THE RELATIVE success of Mauritius was built on its liberal development model. This development hinged on two key elements: strong democratic institutions and a committed and entrepreneurial private sector.

The private sector thus sits at the heart of the great majority of the nation?s development strategies. Already private sector companies are the main creators of wealth and jobs in the island. Traditionally in the sugar sector and more recently for that of hotels, garments, freeport and financial services, the investment and operations have been carried out by private sector enterprises. Over the last fifteen years, this development has led to a more than doubling of the GDP per capita ? to a level of US$ 4 000, one of the highest in Africa. The hopes for the future ? Mauritius the cyber island ? Mauritius a centre for BPO, rest with initiatives and investments that will be made by private sector enterprises. Foreign Direct Investment (FDI) has been an important element in our recent economic development and FDI will surely play an important part in our future development. FDI however also stems from the private sector, albeit the foreign private sector rather than the local one.

Without economic development to create wealth, social development cannot take place. This means that the private sector has a pivotal role in the overall development of Mauritius. While the private sector is made up of both large and small enterprises, a significant proportion of it consists of larger organisations. These are the corporations that are at the base of the economic success of Mauritius and on which we count for the continued development of the country.

Whilst the private sector has been very active in developing projects, enterprises and jobs, the focus has been on wealth creation and one must acknowledge that less effort was expended on governance issues. However, given the importance of the private sector in the development of Mauritius, the emphasis world-wide being put on corporate governance and the importance of attracting FDI to develop the new economic sections, the government of Mauritius decided that corporate governance in Mauritius required some serious attention.

What is governance?

In the general sense, it is a set of rules which, when applied, assures the good running of an organisation, while respecting the interests of the various stakeholders. It is now widely recognised that for organisations to succeed and deliver value, good governance is essential. This applies to countries, districts, NGOs, clubs and of course to corporations. The corporations that are so essential to our economic and social well being.

It is because of the importance of corporations in the life of all nations, that corporate governance has taken such a high profile in recent years.

While for some ten years work on corporate governance had been quietly proceeding, with the Cadbury committee in the UK and the King committee in South Africa, it took the corporate scandals in the USA, Enron, Worldcom and Tyco, to name but three, to propel the issue to the forefront of public interest. In all these scandals, the interests of various stakeholders of the corporations involved had been adversely affected because of unethical (often illegal) behaviour by management. This led the authorities in the USA to bring in a new law, the Sarbannes - Oxley Act, to better regulate the direction of companies. These corporate scandals also heightened awareness throughout the world on corporate governance issues.

Needless to say Mauritius is connected to the world and it is government policy to strengthen these connections, through the attracting of FDI and the positioning of Mauritius as a centre of services (freeport, offshore, BPO etc), and so the issue of corporate governance was also seen here to be important. So, in September 2001, Minister Sushil Khushiram set up a National Committee on Corporate Governance appointing seven members drawn from both the public and private sectors. He honoured me by asking me to chair the committee. The committee was given wide terms of reference, which were basically to bring the level of corporate governance in Mauritius up to world standards.

Soon after the committee started work, two local corporate problems came to light, the Air Mauritius and Delphis Bank affairs, which brought home the relevance of corporate governance in the Mauritian context.

Best practice for Mauritius

The Committee realised that, to be effective, it would have to involve a maximum of the stakeholders of corporate Mauritius. So, in March 2002, it organised a conference on corporate governance. The chief resource person at the conference was Mervyn King, chairman of the King committee that has produced two codes of Corporate Governance for South Africa (the latest in 2002). Peter Mckenzie who drafted the Mauritian Companies Act of 2001, Olivier Fremond of the World Bank and Peter Brunsden of Lloyds Bank were also speakers at the conference as were Iqbal Rajahbalee and Sunil Benimadhu, the Chief Executives of the Financial Services Commission and the Stock Exchange of Mauritius respectively.

The conference showed that, while there was a lot of interest on governance issues, there was also a lack of knowledge on what behaviour constituted good governance. This led the committee to decide to prepare a code of corporate governance for Mauritius. The idea behind this was to put into an easily

readable and understandable form what corporate Mauritius needed to do to achieve good governance. Mervyn King was taken as adviser to the committee for the preparation of the code. In October 2002, the preparation process was launched with the constitution of five task teams.

A member of the Committee of Corporate Governance was appointed as convenor for each task team and the task teams were resourced with between six and 13 persons drawn from the various stakeholders of corporate Mauritius. The idea was to get a cross section of the stakeholders working on the code, firstly to get their buy in but also to get a good number of people involved in corporate governance so that the code would not come as a complete surprise when it was published. The task teams covered the following areas:

Boards and Directors - Marc Lagesse

Auditing and Accounting - Clairette Ah Hen

Risk Management, Internal Control and Internal - Audit - Nassir Ramtoola

Compliance and Enforcement - Prabha Chinien

Integrated Sustainability Reporting - Cyril Mayer

In the preparation of the code, international best practice was taken on board, with the second King Report for South Africa being taken as the base document. Then, each task team took into account local conditions in the preparation of their sections. This means that the code fully reflects international thinking on corporate governance but has also been written with Mauritius specifically in mind. The task teams met literally for hundreds of hours and a huge amount of ground work was covered by them.

A code of Ethics

In May of this year, the draft code was presented to the various stakeholders of corporate Mauritius at a one day workshop held at the Maritim Hotel. After the workshop, the draft code was posted on the ministry?s website. Feedback was then collected from the various interested parties, following which the task teams considered the various points raised and the final code was prepared.

The Code of Corporate Governance for Mauritius was launched by Minister Khushiram in October 2003. As stated earlier in this article, the code sets down what corporations, their directors and managers have to do to ensure that the corporations, which they direct and for which they work, are well governed. The composition and the role of the board is covered in detail as it is this body that is at the apex of good governance for a corporation. Companies will be required to have separate persons filling the roles of Chairman and Chief Executive. Great emphasis is also put on transparency and disclosure. This is to enable shareholders to make better investment decisions and also to allow other stakeholders to understand what is happening in a corporation. The code also addresses the question of integrated sustainability reporting. This section covers the non-financial aspects of governance. There are sub-sections on the long-term development of the company, the environmental issues that a company may face, health and safety, stakeholders? relations and also the necessity for having a Code of Ethics in place. There are further sections on Audit & Accounting and on Risk Management, Internal Control and Internal Audit.

Comply or Explain

As regards compliance, the code will be applied on a ?comply or explain? basis. While all companies are expected to take inspiration from the code as regards their behaviour, listed companies, banks and non-banking financial institutions and large public and private companies will be required to comply or explain in any case where they have not complied, the reasons for their non compliance.

Companies are expected to be fully compliant by June 2005, which means that work as regards compliance has to start early in 2004. The Committee of Corporate Governance will be running a number of workshops to help companies to understand the requirements as regards compliance. These workshops will be run during the first quarter of 2004 and will cover issues such as the role of the chairman and the role of the various board committees. It is also the intention of government that state-owned enterprises should comply with the principles of the code.

Other Initiatives

Apart from the work done by the Committee on Corporate Governance, there have also been other initiatives in the field of corporate governance over the last two years. The World Bank carried out the Report on Standards and Codes (ROSC) on corporate governance in Mauritius which was published in August 2002, while, in 2003, the World Bank published ROSCs on Auditing & Accounting and Insolvency & Creditors Rights. Government have now appointed consultants to prepare legislation for the setting up of the Financial Reporting Council and the Mauritius Institute of Professional Accountants. In 2001, government set up the FSC and two bills have been introduced, one on insurance and the other on securities, which should among other things lead to improved governance in these sectors.

Integrity

While laws and codes to encourage better corporate governance are very necessary, the key to good governance is integrity - integrity at all levels from the Board of Directors through the management ranks down to sales personnel and operatives. However, the example must come from the top. Without integrity, none of the work that has been done on governance will have the desired effect.

Performance is essential

Governance is about conformanceIt requires that corporations conform to laws and best practice. However for Mauritius to develop, performance is also essential. Private enterprise is about taking risks to reap rewards. The entrepreneur invests with a view of making a return and if the risk is great, a superior return. The individual decisions of entrepreneurs and enterprises is what makes the strength of the market economies. For Mauritius to continue its development, it is essential that performance is not lost in the pressure to conform. Corporate governance therefore should be looked upon as a lever and not a constraint in achieving superior performance.

Tim Taylor