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Pursuit of Business Excellence through Corporate Literacy: Understanding the Duties and Responsibilities of Shareholders and Directors

Brian Kazungu

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Starting and running your own business can be the dream for many people especially those who believe that the rewards for entrepreneurship are more than the rewards for being someone else’ employee but however, an understanding of what is a company is a prerequisite in such pursuits.

Such an understanding helps you to make informed decisions which can protect you from blindly navigating the business terrain which is infested with challenges that can haunt you if you lack at least basic insights on the relation between a company and its shareholders and directors.

As such, in running a business enterprise, it is important for every aspiring business person or even existing entrepreneurs to ask and get answers to the following questions.

What is a shareholder? Is a shareholder, a holder of shares or an owner of shares? What is and ought to be the legal relationship between shareholders and directors?

Do directors have a duty to shareholders? If so, why should directors be personally liable for the conduct of the affairs of a company?

Can a company have two centers of power as in directors and shareholders? Is the relationship between directors and a company not absolute and fiduciary?

In responding to these questions, the following conversation between Mutumwa Mawere and Brian Tawanda Manyati helps to promote life transforming literacy on corporate matters.

Dubbed the Brian and Mutumwa’s Chat Room, these conversations are a Connections2Communities (C2C) initiative towards creating a shared understanding on business issues in order to promote a collective approach in taking advantage of opportunities and in solving business problems.

Please read the following thread and learn the valuable lessons hereunder:

[12/12, 6:48 AM] mdmawere1: BUSINESS LEADER v PERSON IN BUSINESS

A question has arisen as to whether the duty of care in relation to a company is vested in directors or split between directors and shareholders.

It is a fact that a company is a creature of law?

[12/11, 11:15 AM] Brian Manyati: If I am a director, the shareholder of a company is my principal in that he or she has part or full control of the affairs of the company. Though I as a director have fiduciary duties owing to the company, I have no control over it out of mere appointment as a director [unless through a performance based share option scheme I (as a director) eventually become a part owner just as the shareholder is].

The agent-principal principle flows from the shareholder part or fully controlling a company. A share certificate or subscription to the memorandum is evidence of such share based control of a company. Appointed or nominated directors serving as executives or NEDs on the board tend to have no such control of a company that the shareholder has. So they participate on the board at the whims of the shareowner who controls the company they unarguably owe fiduciary duties directly to, thus making them agents directly or indirectly.

Indirectly only in the sense that even if it is to be said they owe fiduciary duties to the company not the shareholder, it remains a fact that the shareholder no matter at law he or she is a separate persona from the company, he or she has control or part control of the company through the share purchase act.

[12/12, 6:40 AM] mdmawere1: Can a company have two centers of power? Is the relationship between directors and a company not absolute and fiduciary?

[12/12, 7:55 AM] Brian Manyati: You ask can a company have two centers of power.

From my continued discussion with you and others on the first question you asked yesterday, it is now coming out as a possibility that we have shareholder paper power as evidenced by a share certificate giving part or full control, and directors’ silent but highly likely the effective power by the virtue of being in charge of the day to day running of the business at a distant from the remote shareholders due to the agent principal principle or due to the separate persona principle which separate shareowner from a company he or she created

[12/12, 8:01 AM] Brian Manyati: You secondly ask, is the relationship between directors and a company not absolute and fiduciary?

Fiduciary duties flow owed by directors to the company flow from our common law. Absolute relationship which is a rigid line flows from the statutory duties of the directors owed to the company flowing from the Companies Act. E.g. directors may pay employee bonuses, a constructive obligation, or keep jobs stable, however, the interest of surviving the company comes first statutorily.

[12/12, 8:05 AM] mdmawere1: What is the shareholder paper power?

How does a certificate like a birth certificate give any party control over anything?

The sperm may be mine and the certificate of birth may show my relationship with the reproductive consequence of sex, but that does not mean that the father whose name is on the certificate has control?

Life is pregnant with examples of single parent situations to provoke you from relinking the sperm from control.

The law vests directors as the address of control and once appointed, the have a duty to the company.

[12/12, 8:12 AM] Brian Manyati: I have done what I have done to cement the argument that the sperm is mine but the consequences of the new life aren’t the sire’s. With whatever I did yesterday I simply reached out other people to argue exactly that in their own words

[12/12, 8:14 AM] Brian Manyati: This is an example of one such strong case in point or argument raised in support of “the sperm is mine but the consequences of what I sired aren’t mine (only)”

[12/12, 8:15 AM] Brian Manyati: When shareholders’ part or full control only is on paper, a share certificate, it is rendered ineffective

[12/12, 8:19 AM] mdmawere1: What legal paper gives control and direction of a moving car to a title order?

Do you agree that a vehicle has no power to resist a reckless driver and that one does not need to be a title holder in order to benefit from a vehicle?

[12/12, 8:28 AM] Brian Manyati: I get it the share certificate gives title to company ownership as does the vehicle registration book

[12/12, 8:29 AM] Brian Manyati: A vehicle recklessly driven by management, namely, the directors, them being a hired driver, veers off the road no matter the registered vehicle owner cares

[12/12, 8:32 AM] Brian Manyati: In other words, if the directors and management recklessly drive a corporate entity, it fails, no matter the controlling shareholder as registered on paper on a share certificate as documented evidence, cares

[12/12, 8:33 AM] mdmawere1: Is the vehicle controlled by the title holder or the driver?

[12/12, 8:36 AM] Brian Manyati: The vehicle is controlled by the hired driver during the process of movement from place A to B. That is stewardship. The title holder cannot seat on the steering wheel at the same time.

[12/12, 8:36 AM] mdmawere1: Nothing stops a title holder from being a driver?

[12/12, 8:39 AM] Brian Manyati: Only when hiring a driver is what is justifiable as with all entities that are not owner managed e.g. due to size

[12/12, 8:40 AM] mdmawere1: Why insert an exception?

[12/12, 8:41 AM] mdmawere1: Does the motion of a car need a driver? Y or N

[12/12, 8:42 AM] Brian Manyati: Because corporate governance is mainly for public limited companies where there is separation of ownership from management

[12/12, 8:43 AM] Brian Manyati: Y

[12/12, 8:45 AM] mdmawere1: Do you agree that a company is a creature of law?

[12/12, 8:55 AM] Brian Manyati: I do, I agree that it is a creature of the Companies Act Chapter 24:03 if in Zimbabwe at present

[12/12, 8:58 AM] mdmawere1: Do you agree that once created, a company remains one throughout its life?

[12/12, 9:05 AM] Brian Manyati: No. It is capable of changing its identity, that being the name.

If the word one carries meaning like it is with human beings, that even if you change your birth name to another name you remain you then the answer becomes Yes.

[12/12, 9:08 AM] mdmawere1: If you agree that in terms of identity, you and I belong to the human identity as indivuals, then it must follow that a company belongs to the identity of legal persons?

[12/12, 9:09 AM] Brian Manyati: You have a point yes

[12/12, 9:10 AM] Brian Manyati: Even if a company changes a name, even if it shifts to a new identity, the corporate veil can be lifted to find out it is the same old identity made new

[12/12, 9:11 AM] mdmawere1: Do you agree that a natural person has the inherent power of causation and agency but juristic entities don’t?

[12/12, 9:12 AM] mdmawere1: I am not talking about unveiling a cheating husband for instance because identity of a male is not altered by mischief.

[12/12, 9:21 AM] Brian Manyati: In the sense of a director (a natural person) being an agent to a shareowner (another natural person) I agree humans having inherent power of causation and agency. I am not sure if in directors owing fiduciary duties directly to the company, there is power of causation or agency on the company’s part. I am asking self, does not a promoter (creater) of a company, at company formation stage, owe duties that are similar to an agent’s. Him or her being an agent to a baby not yet born, a company not yet formed, but him or her required to account faithfully to it, and it with the power of assenting or ratifying his or her acts at its first meeting. If this means the agency relationship stops there between a company and the creator, then once it’s existing, there surely may be no causation and agency between the company and its subscribers or shareholders as it is now acting in its own right and name, in its identity.

[12/12, 9:21 AM] Brian Manyati: Okay thanks

[12/12, 9:26 AM] mdmawere1: You seem determined not to learn that a director is not an agent of a shareholder but a principal whose duty of care is to the company he serves.

A shareholder is a holder of shares and not an owner of shares. What does the power of causation and agency mean to you?

[12/12, 9:28 AM] Brian Manyati: Power of causation and agency is power to act on someone’s behalf. It flows from stewardship

Mutumwa Mawere is an accomplished business man and Brian Tawanda Manyati is a Chartered Governor and an Accounting Technician. They are both members of the Connections2Communities (C2C) initiative.

There are various literacy initiatives on Corporate, Legal and Civic issues under the C2C banner.

In order to become a member of C2C and participate in these conversations and get exposure to many other related business opportunities, please register on the following link: https://zonfulenergy.com/membership/

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SMM’s Administrator, Afaras Gwaradzimba Struggles to Provide Answers on Mawere’s Mount Pleasant House after 17 Years of Being in Charge

Brian Kazungu

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Mr Afaras Gwaradzimba

Brian Kazungu, 28/03/2021

Afaras Gwaradzimba, the State appointed Administrator for Zimbabwe’s Shabani Mashava Mines (SMM) which was placed under Reconstruction in 2004 is struggling to provide answers on the status of a house in Mount Pleasant, Harare which belongs to Mutumwa Mawere.

When asked about an update, after 17 years of being in charge of the house which was earning rentals from tenants, Gwaradzimba expressed ignorance on how under his authority, SMM was collecting rentals on a private property belonging to someone else.

He confirmed that even though SMM did not have the house’s title deeds, the company was actually receiving rentals for the property and paying the related rates.

In an effort to treat this potentially criminal case with a civil approach and make good the anomaly, Gwaradzimba made instructions to the effect that a Trust Account be created so that money can be properly accounted for.

“I am advised by Mr. Mutumwa Mawere himself that he holds the title deeds for the Mt. Pleasant house, and the Deeds are in his name. I will ask him to send me a copy of the deeds.

I there kind (sic) ask that you create a Trust Account under SMM, transfer all the rentals that have been received from the lease of the house, into that Trust Account and then charge against the account, all expenses paid by SMM in respect of the house, including management fees payable in accordance with the Estate Agents Act.” Gwaradzimba instructed SMM Management

He could however not explain how the current arrangement came to be and referred further correspondence to the Dube, Manikai and Hwacha (DMH) law firm which is the company’s legal representative.

Mawere who bought the house when he was still in the United States of America said that he never made an arrangement with SMM to manage his personal property since there was a tenant paying rent subject to management by an estate agent.

He questioned how the property ended up being managed by SMM under Gwaradzimba’s authority and yet state power was only limited to the affairs of the company and not to the private property of the owner.

 “SMM was my company. Mnangagwa/Chinamasa, using Gwaradzimba/Manikai used state power to introduce a decree that had the effect of divesting and depriving the shareholders and directors of the company of the right to control and direct the company.

The control and management was then vested with Gwaradzimba. Prior to this, I had a relationship with the company and after this, by law, I ceased to have any relationship with the company.” Mawere said

According to the law, as per the reconstruction of SMM, state power was limited to the affairs of the company and not to the private property of the owner.

The reconstruction of SMM came after Mawere was allegedly accused of foreign currency externalisation which was however proved to be lacking substance according to a report on the findings of the investigation.

In the report, it was stated that “Following extensive and exhaustive investigations, it was established that the allegations of externalisation against Mr. Mawere were unfounded and baseless.  It was also established that Mr. Mawere was neither a director nor shareholder of SMM.  There was no direct legal and factual nexus between him and the company.”

Mawere was then specified after a failed attempt by the government of Zimbabwe to extradite him from South Africa and his company was subsequently placed under reconstruction.

According to the same report, the purpose of the specification was to further investigations on the activities of Mawere’s business empire.

The report also reveals that Gwaradzimba and Manikai who is part of the law that has been tasked with the issue, both had a previous relationship with SMM before the specification and reconstruction of this entity that had asbestos mining interests in Zvishavane and Mashaba.

It states that “Mr. Gwaradzimba was the auditor of SMM during 1996 through 2001.  Mr. Manikai was the legal advisor of SMM and ARL from 1996 through 2004.  Notwithstanding, Mr. Gwaradzimba was appointed Administrator of a company that he once audited. 

Mr. Manikai is now acting against his former client.  This raises serious legal and ethical questions that need to be addressed at the appropriate time.  However, it is the considered opinion of the Investigators that the appointment of Gwaradzimba and Manikai was ill considered and, therefore, inappropriate.”

Various political and economic experts have reiterated that the issue of the rule of law and property rights posed a serious challenge on the economy especially when it comes to attracting both local and international investors into the country’s ailing economy.

Zimbabwe’s economy is currently mired in serious challenges characterised by lack of employment, poor infrastructure, industrial closures and rampant corruption across the sectors.

In separate investigations and findings, while still being the Governor of Zimbabwe’s Central Bank, Dr Gideon Gono castigated the procedural anomalies adopted in handling the SMM matter and cautioned of Gwaradzimba’s probable selfish personal interests in the whole saga.

Gono pleaded with President Mugabe to respect the rule of law for the economy’ sake and for the good image of the country by recommending the de-specification of Mawere and for the return of his companies and assets back to him.

“Though there is reference to the Fifth Table of the Seventh Schedule of the Companies Act, which sets the payment levels for liquidators and administrators, the fact still remains that Mr

Gwaradzimba, the Administrator is getting payments set at 6% of gross proceeds, of all

SMM companies which is even more lucrative than shareholders themselves, let alone revenues to Government.

Your Excellency, there is genuine need for the relevant sections of the

Companies Act to be modified. The Administrator’s activities also seem to have entrenched interests of needlessly permanently dispossessing all Mr Mawere of his assets.

…….It is also recommended that Your Excellency approve the de-specification of Mr Mawere and his companies so as to pave way for a new beginning, particularly in the context of investment promotion and empowerment in Zimbabwe.” Wrote Dr Gono.

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Five (5) Important Types of Capital That You Must Have As an Entrepreneur

Munyaradzi Chikomba

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Munyaradzi Chikomba

Munyaradzi Chikomba, 27/03/2021

Many people across the world definitely want to venture into business but the biggest challenge which is stopping them from starting their own enterprises is lack of capital.

It is because that reason that I want to highlight that Start-up Capital does not only mean liquid capital or money.

Yes indeed, you may not possess cash at the moment and yet you may have the following forms of capital which you can actually use to advance your entrepreneurial ambitions.

Relational/Social capital – A relation is defined as the way in which two or more people, groups, and countries, talk to, behave toward, and deal with each other.

In life, you talk to many people and as a business person, you should learn to establish strategic business relationships which will eventually help you in the near future. You should strive to establish, nature and cultivate good relations so that you can in turn also benefit from them.

Good business relations have the capacity to advance your life for the better.

If you borrow money for no interest or ask for a favor from a colleague without paying for it, you would have actually used what is called social capital.

Social capital can also link you to new customers and give you more visibility without incurring serious advertising costs. In business, good relationships are very important, because without them, you will quickly go out of business.

Intellectual capital – Intellect is defined as the capacity for rational or intelligent thought especially when highly developed.

You must always understand that information or knowledge is power and as such, if you can use information to advance your ventures, it will bring you a great return on investment. You actually trade in the knowledge that you have in exchange for liquid capital.

For example, if you are very knowledgeable in a certain field, you can decide to offer tutorials or consultancy in that regard and people will give you money (liquid capital).

Intellectual capital can also save you money especially when it comes to doing some things on your own instead of paying someone to do it on your behalf.

When you lack information, you may end up paying for things that can be possibly be done for free like online applications or submissions for certain documents which other peopl can charge you if you ask them to do it for you.

Skills capital – A skill is a learned power or dexterity of doing something competently: a developed aptitude or ability.

There are those things which you are able to do with utmost easy and yet they have a monetary value.

You may be so good at doing these things to such an extent that it is almost impossible for people to forget you. Such an ability on its own is a form of capital which you exchange for money. It is therefore very important for you to develop your skills.

If you can design fliers on your own, you will not pay for that service and hence you would have saved a few dollars. Your skills capital can save you some money which you can then use for other more important things in your business.

Emotional capital –  An emotion is a conscious mental reaction (such as anger or fear) subjectively experienced as strong feeling usually directed toward a specific object and typically accompanied by physiological and behavioral changes in the body.

Your ability to face what life throws at you is part of your capital because remember an emotionally unstable individual can’t make sound decisions and yet business is all about making sound and profitable decisions daily.

Emotional capital is very important because it defines and determines the effectiveness of every other type of capital mentioned above.

Management of emotions is a fundamental aspect in business because if you can’t manage your emotions, you will make irrational decisions which are detrimental to your company and thus negatively affecting all the other forms of capital.  

People who are familiar with stocks (shares) and investments will tell you that good management of your emotions is very important since it enables you to make sound decisions.

Spiritual capital– The word spirit is defined as a force within a person that is believed to give the body life, energy, and power.

Spirituality in simple terms is knowing oneself deeply and relating it to your daily routine and calls.

This type of capital calls for you to invest in your inner being so that you can be in sync with your creator or beliefs despite your faith.

Spiritual capital is beyond religion because you can be very spiritual but not inclined to any religion. Spiritual capital is very important because it makes you to believe even when there is no or little hope and it keeps you going even in dire situations.

Yes, business may not be anchored on spiritual beliefs since its runs on the laws of commerce but you must understand that businesses are run by people who are subject to spiritual realities.

If you take some time to study the lives of some leading business people around the world, you discover that they have a certain level of spirituality which influences their decisions.

Definitions in this article are taken from the Merriam-Webster Dictionary.

Munyaradzi Zindi Chikomba (The Social Architect) is a Co-founder & Executive Chairperson of Shanduko Foundation. He is a content creator and serial columnist who writes articles on social commentary and social affairs. He is passionate about building and shaping society through digital advocacy and media. He is an Editor In Chief at Peach Media Trust.

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Identifying and Satisfying a Paying Customer, Understanding The Art of Collaboration, As Well As, Mastering The Concept of Effective Sales and Marketing – Chad Mhako

Brian Kazungu

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Chad Mhako

Brian Kazungu, 24/02/2021

Entrepreneurship is being globally accepted and embraced as an effective solution to solving many societal problems including unemployment and poverty but unfortunately, without proper knowledge, most businesses especially SMEs fail even in their first years after inception.

In a book titled The SME Handbook, according to Nico Jacobs, head of Absa Small Business, Small business failure rates are as high as 63% in the first two years of trading, of which some of the reasons for such a failure rate includes lack of skills, lack of funds and poor management.

As such, in its effort to promote entrepreneurship, EAI Virtual Hub (Entrepreneurship, Arts, Innovation), organises virtual meetings with experts from different economic sectors in order to address various challenges faced by entrepreneurs on a daily basis.

EAI Virtual Hub is a platform that seeks to empower young people in Zimbabwe to become financially independent.

Recently, it organised a virtual presentation under the theme Youth In Entrepreneurship, where business consultant, Chad Mhako, shared valuable business tips in response to questions by various entrepreneurs.

Chad is a seasoned consultant who works with startups and established businesses in helping them to develop concrete, actionable strategies which gives them better access to markets and finance through customer driven entrepreneurship approaches.

Below is a question and answer presentation adapted from Chad’s presentation on the EAI Virtual Hub.

Question: Quite often, there are many concerns on a wide range of issues around entrepreneurship, with some people professing their confusion on what business they should engage in. As such, what is your advice to such people who really believe that entrepreneurship is the way to go and yet they are not sure of the exact kind of business they must pursue?

Chad Mhako: In my experience as an entrepreneur and consultant. My response is always the same. Any business where you can secure a paying customer.

My philosophy is that your business starts the day someone is willing to pay you for what you have to offer.

Now, if you can repeat this profitably to scale, then you have a business. Once your business model is profitable, repeatable and scalable, then you are in business.

This is because paying customers are quite often the difference between a successful entrepreneur and the not so successful entrepreneur. When we start our businesses, we are usually trying to answer basic questions, no matter the jargon you choose to use.

Every business tries to answer the following questions: Who are my customers? Where are they? How do I get to them? Why should they buy from me?

I like to start with the customer in mind. Like I said, you don’t have a business if you don’t have paying customer. So whether you are farming potatoes from a sack, rearing chickens or doing the freshest deal in town. Everything boils down to the customer who pays.

This is why some people make mediocre products that still sell. The reason is that they know their customer, who they are, where they are. Basically, everything there is to know about the customer. They know their customer archetype.

People will ask, what’s selling these days or what’s fresh? These are me too kind of businesses. You can also do a-me-too business as long as you have a customer who will buy.

So, what does it take to know who will buy? The answer is – Customer Discovery!!

The basic building blocks to building a business are: 1) Discovering who your customers will be 2) Validating the existence of those customers 3) Then making sure your value proposition speaks to their needs 4) Then you build your enterprise.

Some people say that we will build it then customers will come. Others say, we will farm and then they will buy. We will manufacture first then customers will buy. Sometimes it works, but most of the times, it doesn’t. Don’t let the clichés fool you.

Question – What is your advice to aspiring entrepreneurs who have the passion for business and yet they do not know where to start?

Chad Mhako: I say start with a familiar problem, but make sure there is a large enough demand for the solution to that problem. Some problems are not worth fixing in terms of viability and profitability.

Question: From your experience, what have you identified as an effective approach of attracting paying customers or converting people in any community into customers who pay for what you have? Is it always about good marketing or it’s about your circle of interaction?

Chad Mhako: Knowing who you are your customers and where they are is a great starting point. My customers may be active on Facebook whilst yours are active in a market with little or no interest in social media. As such, if I recommend you to do a social media campaign which works for me, what you will get are vanity metrics, mere numbers which look wonderful on paper but mean zero to your bottom line,. So customer discovery is key

Question – From your experience in consulting for startups, which mistakes do you think we tend to do as young entrepreneurs and how can we avoid them?

Chad Mhako: The following are some of the mistakes that entrepreneurs make: 1) Hype over substance 2) Copying and pasting without context 3) Listening to clichés 4) Putting the cart before the horse, that is, wanting a quick buck and not being willing to build.

Question – How can one grow their startup with a minimum viable product, how can they attract more funding for growth?

Chad Mhako: Your Maximum Viable Product (MVP) allows you to harness market feedback. It’s not the end product, it’s part of the building process. Businesses are undervalued at inception and the further you are from ideation, the higher the valuation

Question: What’s the role and advantage of collaboration in business?

Chad Mhako: Collaboration is the new competition. However, it must never be collaboration just for the sake of it. If not well thought through, collaboration can lead to business collapse.

As such, all parties must know what are their rights and obligations under the arrangement.

You should never leave anything to interpretation. Collaboration can take many forms and one must know what works for them.

Chad Mhako is an Entrepreneur and Business Development Consultant who helps startups and established business develop concrete actionable strategies that improve their bottom lines. He is a Managing Consultant at Abiyedu Kin and a Country Manager at Energyneering EPCM.

consult@abiyedu.co.zw / chad@abiyedu.co.zw / @ChadMhako on twitter

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