'Zim lacks shareholder activism'

HARARE – African Export-Import Bank (Afreximbank) executive vice president, Denys Denya, says the collapse of many companies in Zimbabwe was partially caused by absence of active shareholders.

“The apathy of Zimbabwean shareholders and those in most other countries across the African continent is at odds with developments in the rest of the world, especially in advanced economies, where activist shareholders are increasingly using their power as company owners to examine company financial reports, monitor executive remuneration, enforce good corporate governance and push for increased sustainability and transparency,” he told guests at the 2017 Excellence in Corporate Governance Awards in Harare this week.

Globally, the number of shareholder challenges had increased dramatically from 520 in 2013 to 758 cases in 2016, he said.

South Africa’s new Companies Act gives shareholders with as little as a 10 percent shareholding the right to call an extraordinary general meeting. The introduction of such minority shareholders’ rights has been a key driver of shareholder activism, he said.

Denya said that in a world of increasingly competing interests, success required all stakeholders to work together towards sustainable growth of the bottom line in the corporate world and sustainable economic growth and employment creation in the public sector.

Balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community, was the main objective of corporate governance.

“The survival of corporate and sovereign entities, which individually contribute to aggregate output expansion and therefore economic growth at national level, depends on the quality of corporate governance,” he said.

Citing some of the banks that had collapsed in Zimbabwe, he said it could be argued that ultimately the cascade of bank failure and collapse of financial institutions set the Zimbabwean economy on a path of long-term crisis and recession, given the long lasting nature of financial crisis.

The costs of the crisis had been significant not only for government and taxpayers but for individuals and small depositors.

“These failed banks accessed billions in liquidity support from the government.  At the individual level it has been estimated that depositors lost more than half a billion US dollars of their hard earned cash,” he said.

By reducing the purchasing power of households that lost money, the crisis lowered household consumption and growth prospects, keeping the country in a vicious cycle. The increasing deficit in trust in the banking system was exacerbated by the inability of consumers to withdraw cash from banks, Denya added.

“I am convinced that poor corporate governance both at sovereign and corporate levels has been a major factor behind the banking crisis facing Zimbabwe,” he said.

The veteran banker listed some of the major contributory factors as regulatory forbearance, fraud and insider transactions, laxity of regulatory oversight, the use of creative accounting rules in financial reporting, unmitigated investment in high yield and high risk investments, high concentration of lending with a reliance on deposits with short maturities for funding increased risks, lack of transparency and accountability and dereliction of duty on the part of the board of directors.

He said in some cases the board of directors was made powerless by “shadow directors”. These were powerful shareholders for whom personal gains and interests transcend the survival of the banks they helped create.

Saluting the Institute of Chartered Secretaries and Administrators in Zimbabwe for honouring those who have chosen to practise good corporate governance, he said strengthening the corporate governance culture across industries and public entities had become critical for risk mitigation and economic growth.

“With the increasing culture of shareholder activism, good corporate governance is increasingly needed to assure business integrity and create the market confidence required to attract investors,” he said. He added that, in the context of globalisation, corporate governance could enable corporations to circumvent the difficulties of accessing financing in their local markets,” Denya said.

Good corporate governance not only promoted the growth of companies by making it easier to access finance but also promoted overall economic growth by fostering a culture of optimal allocation and effective deployment of resources to support growth.

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