MIDLANDS STATE UNIVERSITY
Name:
RESEARCH PROPOSAL:
An evaluation of Corporate Social Responsibility and firm performance: the case of Econet Wireless
Zimbabwe
Supervisor:
1.0 Introduction
This research seeks to evaluate the relationship between corporate social responsibility
(CSR) on firm performance using Econet Wireless Zimbabwe as a case study. The research
proposal will cover the background of the study, statement of the problem, research
questions, research objectives, research hypothesis and proposition, justification of the study,
brief literature review, research methodology, assumptions of the study, delimitation of the
study, limitations of the study, definition of terms, project outline, time frame and summary
1.1 Background of the study
Major corporate governance challenges are traced to the nineties and the beginning of the new
millennium where on global scale examples such as Enron, WorldCom, and Parmalat dominate
the literature (Sanda, Garba, & Mikailu, 2011).These scandals exposed board of directors’
corporate governance malpractices. The Enron scandal exposed how the outward good looking
board operated high scale and coordinated fraud leading to loss of billions of dollars and
thousands of jobs (Sanda, Garba, & Mikailu, 2011).According to Zandstra (2009) one look
around the Enron board room in 2000 would instill investor confidence of legal, ethical, political,
and economic leaders. Surely they would be sufficient gate­keepers. The company had two
executives and 15 non-executives whose resumes were impeccable. These were people with a
combined total of several hundred years’ worth of board oversight. But still Enron collapsed
under their watch. It would suggest that they slept on duty or they did not discharge their duties
as would have been expected.
In Zimbabwe the corporate governance malpractices associated with board failure has the
following examples: Air Zimbabwe, PSMAS, ZBC, African Renaissance Bank (AFRE), BCCI,
UMB Bank, ENG Capital and Barbican Bank. (Sikwila, Chavunduka & Ndoda, 2015).
The major causes of corporate scandals were centred on poor oversight and lack of proper
monitoring of the CEO and executive directors by the board leading to corporate governance
breaches. While board structures were in place in the organisations, the board of directors had
the biggest share of the blame for its failure to monitor management. (Sikwila, Chavunduka &
Ndoda, 2015).
State owned enterprises (SOEs) have an important role to the economy and ensuring that they are
accountable, transparent, efficient, and effective and, where necessary, profitable, is important. It
is also necessary to ensure that they operate on equal terms with their private sector counterparts.
Therefore, a robust SOEs sector is key to the country’s efficient allocation of resources,
competitiveness, economic development, and poverty alleviation.
Most SOEs are synonymous with under-performance and such underperformance takes the form
of: loss making; inadequate, expensive and poor service delivery; excessive debts; and results in;
antiquated infrastructure and capital equipment; inadequate working capital; undercapitalization; skills deficits; vandalism and looting; and mismanagement and corruption.
The trouble that many SOEs find themselves in can often be traced to poor governance practices,
and thus reflects badly on their boards (Rusvingo, 2014). The main one is that there are no clear
lines of accountability amongst the various levels of governance role players. This is because the
government, as sole or chief shareholder, holds overwhelming power and influence, which
sometimes leads to interference (Dailynews, 2016). As a result, SOEs are often required to be
financially viable, while also implementing government policies. These two goals are frequently
incompatible (Rusvingo, 2014). In other cases, appointments to the management team or board
can often be made by the shareholder without due consideration for their skills, experience or
independence (Herald, 2014). For too long, mediocrity has been allowed to flourish at these
State-owned enterprises with people being appointed as board members not on merit but for their
status in society.
Corporate governance in many of the SEPs is alien (Rusvingo, 2014). The Zimbabwe Electricity
Supply Authority (ZESA), ZBC, PSMAS, Air Zimbabwe and the Harare City Council (HCC)
have all been fingered in the mega salary scandals (Mtomba, 2014). According to Rusvingo
(2014), the former ZBC Board Chairperson and then PSMAS boss was getting a whopping US$
230 000.00 as salary from an indebted medical aid society. The political leadership in Zimbabwe
does not offer the best case for transparency, integrity and accountability (ACT-SA, 2013). It is
because, these politicians take politics to be a chance for wealth amassing and not for helping the
people.
There has been growing concern on the ineffectiveness of SOEs boards of directors in
Zimbabwe. With the largest daily newspaper The Herald (2012) leading the onslaught on SOEs
boards of directors. It is from this background that board of directors effectiveness has been
brought into the fore in SOEs. The Auditor General (2018) reported that was no evidence that
efforts were being made to prioritise coming up with a documented and approved risk
management policy. This was contrary to the requirements of good corporate governance
practice.
The directors stand accused that instead of acting as watchdogs against poor governance, they
have themselves often misused their power and concealed their own failures (PWC, 2019).
1.2 Statement of the problem
Zimbabwe’s SOEs have generally fared badly in recent decades with most being a huge expense
on the taxpayer’s money, or going bust because they failed, or being run in a sloppy and
inefficient way, or having corrupt boards and management (Moyo, 2016).These challenges are
traced to board failure(Sikwila, Chavunduka & Ndoda, 2015).The government responded by
issuing the Corporate Governance Framework for State Owned Enterprises in 2010 and 7 years
later by enacting the Public Entities Corporate Governance Act. These instruments have resulted
in the operatisation of BODs in SOEs in terms of the law and best practice but the corporate
governance challenges in SOEs still persist. This then calls into question board effectiveness.
This has resulted in research on board effectiveness and financial performance (Coles, et.al.
2001). Further research has focused on board of directors’ effectiveness in terms of appointment
process, composition, remuneration and evaluation (Moyo, 2016). There is little research on the
relationship between boards of director effectiveness with board characteristics such as
composition, structure, diversity and evaluation. Do these board characteristics matter in the
effectiveness of boards of directors of SOEs? This research will provide further knowledge on
how the identified board characteristics affects board effectiveness in SOEs.
Hypothesis development
The following hypotheses are proposed:
(H1): There is a positive relationship between board composition and board effectiveness
(H2): There is a positive relationship between board structure and board effectiveness
(H3): There is a positive relationship between board diversity and board effectiveness
(H4): There is a positive relationship between board evaluation and board effectiveness
1.3 Purpose of the study
The study will describe the relationship between board effectiveness and board
composition, structure, diversity and evaluation.
1.4 Research objectives
(a) To examine the direction and strength of relationship
between board
effectiveness and board structure and composition, diversity and evaluation
(b) To analyse the relationship between board effectiveness and board structure and
composition, diversity and evaluation
(c) To analyse the effectiveness of the legal provisions as they relate to the SOEs
board effectiveness in Zimbabwe
(d) To make recommendations on strategies that improve board effectiveness in
SOEs
1.5 Justification of the study
1.5.1 importance of the subject matter under consideration
The study seeks to provide new knowledge on board of directors’ effectiveness in state owned
enterprises using board structure and composition, gender diversity and board evaluation. The
researcher will deepen research skills and that will be very useful in future studies as well as
enhancing problem solving at the work place.
The Great Zimbabwe University knowledge repository will be increased by this proposed study
and further grow the reputation of the institution as a centre of excellence in research.
1.5.2 potential application of research findings
The research findings will be useful policy makers, SOEs and researchers in corporate
governance in general and board of directors effectiveness in particular.
1.6 Brief literature review
1.6.1 Board of directors effectiveness
The BOD has a role to play in order to counter managerial opportunism. Board
effectiveness has received widespread research but is still not fully understood how
boards effectively function and contribute to corporate decision making (Dalton and
Dalton, 2011; Filatochev and Boyd, 2009; Pye and Pettigrew, 2005 cited in Peij, Bezemer
and Maasssen, 2012).
Board effectiveness research is more concentrated in the private sector than public or
quasi-public sector organisations organisations. This gives credence to this research as it
will add a body of new knowledge to public sector organisations BOD effectiveness.
Empirical studies on boards of directors have to a large extent been driven by the
question of how much the board can influence firm performance. Various researchers
have examined the direct impact of different board attributes on firm performance. Using
financial performance as a proxy, they have explored boards’ effectiveness in protecting
shareholders’ interests, but have mostly shown inconclusive results (Coles, et.al. 2001).
There is a dearth of literature on the collective effectiveness of the board as a whole as
some researchers such as Deng (2019) focused on independent directors. This research
will focus on the board as a proxy in measuring its effectiveness.
Another group of research work has investigated the influence of board attributes on the
performance of board roles, suggesting an indirect causal relationship between boards of
directors and company performance (Deutch, 2005). A common feature of all these
studies however, is the focus on a limited number of characteristics related to board
composition, such as outsiders‘ representation, board size and CEO duality. There are
other studies which try to examine the impact of board committees (Kesner, 1988),
director characteristics (van der Walt and Ingley, 2003) and board processes (Cornforth
2001). Insight into how boards of directors operate effectively in creating shareholder
wealth is still of interest for further exploration. The agency literature suggests that
outside directors on the board provide important monitoring functions in an attempt to
resolve, or at least mitigate, agency conflicts between management and shareholders. The
agency literature indicates that other mechanisms such as managerial equity ownership,
dividend payments, and debt leverage also serve as important devices in reducing agency
conflicts in firms.
Forbes and Milliken (1999) define an effective board as one that can perform distinctive
service and control activities successfully (task effectiveness) and yet continue working
together (cohesiveness). They propose that the most effective boards will be
characterized by high levels of interpersonal attraction (cohesiveness) and task-oriented
disagreement (cognitive conflict).
1.6.2 Board composition and structure
John and Senbet (1998) cited in Tusiime et. al. (2011), identify board size, composition
and independence as the attributes of board effectiveness. Board composition refers to the
number of independent non-executive directors on the board relative to the total number
of directors (Rashid, 2011). There are several advantages to board heterogeneity as
measured by a mix of executive and independent non-executive directors because of
enhanced decision making arising from more information; although this would come at a
considerable cost (Sanda et al 2011). An independent non-executive director is defined as
independent directors who have no affiliation with the firm except for their directorship
(Clifford and Evans, 1997 in Tusiime et. al. (2011).
It is in light of this that Eklund; Palmberg and Wiberg (2009) note that: Board
heterogeneity is associated with a trade-off between increased costs in terms of longer
decision time and lower external costs. That is, a trade-off between increased information
efficiency associated with heterogeneous boards and decision efficiency associated with
homogenous boards. Heterogeneous boards tend to be better informed regarding issues
outside the firm and thereby better equipped to question and discuss corporate strategic
decisions, whereas homogenous boards to a larger extent are based on trust, cooperation,
as well as shared experience and values
1.6.3 Board diversity
According to Deloitte (2015) diversity takes various forms in a boardroom and can be
broadly categorised into the following elements: skills, experience and expertise, gender,
ethnicity, age, geography and independence.
The principal argument in favour of a diverse board is the wide range of perspectives that
each individual would bring to the boardroom table .The skills, expertise and experience
of individuals should be the single largest consideration for the optimal board. The
Institute of Directors South Africa (2002) opines that board independence, has given
particular emphasis to issues of diversity, both in terms of gender and race, highlighted as
a strategic imperative for companies. Ram Kumar Mishra and Shital Jhunjhunwala
(2013) argue that to be effective, boards need to have a basket of every possible kind of
trait, knowledge, skill, and capability. This is possible only if the board is composed of
directors from diverse backgrounds in terms of gender, race, age, nationality, education,
and experience. We are of the same view and seek to confirm or refute this approach in
the Zimbabwean SOEs. Chidziwa (2019) takes a narrow diversity based on sex for
Zimbabwe listed companies. This simplistic view of diversity does not take into account
other key elements of diversity and thus may lead to inconclusive results on the efficacy
of diversity. In fact there is a major problem b simply advocating for women participation
in boards whilst ignoring other considerations. An effective board of directors is a board
that has diversity within its members and diversity with its talents (Barlow, 2016).
1.6.4 Board evaluation
Board evaluations can be linked to value creation for boards (Rasmussen, 2015) and may
enhance
leadership,
role
clarity,
teamwork,
accountability,
decision
making,
communication and operations in a board (Kiel & Nicholson, 2005). Moreover,
evaluations may help boards in handling performance pressures and preventing potential
governance failures (Kiel & Nicholson, 2005).If board evaluation achieves all these
claims then that should make the board of directors effective. Effective governing boards
are committed to assessing how well they perform their governance responsibilities and
to using the results of the assessment to enhance board effectiveness. Didier (2016)
argues that a poor evaluation process contributes to governance failure; therefore,
thriving boards engage in self-assessment or external assessment, in terms of their roles,
dynamics and their members’ performance.
1.6.5 Theory underpinning the study
This study will be underpinned by the following theories: agency, stakeholder and
resource dependency.
(a) Agency theory
Agency relationships are formed when the principals (shareholders) delegate
authority to the agents (managers) and the welfare of the former is affected by the
choices of the latter (Arrow 1985). As Malatesta (2008) shows, this delegation of
decision making authority from principal to agent can be problematic for three
reasons. Firstly, the interests of principal and agent often are typically diverged due to
the separation of ownership and control in modern corporations (Fama and Jensen,
1983). Easterbrook (2009) notes that there are two primary sources of agency
problem: moral hazard (hidden actions including shirking) and adverse selection
(hidden information). Moral hazard involves situations in which the agent’s actions
are typically either hidden from the principal or are too costly to fully monitor the
behaviour of their top management team, since effort and ability are difficult to
observe. Adverse selection occurs when agent possesses information which is
unobservable or costly for the principal to obtain. Boards of directors typically are at
an information disadvantage in their dealing with Chief Executive Officers (CEOs).
(b) Resource dependency theory
Through their interactions with the outside environment, independent directors of a
firm play a critical role in accessing important resources needed for proper
functioning of the organization (Hillman, Canella and Paetzold, 2005). The
appointment of a firm’s non-executive directors is therefore a way of gaining
provision for resources needed for business success. An independent board 15
member who is a marketing expert for example will provide marketing advice during
board meetings or at any other fora. Such advice would ordinarily be expensive to
obtain from other sources. Such resources are important for the proper functioning of
an organization (Daly et al. 2003). Examples of key resources that directors bring to a
firm are information, access to suppliers and markets, legitimacy and skills (Hillman,
Cannella and Paetzold, 2005).
(c) Stakeholder theory
The Stakeholders approach states that a company holds corporate accountability to
A variety of stakeholders (Sundaram and Inkpen, 2004). They further define a
stakeholder as any individual or group who can affect or is affected by the
achievements of a firm’s objectives. The implication of this theory is that firms which
affect society pervasively must be accountable to all sections of society, and not only
to their shareholders. All stakeholders accordingly have a right to management’s
attention. Friedman and Miles (2006) identified the main groups of stakeholders as
customers, employees,
local
communities, suppliers
and distributors, and
shareholders. Proponents of the stakeholder theory believe that all parties with
legitimate interests in the company shall get benefits and there is no priority in terms
of these interests and benefits (Donaldson, 2003)
1.7 Research methodology
The research project will be premised on the qualitative approach which is the most
appropriate design to assess the impact of budgeting and budgetary control and financial
performance, being the constructs under consideration.
1.10.1 Sample size and design
Using the entire population to carry out the research consumes time and may result in a waste of
resources hence the need to use a small sample whose results maybe generalized to the whole
group (Realtor University, 2011). A sample is part of a population which is relevant for carrying
out the research (Leedy, 2012). The researcher chose to use a sample because it would not have
been practically possible to have studied all the commercial state owned enterprises in
Zimbabwe. Such a decision was taken on the understanding that the sample was sufficiently
large enough and representative of the whole population.
The sample size of the research will be 20 state owned enterprises. This sample represents 50%
of the population.
To arrive at this sufficiently large sample the researcher will take into account the following
competing demands, confidence in the data, the tolerable margin of error, the type of analysis to
be undertaken, the size of the population from which the sample will be drawn and the likely
response rate (Walonick,2010).
Systematic sampling and random sampling will be used to select members of the sample.
Systematic sampling requires that we calculate the kth
Kth
Where
value (Walonick, 2010):
= N/n
:
Kth
= sampling interval
:
N
= population
:
n
= sample size
And therefore Kth
= 40/20
=2
All 40 commercial SOEs were randomly numbered from 1 to 40. The number 1 enterprise was
selected first and the 2th,4th……..40th were selected such that state owned enterprises
occupying
the
following
random
selected:1,3,5,7,9,11,13,15,17,19,21,23,25,27,29,31,33,35,37,39
numbers
were
1.10.2 Sampling procedures
The researcher will come up with the sample based on who best could provide information
which was in-line with the objectives of the study. The researcher will use simple stratified
random sampling to select participants for this study. This is a probability sampling technique.
This technique gives every subject in the population an equal chance of being selected.
1.11
Data collection instruments
1.11.1 Questionnaires
A questionnaire is a tool used to collect and record information relating to questions understudy
(Phellas, Bloch and Seale, 2011). The researcher will use closed ended questionnaires guided by
the Likert scale in-order to realize the research objectives (Alrabei, 2014). A semi structured
questionnaire containing both close and open ended questions will be used. The questionnaires
will be used as they are easy and quick to fill in and do not require the respondents to reveal their
identity thus allowing respondents to express their true opinion without trying to please the
researcher. Close ended questionnaires ask the same questions to all respondents making sure
that respondents do not deviate which make the comparison of responses easier.
1.11.2 Likert scale
The likert scale consists of statements in which the respondents ought to express their degree of
response from strongly agreeing to strongly disagreeing (Cooper and Schindler, 2014). The likert
scale will be used because there is room for the respondents to specify their insights to posed
opinions and their responses are easy to interpret and analyze. The likert scale is shown in table 2
below:
Table 2 Likert Scale
Strongly
ITEM
Agree
undecided
Disagree
Agree
POINTS
5
Strongly
Disagree
4
3
2
1
(Source: Bertram, 2014)
1.12
Data presentation and analysis procedure
Data analysis involves the studying of trends and making inferences. Data will be analysed
manually using rules of editing, coding and tabulation. Graphs, tables and pie charts will be used
to present the data collected statistically as they are easy to interpret and analyse. Data will be
analysed using descriptive statistics.
Descriptive statistics convert and condense data into
organized visual presentations, such as graphs and tables that are meaningful to the readers of the
research report.
Each question will be ranked for consistency and completeness and then
analyzed on the computer, using qualitative and statistical analysis package like Stata 11
software, Microsoft Word and Microsoft Excel.
1.13Assumptions of the study
The following assumptions are contemplated:
•
The sample will truly represent the total population of the study.
•
Respondents will give true and accurate answers.
•
All respondents will fully understand the questions they respond to and give information
generously.
1.14Delimitation of the study
The study will be conducted in Harare since the head office of most state owned enterprises
are located in the capital. State owned enterprises are found in various sectors and they have
different mandates. In order to carry out the research effectively only those that operate on a
commercial basis will be included in the study.
1.15Limitations of the study
It will not be possible to collect data from the whole target population; the study will be
conducted on a sample created hence the findings will be persuasive and not conclusive.
However, the researcher will use a large sample to minimize sampling error. Some
information is confidential by some organisations and may not be availed to the researcher
However, in such instances the researcher will rely on literature search to verify and
corroborate the data collected by questionnaire.
1.16Definition of terms
(i)
Board of directors- A board of directors is a body of elected members who jointly
oversee the activities of a company or organization.
(ii)
State owned enterprises State Owned Companies (SOCs) are defined as entities in
which the government has control through a wholly, majority, or significant minority
ownership (OECD, 2015),-
(iii)
Independent non-executive directors – is a member of the board of directors of a
company who does not form part of the executive management team. They are not
employees of the company or affiliated with it in any other way and are
differentiated from executive directors.
(iv)
Corporate governance - is the set of processes, customs, policies, laws, and
institutions affecting the way a corporation (or company) is directed, administered or
controlled. Corporate governance also includes the relationships among the many
stakeholders involved and the goals for which the corporation is governed.
1.17Project outline
The research is organized into five chapters. Chapter one covers the background to the
study, problem statement, objectives of the study, research questions, importance of the
study, purpose of the study, scope and limitations of the study. Chapter two will review
literature on budget formulation and implementation in particular types of budget,
preparation of budget and budget controls, budget being a tool for measuring financial
performance, benefits and challenges of budget and criteria for measuring budget
performance. Chapter three is about the methodology used in the study. It covers the
research design, population, sample and sampling procedures, data collection and
instruments. Chapter four is about data presentation and analysis whiles chapter five
provides the findings, conclusions and recommendations.
1.18Time frame
The time frame will be reviewed and updated as the project unfolds and as per the guidance
with the supervisor
Activity
Due Date
By Who
Submission of Proposal
16 July 2020
J.Muketsi
Completion of Chapter 1
10 August 2020
J.Muketsi
Completion of Chapter 2
25 August 2020
J.muketsi
Completion of Chapter 3
30 August 2020
J.Muketsi
Completion of Chapter 4
30 October 2020
J.Muketsi
Completion of Chapter 5
10 November 2020
J.Muketsi
Submission of final project
30 November 2020
J.Muketsi
1.19Summary
The proposal gave the background of the study, statement of the problem, objectives,
assumptions,
and
research
questions,
significance
of
the
theoretical/conceptual framework, limitations, and definition of terms.
study,
delimitation,