Research topic:
The influence of
Washington consensus on Tanzania corporate governance systems
Independent variables: the
Influence of Washington Consensus
Dependent variable: Tanzania
Corporate Governance Systems
ABSTRACT
This research
paper is discussing the influence of Washington consensus on Tanzania corporate
governance systems. Paying attentions to ownership and control of public
corporations. The paper is divided into
four key parts, one is the introduction, covers the definition of the concepts.
The second part is the conceptual framework of the corporate ownership and
control. Third is the comparative analysis of Tanzania corporate governance
systems, before and after the Washington consensus and finally the conclusion. For
this paper, Tanzania broadcasting corporation (TBC) and Tanzania electricity
supply company (TANESCO) are used as the case study.
Key terms: corporate
governance, corporate ownership and control, Washington consensus,
INTRODUCTION
Scholars have
provided several definitions in regard to corporate governance, Cadbury define corporate governance as
the system, by which companies are directed and controlled. Demba and Neubaur
defined corporate governance as the process by which corporation are made responsive
to the rights and whishes of stakeholders. Also Sheifer and Vashny defined
corporate governance as the way in which suppliers of finance to corporations
assures them of getting return on their investment. (Martin 2005). These definition lack one important aspect of
corporate governance, the legal aspect of corporate governance is left out in
these definition. Corporate governance therefore can be defined as a way or
manner in which corporation, a created by the law, and governed for the
interest of the shareholders and stakeholders.
Ownership and control are key aspect of corporate governance; these
aspects are defined based on the right to own assets as well as decision over
those assets and the exercise of those rights. (Melyoki 2005). In corporate
governance the right to own corporate assets and make decision over the use of
those assets, are in the hand of the finance provider, or shareholders. On the other hand Washington consensus refers
to economic changes advocated to revamp the economy of third world
countries. The changes were influenced
by the World Bank, International Monetary Fund (IMF), European countries and
USA.
The consensus
emphasizes minimal role of the state in the economy. By encouraging fiscal
discipline, reordering public expenditure priority, tax reform, liberalizing
interest rates, competitive interest rates, trade liberalization,
liberalization inward foreign direct investment, and privatization,
deregulation, and property right. (Bakey 2009, Williamson 2004).
CONCEPTUAL FRAMEWORK OF CORPORATE OWNERSHIP AND
CONTROL
The conceptual
framework in corporate ownership and control entails the relationship between
the owner of the corporation and controller of the corporation. There is a separation
relationship between the owner and the controller of the corporation
assets. (Minnow and Monks 2011) argued
that the shareholder has the exclusive control of the stock itself, but as the
condition of the shareholder’s limited liability, the shareholder give up the
right to control use of the corporation‘s property by others, control is
delegated to the management.
But that does
not fit in every circumstance, some argue for no separation between ownership
and control, and some argue for minimal separation as well as total separation.
There three frameworks in which separation can be explained. These include
majority shareholder control, minority shareholder control and managerialism
control.
Majority
shareholders control, the shareholders who own more than 50% percent of the outstanding
voting share has a greatest opportunity to influence practices and behavior of
the corporation. And in this arrangement there is partial separation between
ownership and control. Minority shareholders control, ownership and control are
partially separate as well. The shareholders own less than 50% of the total
share therefore they could not influence the corporate behavior and practice.
The third
framework is managerial framework where there are no dominant shareholders. Ownership
is separate from control, managers who are professional, exercises control of
the corporation. In this framework shareholders are left with the rights to
vote for board member election, the right to receive relevant information from
the board of directors, the right to dividend from investment, and the right to
submit policy proposal. In a central-controlled economy, ownership and control
are not separated. The state owns the corporations and controls them. Market–controlled
economy the state own some shares in corporation and control mechanism are
subject to the market.
COMPARATIVE ANALYSIS OF TANZANIA CORPORATE
GOVERNANCE SYSTEMS, BEFORE AND AFTER THE WASHINGTON CONSENSUS
Tanzania since
independence has moved through several economic changes, these include the
colonial inherited systems, the central-controlled economy and currently the
movement toward market regulated economy. In 1967 Tanzania adopted the policy
on socialism and self reliance through Arusha declaration, where state became
central to all sphere of economy. The state under President Julius K Nyerere
thought to run the economy in equity framework.
Arusha
declarations principles, 8th and 9th principles stipulate that;
h)
That in order to ensure economic justice the state must have effective control
over principal means of production (I) that it is the responsibility of the
state to intervene effectively in the economic life of the nation so as to
ensure the well being of the citizens, and so as to prevent the exploitation of
one person or one group by another, and so as to prevent the accumulation of
wealth to an extent which is inconsistency with existence of classless society.
(Nyerere 1968)
These principles
had a number of impact on corporate governance systems. It was the state that
owned the corporations on behalf of people and excised control over the
corporations. The state and the party (TANU) developed controlling mechanism
for corporations. Among the mechanism Melyoki (2005) identified; the people and
party control, parliamentary control, presidential control, as well as
ministerial control. All these mechanism were informed by ruling party’s
interest.
OWNERSHIP BEFORE AND AFTER THE CONSENSUS
Before the
consensus Tanzania Electricity Supply Company (TANESCO) and Tanzania
Broadcasting Corporation (TBC) were 100% owned by the states. After the
consensus 1990s these corporation maintained government ownership but several
features were introduced. In 1999 the
government decided to unbundle and privatize Tanesco to promote efficiency,
private sector participation and introduction of competition in electricity
market. Tanesco maintain the control of electricity transmission and
distribution. (www.tanesco.com). According to Eberhard et al (2006) the government
of Tanzania through Parastatal Sectors Reform Commission (PSRC), established
Independent Power Projects (IPPs). Two IPPs were introduced namely Independent
Power Tanzania Limited (IPTL) generating power by diesel generator, and Songas
generating natural gas power.
CONTROL
OF THESE CORPORATIONS.
Before consensus
these corporations were controlled by the state and the party, following the
party supremacy. As Melyoki (2005) mentioned above, that the corporations were
controlled through; people and party, people controlled these corporation
through social pressures exercised through mass media. Reporting the behavior
of the directors or managers to the party organ like National Executive Committee
(NEC) and appointment of party representatives in corporations offices. Also
the party offered directives to these corporations’ managers, as the means to
control the corporation.
The president
exercised control by appointment of the Chief Executive Officers (CEO), and the
Chairperson of the board of directors but also through presidential visits and
consultations with directors. The
parliament also controlled these corporations through debate and approval of
the bill, parliamentary deliberation, through Parastatal Organization Account Committee
of the parliament. The Minister also controls corporations through ministry directives,
appointment of the members of the board, access of information on demand,
control of borrowing, budget approval, and control over the investment and
budget scrutiny.
The consensus
has some influence over controlling mechanism of public corporation. These
influences include the end of party control of the public corporation,
establishment of regulatory authorities for regulation of corporation
activities. For TANESCO, therefore the Energy and Water Utilities Regulatory Authority
(EWURA) established under Energy and Water Utilities Regulation Act Cap 414 (www.ewura.go.tz). The Tanzania Communication Regulatory Authority
(TCRA) for Tanzania Broadcasting Corporation. The other change in controlling mechanism is
the appointment of directors by the Ministry of Energy and Minerals (MEM) this
ended the dual appointment of Chief Executive Officer and the Chairperson of
the Board of Directors by the president. The consensus also introduced
political parties and public control of the public corporation through mass
media and public rallies. These control mechanisms are exercised not through
political party organ like how it used to be with single party.
CONCLUSION
Regardless the
influences of Washington consensus over the ownership and control of the public
corporation. Most of controlling mechanism has either remained unchanged or
slowly influenced. The appointment of the Chief Executive Officers remains as
president’s activities. Also the parliamentary control through Public
Organization Account Committee (POAC) and adhoc committee of the parliament,
for instance in 2006 the selected committee under Hon Harrison Mwakyembe
investigated Tanesco scandal involving Tanesco and Richmond Development Company
LLC (Mwakyembe 2008).
REFERNCES;
Eberhard .A. et al (2006); Generating
Power and Controversy: Understanding Tanzania
Independent Power Project. Journal of Energy in Southern Africa, Vol 17
No 4.
Melyoki .L. L. (2005); Determinants of Effective Corporate
Governance in Tanzania.
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Martin. H. (2005); New Corporate Governance; Successful Board Management Tools. (2nd
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Heidelberg.
Germany.
Mwakyembe.
H.(2008); the Report of the Select
Committee of the parliament of the United Republic
of
Tanzania to Investigate the Tendering Process for Emergency Power Supply by
Richmond
Development Company LLC of Houston, Texas, USA, in 2006.
Williamson J. (2004); a Short History of the Washington Consensus,
Paper Commissioned by
Fundación
CIDOB for a Conference “From the Washington Consensus
towards
a New Global Governance,” Barcelona, September 24–25, 2004
History of Tanzania Electricity
Supply Company. www.tanesco.com
Energy and Water Utilities
Regulatory Authority Act. www.ewura.go.tz
.
