Page 20 - FOL2023

Corporate Governance

have largely agrarian pieces of legislation regulating them, An analysis of the legislative
economies, SOEs account but the focus of this piece is on the framework
for between 25% and 50% of Lesotho Development Corporation
the Urban economy. Third, Act 13 of 1990 (‘LNDC Act’) regarding In terms of the LNDC Act, the LNDC
in economies with less the appointment and independence is a body corporate whose purpose is
developed private sectors, of the Chief Executive Officer (‘CEO’), to initiate, promote and facilitate the
SOEs can be an important to highlight whether this legislation development of manufacturing and
source of employment fosters independence of judgment processing industries, mining and
and job training for local on the part of the CEO as required of commerce in a manner which will
populations. These factors him by company law and corporate increase income and employment
combined make the efficient governance principles. For obvious in Lesotho, and crucially in terms of
and competitive operations reasons, the Government, as the S.4(1) of the same Act:
of SOEs of paramount major shareholder of the LNDC,
importance to economic plays an active role through the The Government may,
development. Minister of Trade, in the appointment after consultation with
and dismissal of the Chief Executive the Corporation, give
The reality that government Officer. This role poses a real the Corporation general
is involved in business poses a potential for conflict of interest on guidelines as to the
challenge because of the uniqueness the part of the Government to create policy to be applied in
of the position it holds as the policy a lax legislative environment which is carrying out the purposes
formulator, legislation initiator and conducive for appointing someone of the Corporation and
a major shareholder in some, if who would be easily pliable and the Corporation shall
not all, of those businesses. As the readily receptive of its manipulation give effect to those
initiator of legislation, the challenge and control for the achievement of guidelines. Every decision
is always whether the laws it pushes narrow political ends as against the of the Corporation made
through Parliament to regulate public good, while, on the other hand, in accordance with those
these businesses, engender, or there is a strict requirement that the guidelines is deemed, for all
foster compliance with corporate CEO be independent and maintain an purposes, to be a decision
governance. There are a number of unfettered discretion in discharging of the Government.
SOEs in this country with different his functions and duties.

Further, in terms of S.9B, the CEO is appointed by the Minister on observed, is also present in relation
the advice of the Board. The Board consists of eleven (11) directors to the dismissal of the CEO, as there
representing the Ministries of Trade, Finance, Development Planning
and Agriculture; one representative from the Lesotho Chamber are no substantive criteria set for
of Commerce and Industry; one representative from the Lesotho when his dismissal can be triggered.
Manufacturers Association, and three members who shall be appointed All these considerations point to a
by the Minister of Trade by virtue of their holding at least ten per cent real concern regarding whether the
shares in the corporation, or their skill, knowledge and experience in CEO of the LNDC can discharge
matters relating to the functions of the Corporation. This composition his functions in the best interests
of the Board makes it apparent that it is heavily skewed in favour of of the Corporation. Especially its
Government as, out of eleven directors, four are representatives from corollary, that he exercises an
four Ministries plus three who are appointed by the Minister, and so, independent judgment bona fide
clearly, the Board is heavily laden with directors who are heavily linked to for its interest. Furthermore, if
Government. The CEO is also dismissible by the Minister on the advice the Board is bound to follow the
of the Board. set Government policy direction
without question, his appointment
What is apparent from this legislative framework is that the appointment and removal are not predicated
of the CEO is the sole preserve of Government even though it does so on on substantive and objectively set
the advice of the Board. This, coupled with the Government’s prerogative criteria. The inescapable conclusion
to formulate policy directives for implementation by the LNDC Board to be possibly drawn from all these is
without fail, makes for uneasy reading, as it poses serious questions that the LNDC CEO is most probably
regarding the ability of a CEO to comply with corporate governance unlikely to act independently bona
precepts in discharging his duties. fide in the interest of the Corporation.
The appointment of the CEO is not subject to legislatively ordained Conclusion
substantive criteria. It is open to the Board, which is heavily The absence of set criteria for the
government-learning, to formulate the appointment criteria as appointment and dismissal of the
the need arises for such an appointment, and herein lies the real CEO does not inure to the benefit of
possibility for the tailoring of the requirements to suit a particular good corporate governance as he
individual who may not necessarily be qualified, but who is amenable always has to look over the horizon
to the major shareholder’s manipulation. This deficiency, it will be

Issue 2022 FOL Quarterly 21