DRAFT CODE OF CORPORATE GOVERNANCE OF MAURITIUS

The Draft Code of Corporate Governance which has been circulated by the National Committee of Corporate Governance for comments by stakeholders seeks to take Mauritius to a new level by introducing international best practices and thus aligning Mauritius with developed jurisdictions such as the United Kingdom by promoting a principled based approach to corporate governance rather than a rules-based approach.

The rules-based approach, which is a tick-box approach whereby the regulator would give very precise details of what an entity must or must not do in order to attain the standard of conduct required, is not being recommended by the National Committee of Corporate Governance. Instead, a principled-based approach is being encouraged so that entities would need to develop and adopt their own corporate governance processes and procedures based on the principles set out in the Code of Corporate Governance and in line with the entity’s business model and vision.

The National Committee of Corporate Governance is not the first in promoting a principled-based approach in Mauritius as the Financial Services Commission has issued its Code of Business Conduct in October 2015, which Code sets out nine Guiding Principles which all licensees are obligated to implement in their operations so as to comply with the same. In the same manner, the Draft Code of Corporate Governance puts the onus on the entities to “apply-and-explain” the principles set out in the Code. The Board of Directors of an entity has a duty to apply all the principles contained in the Code and to explain in their annual reports how these principles have been applied.

The adoption of a principled-based approach is commendable as it a flexible approach which fosters the awareness of good governance principles within an organisation and the creation of a governance culture within an organisation. As entities in Mauritius have been governed by rules for a number of years, this novel principled-based approach presents a new challenge and the hope is that entities will seek to apply above average procedures to demonstrate their compliance with the principles of the Code as opposed to the minimal acceptable practices which may be required by a rules based approach. The difficulties of a principled based approach are the lack of clarity in the application of principles to the required level, and the dangers of bland and repetitive statements in reports.

The Eight Principles:

Principle 1: Governance Structure

All organisations should be headed by an effective Board. Responsibilities and accountabilities within the organisation should be clearly identified.

 

Principle 2: The Structure of the Board and its Committees

The Board should contain independently minded directors. It should include an appropriate combination of executive directors, independent directors and non-independent non-executive directors to prevent one individual or a small group of individuals from dominating the Board’s decision taking. The Board should be of a size and level of diversity commensurate with the sophistication and scale of the organisation. Appropriate Board committees may be set up to assist the Board in the effective performance of its duties.

 

Principle 3: Director Appointment Procedures

There should be a formal, rigorous and transparent process for the appointment, election, induction and re-election of directors. The search for Board candidates should be conducted, and appointments made, on merit, against objective criteria (to include skills, knowledge, experience, and independence and with due regard for the benefits of diversity on the Board, including gender). The Board should ensure that a formal, rigorous and transparent procedure be in place for planning the succession of all key officeholders.

 

Principle 4: Director Duties, Remuneration and Performance

Directors should be aware of their legal duties. Directors should observe and foster high ethical standards and a strong ethical culture in their organisation. Each director must be able to allocate sufficient time to discharge his or her duties effectively. Conflicts of interest should be disclosed and managed. The Board is responsible for the governance of the organisation’s information strategy, information technology and information security. The Board, committees and individual directors should be supplied with information in a timely manner and in an appropriate form and quality in order to perform to required standards. The Board, committees and individual directors should have their performance evaluated and be held accountable to appropriate stakeholders. The Board should be transparent, fair and consistent in determining the remuneration policy for directors and senior executives.

 

Principle 5: Risk Governance and Internal Control

The Board should be responsible for risk governance and should ensure that the organisation develops and executes a comprehensive and robust system of risk management. The Board should ensure the maintenance of a sound internal control system.

 

Principle 6: Reporting with Integrity

The Board should present a fair, balanced and understandable assessment of the organisation’s financial, environmental, social and governance position, performance and outlook in its annual report and on its website.

 

Principle 7: Audit

Organisations should consider having an effective and independent internal audit function that has the respect, confidence and co-operation of both the Board and the management. The Board should establish formal and transparent arrangements to appoint and maintain an appropriate relationship with the organisation’s internal and external auditors.

 

Principle 8: Relations with Shareholders and Other Key Stakeholders

The Board should be responsible for ensuring that an appropriate dialogue takes place among the organisation, its shareholders and other key stakeholders. The Board should respect the interests of its shareholders and other key stakeholders within the context of its fundamental purpose.


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