Archive | February, 2011


27 Feb


It is clearly the reason Enron is History. The reason countries around the world have introduced various codes of best practice and laws to protect the interests of various stakeholders in companies. Included among the codes and laws are the Sarbanes Oxley Act (SOX-2002) in the US, Combined Code on corporate governance in the U.K, the King reports (I, II, III) in South Africa, Singapore Code, the Bank of Zambia BoZ guidelines on corporate governance, Organization for Economic Cooperation and Development OECD standards and many more.


Let us begin by looking at the word corporate. The word corporate in the context of corporate governance refers to a large company or organisation.

Governance refers to the role of people empowered with the duty of determining the strategic decisions of a company or state. It entails and requires authority being granted to those persons so that they can control, direct or supervise the entity amicably. It is this authority that most ‘directors’ usually abuse for their own interest and hence the need for corporate governance regulations and codes of best practice.

Summing the two up, “Corporate governance is the process and structure used to direct and manage the business and affairs of an institution with the objective of ensuring its safety and soundness and enhancing shareholder value.”-Bank of Zambia (2006). Simply put, it refers to the mechanism by which an entity (or company) is directed and controlled. The Organization for Economic Co-operation and Development (OECD), which has its own international corporate governance standards, defines the term 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 means of attaining those objectives”.

A corporate governance system has the main aim of entrenching the principles of fairness, transparency, objectivity, decency, responsibility, accountability, status, judgment and integrity among those charged with the governance of companies. We will look at each of these principles as we proceed in this series.


As corporations and regulatory bodies continue the search for an ideal system of corporate governance, some main models still stand the test of time. Included among them are;


This model of corporate governance sees shareholders as the primary reason for the existence of the entity. Emphasis is on shareholder wealth maximization. Further, it calls for every company to appoint a Board of Directors (BOD) to represent the interests of shareholders. The shareholder model of governance is attributed to countries such as the United States of America (USA), United Kingdom (UK) Canada, Australia and many other capitalist nations. It is thus also known as the Anglo-Saxon model of corporate governance.


This model is mostly attributed to Germany. It concentrates not only on shareholders but also other stakeholders in a company. It is a two tier model of governance with the BOD being monitored by a supervisory body in order to take into account the interests of other stakeholders such as employees. This could be very crucial for countries where the employees have high influence like Germany.


One of the least talked about models is the Japanese kereistsu model. Keirestsu is translated into English as ‘lineage’. This model is similar to the Anglo-Saxon model except that the Board of Directors represents the interests of the Keirestsu (usually a group in a lineage, bank or other institution) and not necessarily the ‘ordinary’ shareholders. “Typical of a Japanese horizontal kereistsu is Mitsubishi where the Bank of Tokyo-Mitsubishi sits at the top of the kereistsu. Also part of the core group is Mitsubishi Trust and Banking followed by Meiiji Mutual Life Insurance company which provides insurance to all members of the keirestsu”- Twomey (2011)


Although overlooked by many developing countries, corporate governance is important in their desire to develop.
The importance of corporate governance can never be underrated. As a result of its importance, it has attracted vast attention and public interest in the past decade. The following are companies across the world who’s failure or poor performance have (partially and/or fully) been attributed to poor corporate governance; Enron in the US, Parmalat in Italy and Zambian Airways in Zambia. All these failures occurred in the last decade and the list could be endless. Due to the importance of these companies to their nations, it can be said that corporate governance is important for the economic health of both corporations and society in general. Without it, companies fail and employment and output fall.

An understanding of both corporate governance systems and governance chains is needed in formulating the strategies of a firm. It helps managers determine which stakeholders to concentrate on and satisfy first as they craft the organization’s strategy. This could mean the difference between success and failure for both the entity and strategic level management.

Corporate governance also offers essential guidelines to strategic management on ways in which they can avoid principal-agent problem. This way, they can avoid the huge penalties that come with non adherence to certain regulations like the Sarbanes Oxley Act. This also helps managers be better accountable for corporate conduct and performance.

“All in all corporate governance is viewed as a form of business ethics and a moral duty that managers and the boards of directors owe to… stakeholders in the corporate governance chain. The corporate governance chain basically illuminates the relationships of groups involved in the governance of an organization.”-Byrne et al (2010)

Bank of Zambia-BOZ (2006). Banking and Financial Services (Corporate Governance) Guidelines, 2006.

Brian Twomey “Understanding the Japanese Keiretsu” Retrieved 27/02/2011.

Byrne Kaulu, Nnena Nwankwo Mutumba, Lucia Bubala Moonga, Twaambo, Adrian, David Nsanzya, Michelo. (2010) “What mechanisms in the governance chain could (or should) have prevented what happened at Enron?” BS 450-Strategic Management-Paper presentation.



23 Feb

Many people have been asking about the events relating to the battle for the delisting of Celtel from the Lusaka stock exchange.

By 31st March 2010; news went around that, Bharti Airtel had signed a deal with Kuwait based Zain Telecom to buy it’s African business for USD 10.7 billion. Following the agreement, Bharti MD Sunil Bharti Mittal said the agreement was a land mark for the global telecommunications industry and a pioneering step towards… the strengthening of ties between Africa and India.

Bharti Airtel is the largest Indian Telecom Business operator. It is formerly known as Bharti Tele- Ventures and now offers it’s TELECOM services under the brand name Airtel. In December, 2010; shortly after Bharti Airtel acquired 97 percent majority shareholding in Celtel Zambia (then operating under the brand name Zain) they applied for the delisting of Celtel Zambia from the Lusaka Stock Exchange (LuSE).

However, the desire by the telecom giant to delist celtel has been met fierce opposition. For instance, over 2000 of the 3 percent minority shareholders refused to accept Bharti’s mandatory offer to buy shares belonging to the minority shareholders. The minority shareholders are expecting to be protected by requirements of the Securities and Exchange (SEC) Act, Section 237-238 of the Companies Act-CAP 388 of the laws of Zambia and the LuSE listing rules. The Lusaka Stock Exchange (LuSE) Board also refused (through an announcement on 14th February, 2010) to approve the application to delist in line with Section 9.34 of the Listing Rules on Take-overs and mergers.

Currently, trading in Celtel shares is not taking place. However, LuSE has continued to assure the general public that trading in the securities will resume soon. You can follow market updates on the intention to delist Celtel from the Lusaka Stock Exchange by clicking here.


22 Feb

Lately we have seen many upheavals across the world (mostly the Arab world). There have been some in Tunisia, Egypt, Libya and many more continue to arise. All these are with the effort of bringing change. The magnitude of the above mentioned upheavals tell us a lot about how change can be a major source of friction. Today, we are not going to be looking at change itself but rather the resistance to change.

Resistance to change can be a major source of friction anywhere. In personal relationships, one person might want their partner to stop behaving in a particular way- for instance, they may want them to stop being in contact with certain people in their life. In private companies, strategic level management might introduce a new information system which requires specialised skills to operate. A government may introduce a new law which some people may not agree with. In all these and many other scenarios, the resistance to change and how well it is managed can be critical for success.


To determine what resistance to change involves, we need to establish how people resist change. According to Award (2004), “Resistance is displayed in the form of projection, avoidance and aggression.” Let us in turn consider these one by one.


Aggression refers to behaviour that is antagonistic, hostile or violent. It is the first reaction when someone totally disagrees with the proposed change. Aggression is a serious signal that the disagreement may cause serious friction and should be handled with utmost care by the proposer of change.

If the proposed change goes ahead against the aggressor, such a person may display dysfunctional behaviour. They may become less active, perpetually report for work late, be un-participative and begin to influence peers to resist the change in the case of a workplace. In interpersonal situations, the aggressor may tend to be quieter (for a chorelic), answer questions with high temper and basically lose their mind too often as they do things.


In the next less intense (but controversial stage), the person resisting change may begin to make projections. Based on past and present data, they may analyse what could happen in future with the hope that they can convince the proposer of change that the change is not worth taking place. For instance; in an organisation, an operational personnel may argue that a new information system requires them to learn new Information Technology for which they do not have enough time. They would further argue that the conversion from the old to the new system may lead to errors, inaccuracy and loss of data and information. For the person who is pushing for change (top management in this case) this is a very good opportunity to sell the advantages of embracing the change.


The Concise Oxford English Dictionary provides that to avoid is to “keep away from, [or to] prevent from happening.” If those resisting change are not handled well in the projection stage, the fuel is ignited to create the momentum for avoidance. Avoidance will usually involve the aggrieved person showing deliberate gross incompetence. They may decide to either work ineffectively or not to do any work. When confronted about it, they are most likely to blame the newly introduced system or way of doing things so that it may be eliminated or compromised with.


There are many reasons people resist change. In fact, pages of books can be written about that. However, one good way of determining the reasons is through what psychologists call the expectancy theory. The core foundation of this theory can be summarised in one phrase “Behaviour is a function of it’s consequences” According to the expectancy theory (developed by Victor H. Vroom in 1964),

Motivational Force (MF) = Expectancy x Instrumentality x Valence.

Expectancy is the belief that one’s input will result in the achievement of desired performance goals or targets. Instrumentality is the faith or belief that someone will receive a reward if their performance expectation is met. Valence is the value the individual places on the rewards based on their specific situation (sources of motivation, goals, values, needs and so on.)

Allan (2009) summarises the expectancy theory in relation to answering the question of why people resist change as follows.

“…for someone to change their behaviour, they would need to believe that
(a) [There is a reward and] the reward is of sufficient value
(b) It is probable that if they performed…they would receive the reward (outcome) and
(c) If they expended the effort that they would perform to the standard required.
The interconnections between these three factors- value, performance and effort- largely determine whether a person will strive for a particular change outcome.”


Therefore from the expectancy theory, it can be determined that people resist change for various reasons relating to expectancy, instrumentality and valence. Expanding and simplifying on that, people resist change due to the manner in which change is introduced, the inconveniences that change comes with, fear of the unknown and lack of proper communication of the change among other factors.

To manage resistance to change, communications lines must be kept open with a safe and open atmosphere. This enables people to freely express their needs, understand the change and become more participative.


Elias M. Awad (2004): “Knowledge management”

Leslie Allan (2009) “Why people resist change” Articles base


7 Feb


Many expect it to cause serious problems in the United States towards the start of the second quarter of 2011. It has already caused serious problems in the past. Some say it is the reason for the recent financial crisis of the first decade of the 21st Century. Its name is DEBT. Africa with it’s many blessings seems to want and acquire more.

Let us count your blessings Africa; abundant natural resources, brainy people, good whether in most countries and peace. Maybe counting would be a waste of another very useful resource, time. How much time is there in Africa? With many estimates placing Africa’s population at slightly over one billion; that is approximately 2.4 x 10 to the power 10 hours. That is, over 24 billion hours in a day in ideal conditions. Obviously a good amount of that time would be productive if well managed.

Despite all these bendiciones (as they would call blessings in Spanish), Africa still continues to be the creditor’s companion. For instance, according to an article from Jubilee Research entitled ;“A silent war;The devastating impact of debt on the poor”, “ Each year, developing countries pay the west nine times more in debt repayments than they receive in grants.” Even for a country like Zambia which reached the HIPC completion point a few years ago, the word debt appears in the 2011 national budget about seven times. Here are some words from the budget speech that tell us how much exactly we are talking of or expect in terms of debt for Zambia in 2011 alone.

…the Government intends to receive about US$400million in concessional and non-concessional loan disbursements during 2011. Sir, keeping debt within sustainable levels remains critical for macroeconomic stability. These resources we intend to borrow will be spent wisely. We remain mindful that five years ago we were still paying the price of unsustainable debt contraction for projects of little or no economic return.

There it is! Africa’s answer for solving the debt problem once and for all is recognized by Africans themselves. Debt is essential for development. However, spending the borrowed money wisely and making sure that projects funded by borrowed funds are of high return compared to the costs of these funds is essential to running away from debt. Can we? Are we? Will we? These are questions that only the Africans themselves can answer best.

The song that an average African lives on less than a dollar per day has become a lullaby. Its ideal meaning cannot be understood even by the people in the situation. Africa! Could this be true? Do you think Mr. Debt is one of the major causes of your troubles?

To contact the author email: byrnek09 (at) gmail (dot) com

Jubilee Research (1998) “A silent war; The devastating impact of debt on the poor” Retrieved 7/01/2011.
Zambia National budget speech- delivered to the National Assembly on 8th October,2010.


6 Feb

I have been sitting in the background wandering what to write about. It is like my mind has been blocked from all the possibilities. My ability to think seems to have been reduced to endless thoughts. I want to share them here.

Please, do not confuse the what I am about to say with Ellen G. White’s book “The desire of ages.” These are my random thoughts. I do not know why but I feel compelled to share them.
They are economy building because they help us free our minds and think widely and with more focus.Therefore, here we go…

I have questions to unlock.What
has been man’s greatest desire for
ages?Peace? Success? Love?Fame?
Happiness?Education? Pureness?
Glory? Wisdom? Pleasure? Toil? The
son to the Psalmst said “all is

I do tend to reach that same conclusion
before I quickly fall back to
wanting them. Hence I have come
to an important question… If all
seems to be vanity, could there be
something somewhere that is not
vanity? If yes, it probably has got at
least 10 good reasons to be
man’s desire for ages.

We all have a
longing. Its like an
unquencheable thirst. We achieve
today and feel empty tommorrow.
only I could know that one purpose
for my being.

If only all the sputnick moments
could be summed up into one
fulfilling conclusion and

Many have died not knowing. Many
die trying to. Maybe all is vanity.
Maybe not. The reason for writing
this too is vanity. It is
meaningless either for now or in
future. However, I hope I will have the
ability to look back and discern what
I can not at the moment.

as the wisest recognised person that
has ever lived said “there is a
time for everything.” Maybe that should be our desire. Understanding the times. Knowing when to invest and when not to. What to invest in and what not to. Knowing that what looks lucrative today can turnout to be agonising tommorrow.

Maybe we can never know. We all have desires. What are yours?

Email: byrnek09 (at) gmail (dot) com

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