Corporations Law: Zambian SOEs, Governance, and Organizational Forms

This report delves into Corporations Law, specifically examining the legal and governance frameworks surrounding State-Owned Enterprises (SOEs) in Zambia. The first part of the assignment analyzes the role of statutory corporations, the influence of the Public Finance Act 2018, and the historical context of SOEs in Zambia's economy. It explores challenges such as complex accountabilities, lack of transparency, and political interference, proposing reforms to improve performance, reduce political influence, and enhance transparency. The second part of the assignment contrasts centralized and decentralized organizational structures, outlining their advantages and disadvantages within a corporate context. It explores the impact of these structures on decision-making, cost efficiency, and employee motivation, providing a comprehensive overview of corporate governance and organizational design.

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

1CORPORATIONS LAW
Assignment 1:
Statutory corporations refer to the corporations that are created by the Act of the
Parliament where the majority or controlling interest is possessed by the Government. It
also includes Governmental agencies1. The Public Finance Act 2018 of Zambia provides
the provisions regarding the control and operation of the statutory corporations2. Part V of
the Act provides the discussion regarding the control of the statutory corporations. The
main condition which is ensured by the Secretary of Treasury is that the Government
must be represented properly at the boards of directors present in the statutory
corporations.
Zambia being a country following common law, its legal system as well as the
legislation is highly influenced by United Kingdom and the practices are influenced by
South Africa. It has taken significant steps for improving the corporate governance in the
last few years which includes issuing the Code of Corporate Governance3. Under this
PFA, the Secretary of Treasury; ST possesses additional duties and powers for the
statutory corporations.
In the year 2006, the Ministry of Finance together with National planning had
requested the World Bank for reviewing the practices involved in corporate governance in
the state owned enterprises of Zambia with an intention to benchmark the experience
against the standard of good practice at an international level. In the past years, the
policymakers of Zambia have seen various changes in the contribution of State owned
1 Bananuka, J., Nkundabanyanga, S. K., Nalukenge, I., & Kaawaase, T. (2018). Internal audit function,
audit committee effectiveness and accountability in the Ugandan statutory corporations. Journal of
Financial Reporting and Accounting, 16(1), 138-157.
2 Shimawua, Dominic, and Adejoh Sunday. "Nigerian Public Sector and the Challenge of Workers’
Productivity: An Evaluation." KIU Journal of Social Sciences 4.2 (2018): 225-233.
3 Veldman, Jeroen, and Hugh Willmott. "The cultural grammar of governance: The UK Code of Corporate
Governance, reflexivity, and the limits of ‘soft’regulation." human relations 69.3 (2016): 581-603.

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enterprises hereinafter referred to as the SOEs4. During the entire period from 1950 to
1960, the SOEs are considered as the main bodies which are helpful and useful for
resolving the failure in the market as well as developmental engines. However during the
beginning of 1980, the performance of the SOEs has declined considerably leading to the
development of more private sectors resulting into privatisation.
In the present day, reforming SOE again forms an important agenda of Zambia which
is due to many reasons which are discussed in the later part of the assignment. Even
today, SOEs play an important role in the economy of the country. The SOEs are found to
operate here in the wide variety of industries including many employers attached formally
to the large sectors. The SOEs are found to dominate in various sectors like the
communications, energies, media and transportation5. The government owns about 26
SOEs absolutely having a minority stake of 7. As per the present plan, most of the
companies will be remaining under the ownership as well as control of the state for
undefined period.
But the companies as well as the government face various challenges which are
discussed below6. Firstly, the people present in the current system have very complex and
confusing accountabilities and roles. There exists no focus or concentration on the
governance and ownership of the SOEs from the government level. Units that are
entrusted with overseeing the SOEs are busier in the policies, rules and regulations. They
do not give importance to ensure that the maximum benefit can be derived by the state
from its properties or assets. Secondly, the owners of the SOEs have very little or no
4 Emongor, Rosemary A., André Louw, and Johann F. Kirsten. "Zambia." Regoverning Markets. Routledge,
2016. 183-190.
5 Rudy, Bruce C., Stewart R. Miller, and Dana Wang. "Revisiting FDI strategies and the flow of firm‐
specific advantages: A focus on state‐owned enterprises." Global Strategy Journal 6.1 (2016): 69-78.
6 Chikozho, Claudious. "THE TRAJECTORY AND CHALLENGES OF INSTITUTIONAL REFORM IN
AFRICA: REVISITING THE FUNDAMENTALS FOR SUSTAINABLE SOCIO-ECONOMIC
TRANSFORMATION AND YOUTH PARTICIPATION." (2016).

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information at all. The monitoring of the company is performed by board attendance and
very less information is available centrally. Moreover, the SOEs do not have proper
objectives, performance monitoring control or targets. Although annual reports are
regularly produced by some SOEs and made accessible to the public, many state owned
sectors are opaque and not open to its owners. The government owners do not get enough
returns from their investments. Opacity is maintained and information is hidden mainly
due to the poor performances of some of the companies. The government even has no
idea about the overall performance and operation of the SOEs. As a result, the citizens or
the common people fail to make judgment or decision regarding the company’s
performance or that of the owners. Lastly, though many reforms have been made in recent
days, still notable political interference is observed in the entire system. The CEOs of
many companies are still found to be appointed by the President which again reduces the
scope of accountability of the management towards the board. Moreover as the
government officials are present on the company board, their ability to act in an effective
manner is often weakened. Although notable improvement is observed in the last few
years, still some of the companies suffer from some particular problems like absence of
CEO or board for long periods7.
Considering these, the corporate governance of the SOEs must be subjected to
reformation such that the following interlocking objectives are satisfied8. The objectives
behind the reform are improving the performance of the company by signifying definite
objectives, incorporating the disciplines and mannerism observed in the private sectors in
7 Chikozho, Claudious. "THE TRAJECTORY AND CHALLENGES OF INSTITUTIONAL REFORM IN
AFRICA: REVISITING THE FUNDAMENTALS FOR SUSTAINABLE SOCIO-ECONOMIC
TRANSFORMATION AND YOUTH PARTICIPATION." (2016).
8 Chanda, Shikaputo, Bruce Burton, and Theresa Dunne. "The nature and potential of corporate governance
in developing countries: Zambian perceptions." Accounting, Auditing & Accountability Journal 30.6
(2017): 1257-1287.

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the companies and empowering the owners so that they can take active part in the
monitoring practices and can also adopt measures as and when required.
Secondly, the interference of the political parties and people must be reduced or
eliminated in these companies by providing insulation of more efficient and professional
owners. Thirdly, the risk and costs to the budget of the government must be reduced.
Many SOEs are found to experience expensive drainage of national budgets. Corporate
governance reform can impose strict budget constraints on the companies there by
increasing their autonomy. By this the companies will be gradually allowed to borrow
money from the private sectors directly and not from the government.
Thirdly, trust among the boards, management, owners, citizens and the Parliament
must be increased by creating more transparency among them. Thus following these, the
challenges faced by the SOEs can be limited or even be eliminated resulting into better
performance of the SOEs can be achieved. Adopting better corporate governance is much
more beneficial than adoption of sound practices in the board room although the latter is
equally important as of the former. But as of now, to ensure better performance of the
SOEs, importance must be given to the former practice.
Assignment 2:
There are mainly two kinds of organization which are the centralized and
decentralized9. The former can be defined as the hierarchy structure of decision making in
which all the decisions and processes are strictly controlled and handled at the highest or
at the executive level10. In the centralized type of organization, every decision even those
in relation to day- to- day affairs are decided by the executives of high rank or the main
9 Tolbert, Pamela S., and Richard H. Hall. Organizations: Structures, processes and outcomes. Routledge,
2015.
10 Lee, Michael Y., and Amy C. Edmondson. "Self-managing organizations: Exploring the limits of less-
hierarchical organizing." Research in organizational behavior 37 (2017): 35-58.

5CORPORATIONS LAW
person having authority of the business. Policies are made so that the rest of the company
can follow the direction given by the executives. It basically refers to the set up where the
powers to take decisions are given to very few leaders present at the top level of the
organizational structure. Decisions taken by them are communicated to the members
present at the lower level of the organization11.
On the other hand, another kind of the organization is the decentralized one which is
operation by delegating the decision making powers and by means of flexible methods.
To simplify it, the business owners or the executive of such organization assign duties
and tasks to the management as well as to the employees. Hence here an open
communication is maintained.
Although in this type of organization, freedom to use power is given to the
management as per their decision, still they can be held liable for the production or any
other matter related to their duty. Here the owner or the executives of the company are
highly dependent on the management for managing the operations and functioning of the
organization and also for setting the guidelines to be followed.
When both the above types of authorities are compared, both of them are found to
have some positive and negative aspects which are discussed in the later part of the
assignment. The advantages of a centralized form of organization are as follows;
1. A clear flow of command:
The centralized organization has the benefit of clear command flow as each and every
person of the organization has clearly idea to whom they are required to report. The
junior employees have ideas whom to contact when they have issues regarding the
organization or any of its members whereas the senior executives also have clear
11 Weber, Klaus, and Daniel Waeger. "Organizations as polities: An open systems perspective." Academy of
Management Annals 11.2 (2017): 886-918.

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planning to delegate authority to its employees having particular specializations. As a
result of this, the executives have enough confidence when to delegate their duties to
midlevel people. Thus a clear flow of commands is helpful for better running of the
organization.
2. Concentrated vision:
When a centralised structure of management is followed, the organization can
focus on fulfilling its vision easily.
3. Cost is reduced:
An organization with centralized structure can adhere to the standard level of
methods and procedures that guide any organization. This indirectly helps to reduce
the administrative and official costs.
4. Decisions can be implemented easily and quickly:
Another advantage of this organization form is that decisions can be taken in a
quick and easy manner as they are taken at one level only.
5. Better work:
The fixed standard procedures and strict supervision help to achieve better
outcome in the organization.
However, there are some disadvantages also which are discussed as follows;
1. Bureaucratic type of leadership:
This type of organization represents dictator type of leadership in which
opinion or suggestion from the employee’s end is never appreciated and they are
required to deliver the output as per the directions of the executives of higher
level. This results into lack of motivation for the employees.
2. Tremendous pressure:

7CORPORATIONS LAW
The executives are under huge pressure to give decisions on behalf of the
organization. As the executives cannot decentralize their duties, huge work is
added to their part. Due to tremendous burden of work and shorter time, they can
often give decisions that are not so fruitful and effective.
3. Delay:
This type of structure results into delay in work as all the powers are
centralized, as a result delay in taking actions occurs.
4. Employee’s loyalty affected:
Employees are found to be loyal to the organization where they can take part
personally. However they are not allowed to do so as they are absolutely controlled by
the executives.
Similar to the centralized organizations, decentralized organizations too have
certain advantages and disadvantages12. The advantages of the decentralized
organization type are as follows;
1. Development and diversification:
Here every part of the organization has active autonomy and liberty for
exercising their ideas and proposals. They can also develop managerial skills and help
to solve any problem that may creep in. All these finally ensure growth as well as
development of the organization.
2. Faster decision making:
Here the decisions are taken and performed by the authorised body. Hence
faster and better decisions can be taken.
12 Zyskind, Guy, and Oz Nathan. "Decentralizing privacy: Using blockchain to protect personal data." 2015
IEEE Security and Privacy Workshops. IEEE, 2015.

8CORPORATIONS LAW
3. Better control and super vision:
Each of the department or official is assigned with a separate duty and work.
Hence they can concentrate on their respective duties and liabilities more
efficiently and perfectly. Thus better control and supervision are ensured.
4. Relief for top level executives:
The executives belonging to the top level can focus more on their work and
other work can be looked after by other employees. This works as a relief to them.
However, there are some disadvantages too. Firstly, there lies a difficulty to control as
well as coordinate the overall management of the organization, cost becomes expensive
as every employee has a responsibility to act for the betterment of the organisation.
Hence, they cannot concentrate absolutely on their main work. Thus they become
expensive as per their output. Moreover, the product lines being decentralised are
required to be sufficiently broad such that the autonomous units of the organization can
result into betterment and flourishing of the organization13.
Similar to an organization, the government of a country or state also found to exhibit
either centralised or decentralised type of government structure. In the centralised type of
government, power or authority is held by a political executive or party to which the local
authorities, federal states are subject. On the other hand, the decentralized government is
one that disperses the power from the central government to the subordinate government.
The initial constitution of Zambia was put to abandonment in the year 1973 after
which it becomes a single party state. Again due to the immense pressure within the
country, the constitution was further changed for allowing the reincorporation of the
multiparty system in the year of 1991. As per the new constitution, the president is
13 Garicano, Luis, and Luis Rayo. "Why organizations fail: models and cases." Journal of Economic
Literature 54.1 (2016): 137-92.

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regarded as the state’s head as well as the armed forces’ commander in chief. He holds
his office for maximum two terms of 5 years each. When the president is not present, vice
president takes his charge. From the National Assembly, formed by the legislature’s
elected members, a Cabinet consisting of deputy ministers, ministers as well as provincial
deputy ministers is appointed by the president. This shows that decentralised form of
government is found in Zambia.

10CORPORATIONS LAW
References:
Bananuka, J., Nkundabanyanga, S. K., Nalukenge, I., & Kaawaase, T. (2018). Internal audit
function, audit committee effectiveness and accountability in the Ugandan statutory
corporations. Journal of Financial Reporting and Accounting, 16(1), 138-157.
Chanda, Shikaputo, Bruce Burton, and Theresa Dunne. "The nature and potential of corporate
governance in developing countries: Zambian perceptions." Accounting, Auditing &
Accountability Journal 30.6 (2017): 1257-1287.
Chikozho, Claudious. "THE TRAJECTORY AND CHALLENGES OF INSTITUTIONAL
REFORM IN AFRICA: REVISITING THE FUNDAMENTALS FOR SUSTAINABLE
SOCIO-ECONOMIC TRANSFORMATION AND YOUTH PARTICIPATION." (2016).
Emongor, Rosemary A., André Louw, and Johann F. Kirsten. "Zambia." Regoverning
Markets. Routledge, 2016. 183-190.
Garicano, Luis, and Luis Rayo. "Why organizations fail: models and cases." Journal of
Economic Literature 54.1 (2016): 137-92.
Lee, Michael Y., and Amy C. Edmondson. "Self-managing organizations: Exploring the
limits of less-hierarchical organizing." Research in organizational behavior 37 (2017): 35-58.
Rudy, Bruce C., Stewart R. Miller, and Dana Wang. "Revisiting FDI strategies and the flow
of firm‐specific advantages: A focus on state‐owned enterprises." Global Strategy
Journal 6.1 (2016): 69-78.
Shimawua, Dominic, and Adejoh Sunday. "Nigerian Public Sector and the Challenge of
Workers’ Productivity: An Evaluation." KIU Journal of Social Sciences 4.2 (2018): 225-233.

11CORPORATIONS LAW
Tolbert, Pamela S., and Richard H. Hall. Organizations: Structures, processes and outcomes.
Routledge, 2015.
Veldman, Jeroen, and Hugh Willmott. "The cultural grammar of governance: The UK Code
of Corporate Governance, reflexivity, and the limits of ‘soft’regulation." human
relations 69.3 (2016): 581-603.
Weber, Klaus, and Daniel Waeger. "Organizations as polities: An open systems
perspective." Academy of Management Annals 11.2 (2017): 886-918.
Zyskind, Guy, and Oz Nathan. "Decentralizing privacy: Using blockchain to protect personal
data." 2015 IEEE Security and Privacy Workshops. IEEE, 2015.