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Coltart, Zimsec: Corporate governance poser

BOARD Director Independence Elusive, an article carried in this column is currently receiving wide readership on numerous websites worldwide. The article has even been translated into other languages. In a related development, a local state paper and recently, a South African weekly carried a story of lecturers fired from Solusi University who are alleging violation of  corporate governance norms.

At the centre of the storm are allegations by the beleaguered lecturers as reported in the Sunday Times that the vice chancellor of the private university, Norman Maphosa was irregularly appointed to the chair of  Zimsec, a body established by the government to administer secondary school exams. It is claimed that the Minister of Education, David Coltart, who administers the Zimsec Act, and a senior partner of a law firm Webb, Low & Barry (WLB) are the university’s legal advisors. The insinuation is that the business ties between the academics’ former employer and the minister’s firm are good grounds to disqualify the university chief from being appointed as Zimsec’s chair. Minister Coltart defended his position claiming that he last received a salary from WLB in February 2009, a subtle intimation calculated to prove that he was not an interested party at the time he appointed Maphosa.
Each time one says there is a breach of corporate governance norms in Zimbabwe we have to ask: which norms?
The Zimsec Act is the principal corporate governance frame stipulating the procedure for appointing the chair to the Zimsec board. The Zimsec act is very lucid that the minister, in consultation with the president shall appoint one of the serving vice chancellors of Zimbabwe’s universities as the chairperson of the Zimsec board. Thus in terms of  Zimbabwean law, there is nothing irregular about Maphosa’s appointment to Zimsec chairmanship.
If we throw in major corporate governance frames does the picture change?

  • First, let us consider the UK code that came into effect in June 2010. UK code’s Principle A.3.1. suggests that  the chairperson should be independent when first appointed, but thereafter,  the need for independence falls away. Under UK custom we would need to ask: was Professor Norman Maphosa independent when he was appointed by minister Coltart? Coltart claims to have last received a pay cheque from WLB in February 2009. For this to be relevant to the question of independence from the Zimsec board’s corporate governance viewpoint we need to establish if Coltart’s connection to WLB was causing Maphosa to act in a biased manner when making decisions on the Zimsec board.  But, how do you prove that someone is acting in a biased manner before they even sit on the board?
  • Second, South Africa’s King III code does not restrict chairmanship to independent directors. King III recommends the appointment of a non-executive director as a chairperson. As a management consultant I make a lot of recommendations. A client has three options for dealing with a recommendation: adopt, adapt or reject. Any organisation that adopts King III can do likewise when it comes to the appointment of the board chairperson. Since Maphosa is not and has never been an employee of Zimsec, he is a non-executive director. Clearly, under King III, Maphosa’s appointment is in compliance with recommended practice. Being a non-executive is not the same as being independent. Under King III, independence is irrelevant to a chairperson’s appointment.
  • Third, we shall apply the more stringent and scientific approach of the US corporate governance system. Under US custom, if the fees income to WLB from Solusi University is greater than  2% or US$1m (whichever is greater) of WLB’s combined revenues, then minister Coltart and professor Maphosa would be considered non-independent directors. But that’s only relevant if Coltart and Maphosa sit on the same board. Under US customs it is not mandatory for a chairperson to be independent.

However, under our hypothetical circumstances, one could argue that Coltart should not have been involved in the appointment of Maphosa to the chair of Zimsec as he would have been deemed not independent. But is Coltart a director of Zimsec? The answer is no. The Zimsec act does not require the setting up of a nominations committee to carry out the selection and appointment on behalf of the board.  If we overlay modern corporate governance customs, it could be argued that the minister is a one-man nominations committee, making him a “virtual director” by virtue of the powers vested in him by the Zimsec Act. Effectively, the Zimsec Act empowers the “shareholders” to be directly involved in nominations, a practice considered inappropriate under modern norms. The only way the Maphosa appointment would be considered irregular would be to hope that WLB have been receiving at least 2% of their income from Solusi and then force US custom into the UK code to argue that Maphosa was not independent when he was appointed to the Zimsec chairmanship. That’s an equivalent of trumped up charges.

  • Fourth, minister Coltart’s claim that he last received a salary in February 2009 is partly relevant. Of more relevance is whether the minister was personally representing Solusi University as its legal advisor in the three years preceding the appointment. If it comes to light that the minister was personally providing legal services to Solusi then he was an interested party at the time of Maphosa’s appointment. Here is a dilemma. The Zimsec act is silent on the issue of interested parties being precluded from participating in nominations. Since the act vests powers in the minister and not the board to appoint the chairperson, if he recuses on the grounds that he is an interested party then the “nominations committee” (the minister) is totally paralysed.
  • Fifth, the UK and SA corporate governance codes are voluntary. Their enforcement hangs on the “apply or explain” principle. In other words, should a board show good cause why it is not applying any of the code’s practices, it is not in violation of good corporate governance. The Sarbanes-Oxley Act (Sox) of the US is a “comply or else” corporate governance system. But Sox has no jurisdiction over Zimbabwe. Here is the stark truth. Zimbabwean organisations, including Zimsec are not compelled to abide by any corporate governance code. Worse still, Zimsec is not governed by our Companies Act, wherein matters of interested parties, by law, have to be disclosed. Sad to say that even if the much awaited home-grown national corporate governance code comes into effect, Zimsec will be under no compulsion whatsoever to abide by the code’s practices since they are not legally binding.

The bane of voluntary corporate codes is that they depend on shareholders and markets to reward or punish good and bad corporate governance behaviour. The problem is that markets and shareholders do not always act in expected ways.  It has been argued that once a corporate governance code is adopted it becomes part of common law. Perhaps the Companies act and parastatal acts should make that explicit.
Under present governance norms, only an extraordinary legal mind can prove that Maphosa’s appointment was irregular as that would make powers higher than Coltart culpable. That’s a tall order.

  • Share your views at brettchulu@consultant.com.

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