Directors, chairpersons and Chief Executive Officers of the Central Water Authority, Central Electricity Board, Wastewater Management Authority and the Utility Regulatory Authority attended a one-day workshop, on Monday, on the new Code of Corporate Governance for Mauritius, held at Ébène in presence of the Deputy Prime Minister and Minister of Energy and Public Utilities, Ivan Collendavelloo. Dr Chris Pierce, Chief Executive Officer of Global Governance Services Ltd, who was entrusted the task of modifying the 2004 Code of Corporate Governance for Mauritius, says that the impact of the new Code can only be assessed as from the 3rd and 4th quarters of this year, and thus wide-ranging changes are expected to be seen in the way the public and private sectors “apply and explain” the eight Principles which constitute the Code.
>> What is your appreciation of the application of the new Code of Corporate Governance for Mauritius?
The new Code of Corporate Governance will only be implemented through the annual reports and on websites for the financial year 1st of July and 30th of June. So, we are going to see the impact in the 3rd and 4th quarters of this year. We are expecting to see wide-ranging changes between the public sector and the private sector in terms of explaining how they are applying the Principles which constitute the Code. There is no one size fits all… The Financial Reporting Council (FRC) will be monitoring and reporting how organizations are applying the Principles later on in the year.
>> You said that you were asked not to modify any existing rules and regulations. But if you had to do it, what would you have changed?
My objective is not to focus upon stopping people from doing things. Other government regulations and laws focus upon compliance and stopping people from doing illegal activities. My focus on corporate governance is to provide examples by which they can improve their effectiveness, and they actually want to improve it. It’s not the stick approach, but the carrot approach, where there are very good reasons for improving corporate governance through effectiveness for the success and prosperity of the organization.
>> The Mauritian Code is the shortest code on Corporate Governance, and consists of mainly eight Principles. Has it been able to cater all there is in terms of corporate governance?
Yes! But it is up to each and every board to identify how they are going to apply the Principles. For example, Principle 1 is on “effective board”. So, we are expecting, as a result of the Code, that individuals will work through what is important to them and what needs to be done. That may mean that they have got to describe the functioning in a more detailed way than before. They are going to look at each and every one of the Principles, and decide how they can apply them within their organizations. It’s not a one size fits all. The boards are being given flexibility to implement how they want to adapt the Code. It’s very much left to them. They have the responsibility to consider that and come up with an appropriate governance structure.
>> What is the major difference between “apply or explain” under the previous Code, and “apply and explain” under the new Code?
The “apply or explain” meant that you apply the Principles, but if you did not, you would then explain why you are not applying the Principles. We have now changed to say that all the Principles have got to be applied, no exception. The focus now is upon explaining how you have applied those Principles. So, in the “apply or explain”, you were explaining why you were not applying the Principles; whereas now you have to apply the Principles.
>> The Deputy Prime Minister and Minister of Energy and Public Utilities, Ivan Collendavelloo, mentioned some competitors. You also evoked the fact that we should be careful so as not to lag behind. What do we have to watch out for, and who?
Basically, organizations whether they are statutory bodies like the CWA and CEB which are here today, or the private sector – I was with the Rogers Group on Friday –, have got to be always looking for improvements in their governance practices, and be innovative. We live in a very competitive world. We live in a very fast changing world, and governance procedures are extremely important to ensure that the board is providing direction for the organization to succeed.
>> You said Principle 1 is about “effective board”. But if you take months, or even one year, to nominate a Chairperson, will it be against this Principle?
There is another Principle on the appointment processes, and these have to be effective and efficient nomination processes. There is no single and simple way of dealing with that because a statutory body appointment process may well be very different from family businesses or a listed company. So, the board itself has got to be comfortable with the effectiveness of the appointment processes.
>> The Financial Reporting Council’s (FRC) definition of Corporate Governance refers to the protection of stakeholders. Does it also concern shareholders and minority shareholders?
Yes. The FRC definition are all relevant to stakeholders and this includes shareholders, the community as a whole, the environment, the customers, the suppliers, the employees… Everybody should be taken into account when making decisions.
>> Lately we have witnessed groups buying out the shares of the minority shareholders to increase their portfolio of shares, as part of the directional strategy of the group. Can we talk of protection of the shareholders in these situations?
Minority shareholders’ rights is extremely important, and the board should be very interested in that area. They should also be very interested in related-party transactions and conflict of interests. All areas of minority shareholders’ abuse, related-party transactions and conflict of interests are extremely complex issues that need to be addressed. There is a Principle in the Code that shareholders are not abused in terms of the price that they are given for the shares. Those rights are well entrenched in the Companies’ Act. But the boards need to ensure that all shareholders are fairly treated so they are given the same rights in terms of invitation to the general meeting, asking questions and vote at the annual general meeting.