National Corporate Governance Review Committee (NCGRC) The MALAWI CODE II CODE OF BEST PRACTICE FOR CORPORATE GOVERNANCE IN MALAWI

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1 National Corporate Governance Review Committee (NCGRC) The MALAWI CODE II CODE OF BEST PRACTICE FOR CORPORATE GOVERNANCE IN MALAWI Governance Guidelines for Businesses Registered under the Business Names Registration Act (Guidelines for not incorporated Registered Businesses) Officially launched on 14 th June 2011 Enhancing the success and sustainability of registered businesses through good governance.

2 The implementation of the Corporate Governance Action Plan for Malawi, in response to the Report on the Observance of Standards and Codes (ROSC) carried out by the World Bank Group in 2007, is funded by the Government of Flanders. These Sector Guidelines are published by the Institute of Directors. Blantyre, June 2011 Copyleft The IOD of Malawi, as custodian of the Malawi Code II, allows and encourages the free reproduction, copying, and use of the text, concepts and ideas developed for and used in the Malawi Code II and in these Sector Guidelines. All such use is however subject to the condition that any derived use or adaptation remains freely available under the same conditions. Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 2 / 7

3 INTRODUCTION The Malawi Code II (Code of Best Practice for Corporate Governance in Malawi) was published by the Institute of Directors (IOD) on 1 st June (Please see Appendix.) When reviewing the first Malawi Code, published in 2001, the National Corporate Governance Review Committee (NCGRC) decided that the Malawi Code II would comprise a set of Overarching Provisions (OPs) that would apply to all organisations in Malawi, not just incorporated entities. The OPs should be appealing and applicable to all types of organisations in Malawi; this, however, does not imply that these OPs should be vague or sketchy. On the contrary, they are as concrete and as detailed as possible; while still remaining applicable to all types of organisations in Malawi. In addition to the OPs of the Malawi Code II, the NCGRC and the IOD envisaged guidelines that would detail how the OPs would apply in specific cases or specific types of organisations. In the case of businesses that are registered under the Business Names Registration Act the NCGRC thought a user-friendly and basic set of guidelines were necessary to assist such businesses grow and become sustainable in the long-term, improve their transparency, increase their trustworthiness, avoid corruption, contribute to economic development and poverty reduction. Many Micro, Small and Medium Enterprises (MSMEs) in Malawi register their businesses under the Business Names Registration Act, rather than incorporating them under the Companies Act The benefits of registering in this way are that these businesses protect the name of their organisation and have less regulatory requirements. Not incorporated registered businesses therefore avoid the filing of documents and other responsibilities, as required under the Companies Act, that are costly to a small or micro business. However, these businesses and their owner(s) do not get any of the advantages of incorporating under the Companies Act 1984 and related law e.g. they do not become a separate legal person as they would if they were incorporated under the Companies Act. Therefore the business and their owner(s) do not get limited liability for the businesses debts, if the business fails. Not incorporated businesses may also be confronted with limitations in their growth and development and may not be able to take part in certain business opportunities and/or apply for certain types of funding. Businesses registered under the Business Names Registration Act should comply with the principles and concepts of corporate governance set out in the Malawi Code II. These guidelines therefore provide the necessary interpretation of the Malawi Code II for businesses that are registered under the Business Names Registration Act Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 3 / 7

4 Custodian of these Sector Guidelines for Registered Businesses. The MSME sector subcommittee of the NCGRC has asked the IOD to act as the main custodian of these governance guidelines for registered but not incorporated businesses. The IOD will undertake this role in close cooperation with those key organizations and individuals that will commit themselves to significantly contribute to the promotion of these governance guidelines and to the monitoring of their application by registered businesses in Malawi. This will include cooperation with the Government, the SME Division of the Department of Industry & Trade and Government s MSME support institution(s), the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), representative organizations / associations of MSMEs and other key stakeholders in the MSME sector. Together, they will promote and facilitate the creation of incentives for not incorporated registered businesses that commit to apply these guidelines and that demonstrate this through their annual reporting. A long term effort in communication, education and promotion is required. This will include translation of these guidelines in national languages and sensitisation of training institutions and other providers of business training to include these guidelines in their training. As part of its monitoring role, the custodian should produce an annual report on the implementation of these guidelines. Therefore the custodian shall also promote mechanisms of reporting by key stakeholders in order to allow an assessment of the extent to which not incorporated registered businesses in Malawi are committing to and applying these guidelines. Any concerns over non-compliance with the Malawi Code II and with these guidelines should be reported to the IOD as a last resort once discussions with the organisation concerned have been exhausted. Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 4 / 7

5 ACKNOWLEDGEMENTS These Governance Guidelines for Businesses Registered under the Business Registration Act were commissioned by the IOD and the NCGRC in order to provide the necessary interpretation, best practice and specific requirement for applying the Malawi Code II in these organisations in Malawi. It is the result of the hard work of many people representing different organizations operating in Malawi. The IOD would particularly like to thank the following: The members of the NCGRC s Subcommittee for MSMEs : Mr. Chancellor Kaferapanjira, MCCCI CEO Mrs. Grace Amri, MCCCI - Public-Private Dialogue Coordinator Mr. Dixies Kambauwa, IOD Executive Director Mrs. Abigail Suka, Access Events Managing Director Mr. George Mwase, Assistant Director, SME Division, Department of Industry & Trade Mrs. Christina Chithila, Central & East African Railways Director of Finance and Administration Mr. Lackson Kapito, NABW - National Credit Coordinator Mr. Dan Ghambi, DEMAT Operations Manager Mr. Richard Chiputula, MEJN - Director of Programmes Mr Welford Sabola, Wamkulu Trust / Wamkulu Palace, Managing Director Those individuals who attended the consultation events on 1 st April in Lilongwe and on 5 th April in Blantyre. The International Finance Corporation (IFC) Global Corporate Governance Forum (GCGF) for providing technical advice to the project through the following Consultants: Mrs. Alison Dillon Kibirige. Mr. Patrick Stoop, The members of the National Corporate Governance Review Committee The IOD staff, particularly Mr. Anthony Kamtimaleka, for providing secretarial support. Mr. Dixies Kambauwa Executive Director Institute of Directors in Malawi Mr. John Robson Kamanga Chairman Institute of Directors in Malawi Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 5 / 7

6 GUIDELINES 1. Where there is more than one owner, agreement should be reached as to who the decisionmaker(s)/implementer(s) of the business should be. Where this is more than one decisionmaker, the business may decide to form a Board. This Board should keep a record of its decisions and report on these to the owner(s) who are not included on the board (if any). A sole decision-maker should also report on a regular basis to the owner(s), if such owner(s) other than the sole decision-maker exist(s). 2. Those individuals appointed as decision-maker(s) i.e. entrusted by the owner(s) with the assets and resources of the business should diligently discharge their duties to the business. 3. Where there is more than one owner, the majority owners should ensure that minority owners are not excluded and receive relevant information as well as a fair part in any ownership benefits. 4. If an owner obtains funding from a third party for the business, there should not be confusion about the nature of such funding, and it should be declared as business funds and used for the benefit of the business, It should also be made clear whether the funds are being made available as a grant or a loan that has to be repaid. 5. Where authority is delegated from the owner(s) of the business to decision-maker(s) then this should be documented so that those within the business and third parties are aware of the authority of the decision-maker(s).it should also be made clear in the document what decisions should be made by the owner(s).the document may include the power to sub-delegate to committees or to individuals. Such further delegation will depend on the size and complexity of the business. 6. All businesses should consider what their purpose, vision, mission and values are and develop a strategy to meet them. In developing the strategy the business owner(s)/decision-maker(s) should consider the risks faced by the business and include within the strategy the acceptable level of risk and the appropriate responses to the risks. The business should not expose itself to risks that it does not understand or which are not relevant to the success of its business. 7. Al businesses should consider and implement the appropriate controls to protect the assets and resources of the business. 8. In order to understand and manage the profitability and sustainability of their business, the owner(s) / decision-maker(s) / implementer(s) are encouraged to distinguish clearly between the income and expenditure of their business and their personal income and expenditure. To assist with this, all businesses should produce a set of financial statements (at least an income and expenditure statement on a cash basis) so that they are able to judge the financial performance of their business. 9. In addition to distinguishing between business and personal income and expenditure, owners should also distinguish between personal and business assets and should consider keeping a register listing the assets of the business. 10. All businesses should ensure that they comply with all relevant laws, regulations and codes, including the Malawi Code II. 11. All businesses should consider what reporting and disclosure is required and ensure that these requirements are met. 12. All businesses, both owner(s), decision-maker(s), and/or implementer(s) should at least annually reflect on and self-assess their performance and skills in view of past and new developments. Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 6 / 7

7 13. If the business has a sole decision-maker, this single person should actively invite and take into account external feedback on the performance and strategy of the business. 14. An assessment of whether the governance structure of the business is still appropriate should be made at least annually. 15. To the extent possible, those individuals involved within the business as decisionmaker(s)/implementers should be encouraged to undergo training and development so that they are able to fully carry out their role. 16. Conflicts of interest should be identified and disclosed. 17. All businesses should conduct their affairs in an ethical manner and as good citizens being aware of the social, economic and environmental impact of their business operations on the the communities in which they operate. They should seek to eradicate or lessen the negative impact of their operations. 18. Businesses may find that their efforts to operate as a good citizen will provide them interesting long term opportunities and comparative strengths. Businesses are therefore encouraged to communicate openly on how they are trying to positively impact the economic, environmental and social life of the community in which they operate and on how they are trying to eradicate or lessen the negative impacts (if any) of their operations; while at the same time pursuing their own long term interests. 19. Businesses should be aware of how they can conduct their business in a sustainable manner ensuring continuity of succession, and of supplies of the resources and assets of the business. Governance Guidelines for not incorporated Registered Businesses 14 th June 2011 Page 7 / 7