SOEs top list of corporate governance violators again

Mbongeni Mguni | Thursday October 3, 2024 16:45

The BAOA is the oversight body of the accounting and auditing profession in Botswana, regulating the activities of auditors as well as the financial reporting and corporate governance of Public Interest Entities (PIE) and the corporate sector.

Corporate governance within the SOEs, better known as parastatals, has been a thorn in the flesh of the BAOA over the years, with many of these entities topping the list of poor performers, across the various indicators of international standards such as the King III and King IV codes.

On Wednesday, Patience Habana, BAOA’s manager for financial reporting, monitoring, and corporate governance, said 58 PIEs in total had been reviewed last year, with the most common challenges revolving around the lack of a succession plan, lack of preparation of integrated reports, not conducting performance evaluations of boards, and issues around board composition.

“The board is a focal point and custodian of corporate governance,” Habana told a webinar on the latest assessments. “They are required to elect an independent, non-executive director as chairs, but we noted that some had chairs that were major shareholders or fulfilling the role of CEO or managing director. “We also noted that the majority of non-executive directors were not independent.”

Habana said a “worst case scenario” picked during the 2023 reviews was where one entity did not even have a board.

“This means there were no governance structures in place,” she said.

The BAOA did not specify which of the most common challenges were particularly associated with SOEs. However, in previous years, the BAOA found that some public entities did not have effective monitoring of ethics or had CEO roles that were not formalised, with no performance reviews for directors. Some had board memberships which were not according to recommended best practices and others did not have approved legal compliance frameworks.

A disturbingly large number of SOEs also operated for long periods with improperly constituted boards and acting CEOs.

Habana said PIEs that were found non-compliant had 30 calendar days to draw up detailed remediation action plans for their shortcomings after they received their official assessments.

However, the BAOA has had trouble getting the non-compliant entities to draw up the action plans.

“We have noted some gaps such as SOEs submitting few details or not addressing the deficiencies that have been noted,” Habana said. “Others provide just one page and say the issues will be addressed and others do not even submit at all or submit after the 30 calendar days.”

Former BAOA CEO, Duncan Majinda, previously told a parliamentary committee that SOEs were frequently caught between their founding legislation and the requirements of corporate governance codes.

“The main reason is that state-owned entities are torn apart between good corporate governance and the requirement to comply with their statutes,” he said. “That is a serious conflict. “Some are taking advantage of that and saying they will comply with their statutes and not good corporate governance.”

The BAOA regulates over 400 PIEs, which include major firms listed on the Botswana Stock Exchange, others licensed by the Non-Bank Financial Institutions Regulatory Authority or the Bank of Botswana, state-owned entities and others deemed significant in terms of their presence in the country.

At the last count, the country had 64 parastatals spread across the different ministries, with the majority of these being loss-making and having been in such a state over many years. The parastatals are divided into commercial and non-commercial, meaning those expected to run on a profitable or ‘going concern’ basis and those that by the nature of their activities exclusively rely on support from government for sustenance.