17th May 2016

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Submitted by: Mwala Mooto ACCA Registration

No: 2674159 Word count: 7338

An evaluation of the quality of Corporate Governance within ABC and its impact on the key Stakeholders

BSc (Hons) in Applied Accounting

Dedicated

To

My parents, my siblings and my friends

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Acknowledgement

I would like to express my heartfelt thanks to my Project mentor Mr. Jeff Musonda who dedicated his time to ensure that this project is successful.

However, special thanks go to my parents Mr. and Mrs. Mooto who have supported me throughout my education and all my other family members.

Generally I would like to thank the management and Staff of ABC together with everybody who participated in my information gathering during this research and analysis project.

TABLE CONTENTSINTRODUCTION..............................................................................................................4

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CHAPTER ONE: PROJECT OBJECTIVES AND RESEARCH APPROACH............5

1.1: RATIONALE FOR SELECTING PROJECT TOPIC.......................................................5

1.2: RATIONALE FOR SELECTING ABC..............................................................................5

1.3: PROJECT OBJECTIVES...................................................................................................5

1.4: OVERAL RESEARCH APPROACH.................................................................................6

CHAPTER TWO: INFORMATION GATHERING AND BUSINESS TECHNIQUE...7

2.1: SOURCES OF INFORMATION AND DESCRIPTION OF THE METHODS USED TO OBTAIN THIS INFORMATION...............................................................................................7

2.2: LIMITATION OF SOURCES AND METHODS UTILIZED TO OBTAIN INFORMATION...............................................................................................................................7

2.3: ETHICAL ISSUES ENCOUNTERED IN GATHERING INFORMATION.....................8

2.4: BUSINESS TECHNIQUES AND MODELS.....................................................................8

2.5: LIMITATIONS OF BUSINESS TECHNIQUES AND MODELS....................................9

CHAPTER THREE: FINDINGS AND THE EVALUATION OF GOVERNANCE IN ABC AND THE IMPACT ON KEY STAKEHOLDERS................................................10

3.1: BOARD STRUCTURES, COMMITTEES AND REMUNERATION............................10

3.2: ROLES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS IN ABC.....12

3.3: BOARD SKILLS, COMPETENCE AND KNOWLEDGE..............................................12

3.4: BOARD SYSTEM AND STRATEGY..............................................................................13

3.5: FINANCIAL AND CORPORATE REPORTING............................................................13

3.6: AUDITORS AND INTERNAL CONTROLS...................................................................14

3.7: RISK MANAGEMENT......................................................................................................15

3.8: EVALUATION OF ABC’s CORPORATE GOVERNANCE..........................................16

3.9: CONCLUSION OF EVALUATION AND IMPLICATION TO OVERALL ABC GOVERNANCE.............................................................................................................................21

4.0: STAKEHOLDERS OF ABC AND THEIR INFLUENCE...............................................22

4.1: IMPACT ON OVERALL QUALITY OF GOVERNANCE ON KEY STAKEHOLDERS.........................................................................................................................................................22

4.2: LIMITATION OF RESULTS.............................................................................................24

4.3: WEAKNESSES.................................................................................................................24

4.4: RECOMMENDATION......................................................................................................25

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INTRODUCTIONThe Citizens Economic Empowerment Commission (ABC) was established under the Citizens Economic Empowerment Act No. 9 (2006, s.4, ss. 1). The Organisation has the following functions among others:

To promote the empowerment of citizens that are or have been marginalised or disadvantaged and whose access to economic resources and development capacity has been constrained due to various factors including race, sex, education background, status and disability;

To promote gender-equality in accessing, owning, controlling, managing and exploiting economic resources;

To encourage effective and meaningful participation of targeted citizens in the economy in order to contribute to sustainable economic growth;

To ensure equal opportunities for, and where necessary, ensure preferential treatment to, targeted citizens, citizens empowered companies, citizen influenced companies and citizens owned companies in accessing procurement contracts and other services of any state institutions; and,

To review the framework for the provision of development services to micro and small businesses in response to changing circumstances.

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CHAPTER ONE: PROJECT OBJECTIVES AND RESEARCH APPROACH

1.1: RATIONALE FOR SELECTING PROJECT TOPICCorporate governance is the system through which organisations are directed and controlled. Essentially it focusses on the dilemmas that result from the separation of ownership and control, and addresses, in particular, the principal agent relationship between shareholders and directors on the one hand and the relationship between company agents and stakeholders on the other. The interest in good corporate governance has tremendously grown in the past decade. In the private sector, investors have become more sensitive to the quality of corporate governance in the organisations they intend to invest in. This is mainly because they want to be sure that their investee company is a reputable organisation operating in accordance with good corporate governance practice in order to reduce on the risk of bankruptcy due to poor governance. Public institutions have also been subjected in the most recent years to strict corporate governance procedures, as governments have become more concerned with the quality of governance in state owned enterprises in order to ensure effective and efficient service.Therefore, as a professional accountant aiming for a key strategic financial position in a well-established organisation, I have decided to base my research on corporate governance in order for me to gain a practical understanding of the topic and appreciate its importance to organisational success.

1.2: RATIONALE FOR SELECTING ABCABC is currently the largest public financial institution in the country; therefore it’s subjected to strict monitoring and regulation by both government and private regulatory agencies. Especially that the Commission has been involved in a number of corporate scandals with its name appearing annually in the Auditor General’s report due to poor governance and financial irregularities. Therefore undertaking this research and analysis project on the Commission will help me acquire more knowledge on corporate governance in the public sector and it will help the Commission have an independent academic opinion on its quality of governance.

For primary research purposes, I have selected ABC because it will be very easy for me to acquire information from the members of staff and management of ABC since I am currently working for the Commission as Regional Administrative and Finance Officer for Western Province. It is also very easy for me to access the Audit reports of the Commission which are published on the Auditor Generals website. There are also a number of articles and reports about ABC which are in the public domain there by making my access to research information easy.

1.3: PROJECT OBJECTIVESThe principal objective of this project is to evaluate the quality of corporate governance within ABC and its impact on the Commissions Key Stakeholders. The project will seek to determine the Commissions adherence to good corporate governance practises with reference to various corporate governance codes and

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guidelines. To achieve this principal objective, the project will aim to ascertain the following major corporate governance issues about ABC:

What are the duties of the Directors? What is the composition and balance of the board, and how is it managed? Does the Commission prepare financial reports and how reliable are they? Who are the Commissions internal and external auditors and how

independent are they? What are the key risks that the Commission faces and how are they

mitigated? What are the director’s remunerations and rewards, and how are they

determined? Who are the Commissions key stakeholders? How are the Commissions key stakeholders affected by its overall

governance? How committed is the Commission in fulfilling its social responsibility as a

corporate citizen? How does the Commission overall governance comply with the combined

code principles?

1.4: OVERAL RESEARCH APPROACHPrimary Data: according to the business dictionary, primary data refers to data observed or collected directly from first-hand experience, (www.businessdictionery.com, 2016). For the purpose of this research, the primary data used has been acquired through the following means:

Research questionnaires (Appendix 2) Interview sheets (Appendix 3,4,5 & 6) Email Communications Personal meetings with targeted individuals Phone calls

For ethical reasons, consent was requested from ABC Management to allow me to undertake this research and analysis Project on the Commission. (See Appendix 1)

Secondary data: this refers to primary data that was collected by someone else or for a purpose other than the current use. (www.businessdictionery.com, 2016). For the purpose of this research, the secondary data used has been acquired from the following sources:

Internet sources Published governance codes Corporate Governance reports and articles Commission documents and reports Auditor general’s reports Government journals and reports

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CHAPTER TWO: INFORMATION GATHERING AND BUSINESS TECHNIQUE

2.1: SOURCES OF INFORMATION AND DESCRIPTION OF THE METHODS USED TO OBTAIN THIS INFORMATION

PRIMARY SOURCES OF INFORMATION

Questionnaires were given to a sample of 100 targeted citizens of the commission and 30 employees. The sample was randomly chosen to avoid biasness. Below are the statistics of the exercise and the response:

Details Targeted citizens employeesSample size 100 30Number of respondents 100 30Response rate 100% 100%

To gain a detailed understanding of the Commission, interview sheets were sent to the executive and non-executive directors, managers and senior government official. Below are the statistics and the response rates of the exercise:Details Ex- directors NED Managers GovernmentSample size 3 12 6 4Respondents 1 0 3 0Response rate 33% 0% 50% 0%

SECONDARY SOURCES OF INFORMATION

The main secondary source of information during this research and analysis project was the internet, however, other sources of information such as; magazines, business journals, governance books and other corporate governance research documents have also used.

2.2: LIMITATION OF SOURCES AND METHODS UTILIZED TO OBTAIN INFORMATION

Questioners and interview sheets: though being the main source of primary data, the questioners and interview sheets could not be used to obtain all the information needed during the research. Other respondents were also very sceptical with them, especially the members of staff who feared that the information they will disclose may be leaked to other third parties. However, I assured them that the information obtained will be used solely for the purpose of this research, and no other third party apart from Oxford Brookes University will be given access to the information. It was also difficult to retrieve the questioners and interview sheets distributed, especially those given to ABC clients.

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Email conversations: this proved to be the most effective and efficient mode of gathering information especially from the members of staff.

Corporate Governance Books: this proved to be an effective way of collecting general information on the subject.

Internet: Most of the information used during this research was acquired from internet sources. However, some of the information acquired from the internet might be false, therefore I verified the authenticity of every website quoted in this research document by counter checking it with other websites and it was quite tedious.

2.3: ETHICAL ISSUES ENCOUNTERED IN GATHERING INFORMATIONConfidentiality: All the information given to me during the course of this research was given in good faith that it shall be used solely for the purpose of this research and analysis project, therefore no other third party other than Oxford Brookes University shall be given access to this information. The management and members of staff also found it very easy to allow me to access sensitive Commission documents, because I am also a member of staff bounded from disclosing such sensitive information to any other third party by the public service oath of secrecy. Therefore all the information gathered during this research, including this document has been and shall be treated with the highest level of confidentiality.

Objectivity: being an ABC member of staff I was often tempted to be biased in my information gathering and analysis trying to give a positive view in order to preserve the image of the organisation I work for. However, all the information gathered during this research was analysed objectively without any biasness or prejudice.

Professional Knowledge and Due Care: during the information gathering process, my professional knowledge on corporate governance was used to acquire relevant information that will render this research document pertinent. This has been demonstrated by using various corporate governance codes, reports and models to substantiate this research.

Integrity: to maintain my integrity as a professional accountant and an academician, all secondary data used in this research has been properly referenced according to the Harvard referencing system.

2.4: BUSINESS TECHNIQUES AND MODELSThe Anglo form of governance has been used as a major benchmark during this research and analysis project. However, the following corporate governance codes and reports were used during this research project:

The Cadbury report 1992: The first version of the UK Corporate Governance Code was produced in 1992 by the Cadbury Committee. The Code is a guide to a number of key components of effective board practice as it is based on the underlying principles of good corporate governance.

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The OECD guidelines on corporate governance of state owned enterprises in Southern Africa: These guidelines are a shared regional consensus on SOE reform priorities by members of the SOE Network for Southern Africa. The Guidelines can be endorsed by members who wish to formally associate themselves with them. These guidelines were developed by a regional taskforce, with input from the Network and broader public through a year-long consultation process and they were formally launched at the 5th meeting of the Network which took place in Lusaka, Zambia on 26-27 November 2014 (OECD 2014).

The king report (2) 2002: These guidelines are an update to the 1994 King report on corporate governance (King 1) which aimed at promoting the highest standard of corporate governance in South Africa. Although ground-breaking at the time, the evolving global economic environment together with recent legislative developments have necessitated that King 1 be updated. To this end the King committee on corporate governance developed the king report on corporate governance for South Africa, 2002 (King 2).

2.5: LIMITATIONS OF BUSINESS TECHNIQUES AND MODELSThe Cadbury report 1992: This is a model used in the UK as a benchmark for corporate governance best practice. This model is based on a dynamic well developed economy therefore its application to enterprises operating in a developing Country like Zambia is not suitable due to major economic, social and political differences. However the model might also be outdated considering that it was established in 1992.

The OECD guidelines on corporate governance of state owned enterprises in southern Africa: These guidelines were established to improve on the quality of corporate governance of state owned enterprises in Southern African Countries of which Zambia is found. Actually, Zambia was a key participant in the establishment of these guidelines because even the meeting that adopted the guidelines was held in Lusaka the capital city of Zambia. Therefore these guidelines will be the best bench mark to be used in this research and analysis project.

The king report (2) on corporate governance for south Africa 2002 This report was established mainly for South African companies therefore its use in this project might be misleading.

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CHAPTER THREE: FINDINGS AND THE EVALUATION OF GOVERNANCE IN ABC AND THE IMPACT ON KEY

STAKEHOLDERS

3.1: BOARD STRUCTURES, COMMITTEES AND REMUNERATIONBoard StructureAccording to the Cadbury report (1992, p. 20), “every public company should be headed by an effective board which can both lead and control the business. Within the context of the UK unitary board system, this means a board made up of a combination of executive directors, with their intimate knowledge of the business, and of outside, non-executive directors, who can bring a broader view to the company’s activities, under a chairman who accepts the duties and responsibilities which the post entails.” However, it is recommended (King report, 2002) that southern African companies have a unitary board structure comprising executive and non-executive directors preferably with a majority of non-executive directors of whom a sufficient number should be independent. Therefore in compliance with good corporate governance practice ABC is headed by a board of directors which consists of 17 members of which 12 are non-executives.

Executive Directors: these consist of the Director General who is the Chief Executive of the Commission. The Director General is appointed by the Board for a fixed period of three years subject to renewal based on performance. Under the Citizens Economic Empowerment Act No. 9 of 2006 (s.2, ss.12) the Director General of the Commission has the following main responsibilities;

Management and administration of the affairs of the Commission; Implementation of the decisions of the Commission; and Any other function assigned to the Director-General by the Commission or by

or under this Act.For effective management of the Commission, the Director General is assisted by four directors who preside over the directorates of the Commission.

Non-executive Directors: the 12 Commissioners appointed to preside over the Commission act as the non-executive directors of the Commission. Under the Citizens Economic Empowerment Act No. 9 of 2006 (s. 2) these Commissioners will consist of a Chairman, the Secretary to the Treasury in the Ministry of Finance, the Permanent Secretary in the Ministry of Commerce, the Permanent Secretary in the Ministry of Labour, the Attorney General, one person representing the youth, two (2) persons representing the private sector and civil society organisations, three (3) persons representing the Universities, Central Statistical Office and the trade unions and one person representing the disabled. The Vice Chairperson will be elected by the Commissioners from among themselves. These Commissioners are appointed by the republican President for a term not exceeding three (3) years, subject to renewal based on performance.

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Board CommitteesFor efficient and effective service, there are three committees on the ABC board of directors namely:Audit Committee: this committee consists of non-executive directors and its sole purpose is to review the efficiency and effectiveness of internal audit and ensure the independence and objectivity of external audit.

Risk Committee: this committee consists of executive and non-executive directors together with other members of staff with sufficient knowledge on risk management. The purpose of the committee is to facilitate strategic risk management and mitigation by ensuring that the board is well informed of the risks that the Commission faces and therefore put in place measures that will reduce the Commissions overall risk exposure.

Credit Committee: the committee consists of executive and non-executive directors together with other senior members of staff from the credit department. The purpose of the committee is to evaluate shortlisted loan applications and recommend them for approval to the board.

Board RemunerationAccording to the business dictionary, remuneration refers to the reward for employment in form of pay, salary, or wage, including allowances, bonuses, cash incentives and other benefits such as; company car, medical plan or pension plan. (www.businessdictionary.com, 2016). Executive and non-executive directors may be compensated by fee, salary, and/or use of the firm’s property as a matter of agreement between them and the firm. However, in state owned enterprises like ABC, board remuneration can be a politically contentious issue, but it must be tackled to balance public opinion with the need to attract qualified directors. This issue is linked with the independence of directors and the accountability of the nomination procedures, because the public resistance to market-consistent board remuneration is almost invariably stronger when there is a perception that directors have not been appointed on the basis of merits (OECD. 2014, p.32).

With regard to ABC, the establishing Act of the Commission does not state the amount of remuneration which should be paid to the members of the Board but rather allows the Commission to set the amount of remuneration that will be paid to both executive and non-executive directors. The Commission does not have a remuneration committee but rather the board sets its own remuneration. For confidentiality purposes, the remuneration amounts were not provided to me during the research.

Executive DirectorsBeing full time employees of the Commission, the executive directors are entitled to a monthly salary, personal to holder vehicle, medical plan, housing allowance, fuel allowance, and a daily subsistence allowance when working out of town and a gratuity at the end of the 3 years contract.

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Non-executive DirectorsThese are paid a quarterly consultation fee determined by the Commission subject to the approval of the Secretary to the cabinet. However they are entitled to a daily subsistence allowance when engaged to undertake Commission works out of town and a sitting allowance during board meetings.

3.2: ROLES AND RESPONSIBILITIES OF THE BOARD OF DIRECTORS IN ABC

According to the ABC board charter, the following are the responsibilities and roles of the ABC board of directors;

To appoint the Director General of the Commission; Ensure that the Commission complies with all relevant laws, regulations and

codes of business practice; Facilitate the effective and efficient execution of the Commissions mandate of

providing broad based economic empowerment to targeted citizens; Approve all loan applications under the economic empowerment fund; Formulate and review economic policies and regulations in order to create an

enabling environment that facilitates broad based economic empowerment of targeted citizens;

Formulate and review the strategy of the Commission in order to ensure the achievement of its corporate objectives;

Assess the Commissions overall risk exposure and formulate risk management or mitigation strategies;

Review the efficiency and effectiveness of internal audit and ensure the independence and objectivity of external audit;

Manage the economic empowerment fund on behalf of the government;

3.3: BOARD SKILLS, COMPETENCE AND KNOWLEDGETo discharge its duties effectively the Board needs to have all the necessary skills and knowledge to render it competent. According to the business dictionary, skill refers to, “an ability and capacity acquired through deliberate, systematic, and sustained effort to smoothly and adaptively carryout complex activities or job functions.” While knowledge is the, “human faculty resulting from interpreted information; understanding that germinates from combination of data, information, experience, and individual interpretation.”(www.businessdictionery.com, 2016).

Therefore, for the board to be declared competent, it needs to have a cluster of related abilities, commitments, knowledge, and skills that enable it to effectively discharge its duties. To meet this requirement the ABC board of directors consists of highly qualified professionals from different sectors ranging from public to private institution. This equips it with the necessary professional knowledge and skills to render it competent.

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3.4: BOARD SYSTEM AND STRATEGYBoard structures and procedures vary depending on the country which an organisation is operating in. some countries require organisations to have two-tier boards that separate the supervisory function and the management function into different bodies. Such systems typically have a supervisory board composed of non-executive board members and a management board composed entirely of executives. Other countries have unitary boards, which bring together executive and non-executive board members. In Zambia there is no statutory requirement or guidance that states the type of board structure which should be adopted. However, most Zambian organisations follow the Anglo form of governance which recommends a unitary board under the UK combined code and ABC is not exceptional.

The ABC board of directors consists of both executive and non-executive directors thereby acting as a supreme executive body and a supervisory organ at the same time. The supervisory duties are presided over by the board Chairman while the supreme executive functions are presided over by the Director General. These positions are held by two different individuals.

Board ChairmanThe board Chairman of the Commission is a non-executive director appointed by the Republican President to preside over the board affairs of the Commission for a fixed period of 3 years subject to renewal based on performance. The Chairman’s primary function is to preside over meetings of directors and ensure the smooth functioning of the board.

Director GeneralThe Director General is the Chief Executive of the Commission endowed with the responsibilities outlined in paragraph 3.1 of this document.

3.5: FINANCIAL AND CORPORATE REPORTINGStatutory Reporting RequirementsThe establishing Act of the Commission (s.9, ss. 1-3) requires it to keep proper accounting records with its financial year running for twelve months ending on the 31st of December. It also provides that the accounts of the Commission be audited annually by the Auditor-General or by independent auditors appointed by the Commission with the approval of the Auditor-General.As soon as it is practicable, but not later than ninety days after the end of the financial year, the Commission shall submit to the Minister of Commerce a report concerning its activities during the financial year. The report should include;

an audited balance sheet; an audited statement of income and expenditure; and Such other information as the Minister may require;

The Minister shall, not later than seven days after the first sitting of the National Assembly next after receipt of the ABC report, lay the report before the National Assembly.

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Actual reporting activitiesThe members of the finance department refused to answer any questioners or interview sheets regarding the financial reporting of the Commission, however, from the verbal interview that I had with them, they mentioned to me that the Commission does not produce proper financial reports because its accounting records are not complete due to a lot of unretired impress, un-acquitted and unsupported payments. The auditor general’s office have also highlighted the same queries in their annual reports from the inception of the Commission.

3.6: AUDITORS AND INTERNAL CONTROLSAuditors

Auditors can be categorised into two, namely; internal audit and external audit. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisations operations. While external audit is an independent assurance activity undertaken to ascertain if the financial and corporate reports of an organisation represent a true and fair view of its state of affairs. Internal audit can either be conducted by an independent unit within the organisation or it can be outsourced from an external firm. However, external audit should be exclusively conducted by an independent organisation separate from the entity being audited.

In ABC, internal audit is undertaken by an independent unit within the organisation which administratively reports to the Director General and technically reports to the board through the audit committee. The unit has got two members who are both full time employees of the Commission. However, the external audit function of the Commission is annually undertaken by the Auditor General’s Office.

Internal controlsThe following internal controls have been put in place by the Commission in order to preserve the reliability of financial and corporate reporting:

Establishment of an Internal Audit Charter which will govern the execution of internal audit;

Establishment of an Audit and Risk Terms of Reference which guide members of staff on how to respond to audit queries and how to minimise risks;

Establishment of a due diligence manual which provides guidance on how to assess the viability of a project;

Establishment of a financial regulations manual which gives guidance on how to process transactions;

Establishment of a procurement department other than subjecting the procurement function to the finance department which was the initial case;

Segregation of duties between payment preparation, review and authorisation;

Introduction of an internal accounting package where all transactions will be posted;

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3.7: RISK MANAGEMENTAccording to the King Report (2002, P.73) risk management is the identification and evaluation of actual and potential areas of risk as they pertain to a company, followed by a procedure of termination, transfer, acceptance or mitigation of each risk. Risk management is therefore a process that utilises internal controls as a measure to mitigate and control risk. Based on the information that I acquired from the risk manager (See appendix 5), below are the details of the main risks faced by CEEC and the mitigation strategies:

Table 1: Risks faced by ABC and the mitigation strategiesRisk Mitigation strategy

Credit risks;1. Misappropriation of funds: this

refers to the risk of disbursed funds being utilised for other purposes other than the reason they were given;

2. Loan recovery failures: this refers to the risk that loan beneficiaries will fail to payback their loans;

3. Death: this is the risk of the Commission failing to recover a disbursed loan due to the demise of the promoter.

1. Misappropriation of funds: the Commission does not make cash disbursements to its beneficiaries but rather buys equipment’s on their behalf. Regular monitoring and evaluation visits are also made to the clients in order to ascertain that funds have been correctly utilised

2. Loan recovery failure: all loan beneficiaries are required to vest collateral with the Commission

3. Death: all loans issued are insured against the death of the beneficiary.

Financial risks;1. Liquidity risk: this refers to the risk

that the Commission will fail to disburse funds to approved loan beneficiaries due to low liquidity levels caused by non-remittance of funds from the national treasury;

2. Misappropriation of funds: this refers to the risk of the Commission loosing funds due to staff misappropriation caused by poor internal controls

1. Liquidity risk: Unfortunately this risk cannot be mitigated by the Commission because it solely relies on funding from the national treasury and it has no control over the release of money from the treasury.

2. Misappropriation of funds: the Commission has established an internal audit unit which is working hard to stiffen the internal controls.

Legal risk;1. Penalties: this refers to the risk of

the Commission facing some penalties due to its failure to meet

2. Penalties: the Commission has established a legal department to ensure its

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some of its statutory requirements; compliance with all statutory requirements.

Political risk;1. Continuity risk: this refers to the

risk of the Commission being closed or merged with other state owned enterprises in case of a regime change.

2. Continuity: unfortunately this risk cannot be mitigated by the Commission.

3.8: EVALUATION OF ABC’s CORPORATE GOVERNANCEThe King report (2002, P.12) recommends seven characteristics of good corporate governance namely; Discipline, Transparency, Independence, Accountability, Responsibility, Fairness and Social Responsibility. These characterises shall be used to evaluate the overall quality of corporate governance in ABC.

DisciplineThe King report (2002, P.12) defines corporate discipline as a commitment by a company’s senior management to adhere to behaviour that is universally recognised and accepted to be correct and proper. This encompasses a company’s awareness of, and commitment to, the underlying principles of good governance, particularly at senior management level. Therefore generally speaking an organisations corporate discipline is measured by how compliant it is to universally accepted good governance practices. To evaluate corporate discipline in ABC, below is a table outlining five generally accepted good governance practises as recommended by various corporate governance reports and guidelines:Table 2: An evaluation of corporate discipline in ABCGood governance practice ABC’s response RatingAppointment of a majority non-executive membership to the board.

ABC has a total number of 18 members on its board of which 12 are non-executive.

100%

Separation of the roles of Board Chairman and Chief Executive Officer.

The ABC board is headed by a non-executive board chairman while the management of the Commission is presided over by the Director General.

100%

Board remuneration should be determined by an independent remuneration committee consisting of non-executive directors.

ABC does not have any remuneration committees but rather board remuneration is determined by the board.

50%

Regular publishing of audited financial and corporate reports especially for publicly listed companies and state owned enterprises

ABC does not publish any financial or corporate reports despite of it being a statutory requirement for the Commission.

0%

Establishment of an internal audit function to review the efficiency &

The Commission has an internal audit unit which is however

10%

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effectiveness of internal controls and the appointment of an external audit function to express an independent opinion on financial and corporate reporting.

understaffed with only 2 members. The Commission does not have any external auditors but rather it is audited by the Auditor General’s office which has annually reported serious misappropriation at the Commission, mismanagement and non-compliance to statutory requirements but no action has been undertaken.

Average rate of corporate discipline (total rate/total number of rates) 260/5

52%

(See appendix 7)

Board remuneration

Internal & External Audit

Financial & Corporate reporting

Segregation of dutities

non-executive appointments

Overal rating

0% 20% 40% 60% 80% 100% 120%

Figure 1: Diagram of table 2

Rating

TransparencyThe King report (2002, P.12) defines transparency as the ease with which an outsider is able to make meaningful analysis of a company’s actions, its economic fundamentals and the non-financial aspects pertinent to that business. This is a measure of how good management is at making necessary information available in a candid, accurate and timely manner-not only the audited data but also general reports and press releases. To measure the level of transparency in ABC, research questionnaires were given to ABC employees and clients. Below are the findings of the research;

(See appendix 8)

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Transparent Not transparent Partially transparent Total repondents0

10

20

30

40

50

60

Figure 2: responses to question 5 of appendix 2N

umbe

r of R

espo

nden

ts

Some of the research respondents which I verbally interviewed gave the following reasons as to why they view the Commission as not transparent;

The Commission does not publish any financial or corporate reports; The Commission does not publish the list of approved loan beneficiaries; The Commission does not hold any press briefing or feature on any live

interactive radio or TV programs to update the members of the public on its operations

IndependenceThe King report (2002, P.12) defines independence as the extent to which mechanisms have been put in place to minimise or avoid potential conflicts of interest that may exist, such as dominance by a strong chief executive or large shareholder. These mechanisms range from the composition of the board, to appointments to committees of the board, and external parties such as auditors. The decisions made and internal processes established should be objective and not allow for undue influences. To ascertain the level of independence in the Commission, question 8 of appendix 2 provides as with the information. Below are the findings of the questioner;

Table 4: response to question 8 of appendix 2internal stakeholders.eg;(employees, managers,

External & connected stakeholders.eg; Customers,

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directors) suppliers, government)Independent Compromised Independent Compromised

Non-executives

8 12 7 23

Internal audit 18 2 17 13External audit 20 0 28 2Credit committee

6 14 4 26

Total respondents

20 30

AccountabilityIndividual or groups in a company, who make decisions and take actions on specific issues, need to be accountable for their decisions and actions. Mechanisms must exist and be effective to allow for accountability. These provide investors with the means to query and assess the actions of the board and its committees, (King report 2002, P.12). However, with regard to ABC, according to the establishing Act of the Commission, no action or other proceedings shall lie against any commissioner, member of staff, agent or representative of the Commission for or in respect of any act done or omitted to be done in good faith in the exercise of the Commission functions, (Citizens Economic Empowerment Act No. 9, 2006, s.4). Therefore the board or a member of staff shall not be personally or jointly held accountable for any decisions or actions they undertake while discharging their duties, except if the decision or action undertaken contradicts the establishing act of the Commission or its code of conduct.

ResponsibilitiesResponsibility pertains to behaviour that allows for corrective action and for penalising mismanagement. Responsible management would, when necessary put in place what it would take to set the company on the right path. While the board is accountable to the company, it must act responsively to, and with responsibility towards all stakeholders of the company, (King report 2002, P.12). However, just as earlier mentioned in the previous paragraph, the ABC board or the members of staff shall not be personally or jointly held accountable for any decisions or actions undertaken while discharging their duties. However, this does not guarantee irresponsibility among board member or members of staff, because the same act provides penalty under (s.3 ss.1) to Commission member’s guilt of conflict of interest. It also penalises Commission members guilty of breach of confidentiality under (s.5 ss.2-3).

FairnessThe system that exists within the company must be balanced in taking into account all those that have an interest in the company and its future. The rights of various

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groups have to be acknowledged and respected. For example, minority shareowners interests must receive equal consideration to those of the dominant shareowners, (King report 2002, P.12). To evaluate the fairness of ABC in the delivery of services to its targeted citizens as recommended under its establishing Act, question 7 of appendix 2 provides as with the details.

(See appendix 9)

Youth Women Disabled Total0

20

40

60

80

100

120

Figure: 3 responses to question 7 of appendix 2

The above research findings can actually be backed by statistical information from the monitoring and evaluation department of the Commission which shows that targeted citizens have not equally benefited from the commission as stated in the Act. Below are the statistical details from the year 2007 when the Commission was established to date.

Corporate social responsibility beneficiariesA well-managed company will be aware of, and respond to, social issues, placing a high priority on ethical standards. A good corporate citizen is increasingly seen as one that is non-discriminatory, non-exploitative, and responsible with regard to environmental and human rights issues. A company is likely to experience indirect economic benefits such as improved productivity and corporate reputation by taking those factors into consideration (King report 2002, P.12). However, from a phone interview that I had with the corporate services director of ABC, she alluded to me that the commission does not undertake any social responsibility programs because they are not allocated in the budget. The commission believes that the services it offers are enough service to the public.

3.9: CONCLUSION OF EVALUATION AND IMPLICATION TO OVERALL ABC GOVERNANCE

Based on the 7 characteristics of good corporate governance recommended by the king report 2002, the overall governance of ABC can be evaluated as follows;

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(See appendix 12)

Corporate Displine

Transparency

Independence

Accountability

Responsibility

Fairness

Social Responsibility

Overal rating

0% 20% 40% 60% 80% 100% 120%

Figure 6: Overal rating of governance in ABC

Rating

With reference to the above governance rating on ABC, the following are the implications of the overall governance of the Commission;

Due to the lack of publishing and preparation of financial statements by the Commission, the Commission has always attracted adverse stories in the media. With its name appearing annually in the auditor generals reported being cited for gross misappropriation and mismanagement.

Due to the ineffectiveness of internal audit, the commission has been faced with a lot of financial irregularities caused by poor internal controls.

The separation of the position of board Chairman and Chief Executive Officer has contributed greatly to the effectiveness of the board by providing an enabling environment to probe the decisions and actions of the executive directors.

The appointment of professional non-executives to the board has equipped it with the necessary independent professional skills, knowledge and experience to make informed decisions.

Due to its failure to produce or publish audited financial and corporate reports, the stakeholders have lost confidence in the administration of the commission.

The Commissions failure to fulfil its social responsibilities as a corporate citizen has greatly contributed to its loss of goodwill with a number of citizens questioning its contribution to the community.

4.0: STAKEHOLDERS OF ABC AND THEIR INFLUENCEA stakeholder is a person, group or organisation that has interest or concern in an organisation. Stakeholders can affect or be affected by the organisations actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees, government, shareholders, suppliers, unions, and the community from

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which the organisation operates (www.businessdictionery.com 2016). The table below elaborates the stakeholder groups and their members;

Table 7: stakeholder groups and the membersStakeholder group MembersInternal stakeholders Employees, managementConnected stakeholders Shareholders, customers, suppliers,

lendersExternal stakeholders The government, local government, the

publicMendelow classifies stakeholders on a matrix whose axes are power held and likelihood of showing an interest in the organisation’s activities. Using this matrix, the table below elaborates ABC’s stakeholders and their influences.

Table 8: ABC stakeholders and their influences

Level of interest Low High Low

Power

High

4.1: IMPACT ON OVERALL QUALITY OF GOVERNANCE ON KEY STAKEHOLDERS

The quality of governance in an organisation has got extensive impact on its relationship with its key stakeholders. Below is a table explaining the impact of the overall quality of governance in ABC on its key stake holders.

Table9: overall governance impact on stakeholdersKey stakeholder ImpactThe Community The Commissions failure to fulfil its

social responsibilities as a corporate citizen has greatly contributed to its loss of goodwill with a number of citizens

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Segment A (Low interest-low power)

The community

Segment B (Low power-High interest)

Targeted citizens Employees Suppliers

Segment C (Low interest-high power)

Auditor general’s office Anti-corruption commission Local government

Segment D (High interest-high power)

Ministry of commerce Ministry of finance National assembly Commissioners

questioning its contribution to the community.

The Commissions failure to publish financial and corporate reports has raised concerns on its accountability to the Zambian citizens who are its major financiers through tax.

Targeted Citizens Due to the unfair consideration of the targeted citizens in the empowerment activities of the Commission, most targeted citizens are against it, claiming that it is not meeting its mandate.

Employees Most employees of the commission have no confidence in the management and board of the commission due to its perceived lack of transparency.

Suppliers The commission always takes a long period of time to pay its suppliers mainly due to lack of proper internal controls.

Government (Ministry of finance & the ministry of Commerce), Anti-corruption commission, national assembly, office of the president, local authorities

The commissions failure to keep proper financial records has made it very difficult for government to monitor its financial operations

The separation of the position of board Chairman and Chief Executive Officer has enabled the government to have unlimited access to the operations of the commission through the non-executive board Chairman.

The appointment of a majority non-executive representation on the board has helped government to attain full control of the affairs of the commission

Auditor general’s office (external auditors)

The Commissions failure to keep proper financial record has made it very difficult for the auditor general’s office to audit the Commission

Commissioners The separation of the position of board Chairman and Chief Executive Officer has enabled the Commissioners to have unlimited access to information in order for them to make well informed

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decisions.

4.2: LIMITATION OF RESULTSThe following are the limitations of the results of this research document;

Access to some very important information such as board minutes, management reports, financial statements, director’s remuneration etc. was not allowed as they were considered confidential;

Most research respondents new that I am a ABC employee therefore they were very sceptical with answering the research questioners;

All the non-executive board members refused to answer any research questioners or give any information but rather referred me to the board chairman;

The Commission does not publish any financial or corporate reports therefore all information had to be asked from the members of staff who were also very sceptical to release the information;

There might be some biasness in the answering of research questionnaires by some respondents who seemed to be very unhappy with the board and the management of the commission;

4.3: WEAKNESSESBased on the findings of this research, the following are the identified weaknesses in the governance of ABC;

The Commission does not publish or produce any financial statements; The internal audit unit is understaffed; The Commission does not undertake any social responsibility programs; There is no transparency in the Commission as most employees are

complaining of not being aware of the operations of the Commission; The commission does not keep proper financial records; Lack of independence of the non-executive directors who are often biased to

please politicians who appoint them; Lack of consideration of the external auditors recommendations and reports

by the Commission and the government;

4.4: RECOMMENDATION The Commission should start producing and publishing audited financial

statements; The amount of human resource in the internal audit department should be

increased; The Commission should identify certain community projects that it can

sponsor in order to fulfil its social responsibility as corporate citizen; The Commission should introduce internal news bulleting’s to update the

members of staff on the operations of the Commission;

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Adequate internal controls should be put in place to ensure proper financial records are kept by the Commission;

The non-executive directors should be appointed from independent professional bodies other than appointing senior government official who have political inclination;

The Auditor General’s Office should be given powers by the state to prosecute government officials and departments guilt of misappropriation or mismanagement of public funds;

An independent private audit firm should be appointed to provide external audit services to the Commission in addition to the auditor general’s office;

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