Governance watchdog raises red flags against BoB, BMC
Mbongeni Mguni | Monday October 25, 2021 06:00
The BAOA’s reviews have shown that the major problem with state-owned or -controlled entities and corporate governance is that the laws establishing these organisations often run contrary to internationally acceptable governance standards.
In blistering submissions before the Parliamentary Committee on Statutory Bodies and State Entities on Tuesday, BAOA CEO, Duncan Majinda, said the last review of state entities and other major private sector bodies had shown a corporate governance compliance rate of just 13%.
The BAOA is the oversight body of the accounting and auditing profession in Botswana, regulating the activities of auditors and regulating the financial reporting and corporate governance of Public Interest Entities and the corporate sector. Public Interest Entities (PIE) are major firms listed on the Botswana Stock Exchange, licensed by the Non-Bank Financial Institutions Regulatory Authority or the Bank of Botswana, state entities and others deemed significant in terms of their presence in the country.
The BAOA conducts cyclical reviews on financial reporting and corporate governance, and with its newly amended Act has promised to begin imposing punitive fines on errant entities.
“There’s no corporate governance in Botswana and if you quiz me on that statement, I can give you the names of the ones that I have reviewed,” Majinda told legislators. “The main reason is that state-owned entities are torn apart between good corporate governance and the requirement to comply with their statutes. “That is a serious conflict. “Some are taking advantage of that and saying they will comply with their statutes and not good corporate governance.”
At the Bank of Botswana, the BAOA’s major issue is that the CEO or governor is also the chairperson of the bank’s board, a situation Majinda said 'breaks the back' of corporate governance. The arrangement is guided by Section 9 of the Bank of Botswana Act, which states that the chairperson of the central bank’s board shall be the governor.
“The board is supposed to oversee management and make sure it carries out the strategy. “If management is the board as well, then the back of corporate governance is broken. “A board should appoint the CEO, but BoB board does not and this appointment is done by the President. “I’m not questioning that, but rather the due process. “Are there any interventions or mitigations for this? The answer is no.”
He added: “At the BoB, management develops the strategy and gives it to the board, not for approval but for noting. “I ask the question that if you are the board and you are not appointing the CEO, setting the strategy, doing appraisals, then what are you doing as a board? “Their answer is simple and straight-forward. They say they are complying with the statutes even though the statutes are more than 20-years-old. “The management should motivate for change.”
Majinda has recommended a two-tier board at the BoB, with one heading management and related organisational structures and another heading the monetary policy functions of the bank.
“Statutes really should not involve themselves in corporate governance. “The statute should rather refer those issues to the corporate governance standards, which is what the Companies Act does. “The statutes should talk about compliance with corporate governance standards and not legislate new corporate governance unique to state-owned entities,” he said.
The BAOA CEO reserved his strongest criticism for the Botswana Meat Commission (BMC) whose corporate governance he said he was struggling to find a suitable description for.
“In a nutshell, I would say it is a catastrophe,” Majinda said. “It shook me that that they don’t even have a CEO or acting CEO. They didn’t have a board although now they do. “What’s happening is criminal. It is terrible and I am shocked.”
The Parliamentary Committee on Statutory Bodies and State Entities recently dismissed the BMC from its hearings, after finding that the executives sent to represent it could not be categorised as accounting officers. The committee only recognises chief executive officers and similar levels as accounting officers capable of representing their organisations in the hearings.
Majinda also took a swipe at several state entities for poor financial reporting, singling out Air Botswana, which he said had failed to produce audited financial statements for the year ended March 2020. The National Development Bank and Botswana Savings Bank both have modified audit opinions indicating that auditors do not agree with the books presented by management, while rising losses at the Botswana Power Corporation and the University of Botswana are raising concerns around the level of government support required to maintain them as going concerns.
The CEO said with the new BAOA Act, state entities that fail to submit financial statements on time and have other irregularities would face severe penalties. According to the BAOA’s annual report released earlier this year, state-owned entities are the biggest culprits in corporate misgovernance, with troubles such as having an acting CEO or no CEO for prolonged periods and operating without boards or full boards over time. Other issues include persistent delayed finalisation of financial statements.
By some estimates there are up to 12 acting CEOs across the country’s parastatals.