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PUBLIC ENTITIES CORPORATE GOVERNANCE BILL

 

 

BILLS DIGEST

 

NAME:	PUBLIC ENTITIES CORPORATE GOVERNANCE BILL, 2017
HB NUMBER:	H.B.5, 2017
MINISTRY:	FINANCE AND ECONOMIC DEVELOPMENT
DATE:	SEPTEMBER 2017

 

1.0    Introduction

Globally, public entities such as state enterprises and parastatals play a developmental role in the provision of public goods and services. However, in order for these organisations to be effective, sound governance systems are essential and must be adhered to. In Zimbabwe, most of the state enterprises and parastatals are characterized by poor corporate governance systems resulting in inefficiencies, hence the need to strengthen the corporate governance system in these institutions.

Therefore, the proposed Public Entities Corporate Governance Bill, which was gazette on the 21^st of July 2017 seeks to bring sanity in the way the public entities conduct their day to day business operations and ensure efficiency and effectiveness in service delivery. The bill will ensure uniformity in the operations of all the public entities in Zimbabwe by regulating the conditions of service of board members and the senior staff of the public entities as Government strives to arrest corruption, improve service delivery as well as boost the performance of these institutions.

 

2.0    Background

For many decades now, public entities have been underperforming and highly associated with corruption, high salaries and bad corporate governance at the expense of service delivery. The bill has been gazetted at a time when the government of Zimbabwe is stepping up efforts to strengthen good corporate governance systems in all public entities. Of importance to note is the launch of the National Code on Corporate Governance Zimbabwe (ZimCode), on the 9^th of April 2016, which now forms part of the First Schedule of the bill, signifying the commitment government has in terms of enhancing the role of public entities in economic development.

 

Chapter 9 of the Constitution of Zimbabwe provides for the administration of public institutions or government controlled entities. Clauses 194  to 198 mandates the State to adopt and implement policies and legislation aimed at developing efficiency, competence, accountability, transparency, personal integrity and financial probity in all institutions and agencies of government at every level and in every public institution. The Constitution further provides for appointments to public offices based on merit. Thus, the Public Entities Corporate Bill has been gazzetted in compliance to these constitutional provisions.

 

3.0 Review and Analysis of Main Clauses of The Bill

 

3.1   Part I – Preliminary

This Bill will provide for the corporate governance of public entities, i.e. all statutory bodies (parastatals), certain constitutional commissions and commercial entities that are owned or controlled by the Government.

 

3.2 Definition of Corporate Governance

The Bill defines corporate governance as referring to “the rules, practices and processes by which an organisation is directed and controlled.”  It encompasses most aspects of an organisation’s management, from action plans/strategic plans, to internal controls, to performance management and corporate disclosure.

3.4   Objectives of the Bill

• To underline the responsibility of Line Ministries to more effectively monitor, supervise and oversee the management operations of public entities to ensure strict compliance by them with the provisions of the Bill, without, infringing on the autonomy of public entities.
• To introduce some consistency in the conditions of service of members of Boards of public entities and allow for their remuneration to be limited,
• To regulate the conditions of service of CEO’s and other senior executive management staff of public entities and allow for their remuneration to be limited,
• To require the board members to enter into performance contracts with Government (i.e. Line Ministry),
• To have CEO’s and other executive management enter into performance contracts with their respective Boards and have regular (at least once every six months) assessments of their performance,
• To give effect to the National Code on Corporate Governance Zimbabwe (Zimcode) to the extent that it applies to all public entities.

 

3.5 The Corporate Governance Unit (CGU)

Clause 5 of the Bill seeks to legislate for the Corporate Governance Unit, which is already in existence within the Office of the President and Cabinet.

 

Clause 6 - Functions of the Corporate Governance Unit:

• Providing an advisory and centralized support mechanism for line Ministries to ensure strict compliance with the Act by all public entities,
• Advise line Ministries with regard to the regular evaluation of the performance of public

entities and their boards and employees,

• Advise line Ministries with regard to drawing up of performance contracts,
• To oversee the discharge by line Ministries of their responsibility to monitor compliance by boards and their senior management,
• To establish and maintain up to date a comprehensive directory or database accessible to all line Ministries and boards that will enable them to identify suitably qualified candidates for appointment to boards of public entities, and
• To advise on the provision by line Ministries of programmes for the professional development of board members and senior management of all public entities under purview, including board induction programmes and corporate governance training for Board Members, Chief Executive Officers and senior members of management.

 

3.6   Part 3: Appointment, Tenure and Conditions of Service of Boards of Public Entities

The Bill seeks to legislate for term limits for board members as follows:

Clause 11(2) fixes the membership to a board of a public entity to just one term of four years, subject to renewal for only one further term.

Clause 11(4) - sets a limit of the number of boards that an individual shall serve at any given time to two only.

The Bill provides that whereas full-time employees of the state may be appointed to Boards of public entities, they cannot form a majority on any such Board;

No Permanent Secretary shall be appointed to or hold office as a member of any such Board,

Clause 11(6) and (7) proposes that all Boards reflects a gender and regional balance in line with the Constitution.

The bill provides that the composition of the Boards contain a variety of skills and competences, including; Law, Financial Management (Accounting, Audit), Human Resource Management and, where appropriate, one of the engineering disciplines. All appointments to be made primarily on the basis of merit.

The Bill mandates the Line Ministry concerned to notify the Office of the President and Cabinet of all appointments or terminations of appointments of any member of the Board of a public entity to ensure that such intention is done with the prior endorsement of His Excellency the President.

However, the Bill prohibits the dismissal of Board members for anything other reason other than misconduct, failure to comply with their conditions of service or with their governance or performance contracts.

3.7      PART 4:  Appointment, Tenure and Conditions of Service of Senior Staff of Public Entities

Clause 17 - CEOs for all public entities will be appointed for a maximum terms of 5 years, which is subject to renewal only once based on satisfactory performance. The appointment of CEOs of public entities shall be subjected to a selection process involving public advertisements, interviews and approval by the Line Ministry, with the consent of His Excellency the President.

The appointment of all senior staff shall seek to maintain gender and a fair regional balance.

The Bill empowers the Minister, with the approval of the Minister of Finance and in consultation with the Line Minister, to fix maximum amounts payable to CEO’s and other senior staff members of public entities.

 

3.8 PART 5: Strategic Plans and Performance Contracts

Clause 22 - mandates the board of every public entity in consultation with the line Minister and the Minister responsible for Finance to draw a strategic plan setting out the entity’s objectives and priorities for a period between two and six years. It further stipulates how the Strategic Plans are to be drawn up and what must be included in them. The Bill provides that the Strategic Plans be laid before the National Assembly.

 

3.9 PART 6: Codes of Good Governance

Clause 26 - obliges the Boards of all public entities to prepare Board Charters while all CEOs are obliged to prepare Codes of Ethics for the entity, in accordance with the principles articulated within the Bill. These will be done in consultation with the employees and the general public while the Unit will provide assistance in the preparations of such.

 

3.10 PART 7: Conduct of Business by Boards of Public Entities

Boards of public entities shall meet quarterly and are mandated to convene an AGM every year and to meet Line Ministers twice per annum. The Bill obliges for every board member and senior staff of public entities to declare any “conflict of interest” situations. Every Board shall maintain proper Minutes of all Meetings, and of all Board decisions/resolutions. Every public entity is obligated to have its accounts audited annually by the OAG or a registered public auditor approved by the OAG and the audited financial statements shall be submitted, as per Treasury deadlines to the Board, the Line Ministry and the Minister responsible for the Act. The Minister shall table the reports before Parliament.

3.11 Schedules

The First Schedule seeks to legislate for the National Code on Corporate Governance which will be applicable to all public entities in Zimbabwe to become law.

The Second Schedule sets out the generally accepted principles of good corporate governance to be incorporated into governance contracts and codes of good governance of every public entity.

The Third schedule provides for the fair and expeditious recovery of excess remuneration, allowances or benefits paid in violation of the maximum amounts for the same fixed under the bill.

Thus the Schedule empowers the Ministry of Finance to recover, from any public entity, by way of surcharge upon that entity, any “improper payment of public resources”.

 

4.0 Issues and Observations

• It is important that all board appointments for all public entities be done in consultation with Parliament (relevant committee of Parliament) to ensure transparency in the processes.
• The shortlisting and maintenance of a database of qualified candidates for board appointments by the Corporate Governance Unit as provided for in the Bill is superfluous and is likely to breed corruption as candidates try to ensure that their names are shortlisted on the Unit’s database.
• There is need for the bill to provide for prosecution of offenders contravening the provisions in the Bill.
• While there is a provision for signing of performance contract between the Line Ministry and the Board Members of the public entities in the Bill, there is no provision stating how often the evaluation of the performance would be done.
• The Bill propose that no individual shall serve in more than two boards. However, it should be recommended that an individual serve in only one board at a time to allow for diverse skills and equal opportunity to every Zimbabwean with the expertise to serve the nation.
• Given the gravity of the nature of issues provided in the Bill, the overall implementation should be assigned to someone of the level of Vice-President who has authority to supervise and question the performance of a line Minister as opposed to the level of a Minister.

 

4.0    Conclusion

The Bill is a very important legislation which seeks to enhance good corporate governance in all public entities. It is important to note that Governments and other public sector entities raise resources from taxpayers, donors, lenders, and other suppliers for the provision of services for citizens on behalf of the Government. Therefore, these entities are primarily accountable for their management and use of resources to those providing the resources and those depending on the resulting services. The setting of term limits, ceiling on salaries and conditions of service for board members and senior staff of the public entities among other provisions is aimed at enhancing the operational efficiency, transparency and accountability of the public entities in question and in turn would contribute towards economic development. Accordingly, the role of Parliament in the implementation of this Bill must not be underestimated, in particular, the appointment of Board Members and scrutiny of the audited books of accounts of the public entities among others.

References

Public Entities Corporate Governance Bill

Constitution of Zimbabwe (Amendment No. 20)

Governance of SOEs in Southern Africa (2014) Organisation for Economic Co-operation and

Development (OECD) http://www.oecd.org/daf/ca/SOE%20Network%20info%20sheet.pdf extracted on 14 August 2017

Corporate Governance Framework for State Enterprises and Parastatals in Zimbabwe

https://www.icaz.org.zw/imisDocs/CORPORATE%20GOVERNANCE%20FRAMEWORK%20%28003% 29.pdf downloaded on 21 August 2017