced Sakunda subcontracted Aggreko, which had been
disqualified by the State Procurement Board, citing its high costs and failure to meet technical
specifications.

Abuse of office. The Reserve Bank of Zimbabwe Corporate Governance Guidelines (2004)
posits that directors should avoid self-serving practices and conflicts of interests. It further states
that once directors’ appointments take effect, they assume a fiduciary role and must display the
utmost good faith in their dealings and conduct with the institutions or on its behalf. There was
an alleged case where one director flouted a conflict of interest when he opened his own private
offices at Powertel Premises without seeking the necessary approval.

Moreover, the executive chairman of ZESA holdings has been in the press for wrong reasons on
allegations of criminal abuse of office. It was alleged that the chairman made an self-allocation
of six company vehicles for personal use, authorized the expenditure of ZWL $10 Million for
Christmas parties without the approval of the board, installation of the solar equipment at his
residence using ZESA funds, interfering with the disciplinary process of the company secretary
of one of the subsidiary companies, and allegedly authorising the payment of ghost employees
and his personal workers under the ZESA payroll under the misrepresentation that they were
employed by ZESA.

The above-mentioned allegations against senior executives and top management goes against the
bedrocks of corporate governance as mentioned in the King IV Report (2016). The code states
corporate governance rests upon the exercise of ethical and effective leadership. According to the
report ethical leadership is exemplified by integrity, competence, accountability, fairness and
transparency. The report also points out that effective leadership is about achieving the strategic
objectives and positive outcomes.

There is a notable absence of a proper whistle blowing mechanism at the Zimbabwe Electricity
Supply Authority. The Organisation for Economic Co-operation and Development (2015)
contends that the protection of whistle-blowers who disclose wrongdoing in governments is
recognised as the core of the public sector integrity framework; it is equally, an essential element
for safeguarding the public interest, promoting a culture of public accountability, and in many
countries is proving crucial in the reporting of misconduct, fraud and corruption.

In Zimbabwe however, whistleblowers have had no legal or official protection. This predicament
is made worse by the various, official gagging laws such as the Official Secrets Act which
prevent employees in state-owned enterprises and other government departments and entities
from disclosing information about activities happening inside their organisations. This makes the
public disclosure of hidden corrupt practices and corporate malpractice in state-owned
enterprises dangerous, injurious and life-threatening, thus putting potential whistleblowers in a
dicey situation.

In conclusion, state-owned enterprises in Zimbabwe are dogged with a myriad of corporate

governance malfeasance which span from ineffective boards, poor risk management, lack of
proper internal controls to control fraud and corruption, powerful executives, lack of board
independence and political interference.
Reference List

1. Hove S.R (2020) Impact of Corporate Governance and Ethical Practice on Performance
of Zimbabwe Electricity Supply Authority.
2. Auditor General Report (2018) Financial Year Ended 31 December 2017, on State
Enterprises and Parastatals, Harare Zimbabwe.
3. Reserve Bank of Zimbabwe (2004) Corporate Governance Guidelines for Banking
Institutions, Harare, Zimbabwe.
4. Cadbury A (1992) The Financial Aspects of Corporate Governance. Gee and Company
Limited.
5. The Combined Code on Corporate Governance (2003). Financial Reporting Council
6. Ncube H (2021) Corporate governance: A source of financial crisis in State Owned
Enterprises (SOEs); lessons from Zimbabwe. Global Scientific Journals.
7. King Mervin E (2016) The King IV Report on Corporate Governance, Johannesburg,
South Africa.
8. Madekutsikwa K (2015) Corporate Governance Failures in State Owned Enterprises in
Zimbabwe: An assessment of strengths and weaknesses in corporate governance
structure. University of Western Cape.
9. Mumba B.D (2019) An Assessment of Corporate Governance in State-Owned
Enterprises in Zimbabwe. The case of Hwange Colliery Mine-2010-2014. A dissertation
submitted at University of Free State, South Africa.
10. Chambari P (2017) Public Sector Corporate Governance in Zimbabwe: The nexus
between the ZimCode and State-Owned Enterprises. International Journal of Economics,
Commerce and Management,