Parastatals or statutory corporations are State agencies or enterprises widely used by governments worldwide to drive the development agenda, including in strategic areas such as water supply, electricity generation and other sectors.
These corporations are classified into two, based on the nature of their business. There are institutions which are profit or business oriented which at the end of the year, are expected to pay dividends to their shareholder, the government. There are also socially-oriented statutory corporations which are subvented by Treasury.
Through parastatals, governments create jobs, guarantee provision of services such as supply of potable water to the masses, provision of electricity for industrial and domestic use besides raising income from the same way of dividends.
To drive the strategic direction of such institutions, government through the Office of the President and Cabinet appoints boards of directors. The boards make decisions on behalf and in the interest of the shareholder. They are, thus, accountable to the shareholders which in the case of statutory corporations, is the Malawi Government.
However, I note with concern that the office of the Secretary to the President and Cabinet (SPC), currently held by Zanga-ZangaChikhosi, chairs at least two boards, namely Electricity Generation Company (Egenco) and National Oil Company of Malawi (Nocma).
I see corporate governance problem here. Imagine the ongoing wrangle between Nocma and the Malawi Energy Regulatory Authority (Mera) over fuel importation deals, how does, for instance, the Controller of Statutory Corporations, as controlling officer, mediate and indeed ‘discipline’ the SPC in case his board erred in decision-making?
The office of the Controller of Statutory corporations is put in an awkward situation. Imagine if Mera disagrees with Egenco and Eletricity Supply Corporation of Malawi (Escom) and the Controller of Statutory Corporations was to intervene with the SPC leading one of the parties?
The office of the SPC heads the said boards by virtue of statutes establishing them. However, I feel it is time the set up was reviewed “in pursuit of good corporate governance”. It is my expectation that this is one of the areas the Public Sector Reforms are already addressing. If not, the team should take note.
The King Report III, the South African corporate governance code, emphasises the importance of separating roles of chief executive officer (CEO) and chairperson of the board. In the cases stated above, the office of the SPC is, simply put, the CEO of the public service encompassing the mainstream civil service and other public sector entities. Looked at from that perspective, you will note that the CEO of the public service is also chairing own boards!
For effectiveness, boards should elect chairpersons who should be independent non-executive directors.
“The CEO of the company should not also fulfill the role of chairman of the board,” recommends the King Report III.
The corporate governance concept should also extend to the recruitment of top brass, especially CEOs. Many advocates of improved corporate governance argue for separation of powers and transparency.
Business schools and executives have been abuzz with talk of corporate governance since 2001 when the world witnessed high-profile collapses of large corporations such as Enron and MCI Inc. in the United States.
Corporate governance should go beyond issues of disclosure to improve decision-making in business enterprises and make the boards accountable for their decisions.
Perhaps, Deloitte &Touche’s corporate governance services division, in one published article, on the topic, ably outlined the importance of corporate governance: “The misconception [about corporate governance] is the tendency to see corporate governance mainly as a requirement for annual report purposes, a tendency to treat corporate disclosure as an end in itself. We believe this is putting the cart before the horse and, taken to extremes, could result in organisations seemingly complying with good corporate governance, but in truth deriving very little benefit from it.”
The Malawi Government Annual Economic Review makes distressing reading in respect of performance of parastatals. Most of them make losses and the poor performance is largely attributed to the politically-connected CEOs and boards which, in most cases, offer little or strategic direction.
If they are to deliver, they should be run as businesses.