Managing change in Zimbabwe

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By Gilbert Muponda

PRESIDENT Robert Mugabe must go for the Zimbabwe economy to recover.

Zimbabwe can be likened to a very poorly performing company. And its CEO is none other than President Mugabe, and if the company is to have any chance of recovery it’s imperative that the CEO who led the company to its ruin must be “retired”.

I have already written extensively about Zimbabwe’s economic problems. In this article, I seek to suggest ways to resolve the Economic decay.

Even if Zimbabwe was to get a Finance Minister from Jupiter and a central bank governor from the Outer Space, Zimbabwe’s economy would never recover as long as President Mugabe remains the CEO of Zimbabwe Inc.

This is an opportunity for Reserve Bank Governor Gideon Gono to be a hero: He should take a firm stand and clearly tell the people the economy cannot be solved as long as Mugabe remains in power.

There is no need to act like false prophets who masquerade as turn around experts and avoiding giving the clear and honest advice that the nation’s economic problems cannot be solved as long as President Mugabe remains in office.

Zimbabwe needs a new CEO who can restore confidence to investors (foreign and local). It is pointless to keep changing or criticising the governor when it’s clear he is only a messenger acting on behalf of his “principal”. It is equally bad for the governor to claim he can fix the economy with Mugabe in power. Should he not be pro-active, history will record this.

Zimbabwe’s political risk is so high such that it’s almost impossible to attract any investment (foreign or local). Political risk refers to the risk that revolution or other political conditions will result in a loss.

There several different types of political risk, including (among others):
Political violence, such as revolution, insurrection, civil unrest, terrorism or war;
Governmental expropriation or confiscation of assets;
Governmental frustration or repudiation of contracts;
Wrongful calling of letters of credit or similar on-demand guarantees; and
Inconvertibility of foreign currency or the inability to repatriate funds.

There is total lack of confidence in the economy such that capital flight and a run on the currency make it impossible to simply try to cover up the real issues affecting the economy. The President is 84 years old and has been ruling for 28 years. Any reasonable analyst will ask what other strategy or plan can he implement which he hasn’t in the last 28 years?

I have yet to hear of such a senior citizen who was able to successfully turn around an economy. Given his advanced age, a turn-around situation demands a younger leader who can with-stand the pressure and stress that comes with trying to save a sinking titanic. As a comparison, Russia’s next leader is likely to be a 42-year-old.

In a corporate set up, Zimbabwe’s presidential candidates can be likened to investors trying to take over a company. The phrase mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling and combining of different companies that can aid, finance, or help a growing company in a given industry grow rapidly without having to create another business entity.

Takeover is a business term that refers to one company (the acquirer, or bidder) purchasing another (the target). These candidates need a clear and sustainable strategy to achieve their mission of replacing the country’s current CEO. Just because it hasn’t been done in Zimbabwe doesn’t mean it’s impossible.

A likely and effective strategy is to form an alliance which in business we refer to as a consortium. A consortium is an association of two or more individuals, companies, organisations or governments (or any combination of these entities) with the objective of participating in a common activity or pooling their resources for achieving a common goal.

Each participant retains its separate legal status and the consortium's control over each participant is generally limited to activities involving the joint endeavour, particularly the division of profits.

At this critical stage, politicians can borrow various corporate and financial strategies to achieve their goal. In many situations, a client may want to borrow more money than one bank can comfortably lend. A common strategy is to form a syndicate.

In finance, a group of banks lending for a specific purpose and to one single borrower a large amount of money is referred to as a bank syndicate or often only as a syndicate. In investment banking, it refers to a group of investment banks that share underwriting risk in respect to an issuer's securities, referred to as the underwriting syndicate.This is what is currently confronting Zimbabwe, a huge task beyond capacity of one individual or one organisation. This limits individual risk but dramatically increases chances of success.

In the current set up, it’s clear that all the other candidates lack the total resources required to unseat the current CEO. The answer is to form a syndicate of all the opposing forces. It must be noted the opposing forces don’t actually need to like or love one another. All that’s required is a common purpose.

In business, it’s not uncommon for competitors to collude or cooperate to achieve a common goal. A competitor should be ready to aid his opponent if the outcome serves to achieve a common objective. An immediate example is Google Inc currently offering to help its bitter rival Yahoo! Inc to fend of a hostile bid from Microsoft.

The main consequence of a bid being considered hostile is practical rather than legal. If the board of the target cooperates, the bidder will be able to conduct extensive due diligence into the affairs of the target company. It will be able to find out exactly what it is taking on before it makes a commitment. A hostile bidder will know only the information on the company that is publicly available and will therefore be taking more of a risk. Banks are also less willing to back hostile bids with the loans that are usually needed to finance the takeover.

In the Zimbabwean political scene, this is what seems to be playing out. It is important for all the opposing participants to identify insiders and work across party lines to minimise risk and lend credibility to their proposed takeover of Zimbabwe Inc.

In a private company, the shareholders and the board are likely to be either the same people or closely connected with one another. Therefore, all private acquisitions are likely to be friendly, because if the shareholders have agreed to sell the company then the board, however comprised, will usually be of the same mind or be sufficiently under the orders of the shareholders to cooperate with the bidder.

In cases where management may not be acting in the best interest of the shareholders (or creditors or stakeholders), a hostile takeover allows a suitor to bypass intransigent management. This is very similar to politicians who are no longer faithfully serving those who elected them. In this case, this enables the shareholders to choose the option that may be best for them, rather than leaving approval solely with management. In this case, a hostile takeover may be beneficial to shareholders, which is contrary to the usual perception that a hostile takeover is "bad."

In publicly held companies, various methods to avoid takeover bids are called "poison pills". As a variation of the poison pill defence, the people pill is an anti-takeover defence under which the current management team of the target company threatens to quit en masse in the event of a successful hostile takeover.

The effectiveness of a people pill is dependent on the circumstances of the takeover. If the management team is efficient, the company will be left without experienced leadership following a takeover.

On the other hand, a great number of takeovers are the result of inefficient leadership in which management will be fired anyway; the people pill will be ineffective in this situation. However, in politics it’s slightly different because of the presence of career politicians -- those who eat, drink and sleep politics. They try to resist any takeover or change because they fear losing posts, jobs, perks and benefits. This section has to be handled with care as they are normally prepared to defend the status quo.

A golden parachute is a clause (or several) in an executive's employment contract specifying that they will receive certain significant benefits if their employment is terminated. Sometimes, but not always, these clauses apply only in the event that the company is acquired and the executive's employment is terminated as a result of that acquisition. These benefits may include severance pay, cash bonuses, stock options or a combination of the items. The benefits are designed to reduce perverse incentives.

In Zimbabwe, this is critical. It appears during the SADC initiated talks this particular clause was not tactic fully handled. It appears the opposition did not sufficiently address any incentives for the incumbent to participate in any proposed change. This can be addressed during the run up to the election.

A world-wide trend to handle this is normally to offer blanket immunity from prosecution for the current leadership from any crime or alleged crime. The amnesty and immunity normally covers the current leadership, its family and close allies. This is critical to minimise resistance to change. This happened in Russia immediately when president Putin took power from President Boris Yelstin.

This is critical as it allows a smooth and less volatile transition. It is most unlikely that any incumbent will ever cooperate unless and until offered such solid assurances that normally come as part of a new constitution or a presidential decree. For as long as their fate or allies’ fate remains unknown and subject to guess work then resistance will be at its maximum level.

However, these people need to be reminded about the need of being on the correct side of history, as they say no book ends with one chapter. Zimbabwe will have a future and it’s important that people see beyond their immediate personal gains whilst condemning our country to pro-longed poverty and suffering.

In business, a firm facing a hostile take over normally uses what in corporate finance terms are called ‘killer bees’. Killer bees are firms or individuals that are employed by a target company to fend off a takeover bid; these include investment bankers (primary), accountants, attorneys, tax specialists, etc. They aid by utilising various anti-takeover strategies, thereby making the target company economically unattractive and acquisition more costly or impossible. They will defend the current management by almost any means necessary.

The task of the bidder and his advisors is then to soften the killer bees and have as many of them defect to the other side. In a political set up, in Zimbabwe’s case, these comprise of elements within the security services, civil service and private sector who have embedded interest in the current set-up. They need to be assured that they will not be disadvantaged by any proposed take-over.

Anybody who has ever bought a business will confirm that the hard part is not to raise the money, but rather the part to convince management to cooperate and not resist new ownership.

It is almost impossible to take over without reassuring the current managers that they will keep their jobs and perks. Should they be retired/fired, they need to know that they are getting fair compensation for past service.

Zimbabwe Inc’s current suitors need to address these concerns if the mission is to succeed. However, all Zimbabweans who vote for an 84-year-old President need to seriously ask themselves what new ideas can he offer which he has been withholding for the last 28 years.

It is imperative that Zimbabweans show unity of purpose and send a clear message they want a new beginning by convincingly rejecting the notion that an 84-year-old can turn around an economy which he has ruined.

Gilbert Muponda is a Zimbabwe-born entrepreneur, exiled in Canada. He can be contacted at gilbert@gilbertmuponda.com. See his website: www.gilbertmuponda.com

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