The failure of good corporate governance

By IAfrica
In Zimbabwe
Aug 22nd, 2014
0 Comments
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Aeneas Chuma . . . ” As ILO we don’t prescribe to governments . . .”

Aeneas Chuma . . . ” As ILO we don’t prescribe to governments . . .”

THE Salarygate scandal in which chief executives of State-owned companies, parastatals and local authorities awarded themselves mega salaries left many workers frustrated. In response, Government established a corporate governance and remuneration policy framework to curb corruption and enforce accountability. Our Senior Reporter Peter Matambanadzo (PM) caught up with the International Labour Organisation assistant director-general and regional director for Africa Mr Aeneas Chuma (AC) to speak on this and other issues.

PM: What are your views on the Salarygate scandal that rocked Zimbabwe early this year?
AC: I think it is failure of corporate governance. There should be rules that govern the conduct of all managers and all CEOs, and proper structures to monitor this to ensure that the abuses don’t occur. There has to be a proper market for CEOs which is not exorbitant. The issue is not how much they earned but whether this is legal or illegal.

I have heard of the figures and they are dramatic. It’s unbelievable. But then, one doesn’t quite know what the terms of employment are, whether this is basic salary or allowances and how the institutions allowed this to continue. So I think primarily it’s a measure of a failure of corporate governance.

PM: As ILO what do you think should be done by Government to address this situation?
AC: As ILO we don’t prescribe to governments. But the point I made earlier is there has to be a board and a management structure which reviews these things. But, the question is how to unbundle. Something like this could have happened over a long period of time. As ILO we have proper labour market systems, issues and governance structures going forward. So in principle it’s less about the amount collected.

It is much more the weakness or the absence of corporate governance, accountability and responsibility. I mean who did they answer to?

Who determined their salaries?

All these are questions about governance structures. So the right bodies should intervene in trying to correct them. Everyone should understand what the systems, provisions and what triggers certain bonuses for example what the basic salaries are. All these are determined through proper labour market systems, but more importantly through proper governance structures in any corporation.

PM: Government has come up with a corporate governance remuneration policy framework trying to address all these challenges. What’s your take on this?
AC: I have not seen it but, if they are parastatals that are partly owned or wholly owned by the Government on behalf of the State then the Government has a right to provide the framework for compensation, while even providing some incentives through performance that is beyond expectation.

That’s quite legitimate. I don’t think the Government should really be preoccupied with the private sector. I think the owners of the organisations, shareholders, management as well as the board that exercises oversight should periodically review all these things and negotiate with the CEOs as to what their basic salaries are and what additional benefits they receive based on certain milestones or certain accomplishments as expected by the board and apply those rules.

But as I mentioned, there is no proper oversight by the bodies that exercise that oversight.

PM: Can you also comment on the US$6 000 salary cap for all heads of parastatals and State enterprises?
AC: As I mentioned earlier it reflects that the Government has intervened precisely because the organisations have failed to regulate themselves. Government owns the parastatals on behalf of the people and they do have a responsibility to provide guidance.

But often the issue is not around the salaries it’s around benefits that staff enjoy and all companies do provide benefits over and above monetary value. So the challenge is implementation and coming up with wonderful caps and ceilings.

Unless there is a mechanism to monitor, implement and provide clarification abuses are likely to occur. What is important is to strengthen the oversight bodies and ensure things are applied according to rules and regulations and within the framework that is provided by the corporate body. As such, the actual amount doesn’t matter it could be US$2 000 or even US$20 000.

The question remains whether this is determination through a proper benchmarking process and that everybody understood and not an abuse of office?

Issues of good corporate governance for the ILO are extremely important in the sense. Guidance by the Government and leadership of the private sector is extremely useful. Bear in mind there is need to make salaries competitive always to put incentives so that people can put in extra work and be compensated for that.

I think the complaint here is that the emolument they awarded themselves was rather excessive. The point is to determine whether this was within existing laws and guidance and so forth.

PM: Can ILO provide technical expertise on this salary issue?
AC: Yes, we have capacity to provide support to Government on wage determination including minimum wage determination. I think we do have capacity to do that. We have an office here that works very well with the Ministry of Public Service and Social Welfare. The Government has to make a determination how this works. I think what’s important is to realise that the case applies to only a few individuals. It doesn’t apply to every organisation or every company. Like I mentioned earlier, the bodies responsible for carrying out oversight should take their responsibility seriously and address this.

PM: Can you comment on company closures and decline in formal employment?
AC: This is a major area of interest and concern. I think what we see generally is not just in Zimbabwe. There is a decline in jobs even in the presence of economic growth for several reasons. Part of the reason is the improvement in technology, productivity, which means companies are able to produce more but using less labour through substitutes like technology. This trend will go on.

The second point is that the growth in Zimbabwe is largely underpinned not by manufacturing or value addition per say. By exporting primary products, raw diamonds, there is no added value to minerals. It’s really exporting jobs. This is a very serious issue not just in Zimbabwe but over the continent where we have large numbers of young people well educated and able bodied and willing to work, but the system is not generating enough jobs.

So the question is to interrogate the whole phenomenon of economic growth and say what type of growth we are looking for here. We need to generate good jobs that can pay decent wages. In the Zimbabwean case we have a unique situation of economic hardships in the last 10 to 15 years for several reasons. Some of the reasons include the sanctions, and maybe due to improper management of the economy.

But, regardless we see a phenomenon of declining in manufacturing capacity. A lot of factories in this country are operating less than 40 percent capacity. There is a lot of idle space. The challenge has to come from the fact that there is no easy access to resources to invest in factories and to increase capacity utilisation levels in industry.

Part of this is because of the serious crunch in liquidity and also the cost of borrowing is quite high. So a lot of companies are maintaining factories without using them to produce and create jobs. The issue of under-employment and under-utilisation of capacity is quite serious in this country.

PM: As you are aware Government is working to harmonise all laws with the new Constitution. What is ILO role in the alignment process?
AC: Yes, absolutely, in this discussion we have had with the Government through the (Ministry of) Public Service and Labour and Social Welfare what needs to be done is revisit all labour laws and ensure that they are consistent with the Constitution. As ILO we are already working to see how this can be done. There is indication that Government wants technical assistance from the ILO.


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