I write this article to express disappointment about the shenanigans of those who have, so far, failed to tell the truth on a subject where, judging from recent events, speculation and misconception progressively have the upper hand.
At the same time, I should make explicit my gratitude to the local newspapers in consistently keeping the general readership informed about the not-so-internal affairs of public bodies. The Sunday Standard, in particular, deserves special mention. Unfortunately, in a recent commentary (3.09.06 at page 8) the Sunday Standard obfuscated the issues, although having rightly identified them in the first place, and went on uncharacteristically to pursue a line that was fundamentally flawed.
I will attempt to clarify the issues raised in that article, with respect to the most common public perceptions. In doing so, I hope, also, to provide the reader with an opportunity for studying various approaches to debatable problems, for I believe the moral responsibility of one privileged to be an academic, the position I find myself in, is not limited to critical comment but also to pedagogic interaction with his tolerant reader.
The guiding principle for an exercise of the magnitude such as lies before me comes from that great physicist of the last century, Albert Einstein, who enjoined us to make things simple but not any simpler. I will endeavour to make simple the issues surrounding that ill-fated organization called PEEPA, but not any simpler.
I agree unreservedly with the sentiments expressed by the Sunday Standard on our privatization policy. I agree that, in a country renowned for the rule of law, one where privatization has been embraced as an economic policy, the disposal, by sale or otherwise, of public assets into private hands, ought to be sanctioned by legislation in compliance with statutorily prescribed criteria, procedures and structures.
The philosophy behind regulation is, among other things, to assure transparency, equity and guard against possible abuse by those entrusted with reconstruction of the national economy. The same rationale applies with equal force (although on a smaller scale) as regards the expropriation of private property by the State. In most countries that pursue privatization goals, e.g the economies in transition from central planning, Latin America and South-east Asia, enabling legislation has been enacted to facilitate this erosion of social ownership.
The countries which have deviated from the norm, e.g the former USSR, only discovered, too late, the error of their ways. A rules based regime governing the privatization process, as the Sunday Standard validly contends, infuses certainty and, I might add, legal and institutional predictability on outcomes. The reader will perhaps agree that these two factors are indispensable in building investor confidence. After all, privatization is less about citizen economic empowerment and more preoccupied with efficiency and profit. But let us return to the issues.
The Sunday Standard laments: “If there was such a law in place, we would not be in the embarrassing mess we find ourselves in today, where a whole cabinet is held at (sic) ransom by directors of a board that are supposed to be its representatives.” While I agree, gathering from newspaper reports, that there is more to it than meets the eye in the corridors of PEEPA, I am embarrassed by the linkage between the theatrics of certain actors at this company, resulting in am impasse, to the lack of a law on the privatization project. Frankly, I fail to see the nexus and, rather, I think this is a conclusion without premises.
Not unexpectedly, I take issue with the Sunday Standard’s ostensibly syllogistic reasoning. Indeed, judging from the “Press Statement” of the three erstwhile directors of PEEPA, I am not alone in this observation. I shall have more to say about these eminent personages later. For now, I turn to the premises.
Let me start with a fact. PEEPA was set up by the government, under the companies statute, as a company limited by guarantee, principally, to advise on privatization and to identify various public entities which might be ripe for the privatization exercise.
This act of constitution and functionality (for, here, we are concerned with the technical matter of how PEEPA’s various organs work) must not be confused with the political question (as the Sunday Standard succeeds in doing) on whether privatization should be governed by policy or by special legislation. I must assure the reader that my comments in this context do not represent an apologia for privatization, or a polemic against it.
That, to my mind, is a topic for another time. The key to the conundrum is locating the regime to which PEEPA is subject. This point is critical because it is the site of tension between those in power and those empowered. It is, as it were, the theatre of conflict, where the relationship between the two forces is created, yet contested.
The relationship between the organs of PEEPA, or its functionality, is determined by examining the text of its memorandum and articles of association (its constitution), the principles of law that govern its constitution, and the context in which its constitution was framed. Legislation, constitution and context: this is the hierarchy of power in most legal relationships.
The subject of the government’s approach to privatization, per se, has no bearing on the resolution of this problematic, contrary to the impression given by the Sunday Standard. True, in a perfect world, there should be an enabling measure on privatization that would put in place an appropriate vehicle(s) for implementation, create structures and┬á┬á organs and determine the primary division of powers and functions between these organs. But we must take the facts as we find them today.
We must also acknowledge the role of political expediency, for this is an imperfect world. Consequently, such legal void as obtains in this context, no matter how it defies both logic and common sense, does not necessarily render otiose the machinery already in full swing.
Because it was formed under the Companies Act, it is primarily governed by that legislation. Let us examine its legal and administrative structure, from the perspective of this legislation. We find that the board and the shareholders, in general meeting, are the two principal organs of the company.
The apportionment of its powers and functions is regulated by both this legislation and its constitution. In company law theory, once an organ has been assigned certain powers these powers cannot be usurped by another organ. This situation has a potential to create tension or conflict between the management and the shareholders. It has to do with the separation between ownership and control. Indeed, the entire corporate governance debate is centered on this dichotomy. In the case of PEEPA, the question, broadly speaking, is whether its constitution or articles entitle its board to absolute control of the company or whether they are subject to the overall control of the general meeting.
A related question is whether, if the board enjoys absolute control, that amounts to a carte blanch or whether the government can legitimately intervene in the company’s affairs. And if so, how? In our interrogation, we must bear in mind that, in terms of the articles, the board is charged with the management of the company’s affairs.
In analyzing precisely this relationship, the Sunday Standard asserts, with unbridled patriotic fervour, that, “the directors only serve the wish of the shareholder, in this instance, the government.” The newspaper exhorts that where the interests of the shareholder and the interests of the directors are in opposition, the conflict should be resolved in favour of the shareholder.
On their part, the board appears to hold a contrary view, at least on one specific issue. It seems the bone of contention is whether the board are empowered to appoint a new Chief Executive Officer. Or, are they subject to the general meeting? In other words, the government’s instructions?
I say the government because I agree with the Sunday Standard that this is the company’s only shareholder, for all who sit in the general meeting are members nominated by the government.
If I gather correctly from the newspapers, the board (or what remains of it, anyway) believes such appointment to be their sole right. Hence, the deadlock. Indeed, in terms of the articles, the board appoints a Chief Executive Officer. In this narrow compass, therefore, the directors alone have authority to appoint whomsoever they choose without interference. Indeed, this strictly legalistic approach may find the support of those who subscribe to “the majority view” in company law.
I said above the hierarchy of power is legislation, constitution and context. I have dealt with the first two. Let me now give a brief exposition on context as an aid to resolving the conflict between the board and general meeting of PEEPA. Here I must warn that politics is a speculative chimera which should not be allowed to creep into the analysis.
I have already referred to the Sunday Standard and their position. I think the situation they (i.e the Sunday Standard) find themselves in is that calling for unbridled governmental action and in the same breath advocating a privatization law tend to cancel out each other. Let me try to suggest how the government can intervene robustly, but legitimately, in PEEPA. What is the context in which the articles were written?
Ownership of the privatization policy by the Government of Botswana. Although the board is vested with managing the affairs of PEEPA, the company’s supreme organ arguably is the general meeting (Government’s nominees). However, the ultimate power to control PEEPA vests in the government, if regard be had to the following considerations. First, the board is limited to seven directors and can only be increased with the government’s agreement. Second, the Minister appoints the board.
Third, the Minister appoints the board chairperson. Fourth, the Minister determines the directors’ remuneration. Fifth, the board may recommend that one of them be removed, but only in consultation with the Minister. Sixth, the Minister can convene an extraordinary general meeting of the company where the board is inquorate. And so on, and so forth.
Those conversant with company law and practice know of concrete examples┬á which illustrate that where the board is incapacitated or otherwise unable to act, its managerial powers revert to the shareholders in general meeting. In PEEPA, the Minister (read, the government) is the repository of the company’s powers.
Consequently, where the board is deadlocked and unable to take decisions, Cabinet can, and should, intervene via the general meeting. Moreover, the government, again only through the general meeting, can assume control of the board’s managerial powers by altering PEEPA’s articles, or refusing to re-appoint the directors of whose actions the government disapproves, or removing a recalcitrant director, e.g a board chair, in terms of the companies statute.
The law is clear; it is only a matter of political will or, rather, the lack of it. I say the government because even where enjoyed by the Minister, these powers originate from the executive authority of the President vested by our Constitution. In exercising these powers, the President need not consult. Where Cabinet is exercising these powers, they are executing delegated authority. Where the incumbent Vice President is exercising these powers, he is acting nomine officio.
Thus the claim that the Vice President is driving a hidden agenda of sorts is poppycock and an attempt to besmirch him.
Finally, let me turn to those directors who saw fit to resign, and here I pay tribute to my colleague, Parks Tafa, who soldiers on. Let me remind the reader that our law clearly spells out the rights of an aggrieved director who complains about the manner in which the company’s affairs are being conducted. This is because a director holds an office in the company. He can resign from the company.
Often, a director will resign to preempt an imminent sacking. He is a fiduciary of the company and owes it the duty of trust and confidence. It is his duty to exercise his powers or discretions in a manner not detrimental to those for whom he acts, and he should not abuse the trust and confidence reposed in him. We find in PEEPA a person appointed by the government to PEEPA’s board, a company enjoined to undertake a major reconstruction programme to boost the economy by attracting foreign investment, resigning collectively from office with others, an act resulting in deadlock, and making known his resignation in the news media, without regard to the erosion of investor confidence. Questions: is such a person acting bona fide?┬á
Is his act done for the benefit of and to promote the prosperity of the company? Is he exercising his powers or discretions in a manner not detrimental to those for whom he acts? Is he acting in the interests of the company and not for some collateral or extraneous purpose?  When all is said and done, it is for you the reader to judge such conduct: chivalry or charlatanry?
