1.

TITLE

A CRITICAL ANALYSIS OF THE EFFECTIVENESS OF BOARDS OF DIRECTORS IN

2. Introduction

The agency problem refers to the potential of conflict between the needs of shareholders and
those of the executive. conflicts of interest involve two disparate motives that professionals often
confront simultaneously: professional responsibilities and personal interests. , self-interest tends
to be naturally advantaged, in the sense of being processed automatically. The ease with which
selfinterest is activated bespeaks the automaticity of the pursuit of self-interest. Nominal and
symbolic affiliation with a group is enough to lead people to strenuous advocacy on behalf of,
and selective partisan perception with respect to, the group (Cialdini et al., 1976; Hastorf and
Cantril, 1954). ” (Houston, 2000), self-interest is no longer lumped together rwith greed as a
deadly sin, but is now seen as one of the highest callings of human existence. James Strong said,
‘…the need for directors to fulfill their duties, work with management and make decisions in the
best interest of the organization as a whole remain at the heart of corporate governance. Conflict
of interest means a situation in which Board Member or his or immediate family member has,
directly him or herself or indirectly through another individual or entity, a personal or financial
interest that compromises or could compromise the Board members independence judgment in
exercising his/her responsibilities. In that instance a board may be appointed to run the company.
When this happens a risk becomes emergent, in the sense that the board will act in its selfish
interests as opposed to the interests of stakeholders. The research shall target public entities in
Zimbabwe, more than 20 state run enterprises are sinking deeper into debts with liabilities
running into hundreds and millions of dollarsas they face imminent collapse due to poor
corporate governance, mismanagement and corruption amongst other problems a report from
Auditor-Genral (AG) Mildred Chiri shows. The Auditor Generalreporte 23 cases including
companies such as Zesa Holdings, Grain Markrting Board, Zimparks and Nust to name a few.
Acceptance of unethical behavior can increase withtime, much as people are prone to escalate
their commitment to previously chosencourses of action (Glover, 2000; Lifton, 2000;
Loewenstein, 1996; Staw, 1976;Staw and Ross, 1989) Corporate governance has become an
increasingly interesting subject, partly due to collapses of high profile international corporations,
the demand for transparency and accountability in the utilization of shareholders’ funds and also
due to the growing awareness of the need for good corporate practice to attract investment
capital and achieve organisational strategic goals over the long-term. The purpose of this study
is to ascertain the impact of conflict of interest on HR processes.

Statement of the problem

The surge in corporate scandals has led to global acknowledgement of impact of deep seated
issues surrounding corporate governance issues on the survival of public entities. A lot of outcry
by stakeholders and public in general has indicated that public entities have not utilized their
resources well and this has placed a huge burden on the tax payer, due to factors and reasons
including lack of good corporate governance. This has occurred at Zesa holdings by awarding
tenders to companies such as Intratek that cannot afford to carry out works. The CEO of PSMAS
Medical aid was awarded a hefty salary which nearly equated to three quarters of the total wage
bill for the entire organization. Corporate scandals also rocked Air Zimnbabwe through
nepotism, the Chief operations officer was appointed due to his link with with the first family
rather than merit.

Poor performance by public entities may be attributed to the following factors , lack of clarity in
setting objectives, use of public entities for political mileage- in this instance tenders are
conveniently awarded to shelf companies who then use funds obtained to sponsor political
activities this has been rampant at Zinara, lack of appropriate monitoring of board processes-
processes are ignored in order to pursue personal interests eg failure to declare interest, board
and management incompetence and corruption; failure to expeditiously adapt to technological
advances and government interference with operational decisions. The role and effectiveness of
the board of directors have emerged as very important when examining the causes of poor
corporate governance, corporate collapses and inefficiencies in public entities. Substantial
research has been undertaken on the effectiveness of boards of private enterprises, inadequate
attention has been given to the challenges being faced by boards of public entities in effectively
discharging their duties and promoting good corporate governance. It is therefore crucial to
analyse and evaluate the effectiveness of boards in promoting good corporate governance in
public entities in Zimbabwe. Conflict of interest are at the heart of many of the recent scandals
that have shaken the fragile Zimbabwean economy, this has resulted in inefficient operation of
parastatals that are running at a loss at the expense of the tax payer. This inefficiency has resulted
in the clossal of some institutions. It has negatively impacted HR processes since the right people
are not being recruited to lead organizations effectively and this has resulted in high levels of
incompetence. This is a challenge because individuals at the helm of organizations cannot
effectively carry out their work since they are mere instruments to a means that is to the they are
mere puppets a mere hologram hiding the intent of the puppeteer

Theories underpinning Research

John and Senbet give a more widespread definition which states that “corporate governance
deals with mechanisms by which stakeholders of a corporation exercise control over corporate
insiders and management such that their interests are protected”. OECD34 Task Force defines
corporate governance as follows: Corporate governance … involves a set of relationships
between a company’s management,

Its Board, its shareholders and other stakeholders. Corporate governance also provides the
structure through which the objectives of the company are set, and the means of attaining those
objectives and monitoring performance are determined. Good corporate governance should
provide proper incentives for the Board and management to pursue objectives that are in the
interests of the company and shareholders and should facilitate effective monitoring. According
to the OECD, corporate governance encompasses not only internal aspects of corporate
governance but takes into account other stakeholders and the impact of the company on them. It
also entails that a company, and especially its directors, abide by the provisions of relevant
statutes, societal norms, standards and codes of best practices as well as manage the company
reliably.

Similarly, in support of this view, Crowther defines corporate governance as: an environment of
trust, ethics, moral values and confidence - as a synergic effort of all the constituent parts - that is
the stakeholders, including government, the general public etc., professionals, service providers
and the corporate sector.

According to Frederick, in order to operate effectively, public entities should be adequately

The Securities and Exchange Board of India (SEBI) Committee on Corporate Governance views
corporate governance as ethical conduct in business in that it is concerned with the code of
values and principles that enables a person to conduct a company’s business in line with the
expectations of all stakeholders.

Research Objectives

The objectives of the research are to answer the following questions

1. Does a company’s performance improve by adopting good corporate governance practices?

2. To what extent do boards of directors effectively fulfill their functions in enhancing good
corporate governance in public entities?

3. Are public entity boards appropriately constituted and empowered to deliver their mandate?

4. Are public entity boards remunerated adequately to motivate them to effectively discharge
their duties?

5. How effective are board performance evaluation tools in assessing boards’ and individual
directors’ performance?

6. What practices, arrangements and/or structures should help to promote the independence and
effectiveness of boards of public entities?

7. Is Zimbabwe’s current legal and regulatory environment conducive to and adequate for the
realization and effective application of principles of good corporate governance by boards.
Research Methodology

Research methodology is “a way to systematically solve the research problem” and has many
dimensions of which research methods constitutes a part. Research methodology does not only
refer to the research methods but also considers the reason behind the methods used in the
context of the research study, explains why a particular method or technique has been used and
clarifies why other methods have not been used so that the research results are capable of being
assessed either by the researcher himself or by others. The experiences of two public entities
with regard to board effectiveness in the implementation of good corporate governance standards
shall be examined.

Research Method

Research methods refer to the techniques employed in collecting relevant research materials and
processing such materials into answers to the research question. There are two major methods of
research, that is a positivistic and a phenomenological approach. The positivistic approach, also
referred to as quantitative research, explains social phenomena by assigning numeric values to
observed phenomena and counting the frequency of those phenomena with a view to deduce
some conclusions about the characteristics of the populations. In terms of this approach, clearly
constructed hypotheses are formulated about the relationship between two or more variables. The
positivist position is based on the “theoretical belief that there is an objective reality that can be
known to the researcher, if she or he uses the correct methods and applies those methods in a
correct manner”.

Descriptive Survey Design

The survey method will be used. Saunders et.al. (2009) assert that the survey method is
associated with the deductive approach in most cases. It is usually used in business and
management research and used for exploratory and descriptive research. The popularity of
surveys comes from their ability to allow the collection of a large amount of data from a large
population in an economical way. Data collected through the use of surveys can be used to
suggest the reasons behind particular relationships observed between variables and to produce
models for them.

Questionarre

A questionnaire is a research instrument consisting of a series of questions (or other types of

Simple Random Sampling

Subjects in the population are sampled by a random process, using either a random number
generator or a random number table, so that each person remaining in the population has the
same probability of being selected for the sample

Sample Selection

A sample of two public entities shall be selected through purposive sampling to provide the
possibility of understanding the corporate governance practices in public entities. The main
reasons for sampling are the huge costs that would be involved in terms of time and other
resources to test the entire population consisting of approximately ninety parastatals. It is
impossible to test the entire population due to difficulties that will be encountered in getting
access to all public entities. The third reason for sampling is the fact that testing the entire
population often produces errors and may be destructive.

Ethical Issues

Ethics is the branch of philosophy which deals with the dynamics of decision making concerning
what is right and wrong (Marianna and Paraskevi, 2011). According to Marianna and Paraskevi
(2011), the major ethical issues in conducting research are informed consent, beneficence (do no
harm), respect for anonymity and confidentiality, and respect for privacy. The researcher will not
force anyone to participate in the research and will not seek for the identity of the respondents.
The data collected and results will only be used for academic purposes and that intent will be
explained to the respondents.

Contribution to body of knowledge

The bulk of literature on this subject is based on studies carried out in developed countries. This
study will add to the literature by providing a view of the issues involved based on an African
perspective and context. The findings of this study will also be beneficial to any future
researchers who may be interested in making further investigations related to this study.

Justification of the Study

Public entities continue to play an important role in all economies; particularly developing
countries where there is a greater need to facilitate economic growth and sustainable
development. For that reason, government administrators and the general public in these
countries need to appreciate the major causes of poor corporate governance in the public entities.
In particular, they need to understand and address why boards have not been as effective as they
should be in promoting good corporate governance in public entities. Determining this will be
the main objective of this study.