ZIMBABWE Trends and Developments Contributed by: Norman Chimuka and Tonderai Sena, ChimukaMafunga Commercial Attorneys
control over the corporate resources to further their selfish endeavours, which gives rise to the agency problem. Therefore, the argument for increased share- holder involvement is primarily aimed at mitigating this issue. On the other hand, the case for greater shareholder activism is premised on the perception that share- holders own the company. Shareholders, primarily of public companies, are unwieldy and cannot easily organise themselves into acting in a concerted man- ner. The board of directors, in the context of a public company, exists precisely to counter this problem as its centralised structure is more efficient. However, unlike the directors of a company who stand in a fiduciary relationship to the company and are therefore constrained to act in its best interests, shareholders are not legally bound to exercise their vote in the best interests of the company as a whole, and they are allowed at law to vote in the advance- ment of their self-interests. The shareholder’s right to vote is a proprietary interest. The right to vote is attached as an incident of property to be enjoyed and exercised for the shareholder’s personal advantage. A hostile takeover is a classic example of a situation where shareholders act in the advancement of their interests, often at the expense of the company and its non-shareholder constituencies. Corporate Social Responsibility and Shareholders’ Rights Corporate social responsibility (CSR) refers to a busi- ness approach wherein companies, rather than focus- ing solely on financial gain, include social and envi- ronmental issues in their operations and interactions with stakeholders. It can be difficult to strike a balance between share- holders’ rights and CSR. CSR efforts can improve a business’s standing and long-term profitability, but occasionally they run counter to shareholders’ short- term financial goals. Investing in eco-friendly tech- nologies, for instance, may result in lower short-term profits but higher long-term gains. The following are scenarios where CSR efforts clash with shareholder interest:
• Environmental Initiatives: Companies trading in petroleum have faced shareholder pushback in their attempts to invest in renewable energy projects. This is due to the fact that shareholders ordinarily prioritise immediate returns. • Product Safety and Quality: Big pharmaceutical companies and food production and processing companies investing in product safety have faced significant conflict from shareholders due to the fact that although the investments enhance con- sumer trust, they usually result in short-term finan- cial losses, thereby causing a significant reduction in the dividends payable to the shareholders. • Labour Practices: Companies seeking to enhance employee well-being through salary increments and other benefits often encounter conflicts with shareholders as this increases operational costs and affects short-term profitability. It cannot be said that shareholders’ rights and CSR are mutually exclusive. A balance must be attained by each company as far as is practicable. In terms of Section 195 (5) of the Companies and Other Business Entities Act [Chapter 24:31], the directors are obliged to have regard for the impact of the company’s opera- tions on the community and the environment. The Role of the Reserve Bank of Zimbabwe in Promoting Foreign Investment The Reserve Bank of Zimbabwe (RBZ) plays a key role in the regulation and facilitation of foreign investment in Zimbabwe. It is important for prospective investors to familiarise themselves with the functions and roles of the RBZ. Some of the key functions of the central The RBZ regulates compliance of investors with Zimbabwe’s financial regulations and issues rel- evant licences to foreign investors. It also oversees exchange control regulations, which serve to manage foreign investments. This includes approving foreign investments, acquisitions, mergers, and the remit- tance of dividends and proceeds thereof. Facilitation of foreign investment The RBZ provides information on investment oppor- tunities and guidance on the legal and regulatory bank are summarised below. Regulation and supervision
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