PART II: ZCCM-IH Crisis: Has Corporate Governance Deteriorated?

• Minority shareholders complain of concealment of the KMP Royalty deal documents and the Mopani Copper Mines $1.5 Billion purchase agreement
• Board Chair Dolika Banda resigns due to alleged political interference
• Shares suspended on the London Stock Exchange due to non-compliance with Disclosure and Transparency rules

By Mwansa Chalwe Sr.

The current crisis at ZCCM-IH is related, in one way or another, to the apparent deterioration in the corporate governance practices at the company. This assertion is not an allegation but a statement of fact. The new Chairperson of the company is on record as having hinted at the existence of the problem at the company for some time, which his predecessor was trying to clean up. During the handover event, the new ZCCM-IH Board chairperson, Kakenenwa Muyangwa, thanked Ms. Dolika Banda for improving and emphasizing good corporate governance practices and business controls in the company during her tenure, stating: “I am grateful to my predecessor Ms. Banda for her passion and leadership that she dedicated to ZCCM-IH for the past 15 months. She championed Zambia’s mining interests.”

There have been several corporate governance lapses at ZCCM-IH in recent times, which one can point to. These include the lack of transparency, political interference in the company’s operations and decision-making, and the lack of compliance with the requirements of a listed company. This article highlights the various areas where ZCCM-IH has evidently failed.

Concealment of information and lack of transparency

The Minority shareholders have complained several times about being oppressed in the sense that they have been denied their rights as shareholders, by the majority shareholder, the Zambian government. They have been unfairly prejudiced in being denied access to information. During the acquisition of 90 % Mopani Mines, for example, the Minority shareholders complained about the company’s behaviour.

“In 2021, when Carlisa investments, a subsidiary of Glencore and First Quantum Minerals, sold a 90% stake in Mopani Copper Mines (MCM) to ZCCM-IH, the Minority shareholders had already been denied access to the terms of the $1.5billion buyout,” Thierry Charles the Spokesperson for the Minority Shareholders complained about the lack of transparency by ZCCM-IH.

In 2023, in the deal to convert the 20% ordinary shares that ZCCM-IH held in Kansanshi Mines PLC into a Royalty, the Minority shareholders were denied a number of documents to enable them, as shareholders, to vote on the transaction in an informed way. They recently released a statement about the fact that ZCCM- IH concealed the documents and clauses of the KMP deal from them before voting on the deal on 31st March, 2023 at Shareholders Annual General meeting (AGM).

The Minority shareholders have complained several times about being oppressed in the sense that they have been denied their rights as shareholders, by the majority shareholder, the Zambian government. They have been unfairly prejudiced in being denied access to information. During the acquisition of 90 % Mopani Mines, for example, the Minority shareholders complained about the company’s behaviour.

“In 2021, when Carlisa investments, a subsidiary of Glencore and First Quantum Minerals, sold a 90% stake in Mopani Copper Mines (MCM) to ZCCM-IH, the Minority shareholders had already been denied access to the terms of the $1.5billion buyout,” Thierry Charles the Spokesperson for the Minority Shareholders complained about the lack of transparency by ZCCM-IH.

In 2023, in the deal to convert the 20% ordinary shares that ZCCM-IH held in Kansanshi Mines PLC into a Royalty, the Minority shareholders were denied a number of documents to enable them, as shareholders, to vote on the transaction in an informed way. They recently released a statement about the fact that ZCCM- IH concealed the documents and clauses of the KMP deal from them before voting on the deal on 31st March, 2023 at Shareholders Annual General meeting (AGM).

Zambians and other stakeholders who were suspicious of the Royalty transaction in 2022, in the first place, have been vindicated by the Minority shareholders complaints. The Non-governmental organisation, Carlitas Zambia has challenged the Zambian government to disclose the full details of the deal signed with First Quantum Minerals, if indeed, there is nothing suspicious about the conversion of Zambians’ shares in Kansanshi Mining Plc that ZCCM-IH holds on their behalf, in the spirit of upholding transparency and accountability in the mining sector.

“The main source of corruption in the mining industry over the years has been the lack of openness in the sector’s management and administration, which has deprived Zambians of the benefits. If the ZCCH-IH deal is going to be for the Zambian people’s benefit, then why are they being kept in the dark about it? We contend that the only reason the ZCCH-IH agreement with FQM is being kept a secret from the people of Zambia is because it most likely benefits a select group or individuals. We demand that the government follow the law and make available to the people of Zambia all documents related to the ZCCM-IH agreement,” Caritas Zambia said in its Press statement.

The other person who has added his call for the full disclosure of the deal is the Member of Parliament for Lunte in Northern Province, Mutotwe Kafwaya, who is a professional accountant.

“When we said there is something grossly wrong with the government intention to dispose of ordinary interest in FQM, some people argued against our position. We knew that there was bad interference from powers that be. Because of bad interference from State House, ZCCM – IH proposed to dispose of ordinary shares held in FQM against national interest and against Constitutional provisions. Because of bad interference from State House, an ethical board chairperson for ZCCM – IH resigned from her position paving way for the creation of bad perception,” the member Parliament wrote in a statement on the crisis at ZCCM-IH.

In a take no prisoners, and scathing criticism of the new dawn administration, the Mast Editorial of 15 May, 2023, wrote an editorial on what some critics have deemed as President HH’s leadership doctrine. The paper pointed out widespread political interferences and micromanagement of State Owned Enterprises, including ZCCM-IH, one of the main features of the said leadership doctrine.

“Zambia is not an animal farm where some are more equal than others. There is political interference by your own staff at State House at IDC and ZCCM-IH. One cannot politicise a business decision of a publicly listed company. ZCCM-IH is the shareholder of KCM and Mopani. Why is ZCCM-IH not leading the negotiations? Why at the very initial stages of negotiations were Greg Mills, Valentine Chitalu among others, involved in negotiations? Now Ministers and Bureaucrats are leading the negotiations. No wonder Dolika Banda, the Chairperson at ZCCM-IH has now resigned,” the Paper observed.

Non Compliance with Disclosure and Transparency rules

The London Stock exchange recently suspended the trading of ZCCM-IH shares. This was as a result of the non-compliance with Financial Conduct Authority (“FCA”) Disclosure and Transparency Rules. The suspension of shares of listed company is a very serious offence. It has never happened to ZCCM-IH since 1964. ZCCM-IH did confirm the suspension of its shares due to non-compliance in cautionary statement. The company notified its shareholders and the public about it and the reason.

“This suspension is as a result of the non-publication of audited financial results for the years 2021 and 2022 within regulation time, which were delayed due to the prolonged completion of the fair valuation process of assets and liabilities related to the acquisition of 90% shares of Mopani Copper Mines Plc as of 31 March 2021,” ZCCM-IH said in a statement.

The suspension of ZCCM-IH shares by the London stock exchange for the non-production of financial statements for two financial years, raises questions about the Zambian regulators – the Securities Exchange Commission (SEC) and the Lusaka Securities Exchange (LuSE). It will be useful for two regulators to educate the public about why they never took the same action. And also, how they allowed ZCCM-IH to go ahead with the approval of the FQM/KMP deal at the AGM, when they had not filed audited accounts for two financial years. They also need to educate the public why they did not act on the suppression of minority shareholders when they complained. They have to provide answers to these questions as quickly as possible in order to enhance their credibility in the eyes of the investing public.

Why did Dolika Banda resign?

The resignation of former Chairperson of ZCCM- IH, Ms. Dolika Banda has been shrouded in some kind of mystery, because she has not personally publicly come out in the open, to state the reasons for resignation. However, it is quite easy to infer the reasons, from third Party information that is publicly available, as well as from her farewell remarks during the hand over event.

The news about Ms Banda’s resignation was first broken by a credible on line publication, The Daily Revelation. The Media House reported on 4th May, 2023 that ZCCM-IH Board Chairperson Dolika Banda had resigned due to excessive interference from State House over the many decisions in the mining sector, including on KCM, Mopani and the decisions on the stake in Kansanshi mines.

“She has been frustrated during the period she was appointed to the position as all the decisions ranging from KCM, Mopani, and Kansanshi and even on the exploration into the Cobalt resources and which people to bring in. There are a whole host of issues currently ongoing in which decisions appear to be coming directly from the presidency at State House,” sources said. “The complaint has been about the overall decision making in ZCCM-IH and the lady saw little reason of remaining in an institution where she could not make decisions due to the alleged interference from State House,” according to the report by Patrick Chilemba of the New Revelation Newspaper, quoting reliable sources close to Ms. Banda.

In her farewell speech, as part of handover, in a rather subtle manner, she did give an inkling as to one of the reasons why she left .The reason could only be picked up by those who pay attention to detail, and listen to what people are not saying.

“I believe at the core of its mandate, ZCCM-IH is capable of advancing Zambia and its citizens through leveraging the country’s billion-dollar mining sector. We have to work with global partners to maximise these resources, and Zambians have got to be part of the equation. I am for brand Zambia, and will continue preaching brand Zambia,” Banda said.

When you read the above statement from Ms. Banda, and combine it with the ZCCM-IH Minority interest’s complaint about the non-disclosure of the FQM Royalty Agreement, it leaves one with little doubt as to one of the reasons why she could have resigned. The ZCCM-IH Board approval and validation of the controversial conversion of its 20% dividend interests in Kansanshi Copper and Gold Mine to an annual 3.1% royalty payment may have contributed. But all in all, in the final analysis, it boils down to issues of corporate governance issues – political interference and micromanagement.

Conclusion

Whichever way one looks at it, what is clear is that there are serious Corporate Governance issues in the way that ZCCM-IH is being managed by the government which has contributed to the delay in resolving the KCM and MCM debacles. There is no way of sugar coating the crisis at ZCCM-IH. If the suspension of shares by the London Stock exchange of ZCCM- IH, and the resignation of a reputable and international Corporate Guru like Dolika Banda, is anything to go by, there has certainly been a deterioration in corporate governance at ZCCM- IH.

Large and listed Companies like ZCCM-IH’s structures are well defined. There are employees, Management, Board of Directors and Shareholders. Their respective roles and responsibilities are all well-defined. And no external parties are supposed to interfere in how the company is run on day basis and in decision making. ZCCM-IH, as an internationally listed company, with a complex diversified portfolio cannot be remote controlled and micromanaged by rookie civil servants and a foreign kitchen cabinet member, who is highly conflicted by virtue of his known connections to a foreign mining Multinational. Zambia can do better than this, given its immense human capital.

ZCCM-IH has serious Corporate Governance problems that should be addressed at the highest level, by ensuring that the principles of corporate governance are adhered to and the company hires independent and knowledgeable professionals to help it in its current negotiations. The issues of transparency, accountability, segregation of responsibilities and non-interference ought to be observed. The Institute of Directors is well advised to educate government authorities including ministers, civil servants and the newly appointed Board members about the basics of corporate governance through possible virtual workshop and seminars. It’s only in Zambia where you see SOE Board Chairperson addressing the press so often and explaining operational matters instead of Chief Executives. This has to come to an end. There is so much ignorance about the different roles of Management, the Board and Shareholders, and the result is the mess you are seeing all over State Owned Enterprises.

Zambia should learn from Singapore and China on how State Owned Enterprises (SOEs) are managed. There is meritocracy in appointments of Boards, Chairpersons and Chief Executives. And the Shareholder – the government – does not interfere in the operations of those companies, but rather waits for them to account at regular intervals when their performance are measured. The two countries have some of the most successful SOEs, with some being quoted on Western Stock Exchanges and appear in the fortune 500 list.

The writer is a Chartered Accountant and Author. He is a semi-retired international MSMEs Consultant. He is also an Op-Ed Contributor to the Hong Kong based, Alibaba owned South China Morning Post (SCMP).Contact:[email protected]