RESEARCH

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, 8^th 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 inconsistence 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).