ZAMBIA REVENUE AUTHORITY Corporate Governance Workshop 12 th August 2011 Lake Kariba Inns, Siavonga, Zambia

1. ZAMBIA REVENUE AUTHORITY Corporate Governance Workshop 12th August 2011Lake Kariba Inns, Siavonga, Zambia The Business Case for Corporate Governance and Challenges in State Owned Enterprises Presenter: Chabuka J. Kawesha Member – Institute of Directors [IOD] Head - Regulatory Affairs – Government & PR, Airtel Board Chairman, Pensions and Insurance Authority [PIA] Vice President - South, Zambia Association of Chambers of Commerce and Industry [ZACCI] Chairperson - Financial Sector Development Plan [FSDP] Payment Systems Working Group, Bank of Zambia Member - Digital Migration National Task Force [DMNTF], Ministry of Information and Broadcasting Services [MIBS] Member - E-Government Implementation Steering Committee, Ministry of Communications & Transport [MCT] Civil & Commercial Mediator [South Africa & UK] / Court Annexed Mediator [Zambia]

2. Focus of Presentation • Corporate Governance • The Business Case for Corporate Governance • Challenges in State Owned Enterprises [SOE]

3. Goals of Presentation • Recall and improve our understanding of corporate governance and board directors’ responsibilities • Share the competencies directors and management require to implement responsible corporate governance practices • Share director experiences and build networkswith peers 3

4. What is Corporate Governance? “Corporate governance is the system by which companies are directed and controlled….” Sir Adrian Cadbury, UK, 1992 “Corporate governance refers to the structures and processes for the direction and control of companies.” IFC 4

5. Corporate Governance Means Leadership • For efficiency – Compete, Job creation • For probity [Honesty, Integrity, Honor] – Investor confidence & assurance • With responsibility – Address legitimate concerns • Both transparent and accountable –Strong economy “A skilled, predominantly independent and well-organized board of directors would make it possible to set the right strategy of the company and properly oversee its management’s performance.” IFC 5

6. Agency And Stewardship Agency – Involves transfer of capital from shareholders Stewardship – Directors’ role as guardians of the company’s assets Corporate Governance issues arise from the roles of agency and stewardship 6

7. A Company’s Corporate Governance System

8. Strong Corporate Governance attracts Investors • Capital will flow elsewhere if a Country: • Does not have a reputation for strong corporate governance practices • Exhibits Bad governance /Lack of Governance prevails • Investors are not confident of the level of disclosure • Opts for lax accounting and reporting standards • Weak regulatory governance • Demonstrates a clear absence of regulatory transparency 8

9. The five [5] key elements ofgood corporate governance • Good board practices • Appropriate control environment and processes • Strong regime of • disclosure and transparency • Protection of (minority) shareowner rights Strong commitment to corporate governance reforms Five [5]Elements of Corporate Governance 9

10. Pillars Of Corporate Governance • Accountability • Management to Board • Board to Shareholders • Public & Shareholder confidence • Fairness • Protect shareholders’ rights • Regulatory transparency • Transparency • Timely & accurate disclosure • Regulatory transparency • International Best Practises [IBP] • Responsibility • Recognise stakeholders’ rights • Strong regime of zero regulatory capture 10

11. Ethical Values • Honesty • Transparency • Integrity • Openness • Trustworthiness • Respect • Truthfulness • Responsibility

12. CorporateGovernance System 12

13. Competing Tensions “If management is about running business, governance is about seeing that it is run properly. All companies need governing as well as managing.” Prof. Bob Tricker, 1984 13

14. Aligning Corporate, Shareowner, Public Interests “An effective system of corporate governance must strive to channel the self-interest of managers, directors and the advisors upon whom they rely into alignment with the corporate, shareholder and public interest.” Ira Millstein Senior Partner, Weil Gotshal & Menges, LLP Senior Associate Dean, Corporate Governance, Yale School of Management Chair Emeritus, the Forum’s Private Sector Advisory Group 14

15. OECD Principles • Ensuring the basis for an effective corporate governance framework • Rights of shareowners and key ownership functions • Equitable treatment of shareowners • Role of stakeholders in corporate governance • Disclosure and transparency • Board responsibilities • OECD - Organization for Economic Co-operation and Development 15

16. OECD Principles • The OECD Guidelines on Corporate Governance of State-Owned Enterprises offer concrete advice on corporate governance challenges that need to be addressed when the state is a corporate owner, helping governments to assess and improve the way they exercise their ownership functions in state-owned enterprises. • The first survey of corporate governance of state-owned enterprises (SOEs) in OECD countries was published in 2005. This 2011 update reports on the significant changes in the SOE landscape since then and includes information about the 4 new OECD countries - Chile, Estonia, Israel and Slovenia. 16

17. The Business Case For Corporate Governance Companies / Institutions with good governance: • Have better access to capital • Command a premium from investors • Improve oversight, monitoring • Perform better operationally/financially • Ensure effective decision-making • Draws regulatory confidence [In case of Public institutions]

18. The Five Key Elements & the Business Case for Corporate Governance • Good board practices • Clearly defined roles and authorities • Duties and responsibilities of directors understood • Board is well structured • Appropriate composition and mix of skills • Appropriate board procedures • Director remuneration in-line with best practice Board self-evaluation and training conducted • Control environment • Independent audit committee established • Risk-management framework present • Internal control procedures • Internal audit function • Independent external auditor conducts audits • Management information systems established • Compliance function established • Transparent disclosure • Financial information disclosed • Non-financial information disclosed • Financials prepared according to IFRS • High-quality annual report published • Web-based disclosure • Well defined shareowner rights • Minority shareowner rights are formalized • Well-organized general assembly conducted • Policy on related-party transactions • Policy on extraordinary transactions • Clearly defined and explicit dividend policy • Board commitment • The board discusses corporate governance issues and has created corporate governance committee • The company has a corporate governance champion • A corporate governance improvement plan has been created • Appropriate resources are committed • Policies and procedures have been formalized and distributed to relevant staff • A corporate governance code has been developed • The company is publicly recognized as a corporate governance leader 18

19. Challenges in State Owned Enterprises • Adapting to the globalization, liberalization and technological changes - Governments should undertake reforms in the way they run their SOEs. • Effective Legal and Regulatory Framework - The framework for state-owned enterprises should ensure a level-playing field in markets where state-owned enterprises and private sector companies compete in order to avoid market distortions. • Restoring Public Confidence once damaged. • Politically Exposed Persons [PEP] – A PEP is a politically exposed person and is one who is entrusted with prominent public functions. This opportunity comes with its own challenges from the political arena upon • an individual. 19

20. Challenges in State Owned Enterprises • POLITICAL EFFECTS • Executive / Political directives - Potential to create diversion from key corporate governance principles. • Executive Lobbying [Insiders or Outsiders] – Potential to create diversion from key corporate governance principles. • Union Factors / Labors issues – Potential to create diversion from key corporate governance principles. • Government term and change– Potential to create diversion from key corporate governance principles. 20

21. Discussion with ZRA team • Advise, Share, Lets us discuss… • Let us identify a number of State Owned Enterprises in Zambia • What do you see as the main challenges or issues of focus for State Owned Enterprises in Zambia that build a case for Corporate Governance

22. Stakeholder, Issues Focus

23. Citations / References Global Corporate Governance Forum Institute of Directors (IOD), Zambia International Finance Corporation (IFC) OECD - Organization for Economic Co-operation and Development 23

24. Thank you Contact me: http://www.chabukakawesha.webs.com Tel: +260 977 770069 /8981000