eBusiness Weekly
Business Writer
Global audit firm, Ernst & Young (EY), says the positions of chief executive and board chairman should be separated when State power utility Zesa finally restructures to ensure balance of power.
EY, which was commissioned by Zesa to assist its re-bundling process, recently completed its report on the restructuring, which awaits Cabinet approval.
The firm’s recommendations are based on findings from a study of the best practices across the continent including EDM of Mozambique, Tanesco of Tanzania, Zesco of Zambia, SENEL of Senegal and South Africa’s Eskom.
However, in commenting on EY’s report on the re-bundling process, the power utility said it had areas it agreed with EY, but noted the report did not sufficiently address its strategic objectives.
The State power utility also said EY’s report did not embrace the Government’s macroeconomic vision, including National Development Strategy 1 and 2.
It said none of “these key elements” were addressed in the recommendations for the re-bundling of the operations of the Government owned power utility.
Zesa unbundled its operations in 2002 to improve efficiencies and leverage on economies of scale. This resulted in the formation of six distinctive companies, owned by a holdings group.
But the Cabinet in 2018 directed its re-bundling after noting the structure had failed to yield the desired results as its implementers did not understand the system.
Challenges entailed entities running away from centralised control, leading to a lack of cohesion, which negatively affected the smooth and efficient running of the power utility.
For instance, this spawned bloated senior and middle management at the unbundled entities, which did not add value to Zesa and the delivery of power to customers.
In order to arrest the deteriorating situation, amid perennial losses, poor performance and service delivery, the Cabinet in 2018 directed that the Zesa be re-bundled.
Part of recommendations by Ernst & Young, commissioned to work with Zesa for the re-bundling process, is that the utility should have nine non-executive board directors.
However, it said the board should include the chief executive, but should have a non-executive chair. The State power utility had an executive chair from 2003 to 2006.
In the period from 2007 to 2019, the State power utility was headed by chief executives who reported to a board of directors chaired by a non-executive chairman.
Prominent Harare lawyer, Canaan Dube of the Zimbabwe Leadership Forum and experienced corporate governance expert, said the return by Zesa to executive chairmanship in 2019 was regrettable and a step in the wrong direction.
“For all the proposed designs, one board structure has been proposed. This is based on key governing regulations and guidelines,” the renowned global audit firm said.
“As a minimum, three non-executive directors should be appointed to the board, the majority of them being independent. The board currently complies with these requirements and hence this structure can be maintained with any option chosen.
“The company’s Chief Executive Officer (CEO) shall not also be the chairperson of the board hence separation is required.”
Ernst & Young said according to the Companies and Other Business Entities Act every company shall have at least one secretary ordinarily resident in Zimbabwe.
The audit firm said the company secretary may be a chartered accountant, a legal practitioner, a public accountant or public auditor.
It also said the board of any public entity should establish an audit committee that has at least two independent board members.
“The audit committee should be responsible for improving management reporting by overseeing audit functions, internal controls and the financial reporting process.”
Further, it recommended that the board shall establish an audit committee composed of at least two non-executive board members other than the chairperson of the board.
Ernst & Young also recommended that the board shall also be expected to establish a risk management, technical, finance and remuneration committees.
The highlight of the proposed organisational structure by EY is the recommendation for the power utility to separate roles for CEO and chairman, which are currently combined.
Globally, it has become common for shareholders to attach more value to the quality of corporate governance structure through clear separation of powers.
Proponents of good corporate governance say shareholders must rely on appropriate corporate governance structures, risk management systems and board processes to safeguard their interests and enhance shareholder value.
They believe ensuring an effectively functioning board may seem obvious, but in order to achieve this it is important to attend to the balance of leadership and structuring of the board of directors.
Notably, the role of executive chairman is a dying concept globally, popularised in the United State of America by large corporations owned by their founders.
But reports say the percentage of S&P 500 companies whose chief executives also serve as chairman reached 45,6 percent in 2018, compared with 48,7 percent the year before, the lowest percentage in at least a decade.
The campaign to separate the positions of CEO and chairman is rooted in the notion a stand-alone chairman can act as a counterweight to a stand-alone chief executive.
Recent investigations into high-profile executives have fanned the conversation.
Giant electric US car marker Tesla Inc chief executive Elon Musk last year relinquished his chairmanship of the electric car maker to settle a lawsuit by regulators alleging inappropriate conduct.
Renault SA, meanwhile, in November untethered its CEO and chairman positions after Carlos Ghosn, who held both positions, was arrested in Japan on allegations of financial misreporting at partner company Nissan Motor Co.
The growing trend of businesses employing a separate CEO and chairman brings U.S. companies more in line with their European counterparts.
The percentage of Stoxx Europe 600 companies with the roles combined was 9,2 percent in 2018, down from 11 percent in 2013, according to media report
