![]()
1 Background of the corporate environment in Tanzania
Tanzaniaâs socio-economic history is informed by the demands of the economic environment, which in turn informs the operating environment for both public and private enterprises. When it comes to state-owned (public) enterprises (SOEs), history reveals the arduous and interesting journey travelled since independence, during the Arusha Declaration era and the post-Arusha economic liberalization and privatization periods.
It is important that when the public sets out to evaluate the performance of SOEs today, it is aware of the history and the performance benchmarks that formed the basis for their existence. This is not to say that SOEs deserve empathy from the public, but the public should understand that they have little choice but to leverage their performance and earn the trust of the tax-paying public (Mwapachu, 2013). The foregoing highlights why it is important to understand the corporate governance challenges that SOEs faced and continue to face in the evolving policy environments characterized by, among other things, rampant undercapitalization, blurred separation of power, limited powers of boards, limited enforceability of agreements and ineffective oversight functions.
Corporate environment 1967â2015
The 1995 constitutional amendment facilitated the establishment of the Public Leadership Code of Ethics Act and its operationalization through the Ethics Secretariat under the Office of the President. The basic principles that underlie the code range from incontestable integrity among public leaders, decision-making in accordance with the law and public interest and avoiding conflict of interest, to the refusal to solicit or accept gifts and benefits. It also extends to confidentiality with respect to public information, misuse of government property for private benefit and declaration of wealth and liabilities. In a two-way transparent approach, in addition to receiving declarations of wealth by public leaders, the Ethics Secretariat is also mandated to receive complaints from the public on breach of the code and inquire into allegations of breaches of the code by public leaders. Public leaders include members of the executive, legislature and judiciary branches, state enterprises executives, the police and the military.
By his recent actions, the current head of state, President John Pombe Magufuli, highlights his governmentâs ethics-related priority areas. They include combating impunity in public service delivery, eliminating wasteful and unnecessary public expenditure and confronting corruption, which have long overwhelmed the nation.
The areas mentioned above are a clear indication of the serious lack of the requisite leadership ethics in Tanzaniaâs governance system. The presidentâs actions are therefore aimed not only at ensuring strict compliance to the requirements of revered leadership ethics, for ethics are at the heart of leadership, but also at having leaders that walk the talk. In other words, ethics is the sine qua non of a good leader (Msekwa, 2016).
Business ethics and corporate responsibility
It is important at the outset to highlight the close relationship between business ethics and corporate responsibility. These two intriguing terms go hand in hand as far as business is concerned. Ethics guru Kenneth Andrews identified three main characteristics to the problem of corporate ethics, namely the development of the executive as a moral person, the influence of the business enterprise as a moral environment and the actions needed to map a high road to economic and ethical performance (Andrews, 1989).
The development of the executive as a moral person starts from the standpoint that unethical conduct or behaviour in business is often regarded as individual failure. Morality and ethical behaviour in real life, however, are influenced by factors beyond an individualâs upbringing. For example, we often witness what has come to be regarded as bi-polar personality in professional executivesâ and entrepreneursâ conduct in corporate settings (Mwapachu, 2005).
Indeed, it is true that there are challenges that confront business as a moral environment. In effect, there is a school of thought in Tanzania that believes that the onset of the free market system is what invoked unethical business practices. The free market system and its constituent economic liberalization became indicative of unethical business behaviour. This justifies the argument that societies which embrace the free market often forget that the free market can only thrive where morality and social values predominate (Velshi, 2013). True to form, in Tanzania it reached a point where unethical corporate conduct undermined and subverted economic and social well-being. If business fails to become ethical, the market will lose its legitimacy and credibility, and private enterprise will be despised (Mwapachu, 2005).
Over time, the conduct of business moved from the logic of business competition which broils in ethical business (fair trade practices) to subverting such logic. This rendered a bad name and image to business, as the erosion of business ethics continued across the different strata. A belief that success in business went hand in hand with circumventing procedures and cutting corners grew within various categories of stakeholders including regulators and consumers. Diluted was the premise that business ethics hinge on ethical governance. Moreover, ethics are about values. Ethics and ethical conduct cannot blossom in absence of clear preference for what is right over what is wrong.
Corporate governance
Monks and Minow (2004) assert that corporate governance has emerged more and more as an integral and critical part of modern management. Whereas corporate governance may be viewed as a system utilized to shield investorsâ interests, Shleifer and Vishny (1997) defined corporate governance as the ways in which suppliers of finance to companies assure themselves of getting a return on their investment. Likewise, La Porta, Lopez-de-Silanes, Shleifer and Vishny (2000) refer to corporate governance as âa set of mechanisms through which outside investors protect themselves against expropriation by [managers and controlling shareholders].â
Corporate governance guidelines as mechanisms can help a company reduce agency costs and better align the interests of the boards and investors (Picou & Rubach, 2006). To maximize shareholdersâ return on investment, corporate governance mechanisms exist to provide accurate information to investors and shareholders, important in terms of investment and resource allocation decision-making.
Corporate governance is also regarded as âa set of relationships between a companyâs management, its board, and other stakeholdersâ (OECD, 2004). This approach looks into a broader network of relationships including other stakeholders, way beyond the relationship between shareholder and director.
The myriad definitions address stakeholdersâ roles along the company value chain, in the context of corporate governance. Furthermore, the definitions look at corporate governance both mechanistically, as ways or mechanisms, and as relationships among stakeholders, reflecting ethics in many shades.
Defining corporate governance as âthe exercise of power over and responsibility for corporate entities,â Mallin (2002) places responsibility as an element of ethics, beyond the control mechanisms of laws, rules and regulations. Gillan and Starks (1998), for instance, view corporate governance as the system of laws, rules and factors that control operations at a company. The famous Cadbury Report depicted corporate governance as âthe system by which companies are directed and controlledâ (Cadbury, 1992). The report was certainly concerned with the control mechanism alongside the leadership required for that mechanism.
From a stakeholderâs perspective, researchers are known to categorize corporate governance mechanisms into two typologies, namely, those internal to companies and those external to companies. The typologies paved the way for the two models of corporate governance, viz. the âshareholderâ model (âexternalâ control exerted by shareholders) and the âstakeholderâ model (âinternalâ control exerted by diverse parties having a stake or an interest in the companyâs operations). The model of corporate governance built on agency theory is also popular. In this model, shareholders (as principals) delegate to managers (as agents), sharing risk between the two as well as underlying conflict of interest (Eisenhardt, 1989). Agency theory, however, falls short in elucidating how managers address interests represented by non-shareholders, including political pressures and communal expectations (Nwabueze & Mileski, 2008).
The Arusha Declaration
The 1967 Arusha Declaration encompassed the essence of the ideology of socialism and self-reliance (Ujamaa na Kujitegemea) as the cornerstone of Tanzaniaâs socio-political and economic blueprint (Kiondo, 1993). In part, the move emanated from the pressure to adopt a system of coordination of economic opportunities that would provide equal access to resources and benefits, congruent with the aspirations of building Ujamaa (Melyoki, 2007). The declaration represented a formal rejection of the classical liberal market system of coordination and provided a vision of an egalitarian nation. To that effect, it expounded the role of the leadership and expectations toward building the envisaged society. The Arusha Declaration was, in effect, the first national ethics creed, although it embraced the partyâs ideology under what came to be known as the leadership code.
As far as leadership is concerned, it was resolved under the Arusha Declaration that:
i | Every TANU1 member and government leader must be either a peasant or a worker and should not be associated with the practices of capitalism or feudalism; |
ii | No TANU or government leader should hold shares in any company; |
iii | No TANU or government leader should hold directorships in any privately owned enterprise; |
iv | No TANU or government leader should receive two or more salaries; |
v | No TANU or government leader should own houses which he rents to others. |
The declaration ushered in the emergence of state-owned enterprises (the parastatals), then a relatively new phenomenon, as part of the peopleâs ownership of the means of production it elucidated. Implementation of the objectives of the Arusha Declaration involved the nationalization of private entities under the public ownership policy. The policy outlined strategic areas reserved for the government and attempted to encourage private investments into other areas (Nyerere, 1968).
In a turn of events, the leadership code introduced under the Arusha Declaration was reversed in 1992 through what has come to be called the Zanzibar Resolution.
The Zanzibar Resolution
To many across the country, the 1992 Zanzibar Resolution represented a critical turning point in ethics and governance in Tanzania as a society. It revisited the tenets of the Arusha Declaration as it related to governance, the leadership code. The crux of the Zanzibar Resolution was that with the new economic and political realities, the Arusha Declarationâs leadership code was outdated. The subsequent adoption of the Zanzibar Resolution reflected a major shift from the fundamentals of the Arusha Declaration. As it turns out (in hindsight), it was at this point that the erosion of the socialist ethics was revealed via unethical behaviour in governance, corruption and the disintegration of the social fabric (Mwapachu, 2005). This was also the time that Tanzania adopted market-driven policies and political pluralism.
It was at this juncture that we witnessed deteriorated social service delivery, the collapse of parastatal sector public ownership and cracks in the national fabric. Wanton privatization cut across the economy, not sparing either unprofitable or profitable and strategic productive entities in the parastatal sector. For instance, to date, multiple Controller and Auditor General (CAG) reports reveal that proceeds of public entities under liquidation recorded in audited financial statements of the principal do not correspond to the realized amounts reflected in the statement of affairs of the entities under liquidation (CAG, 2016).
Unfortunate as it is, there is no proof that the adopted privatization measures, for instance, took into consideration the bearing that ethics and governance have. Overall, the objective fell short. The reason behind the below-expectation performance is largely attributed to ineffective governance. This period started to witness every form of ineffectiveness through ineptitude. It extended from wilful tax evasion to poor expenditure controls, and from ineffective governance and reckless implementation to wastefulness (Mwapachu, 2005).
What the nation witnessed was a period of what some have termed as poor ethics in governance (Mwapachu, 2005). As evidenced by multiple CAG periodic reports year in and year out, there has been massive resource wastefulness across the sectors of the economy. Poor ethics were entrenched in the failure to embrace new ideas by leaders and revealed in the numerous ills that became the way of doing business in Tanzania â a further deficit in entrepreneurial ethics.
Given the publicâs concern on increased need for accountability, transparency and good governance, informed decisions are vital. CAG annual reports cover all significant issues pertaining to the audit of public entities and include recommendations to entities to ensure that all the weaknesses are addressed. The reports also reviewed the strategic and governance issues with the aim of responding to fundamental policy questions or critical challenges and business risks affecting mandates, strategies, business processes and productivity of public entities (CAG, 2015).
The deficit in entrepreneurial ethics is revealed in three problems that stand out, namely the application of outdated ideas, the inappropriateness of a problem-solving culture and the negative orientation of cultural ethos. Nowhere else in Tanzaniaâs economic history can one get a better understanding of entrepreneurial ethics than public entities, the parastatals, which embody all the three.
Governance and Tanzaniaâs Development Vision
Tanzaniaâs Development Vision 2025 (TDV 2025) brings to the fore the issue of good governance at a national level as one of its principal objectives. It states the following:
