Ethics? What’S It?

Features Sustainable Wealth Creation, Dec 2006

Stamping Confidence on Local Business

Ethics? What’s it?

Inside

Business Ethics: A Founda- tion for Economic Growth

Applying Corporate Gover- nance: The Dfcu Experience

Micro-Finance institutions need training and profitability

Curbing CORPORATE FRAUD: Good operational Leadership needed

Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features

Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features Sustainable Sustainable Wealth Creation, Dec 2006

Wealth Creation Vol IV 2007 Contents

Editorial...... 4 Sustainable WEALTH Creation Journal is published quar- Foreword...... 5 terly by the Institute of Corporate Governance of Uganda (ICGU); this publication is the fourth issue. With the Private Sector playing an increasingly critical role in the Uganda’s Ethics in Business - A Necessity...... 6 Economy-as is else where. The objective of the journal is to afford Business Leaders and Management Experts opportu- Business Ethics...... 7 nity to address Corporate Governance issues of concern, for better competitiveness and Sustainable Wealth Creation.

Business Ethics - The Institute of Corporate Governance: A Foundation for Economic Growth...... 10 The Vision: An enterprise sector that upholds international best practice in corporate governance. Applying Corporate Governance: The Dfcu Experience...... 12 The Mission: To promote excellence in corporate governance principles and practice.

Curbing Corporate Fraud: Editorial Committee: Good operational Leadership needed ...... 17 Chairman: Capt. Gad Gasaatura Secretary: Dr. Jan Tibamwenda ICGU Activities in Pictorial...... 20 Members: Mr. Leo Kibirango, Mr. Simon Rutega, Mr. Vincent F. Kaheeru. Micro-Finance Institutions need training and Consulting Editor: Ms. Jane Gitau profitability...... 22 Editorial Assistant: Ms.Doreen Mbabazi

Ethics? What’s it?...... 24 Please forward all correspondence to: The Chief Executive Officer, Institute of Corporate Governance of Uganda (ICGU) Corporate Social Responsibility (CSR): 3, Portal Avenue Lifeline to the future?...... 29 Crusader House, Ground Floor P. O. Box 27542, Kampala - Uganda On “Business Ethics” - A word from Eng. Ivan Tel: +256-41-250239/7 Kyayonka, Country Chairman, Shell Uganda Fax: +256-41250238 E-mail: [email protected] Limited, ...... 31 Typesetting, illustrations and Design Layout by: Stamping confidence on Local Business...... 33 MPK Graphics LTD Plot 41 A/B Nkrumah Road Maggie Kigozi: Growing Business in Uganda 35 P. O. Box 30596 Kampala - Uganda Tel: +256-41-235751 / 075-441548 Readers’ Corner ...... 39

Institute of Corporate Governance of Uganda Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Editorial

reforms that have imposed fiscal disci- infrastructure. One challenge we need pline, restructured public expenditure, to take on as a nation, without a doubt, and liberalised the economy, following is to combat the scourge of corruption a period of civil conflict (1970s and – including business and professional early 1980s) when Uganda’s economy ethics. Questions of Ethics and Moral- spiralled out of control. ity have been with us for a long time. And we are not alone. Just the other Key reforms successfully implemented day, BBC reported that the Americans included the enactment of an Invest- had handed over Saddam Hussein to ment Code offering opportunities, in- the Iraqi government, and the execu- centives and protections to domestic tion was expected in 24 hours. Predict- By Capt. Gad Gasaatura and foreign investors, an independent ably, the White House team came out Chairman, Education & Training Committee, ICGU role for the central bank, enhancing with straight face to deny that such a Senior Consultant Aclaim Africa Limited its capacity to manage the strength- thing had happened. Well, the guy was ened financial sector; overhaul of the hanged within 18 hours! Again, on the s there a formula as to what it trade regime, abolition of state com- eve of 7th July 2006, a senior member takes to create wealth? Can we modity, marketing monopolies, and of the MI 5, Britain’s top intelligence as individuals, communities privatisation of public enterprises. department, informed the British Par- or nations sustain creation of Today, Uganda has one of the best liament that there was no risk whatso- Iwealth over long periods? These are investment climates and the most lib- ever, that London could suffer any at- questions over which philosophers, eral trade regimes in the region. This tack. Security measures were in place. economists and modern business lead- is well demonstrated by the growth of “BBBANG! Bang! Bang!” London was ers have wrestled with for a long time. repatriated funds by Ugandans, in the bombed the very next day. Well, Lon- There are no ‘cut and paste’ formu- Diaspora (US$700m), the doubling of don was trying to get opportunity to lae that will work in every situation. investment funds to US$ 1.7 billion in host the 2012 Olympics. No way was But there are certain constants, with- 2006 and the overwhelming success of anyone going to say the city was un- out which no success can be realised. Stanbic’s IPO. Whatever the shortcom- safe. But excuse me, is the public at Lee Iaccoca once said: “In the end, all ings of the country – we have been fault for being increasingly cynical of business comes down to three things able to compete favourably with many leaders? Why do we not buy and be- – People, Products, Profits. But people global players in attracting investors. lieve these ‘official’ story lines? Prob- come first; for without them you can- And thankfully, they are mostly in ‘long ably, because we have been lied to once not do much.” Business ethics is about term’ investments – a great vote of too often. Twice bitten, thrice shy. We having good people in the company as confidence in our economy and politi- are still waiting for the ‘find of WMDs’ a loyal, competent workforce with in- cal stability. The wide-ranging reforms in Iraq, of course. Were we not told tegrity. In the marketplace, you need have resulted in a radical improvement they know where they are? suppliers and consumers you can do of Uganda’s main economic funda- business with – at the minimum cost mentals and provided a strong plat- Closer home, power cuts begin, though and risk. Nations and communities form for sustained economic growth. we have two hydro-power plants at Jin- need enhanced certainties – stable The rapid recovery of Uganda’s small ja, with installed capacity of 380 mega suppliers and markets, with mininmal but important industrial sector, the ex- Watts. The water level in L. Victoria external interference. “Uganda’s im- ports and currency stabilisation sharply dropped nearly two metres! Hard work pressive track record as a fast reformer illustrates this point. begins for the poor ‘Public Relations has been well documented and widely Officers’. They try to explain that it acclaimed” (R. Reinikka and P. Collier, All the above notwithstanding, Uganda is actually the unusually long drought 2001). The country recorded robust must commit to lowering investment that has caused the water level in the economic growth averaging 6.8 per- risks and to reduce cost of doing busi- lake to drop. Public response? “Listen cent in the period 1990–2003 (World ness, by implementing efficiency-en- to those liars. Why can’t they for once Bank, 2004), thanks to political stabil- hancing reforms, strengthening key in- give us the facts?” Be honest. Guard ity and to prudent macro-economic stitutions, and providing better physical your integrity.

Institute of Corporate Governance of Uganda Foreword Sustainable Wealth Creation, Dec 2006 Foreword By Hon. Ezra Suruma Ph.D, Minister of Finance, Planning and Economic Development there is a ray of hope that our region of East Africa has not been congratulate the Institute of Cor- left out by the growing awareness porate Governance of Uganda of the need to carry out business for the production of this fourth in an ethical manner, and develop- issue of its Journal – Sustainable ment of a level playing field using IWealth Creation. I commend the Insti- the same high-standard rules. tute for focusing on an important and topical aspect of corporate governance, “business ethics” which means carrying haviour of its people – that are crucial out one’s businesses in a morally cor- for its competitive success and image. rect and honourable manner. Business For these values to be effective, they ethics is a recognised remedy to the have to be communicated within the vestors (shareholders, suppliers challenges of individual and organisa- business and built into its processes. and other trading partners) from tional behaviors as it allows businesses unfair practices; to do the right thing, in the right way, Despite the challenges, there is a ray of • The Financial Institutions Act 2004 for the right reason, and for the com- hope that our region of East Africa has was enacted to improve Corporate mon good of mankind. not been left out by the growing aware- Governance within banks and also ness of the need to carry out business assist in the creation of a much Government is concerned that the stan- in an ethical manner, and development stronger financial sector; dards of societal and business ethics of a level playing field using the same • The Uganda Law Reform Com- in the country have declined over the high-standard rules. A number of busi- mission was given the mandate to years. We have seen the emergence of ness associations have developed sev- review the laws of Uganda includ- a “quick-gain” mentality that focuses eral codes of ethics for adoption and ing the reform of 40 commercial almost entirely on short-term gains, at implementation by their members. The laws. Special emphasis has been whatever cost. Our children are grow- codes, which should also be distributed put on the reform of the Compa- ing up in an environment where the to both customers and suppliers, pro- nies Act in order to deal with in- dividing line between right and wrong vide a broad range of guidance about stances of non-compliance more is growing dim as society continues to the standard of integrity and business stringently and also support the grant heroic status to those who have conduct that is expected of subscrib- modification of the Act to reflect been involved in unethical acts. Regret- ers, and also serve as a good training the needs of a more developed tably, the “tried and tested” values of tool for new business entrants. and advanced investment arena. hard work and decency have been lost • Issuing of risk guidelines by Bank to many. The question we must answer The following initiatives indicate some of Uganda and pursuit of the anti- in affirmative is whether we can recap- of the steps Uganda has taken to instill money Laundering Bill. ture these values and focus on develop- corporate governance, or business eth- ing long-term success based on sound ics in particular, in the public: In conclusion, interest in corporate ethical principles. Only then shall we • The Institute of Corporate Gov- governance needs to be seen in a for- expect our businesses to survive in the ernance of Uganda (ICGU) was ward-looking manner and not just as long run, and compete effectively in set up on the 1st of December an enforcement exercise to deal with the ever-changing global market for the 1998 and launched in October past misdeeds. We therefore urge all benefit of all stakeholders. 2000, specifically to support the stakeholders to join hands with ICGU corporate governance initiative; in adopting and where already in exis- Every business has (or should have) a • The Capital Markets Authority tence, enhancing and ensuring prompt set of values – what its people believe was set up to regulate the capital and effective implementation of these in or the principles that govern the be- markets in order to safeguard in- noble principles

Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 President’s Desk

Business Ethics - a Necessity

... unethical behaviour result in financial loss to enterprises tends to lead to fraud and hence the community. Fraud has whether directly or indi- been with human society from the beginning of time and is the deadliest rectly and to invariably economic ill negating progressive hu- result in financial loss to man endeavours. Like a chameleon, it enterprises and hence the can camouflage in various shades but community is invariably perpetrated by insiders, can take the form of “short weights” or “thumb on the scale”, misrepresen- By Leo Kibirango, President, ICGU Former Governor, Bank of Uganda cuse, be it minor flood waters, a sim- tation of quality, commodity adulter- ple strike or congested roads due to ations, smuggling, dumping, money aced with serious global well predictable events like the annual laundering, drug trafficking; window- concerns on the grow- pilgrimage to the Martyrs Shrine. dressing; the list is inexhaustible. The ing unethical behaviour in consequences of unethical behaviour business operations, there Can we promote economic growth in continue to bedevil the corporate sec- Fis rising international outcry for ur- the face of the persistence of unethical tor like the biblical blood of slaugh- gent corrective action. Some people behaviour? We may give an answer by tered Abel which cried out to God seem to shamelessly pervert the very asking a cynical question as to how long until the Lord had avenged the crime threads of ethical behaviour with ap- a rotting body can sustain active life? Be- by cursing the murderous Cain to re- parent impunity and sometimes, ac- sides we face difficulties of establishing ceive poor “yields from the ground” clamation! A few years ago the public common standards for defining ethical and condemning him to be a “fugi- was treated to the “Big Brother” saga business behaviour; for instance, when tive and a wanderer on the earth” for where sex acts screened and beamed does a tip become a bribe? Would the ever. Is the Corporate sector ready through the public media seemed answer be based on the time of admin- to administer similar harsh sanc- to be tolerated while the promoters istration of the tip, the size or the con- tions against the milliards of growing apparently profited highly from the sideration for the tip? On another front fraudsters? But where do we start? unethical act! Similarly the repeated are there ethical grounds for prohibit- Given the serious ethical abuses per- match fixings which seem to be taking developing countries from inflicting vading the entire fabric of our societ- ing on a global perspective speak damage to the environment in line with ies, we need to start from the basics miles about the ethical standing of developed countries who for decades with the introduction of ethical and the promoters while the sensational polluted it to the extent of precipitat- mandatory codes; codes enforceable Mike Tyson/Evander Holifield ear- ing the much-feared “global warming at law and codes with stringent sanc- biting saga reminisces how shame- effect” today! Would two wrongs make tions against any breaches. lessly “man eats man” in our society. a right? In our immediate vicinity, things are As usual, the Institute is pleased to in- far from being different; for instance, Yet on another front, unethical be- vite all its valued stakeholders to give our taxi operators seem to pride in haviour tends to lead to fraud whether us suitable comments on this impor- tripling their fares at the slightest ex- directly or indirectly and to invariably tant and very topical subject.

Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006 BUSINESS ETHICS When ethics are not in a written By BIRUNGYI CEPHAS KAGYENDA, Partner: BIRUNGYI, will suffer some penalties. Each As- form then they BARATA & ASSOCIATES, LEGAL & TAX CONSULTANTS sociation then develops its own ethics. are deemed to be usiness ethics are the based on the pop- principles upon which Some of the oldest ethics on record persons or entities with are in the Hippocratic Oath for medi- ular opinion of the an underlying profit cal practitioners an extract of which society where the Bmotive are guided in determining reads; whether a certain action or omission behavior is prac- is wrong or right behavior. Since eth- “Whither houses I may visit, I will come ics are about morality, the standard for the benefit of the sick, remaining free ticed to be considered of what is ethically of all intentional injustice, of all mischief acceptable is sometimes hard to de- and in particular of sexual relations with termine and these tend to be set out both female and male persons, be they free in a written document, referred to as or slaves.” (Classical version of the Hip- a code of ethics. When ethics are pocratic oath, Translation from Greek by not in a written form then they are Ludwig Edelstein). deemed to be based on the popular opinion of the society where the be- This is an indicator that the doctors havior is practised. Radical trends in of those days may have been taking behavior are normally referred to as liberties and seeking sexual favors unethical. from clients, an unethical practice said to be still ongoing. The business world is very wide and varied in scope and behaviors so Most registered professions have those who tend to do the same activ- codes of ethics. In Uganda, the Ad- ity find the need to set up associations vocates Act (Chapter 267), Accoun- (or guilds as they were referred to in tants Act (Cap 266), Auctioneers old Europe) so as to limit competi- Act (Cap 270), Veterinary Surgeons tion and maximise gain. In the long Act (Cap 277), to mention but a few run the very associations find internal have their respective professional competition not only inevitable but ethics established by law. harmful and therefore set up standards below which those who default Continued on page 8

Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features BUSINESS ETHICS

Continued from page 7 Conduct of business and fair deal- THE CHALLENGES ing: Directors or executive officers Application of the ethics: one rotten are precluded from competing with WHY BUSINESS ETHICS tomato can spoil the whole basket. the business by providing services to Many companies have adopted for- Ethical standards are good for the a competitor as employee, officer or mal statements of corporate values, balance sheet because high moral- director; making profit or assisting and senior executives routinely iden- ity attracts clients leading to higher others to profit from confidential in- tify ethical behaviour, honesty, integ- profit. The highest standards of be- formation or business opportunities rity and social concerns as top issues haviour, matched with the right qual- arising from service in the business or on their company agenda. However, ity of service, are often a good selling taking unfair advantage of suppliers, the public tends to remain suspicious point. Business ethics are also very customers, competitors or other per- until corporations both understand important for both the employees sons’ through manipulation, conceal- and can demonstrate that they are and proprietors of businesses be- ment, or other unfair dealing. committed to using ethics to create cause they provide multiple channels value. As the saying goes, a company for feedback, which are more likely to Gifts: Directors or Executive Offi- is as ethical as its people – every sin- improve productivity. cers should not solicit or accept gifts, gle one of them. payments, loans, services or other For proprietors, Peter Wuffli the compensation from competitors, cus- Many times businesses codify lofty Group CEO of banking giant UBS is tomers, suppliers or any other person goals, open fantastic looking web- quoted as saying; doing business with the company. sites and make generous donations to noble causes but still fail to practice “Companies can only be successful if they Compliance with State Laws: The genuine ethics. They practice bribery balance the interests of various stakeholder business and its directors and employ- on routine basis, dismiss employees groups particularly customers and employees should comply with all applicable for the most flimsy reasons, dodge taxes and involve in all manners of ees……responsible corporate leadership laws, rules and regulations. A business unethical activities. Nice looking lo- means delivering on a profit-oriented man- at war with the State is unlikely to be a gos, flashy adverts and cool business date in a way that is fully transparent and role model for ethics unless the State suits can never substitute for ethics. in line with its stated values, vision and is a rogue. strategies” (35th annual ISC Conference Cultural Issues – St Gallen University) Confidentiality: Directors or Execu- tive Officers that possess information In this era of globalisation, the moral Research on most corporations listed that has not been sanctioned for dis- values of the Anglo-Americans have on the big stock exchanges shows the closure to the public must keep such nearly become the standard to emu- following as standard clauses; information confidential. late because the USA and its closest allies are in charge of the economics and politics of the world at the mo- Conflict of Interest: Every director Use of business funds, assets and in- ment. However, the world is com- and executive officer of a business formation: Each director and Exec- prised of very many cultures and has a duty to avoid business, financial utive is required to protect the com- each culture has a different set of or other direct or indirect interests pany’s funds, assets and information values. Many European companies or relationships which conflict with and shall not use the company funds, for example have threatened to boy- the interests of the business or which assets or information to pursue per- divide his or her loyalty to the com- sonal opportunities or gain. (Johnson pany. & Johnson). Continued on page 9

Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

gratification of about $5000 to leak The following are salient features of Continued from page 8 company information. ethical checks for the future; cott activities in South East Asia on “Maslows Triangle” (Abraham Whistle blowing the basis that dog meat is part of the Maslow – “The Organism”) of the Whether called informers or whistle menu in a number of those countries. hierarchy of needs also seems to lend blowers, persons who report business The moral edict of the western opin- credence to the school of thought crimes are getting lots of encourage- ion is that a dog is a man’s best friend that the ethical Puritanism school is ment and protection. In Uganda, in- and should not be eaten by anyone. part of the 4th and 5th segments in the formers to the Tax department earn If the Hindus in India attempted to triangle, whereby esteem and actu- 10% of tax recovered. (Finance Act boycott business in the rest of the alization are the main targets of the 2003). world where beef is a favorite dish, business entities in the post take-off it would be a different story, mainly stage. Sarbanes – Oxley rule because Indo China does not rule the The rule, common on the stock ex- world. Small and Medium changes, arose out of the unethical Enterprises Vs Big practice called “insider trading”. It is In some countries charging interest Companies. all about full disclosure in reports and on loans is considered not only un- documents filed with or submitted to Whereas it is assumed that resources ethical but sinful yet it is the mainstay the stock exchanges. The equivalents and new insights for organisational of finance capital in many other parts of this rule have been adopted in the ethics have universal appeal, experi- of the world. The common ethical International Accounting Standards. question in respect to cultural at- ence shows that smaller businesses are less likely than larger ones to have titudes is related to corruption and Revolving External Auditors money laundering. It is well docu- in place formal structures of an eth- There was a time when a corporation mented that many countries in the ics program, namely written ethical could retain one big accounting firm western world practice zero tolerance standards, ethics training, a dedicated to work as external auditors indefinite- for corruption domestically and are ethics office/advice line and a means ly. In Uganda and many other coun- the first to report to Transparency to report misconduct anonymous- tries, the external auditors are now International that bureaucrats in the ly. The SMEs lack resources to put expected to perform to a maximum less developed world are very corrupt up the best ethics programs. Rather of three continuous years, after which but are the principal offenders when than re- invent the wheel, they can other auditors take over. It is hoped they operate in the Third world. tailor the best practices churned out through the research of larger organi- that such a practice ensures a higher level of professionalism and counters Poverty sations to their requirements. any unethical tendencies There is a popular joke about the Emerging trends transition of a successful lawyer; “he Minimum ethical standards have first gets on them, he gets honour become the norm in the and then he gets honest.”(Abraham modern world Lincoln- former USA President). following the “Just like the brain is the nerve centre to the organic body, so is the This suggests that one can never be increased corporate board to a company, it senses the environment, it interprets the too honest if they are very poor. It sophisti- signals and triggers appropriate action and above all plans while organizing is common knowledge that a starving the entire organisation’s growth mechanism.” cation of However, “Management is like the heart pumping the life reviving elements man has severe limitations in guard- the perpe- into the company non-stop for 365 days year in, year out. The minute it ing a cake from which he cannot par- trators of ille- ceases functioning the company falls into limbo.” – Leo Kibirango, CMA Journal July/September 2004 take. A salaried employee who earns gal activities and a hundred dollars a month and looks new legislation is after a family of four people would emerging to catch find it hard to resist if he was offered up with the times.

Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features Ethics in Business - A Foundation for Economic Growth By Jane Gitau Ethics are the moral behaviour of Mr. Charles Muchene people and by extension their institu- encouraged the set- Ethics are essential for the long tions. Ethics is a subset of philosophy term success of business and it that tries to promote good values and ting up of ethical is therefore important for di- good will as opposed to mean spir- clubs and better rectors and top management ited evil behaviour to gain success in “ wealth acquisition. They help check of organisations to work with society business bureaux to inculcate moral and ethical values the greed of business, inconsisten- from where lead- in the youth.” This was said by Mr cies between public and private lives ership in business Charles Muchene, the Kenya Coun- of leaders, and the transgressions try Leader of PricewaterhouseCoo- – sexual and financial of all levels of ethics could be ad- pers. He was speaking at a public leaders. Ethical behaviour means that vanced lecture on Business Ethics organised people should not lie, steal, cheat or in Kampala by the Institute of Cor- commit other anti-social acts. It is porate Governance of Uganda. doing what is right.

Mr Muchene encouraged the setting They go beyond legal requirements up of ethical clubs and better and help balance the conflicting needs business bureaux from where of all stakeholders, promote staff and leadership in business ethics customer loyalty and mould the iden- could be advanced. He said tity of the business. Businesses and businesses are faced environments that apply ethics at- with ethical deci- tract investments at much lower cost sions every day and because fraud and corruption are they need a frame- checked out altogether. To improve work for making the ethics in operations of the structure right decisions. These of businesses is vital. range from procurement and employ- Identifying the four main stakehold- ment practices, workers in a company as shareholders, ing conditions for directors or management, employees employees, participa- and the consumers of the company’s tion in politics, waste products or services, one of the dis- disposal and financial cussant, Prof. Bakibinga, one of the reporting. Deputy Vice Chancellors of Maker-

Continued on page 11

Charles Muchene, Country Leader, PricewaterhouseCoopers, Kenya.

10 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

appropriate punishment for deviation Citing the example of Hima Cement, Continued from page 10 should be articulated and enforced. she said the company, by putting in ere University, observed that the Cap- place good corporate governance and ital Markets Corporate Governance Prof. Bakibinga emphasised the es- excellent human resource manage- Guidelines provided for the levelling tablishment of an audit committee ment had transformed Kasese from of stakeholder interests. consisting of both executive and non- a dead mining town to a great con- executive directors who would over- tributor to the booming construction Thus, the composition of the Board see the financial reporting process industry. Jobs were created thus wid- is expected to neither reflect the com- and internal controls of the company, ening the tax base in the town, there pany’s shareholding structure without monitor compliance with the code of was environmental care through tree bias to the principle shareholder nor conduct and review the entire process planting and education and the com- undermine the minority shareholders. of external audit. pany is now looking to further capital The board should establish a share- investment because they have reaped holder communication policy, reflect Reflecting on the same theme, Dr from good business practises. stakeholder interests in the decision Maggie Kigozi, Executive Director, making process and have a balance Uganda Investments Authority, ob- The government, she said, was will- between independent, non-executive served that with observance of eth- ing to dialogue with both business directors and executive directors of ics, “it is time to change our behav- and civil society and to create the diverse skills or expertise. iour”. Not only is the consumer king necessary infrastructure to promote in the Information age, but there is economic growth. Already, laws on To promote honesty, legal compli- also need to develop responsible and deregulation have been enacted and ance and prevention of fraud, Prof informed media to help promote ef- an economic policy that is predictable Bakibinga, noted that board members ficient, transparent and democratic and transparent established. should have oversight over manage- governance as well as fair business ment and operations of the company, practices. Dr. Kigozi, said that practising of eth- major capital expenditures, acquisi- ics helps create a healthy business level tions and divestitures, reviewing cor- She said the Uganda national “Vision playing field by ensuring that all players porate performance and strategies, 2025: Prosperous People, harmoni- are faithful to taxation laws, recognise including oversight of accounts. ous Nation, Beautiful Country”, en- and respect intellectual property rights visages growth through a private sec- as well as trademark and consumer Mr Muchene said societal values have tor led economy. Similarly, the target protection. A responsible media is been eroded over time due to personal to reduce poverty to less than 10 per- important in this process. and corporate greed, short-term gains cent by 2017 can only be realised with mentality, the pressure to deliver and a vibrant business sector. The production process would be the absence of a sufficient number of boosted through better utilisation good role models. He also cited the In a private sector led economy, busi- of resources, environmental protec- absence of peer pressure to motivate ness is at the heart surrounded by tion, cleaner production and energy towards ethical values in business. government at the top, production at conservation. These would lead to As such, there is need to inculcate the bottom, the market to the left and happier suppliers of services such as an ethical culture or enforce exist- competition on the right hand side. finances, raw material and packaging. ing processes by developing a set of The business itself revolves around values that govern the behaviour of shareholders at the global, regional An ethically growing business sector people in the organisation. These and national levels and their bottom would produce products that meet should be supported by communica- line is sustainability. Other key ele- global standards. The market chain tion and training so that they are built ments to the business are the board, would also grow all the way from into the organisation. They should be the management, labour and commu- stockists to retail, services and con- regularly monitored and good behav- nity especially regarding Corporate iour recognised and rewarded while Social Responsibility. sumers and finally to the capital markets

Institute of Corporate Governance of Uganda 11 Sustainable Wealth Creation, Dec 2006 Features

Applying Corporate Governance: The Dfcu Experience

Is your organisation CG compliant? The benefits of ness and operational issues. They corporate governance are real and rewarding. Being CG compliant enhances a healthy balance of risk and are also on contract and subject to return even if it is not a universal remedy to all business re-election in accordance with the challenges. Willie Ogule, former Corporation Secretary, Company’s Articles of Association. DFCU. walks us through the existing structures, proc- The only exception to this rule is the esses, policies and values of the Dfcu Group to help us appreciate Good Corporate Governance requirement. Managing Director of the subsidiary, DFCU is a corporate founder member of the Institute DFCU Bank. To ensure transparency of Corporate Governance of Uganda. We publish this and effective checks in its operations, article in his memory and the immense contribution he the Group maintains a policy of sep- made to ICGU. aration of the Positions of Chairman of the Board and Managing Direc- Mr. Willie Ogule, RIP/2006 management. Directors meet regu- tor. Former Corporation Secretary, DFCU larly and in between meetings, receive Board of Directors all relevant, accurate information to Board Committees guide them in monitoring, making Several board Committees are in he Board of Directors is necessary strategic decisions and pro- place to dispense in depth the duties accountable to the share- viding effective leadership, control that require deeper oversight respon- holders, regulatory bodies and guidance over the Group’s opera- sibility. They address specific respon- and the wider community tions. This helps to ensure compli- forT ensuring that the Group complies sibilities. These are: ance with relevant legal, ethical and with the law, highest standards of cor- regulatory requirements. The day- Asset and Liability porate governance and business eth- to-day management of the Group Management Committee ics. The ultimate objective is protect- is in the hands of the Managing Di- ing and promoting shareholder rights, rector ( Dfcu Bank) and the General The Asset and Liability Manage- realising shareholders value while tak- Manager for DFCU Limited in case ment Committee sets guidelines for ing into account the interest of stake- of development finance. A team of the control of the Group’s risk in its holders and/or the wider community. qualified and highly experienced and assets tolerance, risks and business A Corporate Governance Manual and Senior Executives support each of operations, and to maximize returns a Check-list working document are in the managers. on its investment. The Committee is place to ensure that corporate opera- composed of non-executive Direc- tions and structures are governed by All the Directors, including the Board tors and the Managing Director. clearly defined, internationally devel- Chairman, are non-executive Direc- oped and accepted principles of good tors, with the exception of the Man- Audit Committee corporate governance. aging Director (and second Executive The Audit Committee reviews the Director as required under the FIA control mechanisms; monitoring the The Board meets at least four times 2004 for the Bank). This creates the implementation of risk management a year. It has a balanced mix of skills independence necessary for quality internal controls and ensures checks drawn from highly experienced peo- judgment and outlook, and ensures and balances are available. It also ple with in-depth expertise in differ- that balanced, objective decisions are ent aspects of financial institutions arrived at regarding the Group’s busi- Continued on page 14

12 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Continued on page 12

Institute of Corporate Governance of Uganda 13 Sustainable Wealth Creation, Dec 2006 Features The Dfcu Experience

Continued from page 12 provides oversight of senior man- Remuneration Committee agement’s activities; determining the The Board has a Remuneration Com- ensures that remedial issues are ef- Group’s general credit policy; set- mittee, whose functions include nom- fected when necessary and on time. ting credit sanctioning mandates for ination of persons to be appointed It reviews the Group’s internal and Management and where appropriate, Directors, subject to shareholders external audit reports; ensures the ad- sanctions approval beyond the au- approval; making recommendations equacy of the Group’s audit function; thority of Management. It reviews to the Board on all matters concern- proper appointment of the external the sectoral exposure and quality ing remuneration of all Executive auditor; and monitoring of compli- of the Group’s portfolio as well as and non-executive Directors as well ance with regulatory requirements reviewing and monitoring the over- as for the Senior Executives involved and best practices. The Committee all market operations, legal liquidity in management; reviewing the quality meets at least 4 times a year, and is business risk of DFCU. The Group’s of output by staff through perfor- composed of non-executive Direc- Risk Management function also en- mance measurement criteria, succes- tors. sures that the growth of business tar- sion planning, labour market reviews; gets is commensurate with the busi- and approval of the overall Human Risk and Credit Committee ness risks. The Risk and Credit Committee Continued on page 15

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14 Institute of CorporateHead Governance Office: ofPlot Uganda 59, Buganda Road, P.O. Box 6972 Kampala Uganda. Tel: 256-41-341275/255146, Fax: 256-41-237046 Email: [email protected] Features Sustainable Wealth Creation, Dec 2006

kets receive the relevant information ethic in dealing with its shareholders Continued from page 14 on operations. Regular performance and conducting its business opera- reports and periodic results are giv- tions. Codes of ethics are contained Resource and Remuneration policies en out to ensure that shareholders in the Human resource manual which and strategies. The Committee meets are kept abreast of operations. The is implemented by the Group’s disci- at least 4 times a year. Group also issues regular notices to plinary committee. the regulatory bodies disclosing its Clear Corporate Mission and Vision Internal Controls performance statistics, and indicat- Statement. Systems and procedures to ensure ing its conformity with all regulatory A Clear vision is an aspect of good transparency, accuracy and effective- requirements, including the Bank of Corporate Governance attributable ness in the disclosure of the Group’s Uganda Capital requirements. The to any organisation. The mission of accounting and business information Group’s voting systems ensure that DFCU is are in place. These exist to ensure each shareholder is given an oppor- compliance with all applicable regu- tunity to freely and equitably exercise “it will seek to grow Shareholder value while latory financial requirements. The their voting rights without excessive playing a key role in transforming the Group internal audit function is continually expense. and enhancing the well being of the Society reviewed by the Board, with through provision of innovative financial solutions and maintaining the further external oversight Shareholders retain the discretion over from the external auditors. highest levels of customer ser- The Group’s performance major strategic decisions affecting the vice and professional integrity”. is measured periodically through an analysis of the Groups’ core business as well as any This is clearly communicat- extent of achievement of decisions with major implications on ed to all staff and reflected the Group’s financial ob- in all its annual published jectives. corporate structure. report.

Compliance Core Values All heads of business units submit DFCU values teamwork, in- Social a monthly report to the Compliance tegrity, excellent customer Responsibilities and Monitoring Committee. This focus, corporate social responsibility, is reviewed by the legal department, The letter “D” in its name, DFCU which are all captured in its Human omissions are pointed out and im- represents Development, which is a Resource manuals. These are printed plementation carried out by the risk strong focus in the Group’s activities. and posted on notice boards and all monitoring department. This process The Group has a good track record as published accounts. They are consid- keeps every staff alert on compliance an investor in projects that enhance ered in performance appraisals and in the effort to strengthen a compli- the development and prosperity of the staff are briefed about them dur- ance culture, an important aspect of the community as well as policies ing meetings. corporate Governance. and structures which recognize the need to maintain a clean environment Annual General Meeting while boosting economic growth by Shareholder Rights At the Annual General Meeting of adhering strongly to its Environmen- Shareholders retain the discretion shareholders, performance of each of tal Guidelines in all its activities. over major strategic decisions affect- the subsidiaries is reviewed. It is also ing the Groups’ core business as well the time for shareholders’ comments, Code of Ethics as any decisions with major implica- dividend approval and election of di- tions on corporate structure. The DFCU is committed to the highest rectors. This provides a high sense shareholders and the financial mar- standard of integrity, behaviour and of belonging and participation and is a good corporate governance compli- Institute of Corporate Governance of Uganda 15 Sustainable Wealth Creation, Dec 2006 Features

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16 Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features Features Sustainable Wealth Creation, Dec 2006

Curbing CORPORATE FRAUD: Good operational Leadership needed

By Henry Opondo (Phd) preventing corporate fraud. Never- Director, Financial Markets, Bank of Uganda theless, the recent corporate failures in the USA and Europe have sparked orporate fraud, is a deliberate off reforms in corporate governance, and premeditated act that in- especially, at the Board level as a volves deception by employ- way of preventing corporate fraud. ees of an organisation. It The reforms and laws have focused Ccan cause heavy losses to stakehold- mainly on the structure of owner- ers and the economy but it can be ship, the composition and role of addressed by an effective operational board of directors and compensation governance system. of Chief Executives. The famous Sarbanes-Oxley Act of 2002, for ex- It occurs when a corporation deliber- ample, demands publicly listed com- Corporate frauds ately or intentionally conceals infor- panies to specify, disclose and make mation in order to appear success- independent requirements regarding led to failure and ful. It is usually an act of deception auditor relationships, the composi- by company officials and manifests tion and remuneration of the board closure of sev- itself in irregularities or illegal activi- of directors and the responsibilities ties such as manipulating accounting of senior management. The Uganda eral commercial records, hiding debt, or failing to in- Judicial Commission of Inquiry into form shareholders of loans and bo- the closure of Banks, the Ogoola Re- banks in 1998 nuses given to executives. port (1999), also blamed corporate fraud as one of the reasons for the Corporate frauds led to failure and collapse and led to the enactment of closure of several commercial banks the Financial Institutions Act (FIA) in 1998. And recently, an alleged cor- 2004. Like the Sarbanes–Oxley Act, porate scandal at the National Social the FIA (2004) also focuses on as- Security Fund (NSSF) forced the gov- pects of corporate governance, and ernment to transfer the supervision of compliance with laws, rules and regu- the Fund from the Ministry of Gen- lations for commercial banks. der, Labour, and Social Development to the Bank of Uganda. The Global However, good corporate governance Fund to fight HIV/AIDS, tubercu- can be put to use to curb corporate losis and malaria has also suspended fraud. all grants to Uganda after discovering serious and financial irregularities at CORPORATE FRAUD takes the the Programme Management Unit form of intentional failure to record (PMU), which oversees the imple- or disclose correct or non-misleading mentation programmes. The Uganda information to customers, sharehold- government disbanded the PMU and ers or regulators; sale or assignment instituted a judicial commission of of fictitious or misplaced assets; inquiry to investigate its activities. Continued on page 18 There are no fullproof methods of

16 Institute of Corporate Governance of Uganda Institute of Corporate Governance of Uganda 17 Sustainable Wealth Creation, Dec 2006 Features

Continued from page 17 Curbing CORPORATE FRAUD: improper payments such as bribes, the closed banks. One of the closed cealment, communication fosters kickbacks, payoffs to government of- banks used deposits to finance loss- openness. Many studies now show ficials, customers or suppliers; prohib- making subsidiary companies. that more organisation-wide com- ited business activities such as those munication can reduce corporate which violate government statutes, Weak Internal Controls fraud. But communication should re- rules, regulations or contracts; inten- flect flexibility. It could be up, down, Key et al (in “Keeping Employees tional and improper transfer pricing lateral or diagonal. It could involve Honest,” Ivey Business Quarterly, e.g., valuation of goods exchanged face-to-face meetings or memos with 63(2), 1999) found that executives between related entities; intentional management feedbacks. It could also at firms with known occurrences of and improper representation or valu- be informal or ad hoc or even outside fraud identified poor internal controls ation of transactions, assets, liabilities the company premises, say, at a train- as a major contributor. According to or income; intentional concealment ing event or lunch breaks. Russell (“Understanding Fraud and or misrepresentation of events or Embezzlement,” Ohio CPA Journal data; intentional falsification offi IMPACT OF CORPORATE 54(1),1995) the widespread corpo- nancial records to cover up illegal FRAUD rate fraud requires a failure in internal acts; insider trading and dealings; tax controls or operational governance Corporate fraud and failure can cost fraud etc. systems. Some of the characteristics billions of shillings, not only through of a company at risk of fraud are: fraud itself, but also time and effort A company involved in one or more weak, loose or no enforced internal that is spent in dealing with it. Imag- of these types of corporate fraud controls and poor financial and op- ine the valuable time and resources should be regarded as experiencing erational planning. spent by authorities in setting up corporate governance failures includ- commissions of inquiry, enacting new ing poor levels of integrity and ethics, Internal control systems comprise a legislations, prosecution of culprits poor internal controls, and poor com- good accounting system, including and compensating victims. Imagine munication within the organisation. the roles of the internal and external the feelings of employees and their auditors, and the audit committee of families about the effects of careers Low Ethics and Integrity the board; clear division of respon- ruined and income lost resulting from Low integrity and work ethics in the sibilities of middle to top managers; corporate failures. What about the work place obviously provides all lev- written policies and procedures, and a cries of investors whose sources of els of management with the incen- programme for company-wide identi- income have vanished? How about tive and opportunity to perpetrate fication, analysis and addressing basic the anger of the suppliers, the finan- fraud. The likelihood of corporate problems, including, monitoring and ciers and shareholders? What about fraud is greater the more the manage- reviewing the implementation of pol- the economy? Need I say more? ment and employees rationalise pro- icies and procedures. All this should hibited behaviour. Cases have been be supplemented by an effective risk PREVENTION OF documented where management and management system and paying at- CORPORATE FRAUD employees deliberately flout policies tention to continuous education and Obviously, a good starting point for and regulations or vary established training of employees in what con- fraud prevention is for top manage- procedures and resist introduction of stitutes good corporate policies and ment to develop a code of conduct checks and balances in the workplace. procedures. that reinforces the culture of com- Bell et al (1998), for example, found pliance with regulations, policies and that where management frequently Poor Communication procedures; to set up good systems override policies or do not comply Hooks et al (“Enhancing Communi- of internal control and responsibility; with legal provisions, corporate fraud cation to Assist in Fraud Prevention and to design effective and efficient is prevalent. The Ogoola Report, and Detection,” Auditing: A Journal communication channels. cited imprudent practices, including or Practice and Theory, 13(2)1994) over-indulgence in insider lending by said that while fraud involves con- Continued on page 19

18 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Continued from page 18 fraud. This involves setting up effec- concern. A whistle-blowing policy tive accounting, auditing and report- can provide employees and managing systems as well as an effective risk ers guidance in dealing with business A comprehensive code of conduct management framework. In particu- conduct and helping them learn how set at the top and permeated through- lar, policies, practices, procedures and to identify and to avoid dishonest and out the company is an effective way other monitoring mechanisms should unethical business practices as well of influencing the culture of com- be developed to monitor activities as providing guidance on how to re- pliance, corporate responsibility and and safeguard assets in high-risk ar- spond to conduct which may appear company loyalty. Such a code should eas. Ultimately, ensuring the greatest to be of concern. As such, it reinforc- be clearly articulated, communicated possible transparency of corporate es a culture of compliance with best to all employees and consistently en- transactions is a good defence against practices and regulations. forced. It is useful to conduct regular corporate fraud. management training in following the Install Hotline, Involve code and to review the code annually. Whistle-blowing Suppliers Nevertheless, management should Programmes play a bigger role in this area. They A hotline can allow employees to sub- should walk the talk. If managers are Surveys have found that most frauds mit concerns anonymously. By using committed to fraud prevention and are perpetrated by employees of or- this method, a company can identify understand how it may be achieved, ganisations rather than outsiders. and investigate the concerns, and take the organisation has a solid founda- Thus, many companies have adopted actions early enough before fraud can tion for other employees to support whistle-blowing strategies which, by be perpetrated. Firms should look the notion of fraud control. definition, are internal processes put An effective internal control system is in place to support staff to draw at- Continued on page 28 a tested way of preventing corporate tention to anything they think is of

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Plot 4-12 Nsamizi road, OR P.O. Box 16, Entebbe, Uganda. National Medical Stores Kampala Office Tel : 256-041- 320507/320542/320566/077-221445. Plot No.22 Conrad Plaza Email:[email protected] Entebbe Road- Kampala Marketing/Sales Department Direct lines InstituteTel. of256-041-346681/230099 Corporate Governance of Uganda 19 Tel: 256-041-320089 Fax: 256-041-321323/321469 Fax 256-041-346682 E-mail:[email protected] Email:[email protected] Sustainable Wealth Creation, Dec 2006 Home News

David Cutting, M.D. Standard Chartered Bank receives a certificate of participation at one of the Corporate Governance Training Workshops

Dr. Grace Nambatya Kyeyune, Female Profes- Participants at a recently concluded Public Awareness Lecture organised sional 0f 2006. Awarded by by ICGU and Shell Uganda on Business Ethics at Sheraton Kampala British Council Manage- Hotel ment Forum, Council Member ICGU

• During the year the following organi- K. Bahemuka, Chairman Audit Committee; sations benefited from customized Mr. Emmanuel Kalule who represents Bank corporate governance programmes of Uganda is Chairman, Finance and Ad- offered by the Institute for their Board ministration Committee. The other members of Directors and Senior Managers: are: Mr. Sam F. Owori; Dr. Jan Tibamwenda; Uganda Coffee Development Au- Dr. Grace Nambatya Kyeyune; Ms. Sarah thority, December 6-7 2006; National Walusimbi; Mr. Joseph Baliddawa who rep- Forestry Authority (NFA), November resents PricewaterhouseCoopers and Mr. 22-24, 2006; Human Rights Network Vincent Kaheeru, Chief Executive Officer & Uganda (Hurinet Uganda), Novem- Ex-officio Member. ber 17, 2006; Uganda Finance Trust • Dr. Grace Nambatya Kyeyune was Limited, September 28-30, 2006; Di- crowned female professional of the amond Trust Bank Uganda Limited, year 2006 awarded by British Council September 16-18, 2006; National Management Forum on 1st December Vincent F. Kaheeru, CEO, ICGU Social Security Fund, September 2006. 1, 2006; Nabagereka Development • Mr. Richard Wejuli-Wabwire was elect- RECENT ICGU EVENTS Foundation, July 28 and August 4, ed Secretary to the Council, ICGU, on 2006; Uganda Wildlife Authority, November 15, 2006 replacing Ms. Jane Corporate Governance Training Work- July 18, 2006 and National Medical B. Langoya whose term had expired. shops. Stores (NMS), July 7-8, 2006. • The President Mr. Leo Kibirango won • ICGU conducted 5 trainings for Direc- the 4th Kikonyogo Capital Markets Awards/achievements by members of the tors and Senior Managers of Public Award on May 11, 2006. Governing Council of ICGU and Private Enterprises and Non-Gov- • Mr. Sam Owori was this year appointed ernmental Organisations. These work- The ICGU is governed by a professional Chairman, Centre for African Family shops took place on the following dates: team of 11 Council Members namely: Studies an NGO based in Nairobi, Ke- July 12-14, August 9-11, September 13- Mr. Leo Kibirango, President; Mr. Simon nya with a regional office in Lome, Togo; 15, November 1-3 and November 29- Rutega, Vice-president; Mr. Richard We- is primary representative to the UN December 1, 2006. The programmes juli-Wabwire, Secretary to the Council; Habitat and is also the Regional Rotary HOME NEWS benefited a total of 94 trainees and were Capt. Gad Gasaatura, Chairman Educa- International Membership coordinator rated highly by the participants. tion and Training Committee; Mr. Pius for Africa.

20 Institute of Corporate Governance of Uganda Home News Sustainable Wealth Creation, Dec 2006

Participants at a recently concluded Corporate Governance Workshop, at Hotel Africana.

The Board of Nnabagereka Development Foundation with ICGU officials pose for a photo at a recently concluded Corporate Gover- nance Workshop, (4th from Right) is Her Majesty Sylvia Nagginda, the Queen of Buganda. Mr. Leo Kibirango, winner of the 2006 Mr. Richard Wejuli-Wabwire - New 4th Kikonyogo Capital Markets Award Secretary to the Council, ICGU.

Public Awareness Lecture Kaheeru, CEO ICGU represented the Council Members. • The ICGU conducted a Public Aware- Institute. • Mr. Vincent Kaheeru, Chief Executive ness Lecture on the topic – “Business • ICGU participated in a Corporate Social Officer, ICGU represented the Institute Ethics – A foundation for Economic Responsibility (CSR) Conference from at two events: Corporate Governance Growth” on July 5, 2006 at Sheraton November 29 to December 1, 2006 Leadership Program for East and Hotel Kampala. The Chief Guest was organised by Ufadhili Trust in Nairobi, Southern Africa, Washington, D.C., July Hon. Dr. Ezra Suruma, Minister of Kenya. ICGU was represented by Mr. 9 – 15, 2006 and International Corpo- Finance, Planning and Economic De- Emmanuel Kalule, a Council Member rate Governance Network [ICGN], 11th velopment. The Guest Speaker was representing Bank of Uganda and Ms. Annual Conference, Washington, D.C., Mr. Charles Muchene, Country Leader Harriet Ssali, a trainer in Corporate So- July 5 – 7, 2006. PricewaterhouseCoopers, Kenya and cial Responsibility and Company Law. the discussants of his paper were Dr. • ICGU participated in the workshop on Membership Maggie Kigozi, Executive Director, Business Ethics and the fight against The ICGU is a membership based organi- Uganda Investment Authority and Prof. Corruption, Johannesburg, 26-27, Octo- sation. Membership is open to company David Bakibinga, Deputy Vice Chancel- ber 2006. The invitation by Transparen- directors, directors of statutory bodies, or- lor, Makerere University Kampala. The cy International Uganda (T. I. Uganda) in ganisations and any person in a senior event which was co-funded by Shell partnership with Transparency Interna- management position or practicing a regis- Uganda and ICGU had over 250 partici- tional Norway (T. I. Norway) was made tered profession at a senior level. One can pants and was very well rated. to Private Sector Foundation Uganda join as a corporate body or an individual (PSFU), where ICGU is an associate member. ICGU has a membership base of Away Events member. Mr. Leo Kibirango, President, 31 corporate members and 232 individu- • ICGU participated in an African De- ICGU, represented the Institute. als. From July 2006 to date, we have had velopment Bank arranged Corporate • ICGU also participated at the Com- Friends Consult Limited, Bank of Baroda, Governance Consultative meeting fo- monwealth Association for Corporate National Water and Sewerage Corporation cusing on the operationalisation of the Governance Annual Workshop and An- Limited, Gayaza High School, The Electoral Banks Corporate Governance Strategy nual General Meeting, October, 11-14, Commission, Umeme Limited, Orient Bank in Regional Member Countries (RMCs) 2006, Kerala, India. The Institute was and Uganda Martyrs University Nkozi join that took place in Tunis, Tunisia from represented by Dr. Grace Nambatya as corporate members and several eminent 08 to 09 December 2006. Mr. Vincent Kyeyune and Dr. Jan Tibamwenda, both persons as individual members.

Institute of Corporate Governance of Uganda 21 Sustainable Wealth Creation, Dec 2006 Features

Micro-Finance Institutions need training and profitability

structures, policies and procedures. ...governance is At maturity, the MFI requires strong one most impor- governance to check and balance the tant challenge power of the managers. facing the up- In 2004, AMFIU commissioned a coming MFIs and study on governance needs among its threatens to shat- member MFIs. Inherent weaknesses ter their chances in their governance systems are reflected in the lack of strategic plans, of growth. monitoring tools, self-evaluation, conducive policies and procedures, and transparent interactions among By Oliver Schmidt, Ph.D, Technical Advisor, AMFIU. tutions are seen to have the capacity the different organs. The major areas to grow and sustain themselves. Like of the study were basically those that here is urgent need for train- in other emerging industries, the chal- form the core of effective governance ing, awareness and technical lenges of growth that microfinance systems such as ownership structures, assistance to member asso- institutions are facing include the Board effectiveness and governance ciations of the Association need to preserve the vision, manag- tools available to MFIs. ofT Micro-Finance Institutions in ing for profitability and establishing Uganda (AMFIU). A recent study by a governance system that holds man- Category specific AMFIU recommends that for this to agement accountable without under- governance patterns happen, AMFIU should work with mining its independence and flexibil- other stakeholders to integrate critical ity. In Uganda today, governance is governance issues in its performance one most important challenge facing The study identifies governance pat- monitoring system. There is also the upcoming MFIs and threatens to terns across the various categories of need to popularise sound governance shatter their chances of growth. MFIs defined by the industry from practices and the concept of self- A – E and also the ownership struc- regulation. Equally important is the Governance helps regulate the work- tures. Among these are the Volunteer recommendation to use the comply- ing relationship between the board Boards, Inadequate accountability, ing MFIs as role models to the lower and the managers. It has been argued Power imbalance, High level of com- category MFIs. that although the founders of these mitment, Weak regulation, Gender institutions hold the vision and would and Founder member syndrome. This is because the evolution of mi- like to see it realised, they are not nec- There are two distinct features of the crofinance has been characterised by essarily interested in profitability and differing patterns in the categories: a change from poverty lending to fi- may therefore need professional man- nancial systems approach where insti- agers to sustain the growth, create Continued on page 23

22 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Continued from page 22 Companies limited by shares and can therefore not be accountable to SACCOs whose members are share- the results of t he MFI operations. It a. The education levels of the holders tend to have stronger gover- also makes management very strong, board members decreases with nance systems because the boards are a situation that was prominent in co- the categories i.e. from catego- held accountable by the shareholders operatives and companies limited by ry A(strongest) to E (weakest). who are the members. However, it is guarantee. The worst is where the Whereas board members in Cat- also reported that the boards of SAC- board members take on the imple- egory A are highly educated with COs though highly committed, lack mentation role leaving the responsi- first degrees or even Masters and adequate skills and resources to man- bility of oversight and policy formu- well informed on microfinance age effectively compared to those of lation in the hands of management. issues, the level goes as low as companies limited by shares. primary school in category E and Governance tools in some cases with no knowledge On the other hand, the companies Most MFIs across all categories have of microfinance issues. This fur- limited by guarantee and the NGOs ther reflects the decisions made the legal documents of operation, vi- do not necessarily provide financial sion, mission and operational manu- by such a board towards the busi- services as a major goal and therefore ness of the MFI. als, which means they are serious with profitability is secondary, yet they are their business. What should however the majority of the MFIs in Uganda. b. The strength of the governance be a concern to all stakeholders is the The boards are not so motivated to use of these tools. It is clearly indi- system almost follows the same steer such an institution to grow. trend as the education levels. The cated that the practices of most MFIs especially in category C, D and E do system is strongest with category Clarity of roles and not reflect the vision and mission ar- A MFIs and weakest with cate- responsibilities gory E. The weaker the board as ticulated and in some cases hanged indicated by the general gover- Most MFIs operate under a num- on the walls. This clearly indicates nance system, the more the MFI ber of organs; the Annual general that the motivation for developing is susceptible to bad governance, meeting ( AGM), the Board and its these tools is not to improve efficien- poor management, borrower de- functional committees, and also the cy but to attract funding whose fate is fault and lack of external fund- management. Despite having these anybody’s guess once they succeed in ing, sometimes causing total fail- organs, the majority of the MFIs getting it and discarding the tools. ure or closure. cannot clearly figure out the major roles of each which is the basis of ac- The other tools such as the strategic Ownership structures countability problems. For instance, plans, internal controls and board the boards are ideally appointed by manuals are generally not found in Most of the MFIs in Uganda fall un- the AGM but in some MFIs it was the majority of the lower level MFIs. der one of the following legal struc- found out that the AGMs have never This is no surprise given the other tures; companies limited by shares, conducted business and one wonders weaknesses in the operations of the companies limited by guarantee, who appoints the boards, where do board as indicated in the report and SACCOs and pure NGOs. The fac- they report or if they report at all. highlighted earlier in the summary. tors that influence their governance The size of some of these MFIs re- clearly reflect the differences in these One other bad practice identified was mains a management challenge since ownership structures. They include the abdication of the strategic duties some of the tools like internal con- motivation of board members, avail- by the board to management which trols are effective with a large num- ability of funds to run the institu- was attributed to a number of issues ber of personnel. We may as well take tions, external control, and training including lack of skills, time or the this to mean that the lower the level of the board members, institutional appointing authority being someone of the MFIs the higher the risk. type, founding philosophy, and apti- else such as the donors. This of course tude of the board. renders the board very ineffective and Continued on page 25

Institute of Corporate Governance of Uganda 23 Sustainable Wealth Creation, Dec 2006 Features Ethics? What’s it?

By HAJI AHMED I. AHMED elimination of God given natural en- Most of corporate Partner, A.I. Ahmed and Associates dowment- Flora and Fauna, the for- ests, the animals even the lakes, rivers collapses can be he Industrial Revolution and seas suffered changes following can be summed up as the land reclamation in some parts categorized as the consequences of changes of the world -morally stealing from corporate greed Tfrom ‘domestic to facto- nature and creating imbalance to it - ry production’ in the middle of the (ozone layer depletion). This change arising from a eighteenth century. Within a century reflected loss of moral responsibility. the Industrial Revolution had trans- new age of mate- formed the economic structure of Africa, particularly Uganda “The many countries of the world, and Pearl of Africa” has so far been for- rialism that we as inevitably, Africa then known as the tunate that its natural beauty had to a community have Dark Continent could not escape this some extent remained intact, and had change. Africa fueled its raw materials not been compromised for the Indus- embraced to the Industrial Revolution factories trial change. In Uganda some greedy and also furnished a protected market people did attempt to rape some wet- for their goods. This change brought lands thus threatening the life of one in vast rise and displacement of the of the world’s deepest fresh water- populations, created grave social bodies - The Lake Victoria. They are problems, shifted balance of political also trying to desecrate the animal power within the nations and altered sanctuary by suggesting the building the whole pattern of labour and lei- of a golf course in the heart of a sure for millions (then) of people. national park. Almost three hundred years since the industrial revolution, Fundamentally the new change was the dot-com revolution has come. It application of mechanical power is a part of the telecommunications which produced many secondary ef- revolution requiring billions of dol- fects of momentous consequence lars of investment in fibre optic ca- such as the development of locomo- bles, satellites and micro wave towers. tive and rapid communications, the Unlike the Industrial Revolution, it beginnings of joint stock enterprises has demanded financial manipulation in banking, trade unions, popular ed- schemes to hold up share prices and ucation and many others. The eigh- huge salaries and bonuses. Even first teenth century was also called the year accounting students could work Age of reason and enlightenment. out that this was all financially unsus- tainable. Accountants, auditors, banks The ugly marks the Industrial change and lawyers whose independence and left in most countries was the total Continued on page 25

24 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Continued from page 24 corporate managers, banks and the categorised as the corporate greed accounting and legal professions arising from a new age of materialism that we as a community have em- integrity had been traditionally relied arguably seem to have sunk to an braced. The emergence of material- upon appeared to join the rush under all low level. An analysis of biggest ism is something for which we are all the threat of being left behind in ac- corporate scandals namely, Parma- responsible and which provided the cess to riches from this century’s new lat, Enron, World Com, Cirio, HIH climate for corporate greed to flour- ‘dot.com’ and fibre optic revolutions. Insurance, Harris Scarfe and One Tel provide compelling evidence ish. So we are all happy to attack evil Corporate professional gatekeep- of how accountants and auditors economic perpetrators, greedy busi- ers have become servants to the new together with other professionals nessmen, politicians and government players rather than continue to remain such as lawyers failed in their gate- employees but it is just not done to the traditional independent guardians. keepers’ role. attack materialism which erodes eth- The traditional brakes or taboos-mo- ics in business, professions and other rality, conscience, ethics and integrity It was therefore, a welcome break spheres of human life. are blown out to winds. All too often, and a good example of moral cour- those whose mandate was to act as age and convictions exhibited when The Hon. Justice Neville Owen, Royal gatekeepers were tempted by misguid- the Governor of Bank of Uganda, Commissioner for the HIH Insurance ed compensation policies within the Mr. Emmanuel Tumusiime Mutebile collapse in Australia lamented that for firms which emphasised “profiteering forfeited his fees amounting to Ug. all the branches of law and flaws of fees and commission”, disregarding Shs. 48m due to him for his role in the system the core problem which the universally laid down conventions, the commission of inquiry on the he simply could not fix but suspected to forfeit or compromise their autono- Global Fund. It is a shinning example was a profound failure of morality. So my and independence. of high standards of ethics and in- moral courage and convictions have tegrity when he said without mincing gradually eroded our day to day lives Excesses in corporate life has not words that the salary he was earning and money, more money has invaded been new in Uganda and we have was enough for him. Should we not our lives where it formerly played a witnessed how hard earned savings accept the fact that in Uganda there lesser role. had been mauled by the great bank may be some people who hold them- scam- Greenland Bank, Coopera- selves above personal interest when it The American social researcher Da- tive Bank, International Credit Bank comes to abhorrent influence of ma- vid Meyers, provided impressive evi- and Lannex Forex Bureau recently. terialism and greed? Therefore respect and trust for Most of corporate collapses can be Continued on page 28

Micro-Finance Institutions need training, profitability

Continued from page 23 a measure of board control. Factors ies widely. Local MFIs have more Independence of the that affect the independence of the independence on decision making directors MFI include funding sources and than external ones whose decisions MFIs that are fully controlled by their strategic positioning. are made by their mother organisa- boards are performing better (operations. These are however affected by tionally and financially) than those Among Ugandan MFIs, the extent to the skills of the board, perception of controlled externally. The capacity which an institution’s board has inde- individual and collective responsi- of the board to take decisions that pendence and discretion to decide on bilities and their commitment to the stimulate growth and profitability is and implement strategic issues var- MFIs’goals

Institute of Corporate Governance of Uganda 25 Sustainable Wealth Creation, Dec 2006 Features

26 Institute of Corporate Governance of Uganda Sustainable Wealth Creation, Dec 2006 Features Sustainable Wealth Creation, Dec 2006

Bonanza for Individual Ugandan Investors he recent Stanbic Bank Uganda Ugandan individual investors. There are 36 200% IPO demonstrated that the na- who applied for more than this and their • There were 15,488 individual Ugandan scent Capital Markets in Uganda applications were scaled back to 2,150,000 investors who applied for Shs 35.5 bn are on the verge of take-off. The shares. This amounted to Shs 35.5bn or half • There were 407 non-individual (Corpo- TIPO in which 1billion shares amounting the amount on offer. rations, Pension Funds etc.) Ugandan to 20% of the Bank was offered for sale investors who applied for Shs 23.7 bn came about as a result of an agreement All the other applicants were grouped to- • There were 20,091 non-Ugandan indi- between the Government of Uganda and gether and the remaining shares allocated vidual investors the Standard Bank Group of South Africa. to them. The allotment resulted in all appli- • There were 1,463 non-Ugandan Corpo- The Agreement was that the Government cants who applied for upto 109,500 shares rations, Fund Managers etc. would sell its 10% shareholding in the (Shs 7.6mn) being allotted the full amount Allotment Bank and the Standard Bank Group would applied for. All applicants who applied for • Ugandan individuals – 15,488 – Shs 35.5 also sell 10% of the bank through an IPO. more shares were scaled down to 109,500 bn The objective was to give Ugandans an op- shares. • Uganda non- individuals – 407 – Shs portunity to participate in the fortunes of 1.65 bn Stanbic Bank. The refunds and share certificates will start • Non-Ugandan Individuals – 20,091 – Shs th to be sent out on Friday 19 and we expect 29bn th The IPO was open for a period of four the shares to list on Thursday 25 January. • Non-Ugandan Instituions – 1,463 – Shs th weeks between November 24 and De- Stanbic Bank Uganda – IPO Statistics. 5.3bn nd cember 22 . The process got off to a slow • 37,449 applications for 3bn shares Refunds start with only a few applications received amounting to UGX 211bn Shs 140 bn in the first three weeks. In the final week • The oversubscription was just about there was a frenzy as people rushed to put in their applications before the deadline. The response was phenomenal with more investors applying for shares than had ever applied before. There were 37,449 applications for 3billion shares totalling 211bn. This meant that the IPO was 200% over- subscribed.

There was a good mix of applicants from both within and outside the country. There were 15,488 Ugandan individuals who applied for Shs 41.1 bn worth of shares, 407 Ugandan institutions who applied for Shs 30.7 bn worth of shares; 20,091 non-Ugan- dan Individuals who applied for Shs 56.1bn and 1,463 non-Ugandan institutions who applied for shares worth. Shs 82.3bn

The allotment policy in the prospectus stated clearly that preference would be given to individual Ugandans and as a result it was decided to allocate all Ugandan indi- This Booklet is available at MUBS, vidual investors who applied for upto Shs and Leading bookstores in and around Uganda. 150.5 million worth of shares their allotment in full. This means that each individu- For More Details: Please Contact Nelson on: al Ugandan Investor who applied for upto +256-774-116 135 OR Visit 2,150,000 shares will receive all the shares www.mubs.ac.ug or they applied for. This accounts for 99.8% of www.luckyfamily.biz

26 Institute of Corporate Governance of Uganda Institute of Corporate Governance of Uganda 27 Features Sustainable Wealth Creation, Dec 2006 Features Sustainable Wealth Creation, Dec 2006

Curbing CORPORATE FRAUD: Ethics? What’s it? Continued from page 19 er. The new age of materialism Continued from page 25 beyond the employees for tips on potential could help explain why in recent misconduct. Vendors and suppliers can be a decades CEO and others at the valuable source. Offering employees of key dence for changes in values in helm of corporate world have supplier companies access to the same hotline the USA. He observed that an become much more ruthless in provided internally can generate useful infor- average American had doubled mation on fraudulent activities. Once any tip their attitudes to customers and is received, it is critical that it gets to the right their real incomes and had access employees. This new age of ma- people within the company and is thoroughly to relatively cheap goods and terialism has also caught up with investigated. One common mistake in dealing services such as espresso cof- us in Uganda. with tips is spending time trying to discover fee, mobile phones, four wheel the identity of anonymous sources, rather drive vehicles and the dot.com As early as 1999 the then man- than getting right to the business of looking -internet. And yet he also ob- aging partner of Arthur Ander- for evidence. It really does not matter who served that son USA was makes an allegation; what matters is whether Americans quoted on or not it is true. had less ... CEO and others at the the firms in- happiness, helm of corporate world dependence Educate Employees About Fraud more de- have become much more and ethical This can be done in a number of ways, includ- pression, standards that: ing placing posters in break rooms, company m o r e ruthless in their atti- the day Arthur meeting halls/rooms and using employee f r a g i l e tudes to customers and Anderson loses newsletters to continually communicate the relation- the public trust virtues of good ethical behaviour. Seminars ship, less employees. is the day we and group discussions are other ways of in- c o m - go out of busi- stilling and communicating information about m u n a l ness.” The rest ethical behaviour. c o m m i t m e n t , is history. The less vocational security, more Pre-Employment Screening accounting profession has now crimes and more demoralised become subject to more regula- A good fraud prevention strategy should in- children. Through a series of tions than ever before because clude the careful screening of potential em- polls Meyers noted for example of its betrayal of public trust ployees, who may identify some of the poten- that the proportion of students as per the IFAC research report tial problem individuals. A good starting point going to college believing it es- Rebuilding Public Confidence in is to conduct thorough background checks, sential they “become well-off for example, on former employment, educa- Financial Reporting released in tion record, financial situation and criminal financially” rose from 39% in July 2004. Is it just the unethical record. Beyond this, the company should set 1974 to 74% in 1990, and that and greedy accountants, auditors, up clearly defined standards, which have to over the same period, the pro- bankers, lawyers, CEO, CFO and be satisfied. The first source of information portion that hoped to develop directors that are to blame for is the candidate; therefore, a comprehensive a meaningful philosophy in life” corporate excess and loss of ethi- application form should be completed by all slumped from 76% to 43%. cal standards and integrity in new applicants. Candidates should be told that it This reversal stayed unchanged millennium? May be there is also is the company’s policy to carry out in-depth throughout 1990s. some one else to blame! Hope- screening prior to their appointment, and fully, the Institute of Corporate should be asked to sign a release form or simi- The point is that once the val- Governance in Uganda and else lar document, which may be required during ues change the reasons for where in the world can find an- the screening process many of the developments with swers to the erosion of ethics corporate world become clear-

28 Institute of Corporate Governance of Uganda Corporate Social Sustainable Wealth Creation, Dec 2006 ResponsibiltyFeatures Sustainable Wealth Creation, Dec 2006

Corporate Social Responsibility (CSR): Lifeline to the future?

By Jim Mugunga national parks where indeed those Senior Public Relations Officer, Privatisations Unit. animals were forced out to extinction Ministry of Finance, Planning and Economic Development by ‘golf playing humans’ whose greed We will be put at for money and leisure failed to allow Fast forward. It is 2050, in a high them use available resources to ca- par with our own school history class. The lesson: pacity. Instead, rather than effective- times’ Nazi’s…. ly use existing golf courses including Legend has it that in the the immaculate Kilembe Golf club what a shame! 1970s when our fathers flew which was just about one hour away in what they called airplanes from one of the single biggest then Continued on page 32 it was then just fine to smoke protected animal habitat, they went “in public places. In the 1970s and ahead to build a new golf course in 1980s it was alright for high schools the heart of the national park thus to forbid young women to wear slacks rendering the animals homeless. and highly abominable for them to turn up to school in a mini-skirt.” These tales will be simultaneously told in all three neighbouring local ‘In the 1980s, during the rebuilding governments of Kenya, Uganda and of the Republic of Uganda, it was Tanzania and beyond where our sur- fine for public enterprises to be run viving great grand children will simi- at a loss in the name of offering so- larly share their experiences to unbe- cial services…CEOs abused their of- lieving ‘cyber residents’. Pundits of fices, took off with millions without the time will struggle to ‘draw a dis- prosecution and their ‘untouchable tinction between facts and myths in business companies’ allowed their in- these tales….. History will dustrial spill to flow untreated directly then judge those who will into once upon-a-time Lake Victoria. be at fault harshly… Those companies were the single big- We will be put at par gest source of direct pollution that with our own times’ contributed to the eventual disap- Nazi’s….what a pearance of the lake and the human shame! races that lived on and around it”. The case As tourists visit the lone treasured of Cor- data bank of wild animals that once porate happily lived on earth, they will be told of places in Uganda called the

Institute of Corporate Governance of Uganda 29 Sustainable Wealth Creation, Dec 2006 Features Sustainable Wealth Creation, Dec 2006 Features Sustainable Wealth Creation, Dec 2006

A word from Eng. Ivan Kyayonka, Country Chairman, Shell Uganda Limited, On “Business Ethics”

Eng. Kyayonka is a keen advocate of business ethics as a necessary tool to promote economic development. His organisation is one of the leaders in promoting good corporate governance in the country. As the major funder to our recent lecture on the subject, he gave some remarks at the lecture and “Sustainable Wealth Creation” summarizes them below:

hell Uganda Limited is issue. The lack of ethics in business On the other hand we also know pleased to work with the In- poses a great predicament for it not what a bad ranking by Transparency stitute of Corporate Gover- only leads to unnecessary costs and International can do to the attractive- nance of Uganda (ICGU) losses but more importantly it stifles ness of a country by Investors and Sin co-sponsoring the Public Aware- competition and innovation. In es- Development partners. ness Lecture on the important theme sence, it posses a great challenge to “Business Ethics – A foundation for competitiveness. I therefore support wholeheartedly Economic growth”. We are happy that these series of lectures aimed at en- this lecture attracted the attendance hancing public awareness on topical of over 250 stakeholders including The lack of ethics themes intended to create a coalition government officials, parastatals bod- in business poses a of leaders in Uganda who would lead ies, private sector institutions, Non- by example and who are sufficiently Governmental Organisations, embas- great predicament trained and determined to promote sies, parliamentarians, among others the concept of business ethics and showing the importance attached to for it not only leads integrity in all business operations. I this subject. to unnecessary congratulate the Institute of Corpo- costs and losses but rate Governance of Uganda for run- Business Integrity and Ethics is one ning this programme and invite other of the eight cardinal Business princi- more importantly it stakeholders to join hands with the ples of the Royal Dutch Shell Group. stifles competition Institute in this difficult but very nec- For Shell Uganda therefore, promoting ethics in business is a scorecard and innovation. essary task

Institute of Corporate Governance of Uganda 31 Corporate Social Responsibilty Sustainable Wealth Creation, Dec 2006

Lifeline to the future?

Continued from page 29 owners. The purpose of the corpo- for the financial elite, the CEO and ration therefore is to maximise gain shareholders. Social Responsibilty (CSR) while for its owners. All other concerns are relatively still a new phenomenon in secondary…not businesslike. The Life Centred Uganda, is nevertheless a loud and Corporation clear call to all in public and private The property centered bias denigrates On the other hand is a Life Centred business to either adopt, change or employees and will without hesitation picture of reality which views Corpo- be doomed. Stakeholders’ measure consider labour as a commodity to be rations as a living system composed of success of a business has gone be- used to create profits for sharehold- and embedded in other living sys- yond financial statements. Companies ers. In its finances, employees income tems. The most intimate living system are increasingly expected to perform is ‘expense’; hence bad and must be is our body while the ultimate living well in non-financial arenas such as minimized. It considers the environ- system is the earth. The families and human rights, business ethics, envi- ment an inert matter to be used to communities form the intermediate ronmental policies, community de- create profits for shareholders. Their living systems and hence a company velopment, corporate contributions, statements will in-common feature corporate governance and work place terminologies such as Net Worth in functions best when it respects the issues. reference to people with money who needs of these living systems. are therefore seen as better than oth- A very clear two tier divide that so- ers. Assets is a word used in reference The Life Centred Corporation rec- ciety is fast changing its idea about to money and property as the only ognizes the importance of other what corporations are about has al- form of wealth. That’s why their mo- values apart from money—Human ready evolved. The two are - Property rality will advocate for “governments Rights and Quality of life. Prosper- Centred Corporation and the Life not to interfere in the right of prop- ity is about money, yes but also about Centred Corporation. erty owners to self govern”; and will health, family and play. Employees defend without reservations what has matter and hence are Human capi- Property Centred come to casually pass for an accept- tal and contribute to the knowledge Corporation able standards of the Free Market. economy. Business is not about do- In the Property Centred “picture of The Property Centered Corporation ing it within the law alone but being reality,” the Corporation is a piece is therefore about maximum growth, morally liable as well. of property and shareholders are the maximum profits and creating wealth Going forward in both public and private businesses, ethical profits, organic growth and serving a variety of stakeholders will be the core values of any business that lays serious claim to the principles and practice of CSR. Corporate Governance of companies equated to proper governance of countries: Today’s corporation is no longer an isolated economic entity operating “The Proper governance of companies will become as crucial away from the broader society….and to the world as the proper governance of countries” it is this realization that drives the James Wolfennson, World Bank President, Blobal Governance most progressive of all of them to Form 1999 recognize and adopt CSR

32 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006 Stamping confidence on Local Business By Jane Gitau This has a very high cost. The first 12 fish exporters in Uganda were all in- Demystify the owner, brand the en- digenous. Now, only one survives yet terprise. Kill the founder member the sector has grown from a turnover syndrome. of US$ 30 million to US$101 million per annum in five years. The first 18 entrants to the flower export business hat is the very simple ad- were Ugandan and again only one D e m y s t i f y vice that Charles Ocici survives. The sector has grown from has to offer to entrepre- US$ 20 million to US$ 36 million in 5 the owner, neurs wishing to grow years while in the coffee sector of the theirT business for the long term. brand the en- 93 Ugandans who joined when it was Often, he says, the enterprise owner liberalized, only one survives. Thus is the greatest enemy to long term Ugandans are good at starting the terprise. Kill growth because they fail to delegate, business but fail to last long enough fail to set-up systems and procedures to enjoy the fruits of their labour. the founder and often even fail to move to bigger premises. They tend to think that As Executive Director of Enterprise since they started it all and grew it to member syn- Uganda, he should know what he is the level where it is now, they are in- talking about. The motto of the or- dispensable and can grow to greater drome. ganisation is to promote enterprise heights. growth and excellence. The mission is to develop a new generation of dy- Local successful entrepreneurs have namic Ugandan entrepreneurs by ac- many challenges because they are so tively providing support to the Small few and far apart, notes Ocici. The and Medium scale enterprises (SMEs) success stories in Africa are nothing to enhance their productivity, growth short of heroic and therefore they are and competitiveness. adored. Many are then carried away by this glorification and turn it to self To do this, they offer a variety of promotion. Glorifying the individu- services ranging from entrepreneur al creates a sense of magic in them, training workshops, to business op- they celebrate past success endlessly portunity identification where they without thought for the future. This help one develop a viable business leads to reckless investments to keep idea and opportunity, counseling and up with the acquired fame – huge car, advisory services, preparation of huge house, expensive schools for the business plans and credit facilitation children – thus depleting the resources that should have been used for re- Continued on page 34 investment into the business.

Charles Ocici, Executive Director, Enterprise Uganda

Institute of Corporate Governance of Uganda 33 Sustainable Wealth Creation, Dec 2006 Features Stamping confidence on Local Business Continued from page 33 ring business skills. is a cutting edge for competitive advantage”. Enterprise Uganda also has agree- to mention but a few. ments with reputable banks to pro- SMEs are the bridge between the vide business development services micro/informal and the large busi- And they are reaping some benefits. to their clients. These stamps of con- ness sector facilitating the moneti- They have seen a client who was previ- fidence validate the decision to create zation of the informal sector. They ously the eighth in their sector rise up the EU as a public/private sector in- help improve the competitiveness of to first position while a pharmacist who stitution by the UNDP and Govern- the corporate sector. As such, EU is was previously sixth has moved to sec- ment of Uganda. planning in its next five year strategy ond position. Three women and two to have fresh graduates assisted to in- male entrepreneurs won gold awards That leaves the challenge to the entre- vest in the private sector. This will from the Uganda Investments Author- preneurs themselves to seek the right ease access to credit for both men ity. In the last two years, two of their advice and counsel and put what they and women and they will be assisted clients have joined the ranks of the top learn to practice. There is need to to gain multiple skills necessary to be 200 tax payers in the country. build a deep vision for the long term competitive in their fields. and let this drive everything. It guides Then there is this one entrepreneur the enterprise into doing the right Ocici also hopes that Universities will who for four years running failed to thing everyday and will keep custom- start documenting the successes and secure a bank funding for a maize ers delighted daily. The brand name lessons to learn from local enterpris- meal. Join Enterprise Uganda and af- is built by the market because it is the es. He is currently the chair of the ter training accessed US dollars 800 market that appreciates that brand! group of 14 African Enterprise De- 000 (eight hundred thousand dollars). velopment Centres and hopes to use That client is now ranked 5th in their “It is important to self-efface your- this position to get universities docu- sector and they hope to move them self as a leader and let the team take menting models of success two notches higher in the next two credit”, says Ocici. “Human resource years. This client is also audited by one of the leading audit firms in the country.

Large corporate companies like MTN, CELTEL, Kinyara Sugar, National Housing and Construction Company “… We shall never be able to escape from the Limited; among others have signed memorandums of understanding ultimate dilemma that all our knowledge is about with Enterprise Uganda to support the past, and all our decisions are about the future” the SMEs as business partners. They Ian Wilson, American scenario planning expert and use the SMEs as distributors of prod- strategy consultant. ucts and services or as providers of raw materials thus keeping them em- ployed and at the same time, transfer-

34 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Maggie Kigozi: Growing Business

in Uganda Excellence. That By Jane Gitau Married in 1976, soon after her graduation from Makerere Medical seems to be the xcellence. That seems School as a physician, she recalls life key word in the to be the key word in was tough for her as an intern at Mu- the life of this medical lago Hospital. “I was a young mother life of this medi- doctor turned business and an intern. I had very little time Ewoman. She is positive and planning for the family and often my fam- cal doctor turned for the future both in her public and ily would pick up the child just so I private life. could cope”, she says. Her two sons business woman. and one daughter are now adults and Born in Fort Portal to parents of she is glad that the personal sacrifices She is positive mixed origin, she has grown up in she has made along the way have paid Kampala but is widely traveled includ- off as she sees her children become and planning for ing some time of working in Lusaka responsible for their lives. Fred is a and Nairobi. Both her grandfathers brand manager at Uganda Telecom. the future both are English and both grandmoth- Michelle joined the medical field like in her public and ers Baganda, but it is Buganda she her mother and is training to be an claims as her heritage and Luganda anaesthetist in Nottingham, United private life. of course her mother tongue. She Kingdom and the youngest, Dan is a smiles at that one, recalling her days musician with the group Klear Kut. in Lusaka. “Bemba is very similar to Luganda. After one day I realised I What was her reaction to this “new” didn’t need a translator. I spoke Lu- field of music? I ask. “It was chal- ganda, they spoke Bemba and we lenging when Dan became a musi- communicated”. cian. But we struck a compromise - that he needed a degree and I would Her father, an engineer with the min- support his chosen career thereaf- istry of works was perhaps her inspi- ter. He then studied for a Bachelors ration to studying the sciences while Degree in Mass Communication in her mother, a seamstress minded the South Africa”. Now, she says, music home like all women do. Courtesy of has become a billion dollar industry being the only girl among four boys, and is one of the priority sectors for she participated in all their games the Uganda Investment Authority. from football to car racing. Only one brother survives now, Arthur Blick Continued on page 36 and he is a politician – an LC1 chairman in Kyaggwe. Dr. Maggie Kigozi, Executive Director, Uganda Investment Authority

Institute of Corporate Governance of Uganda 35 Sustainable Wealth Creation, Dec 2006 Features Growing Business in Uganda

Continued from page 35 in Kenya, so Maggie joined and took cilitator for investors. It is mandated over his role as the ED. She acknowl- by an Act of Parliament (Investment One of those sacrifices was to quit edges that her good education was Code 1991) to promote, facilitate and her budding career in Uganda, to join able to help her keep going but she supervise investments in Uganda, her husband who had left for Lusaka. also recognised skills she needed. She provide first hand information on He worked as the Chief Engineer at then studied finance for non-finance investment opportunities in Uganda Zambia Breweries and she was able managers, customer care, economics and issue investment licenses. to get a job at the Arthur Davison and public relations at the Uganda children’s Hospital in Lusaka. It was Management Institute (UMI) and It should also assist in securing other in Lusaka, that she first encountered taught herself marketing by reading licenses and secondary approvals for racism. books at home. investors, provide assistance in acquisition of industrial land for investment, arrange contacts for potential Apartheid had a stronghold “If I had to maintain the stan- there, being so close geo- investors and organize itineraries graphically and commercially dards we were used to, I had for visiting foreign missions in the to South Africa. She realised to quit the medical profes- country as well as assist investors for the first time that she was in seeking joint venture partners, coloured –neither black nor sion and join business” funding, review and making policy white and that made a differ- recommendations to Government ence in this southern African about investment in order to influ- country. On the other hand, none of H e r ence the investment environment Mr Kigozi’s staff wanted to report to efforts were rewarded when in 1999, that will support the promotion of him. They preferred reporting to any the Uganda Manufacturers Associa- a transparent, predictable, and com- of his seven white assistants. tion (UMA) elected her the chairper- petitive environment in Uganda and son of the Foreign Investments Sector East Africa. Her turning point came in 1994 af- Subcommittee. Her role was to steer ter her husband of 18 years died the subcommittee to identify policy One of the first assignments she did of a heart attack. He was alone in issues that the government should was to secure the participation of the house because Maggie had gone address. Smuggling and dumping of women in the national development to visit the children in St Andrews goods were prevalent and were nega- process by launching the Uganda School, Turi, Western Kenya. tively affecting the private sector. So Investment Authority Women En- the Special Revenue Protection Ser- trepreneurs Network (UIA WEN) “If I had to maintain the standards we vices (SRPS) was formed to address in 2001. She believes this helps to were used to, I had to quit the medi- smuggling and strengthen the Ugan- improve their standard of living. cal profession and join business”, she da Revenue Authority. The membership criterion includes says. She also had to downsize on women in business, professionals and the schools the children attended and Creating an enabling corporate chief executives who meet take them to less expensive ones. investment climate regularly to share experiences. At the moment the network comprises 200 In 2000, Dr Maggie Kigozi was ap- women in the small, medium and At the time of his death, he was the pointed to head the Uganda Invest- large enterprises. Executive Director of Crown Bev- ments Authority (UIA). The Uganda erages, the manufacturers of pepsi. Investment Authority (UIA) was es- The other shareholders were living tablished in 1991 as a one-stop fa- Continued on page 37

36 Institute of Corporate Governance of Uganda Features Sustainable Wealth Creation, Dec 2006

Continued from page 36 To raise the subject of risk is not to admit failure, but to prepare for unknowns, The UIA has been involved in the Benjamin Franklin strengthening of the private sector through the use of associations to serve as a pressure group for the improvement of the investment environment, sourcing of markets, and improvement of standards and skills development. The UIA has been in- strumental in the formation of as- increase in the number of projects li- sociations in sectors/activities that censed between 2004/2005. UIA li- include beef, poultry, honey, fish, censed 284 projects, valued at US $ flowers, creativity and hospitality, 878,629,631 in planned investment Corporate Governance mines, women entrepreneurs to men- creating 28,698 planned jobs, while Dr Kigozi believes it is important to tion but a few. 193 projects were licensed in 2004 do business the right way especially with a planned investment value of for domestic investors and govern- Uganda Investment Authority is the US $ 417,779,400 creating a planned ment parastatals. This is because Secretariat for the Presidential Inves- employment of 17,047 jobs. These the way foreign investors behave tors Round Table (PIRT), which was figures indicate a 110% improvement is directly influenced by what they launched by H.E The President of in investment value from 2004. find on the ground. There is need Uganda in September 2004. PIRT is for continuous information sharing an advisory body of national and in- PIRT on the other hand has been to strengthen corporate governance ternational corporate leaders that ad- able to help merge the Development in the country. She was at the helm vises the President on issues that can Finance Department of the Bank of of the formation of the Institute of enhance the business operating condi- Uganda with the Uganda Develop- Corporate Governance of Uganda tions in the country to attract new in- ment Bank to increase private sec- (ICGU) and is glad the Institute has vestors into potential growth sectors tor access to the current financing taken off and the challenge now is to and transform Uganda’s economy. It schemes; the Minister of Finance ensure that the gospel of corporate is a World Bank supported initiative Planning and Economic Develop- governance spreads far and wide. and comprises five Technical Work- ment in his 2005/06 Budget Speech ing Groups to handle growth in Agri- provided for the re-opening of Ugan- Listening to this medical doctor business, ICT, Education, Infrastruc- da Development Bank with a capital- turned business woman, now sit- ture, and Regulatory Environment, ization of Shs. 5 billion. ting at the helm of top business in and to propose recommendations. Uganda, one word rings out in the Another achievement concerns the mind. Excellence. Dr Kigozi, has no Five years Later provision of incentives to banks that space for half way houses; she has a Five years since she took the mantle develop agro-financing products. game plan for every step of the way of leadership at the UIA, the author- This has led to the scrapping of the and she embraces what she has to do ity is exceeding its own targets. In tax on interest earned on loans grant- whole heartedly and judging from her 2005, it exceeded its 134 projects per ed to persons/enterprises engaged in achievements, it pays! year valued at US $ 340 million per agriculture. It was also from a PIRT Maggie has since been recognised and ap- year target, as indicated in the Au- recommendation, that the Minis- pointed Honorary Professor by Makerere thority’s Strategic Plan for the period try of ICT was formed to fast track University. 2004 to 2009. In fact there was a 47% Uganda’s technological development.

Institute of Corporate Governance of Uganda 37 Sustainable Wealth Creation, Dec 2006

Summary of Guidelines - The King Report

9.0 Stakeholder 9.5.4 The consistent use of appropri- 11.0 Worker participation. Communication ate accounting policies supported The affected corporations should develop by reasonable and prudent judge- 9.1 It is the board’s duty to present a systems, whether involving workers’ par- ments and estimate. balanced and understandable as- ticipation on workers’ committees, execu- sessment of the company’s posi- 9.5.5 Adherence with applicable active committees, boards or otherwise, that tion in reporting to the sharehold- counting standards or, if there has will assist in developing the following: ers. The quality of the information been any departure in the interest 11.1 Practices that lead to effective shar- must be based on the guidelines of of fair presentation, it must not ing of relevant information, to openness and substance over form. only be disclosed and explained enable employees to gain a better Reporting should address material but qualified. understanding of the corporation matters of significant interest and 9.5.6 There is no reason to believe the for which they work; concern to all stakeholders. business will not be a going con- 9.2 Reports and communications must cern in the year ahead or, an ex- be made in the context that the so- planation of any reasons or other- 11.2 Effective consultation by manage- ciety now demands greater trans- wise. ment with the workforce before- taking decisions that affect the parency and accountability from 9.5.7 The code of corporate practices workers; corporations regarding their finan- and conduct has been adhered to cial affairs, including for example, or, if not, in what respects there 11.3 Speedy identification of conflict their employment policies and en- has been adherence. and its effective resolution. vironmental issues. 9.3 Reports should present a balance 10.0 Auditing 12.0 Affirmative Action Programme between the positive and the nega- 10.1 Companies should have an effective aspects of the activities of the tive internal audit function that 12.1 An affirmative action programme company. has the respect and cooperation should be part of each company’s 9.4 In any communication with the of both the board of directors and business plan. stakeholders the directors should management. 12.2 An affirmative action programme ask themselves the following four 10.2 The highest level of business and is important for corporations to questions. professional ethics should be ob- survive and thrive in the new 9.4.1 Is the communication open and served by the auditors and, in South Africa and consequently it transparent? particular, the independence of the is an important part of corporate auditor must not be impaired in governance. 9.4.2 Is it relevant and substantial or any way. merely a communication form? 13.0 Code of Ethics. 10.3 The board should establish an Au- 9.4.3 Is the communication prompt? dit Committee with written terms A corporation should implement its code 9.4.4 Does it fairly set out the position? of reference confirmed by the of ethics as part of the corporate gover- board. It should consist of at least nance of that corporation. A code of eth- 9.5 The directors should report on the two non-executive directors, one ics shall include the following: following matters in their annual of which should act as chair. The reports: 13.1 Commit the corporation to the committee meetings should be at- highest standard of behaviour; 9.5.1 The directors’ responsibility to tended by the head of internal au- 13.2 Be developed in such a way as to prepare financial statements that dit, the external audit manager and involve all stakeholders to infuse its fairly presents the state of affairs the financial director. culture; of the company as at the end of 10.4 The head of internal audit and ex- the financial year and the profit and ternal audit partner should have 13.3 Receive total commitment from loss statement. unrestricted access to the chair of the board and chief executive of- the audit committee. ficer of the corporation. 9.5.2 The auditor is responsible for reporting on the financial state- 10.5 The head of internal audit and ex- This marks the end of the summary of ments. ternal audit partners should bring guidelines of “the King Committee Re- all significant findings arising from port”. In our next issue we shall continue 9.5.3 The maintenance of adequate fi- audit activities to the attention of with “Recommended Guidelines for Cor- nancial accounting records and ef- the audit committee and, if neces- porate Governance in Uganda”, a con- fective system of internal control. sary, to the board. tinuation from vol.2 of our Journal.

38 Institute of Corporate Governance of Uganda Readers’ Corner

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