Mutumwa Mawere

This is my second article under the title: "Pushing the envelope of knowledge" which attempts to provide some insights into the concept of corporate citizenship and the importance of improving the body of knowledge that informs our daily conversations.

How many of us have participated in conversations in which a distinction is made between domestic and foreign firms and more importantly between indigenous and non-indigenous firms? Can corporate citizenship be divisible?

Citizenship is defined as the state of being a citizen of a particular social, political or national community. Under social contract theory, citizenship status carries with it both rights and responsibilities.

If it is true that a distinction can be made at law between foreign and domestic firms in a host country then it should be possible to separate the rights and responsibilities of the two types of citizenships.

Our understanding of the concept of citizenship is shaped by our values, beliefs and principles.

It is not unnatural to think of the concept of natural citizenship in terms of race, ethnicity and language.

We have always associated natural citizenship with a birth and it is, therefore, not unexpected that people would naturally hold the view that wherever one is born is automatically the place that one should be a citizen of.

However, human beings do make choices and when they do so by acquiring citizenship of another state, they acquire rights that are not divisible.

Two people, for example, in a country with one born in the country and another who acquires citizenship through naturalization have and should have the same rights and responsibilities.

Equally, two companies registered under the laws of a host country with one having as its sole shareholder being a natural citizen and another with its sole shareholder being a foreign citizen have and should have the same rights and responsibilities at law.

If the above is the case, why then do we in our minds make a distinction between two citizens by calling one foreign and another indigenous?

A company's shareholders may be domiciled in a foreign state but by choosing to subscribe to shares in a company incorporated in a host country, it is the company so registered that acquires the citizenship of the host country.

After acquiring such citizenship and having been issued with the registration papers (birth certificate for companies), the company acquires its own personality separate and distinct from the people who subscribe to the shares.

The entity so incorporated is then governed under the laws of the host country like any other corporate citizen.

Yes, the company whose shares are controlled by foreign corporate and natural persons may very well have directors that give direction to it but it cannot be said that such a company will be governed under different legal and market rules than a company whose shares are controlled by domestic corporate and natural citizens.

The Companies Act in any progressive state is and should not be discriminatory and makes no distinction between companies that have shares owned by foreign and domestic nationals.

The law should apply to all without favor or prejudice accepting a cardinal fact that it is only the market that can determine business success or failure.

It is up to the consumers to make a choice on what goods to buy and from whom.

Putting in place laws that restrict ownership to domestic citizens will not assist the customers who may very well end up not getting the goods desired in the domestic market.

Why would countries that uphold democratic constitutional orders end up pursuing policies that make a distinction between foreign and domestic firms and more importantly between natural citizens born in the country and foreign-born ones? Who benefits from this politically expedient distinction?

A case is often made that the welfare of a nation improves if indigenous people control the companies that do business in it.

Does any empirical evidence exist to suggest this to be the case? It cannot be denied that it is desirable that people control their destinies but this cannot be an end in itself as history has shown that free societies that are welcoming of other people are ideas have better prospects of delivering the promise than societies founded upon wrong ideas.

However, in the field of business, at any transaction point it is and should not be relevant who controls the company that produced the goods in question but whether there is a willing buyer.

If a willing buyer exists, then making a distinction between a foreign and domestic seller will not assist the buyer.

What often happens in cases like this is that the affected buyer will be forced to look at imports. In doing so, it is the country that suffers, as this will kill domestic employment, as the exporters will be the beneficiaries of policies that are inward looking.

Shares in companies can exchange hands but in corporate civilization this should not affect the company.

So it should ordinarily be irrelevant who holds shares, for example, in a bank but what is important is for the bank to deliver the service that clients are willing to pay for.

The viability of the bank is determined by client support and not necessarily by what the government wants to see and more significantly by the people who work for the bank and less by its shareholders who are outside the company.

Shareholders have the right to appoint directors just like citizens have the right to appoint political leaders.

However, once appointed, directors like political leaders cease to represent the interests of the parties that appoint them but the organization they serve.

So at best, shareholders cannot be held liable for decisions made by the companies in which they hold shares and yet a view is held that shareholders do in fact control companies and not directors who in many cases may not hold any shares in the companies they serve.

It should be irrelevant who holds shares in a company as far as service is concerned because customers do take an interest in what they choose to buy.

Successful countries go out of their way to attract investment. In doing so, they are acutely aware that this is a sustainable way of providing hope to their nationals who stand to benefit from employment and access to goods and services.

If a company whose shares are held by foreign nationals builds infrastructure in a host country such infrastructure will be to the benefit of the country.

It is accepted that shareholders are at the bottom of the queue of beneficiaries from a company's earnings and more significantly they are only entitled to income that the company does not need for its own operations.

They play the role of parents who have obligations to their children but have no contractual claim on the income earned by the children.

For example, if your child is a billionaire that does not make you a billionaire.

You are still required at law to negotiate with the holder of the billion if you need access even to $1 from the billion held by your offspring and you will not be entitled to access the account of your children without their consent. The same relationship holds for corporate citizens.

So a company registered, for example, in Nigeria that earns $20 million is entitled to the income and it is up to the directors of the company to declare after paying taxes in the host country dividends to the shareholders who may be local or foreign domiciled.

By paying dividends one accepts that the company concerned has earned the income through a market intermediated arrangement and, therefore, no one is prejudiced if such income is directed to the risk takers and not government.

As long as our ignorance on what corporate citizenship means persists, the prospects for growth and development in Africa are gloomy.

We may end up discouraging those who add value to the development process at their own risk at a time when Africa needs jobs and markets.

Any person who builds in your yard does so in your name and the entire infrastructure built ultimately belongs to the host.