The Financial Reporting Act 2004, which includes the National Committee on Corporate Governance, is a first step in the right direction. There is no doubt that the Code on Corporate Governance is not adequate in the Mauritian context whereby deep-rooted feelings among family-controlled enterprises supersede basic economic sense. However, it is now for the committee to improve on it for the continued economic growth of our country.

Having assessed the appointment of independent directors, we have strong reservations on how independent the independent directors are. Most of them appear to be a cosmetic exercise as the decisions are taken in a very closed circle. There are many competent independent persons who can bring significant contributions and benefits to the organization but either they are not given the opportunity, or the company is not prepared to remunerate them fairly. The Report on Corporate Governance refers to the appointment of two independent directors while, in US and Australia, independent directors already must make up the majority of the board and, in UK, at least half of the board must be independent.

A director, who is appointed on the board at the instigation of a party with a 5% direct or indirect shareholding, is generally considered to be an independent director. If such is the case in Mauritius, then most of the listed companies already had independent directors and, as such, the report on Corporate Governance leaves a lot to be desired. Consequently, we hope this is not the case for the two independent directors referred to in the Report on Corporate Governance.

The rare attendance in some Annual General Meetings is a show and a charade. The institutional investors are practically dormant as confirmed by section 11 of the Report on Corporate Governance. Small shareholders? activism is nearly over. Their response to the major scandals leaves a lot to be desired. ?Pas moi ça li ça. Round and round we go.? There has been an absence of clear, precise, concise and concerted action by these institutions. Most of them are sick and actions have to be taken to let them perform professionally and independently.

We believe that some major institutions must be accountable to a small independent and competent board (about three members) appointed jointly by a committee consisting of the president of the Republic, the prime minister and the leader of the opposition. The board would be accountable to that committee. The chief executive must be selected by the board even if it means the recruitment of foreign nationals. The very best must be recruited as, after all, it is the public interest that matters. Such a system is highly relevant for ICAC, the Bank of Mauritius and the Revenue Authority. The revenues in quantitative and qualitative terms will outweigh the cost.

Fresh from the partial victories at Shell, Sainsbury and Barclays, the institutional investors are turning their fire on the big auditing firms. ?Your primary duty is to us as shareholders, not to the directors,? they reminded the firms in their submissions to the Department of Trade and Industry. In Mauritius most of the AGMs of listed companies are attended by less than ten shareholders. This is because the concerns of shareholders are a low priority. The directors have been happy to listen politely and then do nothing. In this context, the policymakers must introduce a legislation to ensure that the perceived independence of the statutory auditor is maintained. The Sarbanes-Oxley Act introduced in the US and other similar legislations will serve to increase the credibility of auditors in listed companies.

<B>Contribute to areas of social concern</B>

The corporate landscape around the world is fast changing and we have to follow this trend for our economic prosperity. Corporations will continue to exist as the dominant business unit. However, if they are to survive in this emerging environment, a number of critical areas should be addressed, namely the corporate objective and the wider corporate governance structure, including the accountability of executives and the role of statutory auditors, the chairman and audit committees of listed companies.

The performance of corporations can no longer be measured only in terms of monetary profits. Whilst shareholders still expect favourable returns on investment, they now also expect their organisations to achieve financial success while caring for the environment, thus contributing to sustainable development and other areas of social concern. The customers and employees of publicly listed companies are interest groups, which are integral to the success of any organization, and, as such, any measurement of performance must indicate the corporation?s success in satisfying their objectives.

Corporations should adjust their objectives. The shortsighted pursuit of profits at the expense of employees, the environment, sustainable development and wider society will no longer be tolerated. Consumers cannot be taken lightly as they are becoming more powerful.

The structure of corporate governance must change if pu-blicly listed companies are to improve their public image. The executives of corporations must be held accountable for the actions of their organisations. The audit committees must become effective in monitoring the finance function. The role of the chairman must evolve into that of the ultimate steward, a person who has the best interests of wider society and shareholders at heart.

Perhaps additional legislative changes are needed to propel these developments in corporate governance, but companies cannot sit and wait for these laws to come into effect. However, in the short term, I believe that listing rules should be reviewed to include the following:

All material indirect holdings to maintain control should be phased out and replaced by direct holdings within a prescribed period. (This would apply to many listed companies including Air Mauritius). This approach will automatically lead to more independent directors (i.e. 5% shareholding).

A majority of the Board of directors should consist of independent directors as directors holding 5% shares are considered as independent directors.

Two independent directors not holding any share or not more than 1% shares in the company are to be elected by shareholders in person or by proxy. Those who get most votes are elected. The list for such independent directors eligible would be selected by the nomination committee.

Shareholders? activism should not only be encouraged but should also be actively pursued. Section 11 of the Report on Corporate Governance recommends the increase in the level of shareholders? activism at both shareholders? meetings and private meetings with the company chairperson and CEO. Therefore everyone agrees to it and the question is how to achieve it as this involves financial constraints. It would be in the interest of the listed company to incur the cost but the directors will never agree to it. The only other alternative is to review the present commission charged on buying and selling shares to cater for a percentage for shareholders? activism within acceptable norms through a non-governmental organisation (NGO). The NGO can be regulated by either SEM or the FSC

<B>Dev POONYTH</B> President Association of Small Shareholders in Listed Companies