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Developing countries like Mauritius rely on foreign investment and trade for economic growth. The top criteria used by international investors in evaluating the investment potential are legal and accounting infrastructure, fraud risk and corporate governance (Heenetigala 2011). Therefore, to build investor confidence, developing countries need to undertake reforms of corporate governance, financial reporting and related laws (Abhayawansa & Johnson 2007).
3.1 Early Corporate Governance in Mauritius
Corporations have existed in Mauritius from the early days of colonisation. At the beginning of the French colonial period, Mauritius was in fact administered by a corporation, "La Compagnie des Indes". However, it was only in 1984 that Mauritius stepped into the modern era with the introduction of a new Companies' Act in that year. In 1989, there was another step forward with the setting up of The Stock Exchange of Mauritius. However, it was at the beginning of the new millennium that things really started to move ahead. Both government and the private sector realized that for Mauritius to make headway in the global economy, it was essential to adopt laws and conventions that were in tune with the changes taking place in the developed economies of the world (Governance 2004).
3.2 Corporate Governance Reforms
As such, investors consider corporate governance to be among the top criteria in their investment decisions.
Since the corporate scandal involving Air Mauritius and Rogers (2002) which in turn negatively affected the financial sector, the attention on proper corporate governance was greatly increased. Furthermore, after the Air Mauritius scandal other corporate frauds were detected such as the Delphis Bank and Mauritius Commercial Bank (2003) which is closely linked to the National Pension Fund.
Therefore, in 2001 a raft of new measures was introduced and designed to align where possible the practices of corporate Mauritius with best practice world-wide. These measures were in terms of :
Introduction of a new Companies Act.
Introduction of International Accounting Standards (IAS)
Introduction of new listing rules for companies listed on the Stock Exchange of Mauritius.
Setting up of a National Committee on Corporate Governance.
The "National Committee on Corporate Governance" (NCCG) has been established under section 63 of the financial Reporting act 2004.
As the national coordinating body responsible for all matters pertaining to corporate governance. The objectives of the NCCG were to :
(a) establish principles and practices of corporate governance;
(b) promote the highest standards of corporate governance;
(c) promote public awareness about corporate governance principles and practices; and
(d) act as the national coordinating body responsible for all matters pertaining to corporate governance.
The World Bank was asked to complete a Report on Standards and Codes (R.O.S.C.) on corporate governance in Mauritius that was published in August 2002.
3.3 CG practices
3.3.1 Code of Best Practice on CG
It is in September 2001 that the Minister of Economic Development, Financial Services and Corporate Affairs, The Honourable Sushil Khushiram, appointed a Committee on Corporate Governance for Mauritius. The Committee was given the task of raising the level of corporate governance in Mauritius so that it would compare favorably with international best practice. As part of its terms of reference, the Committee was asked to consider the appropriateness of introducing a Code of Best Practice on Corporate Governance for Mauritius. After a review of corporate governance practices in Mauritius, the Committee decided that it was appropriate to prepare a Code of Corporate Governance for Mauritius. In October 2003 the Code of Corporate Governance for Mauritius which was on a "comply or explain basis" was launched whereby the followings were the key requirements:
The roles of the Chair and CEO must be separate (Section 2 chapter 3 num 1)
The code addressed the balance of the board in Section 2 (chapter 1-principle 2 Board Composition) where each board required at least 2 independent directors and at least 2 executive directors.
The appointment of Board Committee (section 3) stated each board required an Audit Committee, and a Corporate Governance Committee (whose responsibilities include inter alia remuneration and nomination matters).
The Code did not specify an optimum size for the board but generally there should be smaller boards than exist at present. Boards of more than 12, even for the larger companies, could become unwieldy (section 2 Chapter 1-num 8.2 ).
3.3.2 Compliance with the code of CG
According to a Survey by the NCCG (2009) compliance with the Code of Corporate Governance is still not the norm in Mauritius, in that only 30% of the companies state that they currently comply with the Code, whilst 29% do not comply.
Higher compliance with the Code is noted among listed companies (including Banks and Non-Banking Financial Institutions) [83%] and State Owned Enterprises [44%], rather than among DEM Listed companies [36%] and non-listed companies [9%].
An analysis of the Annual Reports of 86 companies for which the Annual Reports could be collected showed that:
An improvement in the proportion of the Companies presenting a Corporate Governance Report in their Annual Report was noticed over the last 3 years, implying from 74% in 2006 to 85% in 2008.
There was an increase in the proportion of companies setting up Board Committees to address Corporate Governance, Audit, Risk ,and Nomination Issues .Whereby, the main committees established within companies were, by order of importance the Audit Committee [84%], Corporate Governance Committee [84%], the Remuneration Committee [70%] and the Board Risk Committee [51%].
Interestingly, the post of Chairman and CEO was seen to be held by different individuals in the majority of the companies [84%].
Average Board size in Mauritian companies responding to the survey was noted to be 8.9.
In most cases, the companies had a mix of Executive and Non- Executive Directors, with an average of 2 Executive Directors and 7 Non- Executive Directors.
3.4 CG and Firm Performance in Mauritius
The code in Mauritius favors a unitary board and The Code of Corporate Governance was revised in April 2004.
The factors that affect firm performance in Mauritius are the rate of interest, inflation, level of unemployment and others.
compliance with the code of corporate governance in Mauritius, report oct 2009,NCCG
Abhayawansa, S & Johnson, R 2007, 'Corporate Governance Reforms in Developing Countries: Accountability versus Performance', in R Johnson (ed.), Reading in Auditing Volume 2, John Wiley & Sons Australia, Ltd, Milton,Qld, pp. 84-98.