Corporate Governance ROSC for Mauritius

 69160 FMail Report on the Observance of Standards and Codes (ROSC) CORPORATE GOVERNANCE COUNTRY ASSESSMENT Mauritius December 2010  CORPORATE GOVERNANCE ROSC FOR MAURITIUS About the ROSC What is corporate governance? The Corporate Governance ROSC Corporate governance refers to the structures Corporate governance has been adopted as one and processes for the direction and control of of twelve core best-practice standards by the companies. Corporate governance concerns the international financial community. The World relationships among the management, board of Bank is the assessor for the application of the directors, controlling shareholders, minority OECD Principles of Corporate Governance. Its shareholders and other stakeholders. Good assessments are part of the World Bank and corporate governance contributes to sustainable International Monetary Fund (IMF) program on economic development by enhancing the Reports on the Observance of Standards and performance of companies and increasing their Codes (ROSC). access to outside capital. The goal of the ROSC initiative is to identify The OECD Principles of Corporate Governance weaknesses that may contribute to a country’s provide the framework for the work of the World economic and financial vulnerability. Each Bank Group in this area, identifying the key Corporate Governance ROSC assessment practical issues: the rights and equitable benchmarks a country’s legal and regulatory treatment of shareholders and other financial framework, practices and compliance of listed stakeholders, the role of non-financial firms, and enforcement capacity vis-à-vis the stakeholders, disclosure and transparency, and OECD Principles. the responsibilities of the board.  The assessments are standardized and Why is corporate governance important? systematic, and include policy For emerging market countries, improving recommendations and a model country corporate governance can serve a number of action plan. In response, many countries important public policy objectives. Good have initiated legal, regulatory, and corporate governance reduces emerging market institutional corporate governance reforms. vulnerability to financial crises, reinforces  The assessments focus on the corporate property rights, reduces transaction costs and governance of companies listed on stock the cost of capital, and leads to capital market exchanges. At the request of policymakers, development. Weak corporate governance the World Bank can also carry-out special frameworks reduce investor confidence, and can policy reviews that focus on specific sectors, discourage outside investment. Also, as pension in particular for banks and state-owned funds continue to invest more in equity markets, enterprises. good corporate governance is crucial for  Assessments can be updated to measure preserving retirement savings. Over the past progress over time. several years, the importance of corporate  Country participation in the assessment governance has been highlighted by an process, and the publication of the final increasing body of academic research. Studies report, are voluntary. have shown that good corporate governance By the end of December 2011, 83 assessments practices have led to significant increases in had been completed or were underway in 58 economic value added (EVA) of firms, higher countries around the world. productivity, and lower risk of systemic financial failures for countries.  CORPORATE GOVERNANCE ROSC FOR MAURITIUS | PAGE 3 Contents Landscape ....................................................................... 6 Key Findings ................................................................ 13 Commitment and enforcement ....................... 13 Shareholder Rights .............................................. 20 Stakeholders and Corporate Social Responsibility ........................................................ 26 Disclosure and Transparency.......................... 28 Board Practices and Company Oversight ... 32 Implementation of the 2002 CG ROSC ......... 40 Findings of the DCA ............................................. 40 Recommendations .................................................... 43 Summary -- Detailed Country Assessment .... 51  CORPORATE GOVERNANCE ROSC FOR MAURITIUS Acknowledgements This updated assessment of corporate governance in Mauritius has been prepared by Alexander Berg of the World Bank Global Capital Markets Development Department with Karen Sarah Cuttaree (consultant), as part of the Reports on Observance of Standards and Codes Program. The report is based in part on a template / questionnaire completed by BLC Partners. The findings of the ROSC are based on the Detailed Country Assessment (DCA), which is presented as a separate annex. The due diligence mission was carried out in January 2011. The assessment reflects technical discussions with the Financial Reporting Council, the Financial Services Commission, Bank of Mauritius, Stock Exchange of Mauritius, Central Securities Depository, Registrar General, Institute of Directors, and representatives of companies, banks, and market participant. The assessment draws on two separate sources of information on corporate governance adoption. In 2009, the National Committee on Corporate Governance commissioned a Survey on the State of Compliance with the Code of Corporate Governance in Mauritius (available in summary form on the NCCG website). In addition, the Financial Reporting Council collects data on compliance with the Code of Corporate Governance through its regular reviews of financial reporting. Laura Ard, Mazen Bouri, Gary Fine, Khoudijah Maudarbocus-Boodoo and Roman Zyla provided advice and comments. Johana Shah provided administrative support. Comments on the draft were received from the National Committee on Corporate Governance Financial Services Commission, the Registrar of Companies, the Bank of Mauritius, and the Mauritius Institute of Directors.  CORPORATE GOVERNANCE ROSC FOR MAURITIUS | PAGE 1 Acronyms BoM: Bank of Mauritius CA: Companies Act 2001 CEO: Chief Executive Officer CFO: Chief Financial Officer CSR: Corporate Social Responsibility DCA: Detailed Country Assessment (annex to the ROSC report) EGM: Extraordinary General Meeting ESOP: Employee Stock Ownership Program FRA: Financial Reporting Act 2004 FRC: Financial Reporting Council FSC: Financial Services Commission GDP: Gross Domestic Product GMS: General Meeting of Shareholders IFRS: International Financial Reporting Standards IOSCO: International Organization of Securities Commissions ISA: International Standards on Auditing LR: Listing Rules MIPA: Mauritius Institute of Professional Accountants MIOD: Mauritius Institute of Directors MOFED: Ministry of Finance and Economic Development NCCG: National Committee on Corporate Governance ROC: Registrar of Companies ROSC: (Corporate Governance) Report on Standards and Codes RPT: Related Party Transaction. SEM: Stock Exchange of Mauritius SOE: State Owned Enterprise SRO: Self regulatory organization Definitions Cumulative voting: Cumulative voting allows minority shareholders to cast all their votes for one candidate. Suppose that a publicly traded company has two shareholders, one holding 80 percent of the votes and another with 20 percent. Five directors need to be elected. Without a cumulative voting rule, each shareholder must vote separately for each director. The majority shareholder will get all five seats, as s/he will always outvote the minority shareholder by 80:20. Cumulative voting would allow the minority shareholder to cast all his/her votes (five times 20 percent) for one board member, thereby allowing his/her chosen candidate to win that seat. Pre-emptive rights: Pre-emptive rights give existing shareholders a chance to purchase shares of a new issue before it is offered to others. These rights protect shareholders from dilution of value and control when new shares are issued. Proportional representation: Proportional representation gives shareholders with a certain fixed percentage of shares the right to appoint a board member. Pyramid Structures: Pyramid structures are structures of holdings and sub holdings by which ownership and control are built up in layers. They enable certain shareholders to maintain control through multiple layers of ownership, while at the same time they share the investment and the risk with other shareholders at each intermediate ownership tier. Shareholder agreement: An agreement between shareholders on the administration of the company. Shareholder agreements typically cover rights of first refusal and other restrictions on share transfers, approval of related-party transactions, and director nominations. Squeeze-out right: The squeeze-out right (sometimes called a “freeze-out