Investors’ Magazine Interview with regard to the Code of Corporate Governance

1. How may the implementation of new corporate governance codes help Mauritius in its positioning as a financial hub?

It goes without saying that the economy depends upon the stable functioning of large corporations. The degree to which corporations observe basic principles of good corporate governance is an increasingly vital factor for investment decisions. In addition to financial data, investors also look at the status of corporate governance of companies before taking investment decisions. Countries which have implemented strong corporate governance practices and financial stability measures attract and generate more capital. On the other hand, poor corporate governance may be a deterrence for investment.

Mauritius is in the forefront of the Mo Ibrahim Index for Governance in Africa and is a leader in the field of corporate governance. However, the collapse of the BAI and Bramer Bank in 2015 illustrates the real impact and repercussions of the failure of good corporate governance, and the interdependence and correlation between corporate governance and the performance of corporations. This unfortunate event casted doubt on the transparency and decision-making process of corporations.

The implementation of the new Code of corporate governance (the “Code’’) can undoubtedly be an important protection against unethical corporate behavior. The new Code will lead to a more stable financial system which increases the attractiveness of some countries towards investors. Good corporate governance brings assurance that the companies within the financial sector, are being managed with integrity and to the highest international standards.

2. South Africa is also planning to adopt the “apply and explain” methodology, so the new codes are not that exclusive after all? (i.e. it was said that Mauritius is the first to adopt this new approach to corporate governance, but is seems not to be the case, since South Africa also is planning to adopt it. )

South Africa is departing from the King III “apply or explain” approach to the “apply and explain” methodology implemented by the King IV Code. The intention of the “apply and explain” approach is to shift from a compliance mind-set to a qualitative mind-set. The new approach demands organisations to be transparent in the application of their corporate governance practices. An approach which may better suit the South African domestic framework, societal and regulatory context.

In fact, each country has its own values, societal norms and way of doing business. In addition to implementing corporate governance practices in line with international guidelines, the drafting of the Code is also influenced by countries’ local environment. The exclusivity of every governance codes lies in the integration of the specific circumstance(s) that may pertain to each country.

3. Will these new codes achieve its goal, given they are only voluntary not mandatory?

The Code of corporate governance is binding on Public Interest Entities (this includes private companies having a turnover of more than 200 million rupees) and Public sector organizations, but is only of guidance for other companies. In fact, firms are not required to implement particular governance standards, they are only required to disclose which practices they have and have not implemented and give reasons (the “comply and explain” system).

Voluntary codes are increasingly being adopted worldwide because they are seen to be flexible instruments. There is some degree of non-compliance with the provisions which is expected, in contrast to the more rigid and mandatory nature of legislations. In addition, there are economic benefits to adopt corporate governance mechanisms in the absence of any requirement to do so, such as better operational performance, increased access to external financing, lower cost of capital, and reduced risk of financial crisis.

4. Do these new codes make sufficient provision for increasing transparency in companies where the State is a major shareholder?

The “apply and explain” approach, in itself, promotes transparency. In fact, the new Code entails new standards of transparency and encourages this rigour and accountability of the various enterprises. In addition, a Guidance For State-Owned Enterprises has explicitly been included in the said Code. The adoption of this new Code is a genuine attempt by Mauritius to raise the standards of economic integrity and transparency within enterprises, including those owned by the State.

By Annabelle Ribet
Legal Executive