Dcorporate Governance Ratings

Corporate Governance in parastatal bodies in Mauritius Chapter 1

CHAPTER 1

1.0 INTRODUCTION

1.1 Purpose of Study

Corporate Governance has now become an important issue in the management of organizations

in both the private and the public sector. Such concern has been raised following major scandals

in corporate management at both national and international levels.

International level

In the early 2000s in USA, the massive bankruptcies and criminal malfeasance at Enron and

WorldCom (by capitalizing line costs on the balance sheet rather than properly expensing them

and by inflating revenues with bogus accounting entries from "corporate unallocated revenue

accounts") as well as the lesser corporate scandals, such as Adelphia Communications (founders

charged with bank fraud and securities violations in 2002 with $2.3 billion in off balance sheet

debt); AOL (creative accounting in the form of inflated sales in 2002); Arthur Andersen, Global

Crossing (Bermuda - network capacity swaps to inflate revenues in 2002) and Tyco (Bermuda -

improper accounting) led to an increased political interest in corporate governance in the USA.

This was subsequently followed by passage of the Sarbanes-Oxley Act (2002).

In the UK again, Polly Peck (1990) manipulated its share price, made false accounting and

unauthorized payments from the company to its Chief Executive and his colleagues. The only

reason was the lack of corporate governance oversight through an independent Board of

directors.

National level

In Mauritius, the country has also witness scandals such as the Air Mauritius saga. The Air

Mauritius case (2001) revealed a system of false invoicing between the national airline and its

MBA - Finance & Investment 1


local handling agent, Rogers & Company by siphoning fund into a so-called “caisse noire”

(black box), or illicit bank account .

In December 2008, the State Trading Corporation of Mauritius (STC) faced unprecedented

deterioration of its financial situation through heavy loss making hedging contracts. This was

subsequently followed by the National Pension Fund scandal.

Government Decisions

In September 2001, a Committee on Corporate Governance was set up “with the purpose of

providing a framework for improved corporate governance in Mauritius.” This Committee

developed the Code on Corporate Governance in October 2003. The latter was revised in April

2004. The Code was developed on the basis of the King Report in South Africa, and shares many

approaches with that model. Following the above mentioned scandals, Government took the

bold decision to pass the appropriate legislation for State Owned Enterprises (SOE) to comply

with the Code of Good Governance. The two relevant legislations were the:

(a) The Financial Reporting Act 2004

The Financial Reporting Act 2004 requires that all state owned enterprises apply the Code of

Corporate Governance. In case of non-compliance, an SOE shall disclose and explain the reasons

for non-compliance.

(b) The Finance and Audit Act 2009

The Finance and Audit Act 2009 requires the Director of Audit to report on as to whether the

disclosures on corporate governance are consistent with the requirements of the Code of Good

Corporate Governance.

1.2 Research Problem

Parastatal bodies play a major role in most economies through the provision of public services

such as education and energy. Despite the important socio-economic gains that the country has



obtained from them, some of the parastatal bodies in Mauritius are characterized by inefficiency,

losses and provision of poor products and services. Subsequently, they have become a heavy

budgetary burden to Government.

Against this background, the World Bank has proposed to the Government of Mauritius for the

privatization of some parastatal bodies. According to the World Bank, government should aim at

reducing its participation in the economic sector and to increase the productivity of parastatal

bodies. In this respect, the World Bank has popularized the privatization of some parastatal

bodies as a solution to the problems faced by these bodies but research has shown that in many

cases, privatization did not bring about much efficiency gains. In fact, the problems faced by

these bodies are a lack of good governance practices.

In developing countries, the state-owned enterprise sector is an integral part of socio-economic

activity. Most state-owned enterprises were established to fulfill the social objectives of the state

rather than to maximize profits, however, rising stakeholder expectations have forced

governments in many countries to reform the corporate governance systems of state-owned

enterprises, with expectations of improving their operations, reducing deficits and to make them

a strategic tool in gaining national competitiveness.

Parastatal bodies are those entities that are partly or wholly owned by the Government. There are

some 150 such bodies including funds and trusts in Mauritius. These organizations have been

created by different Acts of Parliament and are normally under the administrative control of a

Ministry.

The Director of National Audit Office has over the years reported unfavorably on many

parastatal bodies. It is also noted that the major issues that was highlighted in these reports had

become a recurrent feature. The issues relate mainly to poor governance, delays in the

preparation of the financial statements and the submission of the Annual Reports. According to

their respective Acts, these parastatal bodies have to prepare an Annual Report which has to be

laid before Parliament in the interest of accountability and transparency in the use of public fund.

These shortcomings are in a way reflecting of the poor state of corporate practices in those

organizations.



Government has voiced out its concern about the financial liabilities of certain parastatal bodies

which later has turned out to be contingent liabilities for the Government. Every time these

organizations face difficulties, Government has to commit financial resources to bail them out. A

few examples include the National Transport Corporation, the State Trading Corporation, the

Agricultural and Marketing Board, etc.

Although Government has established the necessary framework for promoting good corporate

governance in parastatal bodies, its implementation and its resulting effects are taking time to

materialize. This is an area which is being investigated in this study through the technique of

Corporate Governance Rating.

1.3 Study Objectives

The aim of the study is to:

To assess and evaluate the level of good corporate governance practices in parastatal

bodies using corporate governance rating ;

To make recommendations for improving and promoting good governance in parastatal

bodies.

1.4 Research Questions

In order to meet the research objectives, the following research questions will be addressed in

this study:

To what extent parastatal bodies are practicing good corporate governance in Mauritius?

Is there a difference in governance practices between parastatal bodies operating in the different

sectors?

Does the practice of good governance promote greater accountability in parastatal bodies?



Does the practice of good governance promote greater transparency in parastatal bodies?

1.5 Significance of the Study

In comparison with the private sector, parastatal bodies have their own specificities as regard the

practices of good corporate governance. Parastatal bodies have: multiple objectives, the public

through the minister are shareholders, ministers appoint the directors and there are different types

of accountability and a more complex legal framework.

Parastatal bodies in Mauritius play a strategic role in the provision essential goods and services

for the betterment of the living conditions of the citizen. The activities of these bodies impact on

the quality, accessibility and affordability of services provided to the community, specially the

poor and vulnerable group. This study will provide the framework for the introduction of a

Corporate Governance Rating Framework for parastatal bodies.

1.6 Scope of the Study

Unlike the US which has a “one-size-fits-all model” of corporate governance as prescribed by

Sarbanes-Oxley Act, Mauritius has a “disclose-or-explain” corporate governance structure which

take into account the complex environment in which organization operates. The Code of Good

Corporate Governance has been designed around this framework. Governance is about

conformance with an established Code and there is a strong presumption that conformance

ultimately lead to performance. However, this study deals only with conformance to the Code of

Good Corporate Governance in Mauritius.

1.7 Structure of the dissertation

The dissertation report will be organized into 5 chapters. The areas and topics to be covered

under each one are summarized below-



Chapter 1: - Introduction

Chapter 1 states the problem statement, aim and objectives of the research. It gives a brief

introduction of the subject under study and the significance of the dissertation.

Chapter 2: – Literature Review

Chapter 2 deals with the literature review on the subject of good corporate governance.

Chapter 3: – Research Methodology

Chapter 3 deals with the methodology used to carry out the survey. It describes the objectives as

well as the techniques that have been used during the various stages of the research.

Chapter 4: – Analysis of Findings

Chapter 4 deals with the analysis of data. The findings and inference drawn from the analysis are

fully elaborated.

Chapter 5: Recommendations and Conclusion

Chapter 5 contains the recommendations and conclusion that has been reached based on the

results of the survey.

1.8 Conclusion

This chapter has set out the context in which the study is being carried. It has defined the

objectives of the study together with the related investigative questions and the scope of the

study. The next chapter will focus on literature review on good corporate governance.



CHAPTER 2

2.0 Literature Review

2.1 Introduction

This chapter reviews the literature on good corporate governance. Given its importance, there is

a wealth of literature on this topic but most of the studies have been mostly carried out in private

sector organizations. However, there are a few literatures on good corporate governance in the

public sector. In this respect, both have been used in the conduct of the literature review.

2.2 Corporate Governance

Corporate governance is a very general phrase, denoting as the Cadbury Report (1992) says “the

system by which companies are directed and controlled.” It is concerned with structures and the

allocation of responsibilities within companies.

2.3 Goals of corporate Governance

Corporate governance refers to internal and external monitoring mechanisms that have an impact

on the decision of managers in the context of separation of ownership and control. According to

Shleifer and Vishny (1997), corporate governance illustrates how to make sure that managers

do not shirk or steal capital from the firm or make bad investments.

On the other hand Berle and Means (1932) refer to the separation of ownership and control

which constitutes agency problems between managers and the suppliers of capital. Suppliers of

capital want to know how managers take care of their money and maximize shareholder wealth

and how to prevent them from consuming perks, such as expenses in favor of managers that do

not necessarily maximizes shareholders wealth.



2.4 Corporate Governance Rating Industry

According to Rose (2007), the corporate governance ratings organizations have all begun

offering rating services during the past twelve years. The audience for these services is varied,

and the market is still developing. Potential users of the ratings services include institutional

investors, fund managers, smaller investors, executive search firms, accounting firms,

compensation and governance consultancy firms, insurers offering directors’ and officers’

liability insurance, rated companies and academics.

During the last few years, several rating systems have been proposed and implemented. The

most recognized rating services are provided by the following U.S firms:

Institutional Shareholder Services (ISS);

Governance Metric International (GMI);

The Corporate Library (TCL).

They used a scoreboard system. The main objectives of the scoreboard system are: to facilitate

the work of analysts and investors though a systematic and easy overview of all relevant issues

of good governance; enable companies to easily assess the quality of their own governance

situation and to set minimum scores for investors to investment decision. The for-profit

corporate governance industry sells corporate governance advice through a number of products,

including corporate governance ratings and proxy voting. (Rose, 2007)

2.5.1 Institutional Shareholder Services (ISS)

ISS assesses the corporate governance practices of companies and focus on eight core topics:

board structure and composition; audit issues; charter and bylaw provisions; laws of the state of

incorporation; executive and director compensation; qualitative factors; director and officer stock

ownership and director education.

Institutional Shareholder Services (ISS) ratings are calculated on the basis of 61 variables across

the eight core categories. ISS rate companies with a proprietary analysis that results in a



Corporate Governance Quotient (CGQ) for the company. Information is collected from public

sources such as proxy statements, annual reports and prospectuses as well as company websites

and press releases.

The variables are structured so that they can be analyzed through simple yes or ―no indicators

or in some cases, simply ―not disclosed. ISS assign weight to the variables under each category

according to their importance to governance. The variables under the board category make up

40% of the CGQ score, and the variables under the compensation, anti-takeover and audit

categories make up 30%, 20%, and 10% of the CGQ respectively. (Rose, 2007)

2.5.2 The Corporate Library (TCL)

The Corporate Library (TCL) was founded in 1999 by two well-known corporate governance

experts and shareholder advocates. TCL is an independent investment research firm providing

corporate governance data, analysis & risk assessment tools. TCL assess assesses the corporate

governance practices of companies on: board composition; CEO compensation; shareholder

responsiveness; accounting; strategic decision-making; litigation and regulatory problems;

takeover defenses and problem directors governance. (Rose, 2007)

2.5.3 Metrics International (GMI)

Metrics International (GMI) is an independent corporate governance rating agency which was

founded in 2000. The evaluation of governance practices is the only service that the company

provides. The result of the GMI analysis is a GMI rating report, which includes a summary of the

company‘s overall governance score, as well as a discussion and individual score for each of six

governance broad categories: board accountability, corporate social responsibility, executive

compensation, financial disclosure and internal controls, takeover controls and ownership base,

and shareholder rights. (Barrett, Todd & Schlaudecker, 2004)

GMI examines the care with which the board exercises its oversight duties with regard to:

executive compensation; remuneration committee; remuneration disclosure; CEO incentive pay;

senior management incentives; CEO remuneration disclosure; board remuneration; stock

ownership guidelines and director stock ownership. (Rose, 2007)



2.5.4 Rating of Board structure and accountability

Board structure refers mainly to the composition of the board of directors. Rating agencies

evaluate favorably firms with more independent board members than firms with less independent

board members. (Barrett, Todd & Schlaudecker, 2004)

ISS analyzes the compensation paid to outside directors and the existence of a pension program

for non employee directors. These are negatively rated on the CGQ while the CGQ is positively

impacted by stock ownership among directors and officers.

ISS also assesses various board practices when determining the CGQ. For example, the number

of directors serving on the board and changes in board size are considered; the number of boards

on which the CEO and other directors serve. Too many directors or directors who are serving on

too many other boards lower the CGQ score. (Rose, 2007)

In case former CEOs of the company are eligible to sit on the board, the CGQ score may be

lowered. Furthermore, director education programs positively impact the CGQ score. ISS has

developed a list of “accredited” director education programs that qualify positively on the CGQ.

When a director attends a qualified program, each board on which he or she serves benefits on its

governance rating. (Barrett, Todd & Schlaudecker, 2004)

In addition to the above, they also consider the followings:

(a) Board is controlled by a majority of over 90% independent outsiders;

(b) Board has only one non-independent director;

(c) Directors are subject to stock ownership requirements;

(d) Awards points to companies that perform periodic performance reviews of individual

directors



TCL assesses various features of board composition as an indicator of the overall board

effectiveness. TCL does not specifically advocate for establishing term limits, but recognizes that

the best boards exhibit a good balance between long- and short-tenured directors. It does not

recommend specific mandatory retirement ages; rather, it notes that boards where a

proportionally large number of directors are over 70 are statistically more likely to encounter

governance-related difficulties. (Wright 2004)

TCL applies their own “stringent standards” when assessing director independence .In the case

of former executive officers being on the board, they review the specifics i.e. how high-ranking

was the executive and what were his/her specific responsibilities, both at a board and officer

level. According to TCL, the presence of a director who sits on more than four public boards

will result in a lower board composition rating of those companies. (Rose, 2007)

GMI conducts a thorough evaluation of board accountability. Specific categories include: Board

leadership; Board composition; Board elections; Pursuit of shareholder value; Review of

corporate strategy; CEO evaluation; Succession planning; Governance committee; Corporate

governance policies; Board evaluations; Board meetings; Board procedures; Code of ethics and

Scrutiny of related-party transactions. (Barret, Todd and Schlaudecken, 2004)

In addition , it takes the following factors in rating the corporate governance practices: the

committee of the board evaluate the performance of the board on a regular basis; each board

committee undertake an evaluation of its own performance on a regular basis; board members

undertake self-evaluations or evaluations of other board members on a regular basis; training

required for new board members; a limit to the total number of years an individual is able to

serve as a board member, or a limit to the number of times a director is allowed to be re-elected

to the board; directors who served on the board for fifteen years or more and a policy concerning

directors whose principal occupation has changed. (Barret, Todd and Schlaudecken 2004)

GMI, however, says that director independence is sometimes a judgment call that requires

careful scrutiny. GMI looks for non obvious circumstances that cast doubt on a director’s

independence. They assess intellectual independence and in their views sometimes a board

member with a superficial conflict is the most effective. (Rose, 2007)



There is a general feeling that independent board members may be more critical towards ethical

and fraud issues than dependent members. However, Bhagat and Jefferis (2002) have raised the

question as to whether more independent board members would improve firm performance.

They also questioned the assumption that a firm which discloses information about its corporate

governance or codes of conduct and ethics does not necessarily mean they will put them in

practices.

McConnell and Serves (1990) found evidence that even an outsider-dominated board is

generally an ineffective monitor when a majority of the independent directors on the board hold

three or more directorships.

Bhagat and Jefferis (2002) also acknowledge that the number of meetings and attendance are

important, but what are more important is that the content of the discussion and the items on the

agenda that are the real indicators of good corporate governance. Such information is not usually

accessible to raters and as such, their assessments are prone to validity and reliability defects.

Brown and Caylor (2004) demonstrate in their empirical study that good corporate governance,

as measured by executive and director compensation is highly associated with good

performance.

Bhojraj and Sengupta (2003) find that firms with a higher percentage of outside directors on

the board and with greater institutional ownership enjoy lower bond yields and higher ratings on

their new debt issue. They also posit that firms with a greater proportion of outside directors on

the board provide better monitoring of management actions.

Jensen (1993) argues that boards with greater ownership in the firm are more likely to do a

better job of monitoring management and fulfilling their fiduciary responsibilities. Consistent

with this conjecture, Yermack (2003) finds that director stock and option awards are positively

related to firms’ investment opportunities and subsequent firm performance. He also shows that

tying directors’ pay more closely to stock performance through the use of options and other

equity awards generally leads to increased performance.



2.5. 5 Rating of Audit Committee

Yakhou and Dorweiler, (2005) find that all the rating agencies give high score when there is an

audit committee that has independent directors with final expertise. There is also a number of

studies with respect to audit committee composition. They all have argued that it is not director

independence but rather the presence of independent directors with appropriate financial

accounting expertise that improves firm value.

DeFond, Hann and Hu (2004) say that "the market reacts positively to the appointment of

financial experts to a firm's audit committee, but only when the director has accounting-related

expertise and only when the appointing firm has relatively strong corporate governance.

Agrawal and Chadha (2003) provide corroborating evidence and find that companies whose

boards or audit committees have an independent director with a background in accounting or

finance face a lower probability of earnings restatements. .

2.5.6 Rating of CEO

TCL statistical studies suggest that most active CEOs should not sit on more than one additional

board, and should never serve on compensation committees. According to TCL, CEO

compensation is “one of the best available indicators of a board’s ability to oversee management

authority. Broadly speaking, compensation policies and practices that reward management with

little regard for shareholder interests indicate a weak, ineffective board. (Rose, 2007)

Policies that tie both short and long-term management compensation closely to shareholder

returns, suggest a strong, effective board. TCL has established several “red flags” which have a

negative effect on the CEO compensation rating. These include: a CEO base salary of over

$1M; a CEO bonus greater than twice the annual salary; a declining number of CEO shares held;

excessive CEO stock options holdings and high tax or leisure expense payments. (Rose, 2007)

2.5.7 Rating of Chairman

TCL suggests that long-standing CEOs must leave the board completely upon retirement. When

they do stay on the board, particularly in the role of Chairman, former CEOs have an unfortunate



tendency to second-guess their successors, making it difficult for the new CEO to develop a

positive working relationship with the board. (Barret, Todd and Schlaudecken, 2004)

Corporate governance industry firms have encouraged the separation of the CEO and chairman

roles. While separating the roles, it does not guarantee avoiding poor governance. In fact at

Enron and WorldCom, the CEO and the Chairman had separated these roles, yet this did not

prevent or stop fraudulent practices in those companies. Up to date, no study clearly indicates a

correlation between firm performance and the duality of the CEO and the chairman positions

(Rose, 2007)

Imhoff (2003) argues that board governance is severely compromised when the current or

former CEO of the company also serves as chairman of the board. This is because the board

chairman frequently sets the board’s agenda and therefore, controls issues brought before the

board. Moreover, CEOs that serve as board chairman frequently have significant influence on the

slate of candidates for board seats, thereby increasing the risk that new board appointees who

will not be independent of management even though they are outsiders.

2.5.8 Rating of Committees

Committee structure is considered by all the agencies with a focus as to whether the key

committees of Audit, Compensation, Nominating and Governance are in place. ISS give a lower

rating where the compensation committee interlocks with other. (Wright 2004)

Klein (1998) finds no association between the level of independence on audit, compensation and

nominating committees and firm performance. Interestingly, she does find a significant positive

association between the percentage of inside directors on finance and investment committees and

accounting and stock market performance measures. One explanation is that inside board

members bring specialized institutional and industry-specific knowledge that helps these

committees select long-term investment and financing strategies that enhance firm value.



2.6 Shortcomings of corporate governance index and rating

Agrawal and Knoeber (1996) stated that corporate governance index cannot be dealt with in an

abstract model as it is a product of hierarchal, cultural, and political systems. Any model of a

governance index entails the four basic ingredients namely: accountability, independence,

transparency, and integrity. It is evident that these components are interdependent and cannot be

isolated or separated.

Ziebart and Reiter (1992) concluded that governance indices are highly imperfect

and that investors and policymakers should exercise utmost caution in attempting to draw

inferences regarding a firm's quality or future stock market performance from its ranking on any

particular governance measure. Therefore, there is no consistent relation between the academic

and related commercial governance indices and corporate performance. In short, there is no one

"best" measure of corporate governance. The most effective governance practice depends on a

particular context and on firms' specific circumstances. It would thus be difficult for an index, or

any one variable, to capture critical nuances necessary for making informed regulatory,

investing, or proxy voting decisions.

2.7 A Comparative Analysis of Corporate Governance in the private and the Public Sector

According to the Guidance Notes for State-Owned Enterprises, (2006), State-owned

enterprises play an important part in the Mauritian economy and are present in a number of

sectors including transport, infrastructure, energy, water supply and trade. The rationale for state

ownership of commercial enterprises is the belief that it is essential to provide important public

services that would otherwise not be met from a purely financial or economic standpoint, as well

as the belief in some quarters that they help to reduce inequalities and promote a fairer society.

Therefore, given the scale of these enterprises and their overall impact on economic

performance, the application of good governance practices stands high on the agenda.

In attempting to take some of the lessons from the private sector to the public sector on the

relationship between governance practices and performance, Vagliasindi, (2008) states that one

has to exercise caution because of the distinctive nature of the public sector for example:



multiple objectives, minister as shareholder, ministerial appointment processes, different types of

accountability and a more complex legal framework.

Kiare, (2007) shows the differences between the private and public sectors and that there are

some core corporate governance principles that are applicable to both. These include:

accountability, transparency, integrity and leadership, a focus on performance as well as

conformance and recognition of shareholders / stakeholders’ rights.

2.8 Conclusion

From the above literature review, it can be noted that the debates on corporate governance is still

an evolving issue and that research is being carried out on the various facets of corporate

governance. The next chapter deals with the research methodology that has been used to conduct

this research.



CHAPTER 3

3.0 RESEARCH METHODOLOGY

3.1 Introduction

The previous chapter was concerned with a review of the current literature on good corporate

governance. This exercise helps in identifying the dimensions/constructs/variables that have

been used in conducting this study. This chapter also explains in details the methodology used in

gathering the necessary information to conduct the research study. It highlights the sources of

data, the survey design, and the data analysis method employed. The steps which are necessary

to conduct a research have also been highlighted

3.2 Purpose of the Research

The present study is being carried out to appraise and evaluate the practice of good governance

in parastatal bodies in Mauritius. This is being carried out by rating the parastatal bodies on a

corporate governance index. The latter have been framed using the practices that have been

suggested in Code of Good Corporate Governance.

3.3 Scope of the Research

According to the definition , SOEs include parastatal bodies and state owned companies . This

research has been carried in parastatal bodies which are operating 4 different sectors in

Mauritius. As such, state owned companies operating under the Companies Act do not form part

of the study.

3.4 Research Philosophy

The research philosophy is considered to be critical to any empirical research because the

research philosophy dictates the type or research method and strategy to be adopted. Saunders



Lewis and Thornhill (2007) argue that positivism and interpretivism are the two dominant

research philosophies in business management. They argue that interpretivism is about the way

people make sense of the world whereas the positivism is in the form of a universal law. For this

study, an interpretivism philosophy has been adopted because it is considered to be the most

appropriate one to answer the research questions of the study as it involves the interpretation of a

situation.

3.5 The Research Process

Research is a systematic and a replicable process which identifies, defines and explains a

situation or an event within specified boundaries. It employs a well designed method to collect

the data and analyses the results. It disseminates the findings so as to contribute to general

knowledge. Research process refers to the steps that have used to conduct the study for meeting

the research objectives. A schematic framework of the research process is given below:



A schematic representation of the research process is illustrated below:

Figure 1: Framework of Research Process

3.6 Research Approach

The research approach influences the design and gives the researcher the opportunity to consider

how each of the various approaches may contribute to, or limit his study (Creswell, 2003). The

research approach refers to the deductive/inductive and qualitative/quantitative approaches.

3.6.1 The Deductive versus the Inductive Approach

Marcoulides (1998) defines the deductive approach as the testing of theories. The researcher

begins with a set of theories in mind and form various hypotheses for the basis for his/her

research and draw conclusion from testing those hypotheses. The inductive approach, on the ther

hand, forms concepts and theories on the basis of collected empirical data (Marcoulides, 1998).

MBA - Finance & Investment

Design of Research Methodology

19


This study follows the deductive approach for two reasons. In the first place, it is beyond the

expertise and the academic knowledge of the researcher to propose a theory and then test it

through observation. In the second place, the deductive approach appears more appropriate for

the purpose of this study as it appraises and evaluates the practice of good governance in

parastatal bodies in Mauritius.

3.7 Population

The target population chosen for this study is parastatal bodies operating in the following sectors:

education, social services, public utilities and economic development in Mauritius. It excludes

state owned companies operating under the Companies Act.

3.8 Sampling Methods

The primary objective of the sample is to obtain accurate and reliable information about the

population with a minimum of cost, time and effort.

3.9 Sample

The population consists of 58 parastatal bodies. For this study, a quota sampling aimed at 75% of

the population in each the sector were targeted. A high percentage was chosen as there is usually

a very low response from public sector bodies .As such, the chosen sample size is 43 parastatal

bodies. This is shown in the table below:

Table 1: Sample

Category Size Number of

questionnaire

Percentage

Education 12 10 75%

Social 17 13 75%

Public utilities and public infrastructure

7 6 75%

Economic development 22 17 75%

TOTAL 58 43 75%



3.10 Response Rate

The response rate for this survey is given below:

Table 2: Response rate

Category Sample Size Number of Responses Response Rate

(%)

Education 10 9 90

Social 13 8 62

Public utilities and Public infrastructure

6 2 33

Economic development 17 14 82

TOTAL 43 33 72

Initially, there was a very slow response from the targeted organizations .Subsequently, the snow

ball effect has been used to gather the information once a few set of questionnaires were received

From the data in the above table, the response rate is 72 %. This is considered to be good as the

literature review point out that the response rate in such type of survey usually turns out to be

around 30 %. However, 2 questionnaires were discarded for lack of completeness.

3.11 Data Collection

According to many authors, the value of a research is related to its data collection methods and

importantly, whether or not it includes both secondary and primary data. As Creswell (2003)

stated secondary data, which is an unobtrusive data collection method, depends on the location of

reliable published academic studies and theories. Out of this consideration, this study has only

used data which was obtained from articles published in Emerald and from the Annual Report of

parastatal bodies which are available from the National Library. In most cases the latest available

Annual Report was used.

Primary data are new data specifically collected in a research where the researcher is the primary

user. For this study primary data was collected through the design and administration of



questionnaires. According to Creswell (2003) questionnaires allow a researcher to collect a large

volume of information within a limited budget and in a short period of time.

3 .12 Design of the instrument

A questionnaire is an instrument that is used to collect data on a research topics. It is an

intermediate product that provides the link between the constructs and variables. Thus, this link

helps to meet the research objectives and the collection of data from respondents in a particular

study.

This questionnaire has been designed around the research objectives. It contains 5 sections that

cover the requirements of the Code of Good Corporate Governance namely:

Section 1: Corporate Governance Principles

Section 2: The role and function of the Board of Directors

Section 3: The Constitution of the Board Members

Section 4: The Board

Section 5: Organization Profile

3.13 Scale and Point Rating System

The questionnaire consists of a set of questions to gauge the degree of compliance of the

respective organization with the Code of Good Corporate Governance. In this respect, a point

rating system has been used to conduct this exercise. This is explained below:

A fully compliant organization has been allotted 5 points;

A partial compliant organization has been allotted 3 point;s

A low compliant organization has been allotted 1 point.

The ratings have been designed by the researcher to discriminate between high and low

conforming organization. As stated by Rose (2007), the indices and ratings used by corporate

governance rating agencies are proprietary asset and these are not disclosed to the public at large.

The model used for this dissertation could have been further refined by allocating weight to the



importance of an issue in the practice of good corporate governance but this would made the

model to become complex. In fact Rose (2004) uses the ISS model in his rating methodology.

In this respect the maximum and minimum points have been worked for each section of the

Code. These are ultimately based on the number of question which has been set out for a

particular section of the Code. A section of the Code of 5 questions has been addressed to the

respondents which result in a maximum of 25 points and a minimum 5 points. In practice, the

score that can be achieved by organization lies on a spectrum between the maximum and the

minimum points.

3.14 Pilot study

A pilot survey was carried out with 5 respondents to assess the comprehensiveness and clarity of

the questionnaire. Initially, some of the respondents found that the questionnaire to contain a few

technical terms and these has been rephrased using a much more simple language. However,

there are a few terms for which a much more simple meaning could not be found.

3.15 Administration of survey instruments

The method used for the collection of data was through online, postal and personal delivery.

This distribution method was tailored made according to the accessibility of the respondents.

For such type of study, the task is mainly facilitated by the snow ball effect i.e. using references

and networking.

3.16 Reliability and Validity

In general, reliability refers to consistency of measurement whereas validity refers to the extent

to which an instrument measures what it is intended to measure. These factors have been duly

considered in the design of the survey instrument as well as in the determination of the sample

size.



3.17 Analysis Techniques

Data collected has been coded using Microsoft and the Statistical Packages for Social Science

(SPSS 11.0 software). Both descriptive statistics (mean, median and standard deviation) and

inferential statistics (Kruskall Wallis test) have been used to analyze the data and information.

The data have also been presented using charts and diagrams as far as it has been possible.

In addition, various hypotheses have been tested using non-parametric testing such as Kruskall

Wallis. The reason for using non-parametric test is due to the limited number of respondents

(N=31) and the data fail to pass the test of normality.

3.18 Ethical Consideration

Ethics is an important element in a research. Any shortcoming may result in invalid and bias

conclusion on the topic of the survey. As such, the followings principle has been observed:

a) All participants were briefed on the purpose of the research though a covering letter and

as such they has the choice to participate in this study or leave the study

b) Participants were informed that the information provided will be treated in strict

confidentiality and anonymity will be maintained both during and after the survey;

c) Finally no potential harm has been identified from the participants.

3.19 Conclusion

This chapter has given a detailed description of the methodology used for this research. The next

chapter will present the findings of the analysis including the inferences and observations made

there-from.



CHAPTER 4

4.0 Introduction

The previous chapter has discussed the methodology that has been used to conduct the

study .This chapter analyses the data obtained from the survey.

4.1 Position of Respondents

The position of the respondents filling the questionnaire is summarized in the table below:

Table 3: Position of Respondents

Officers Frequency Percent Cumulative Percent

Others 5 16.1 16.1

Secretary 17 54.8 71.0

CEO 9 29.0 100.0

Total 31 100.0

Most of the questionnaires have been filled by the secretaries. In 9 cases, they have been filled

by the CEO and in the other cases; they have been filled by various levels of officers.

4.2 Category of Organization

As already mentioned, responses have been received from 31 respondents organisations. These

have been categorized into 4 sectors. This is shown in the table:



Table 4: Category of Organization

Sector Frequency Percent Cumulative Percent

Education 9 29.0 29.0

Social Services 8 25.8 54.8

Public utilities 2 6.5 61.3

Economic development

12 38.7 100.0

Total 31 100.0 -

Most of the respondent organisations (N=12) fall under economic development and this is

followed by the education sector (N=9). 8 organisations provide social services and 2

organisations are in the public utilities sector.

4.3 Size of Organizations

The size of the organisations as measured by its workforce is given in the table:

Table 5: Size of Organizations

No. of employees No. of organisations

Less than 50 11

Between 51 and 100 4

Between 101 and 200 10

201 and above 6

TOTAL 31



From the above table, the size of the parastatal bodies vary from small (less than 50 employees)

to big organisations (more than 200 employees). 11 organisations have a work force that is less

than 50 employees and 6 organisations have a workforce which is above 200 employees. The

latter are public utilities organisations. 4 organisations have a workforce in the range of 51 to 100

employees and 10 organisations have a work force that lie in the range of 101 to 200 employees.

4.4 Transparency and Accountability

4.4.1 Audit Report

As part of the survey, the latest audit reports of the respondents’ organisations have been

examined and the audit report has been categorized under three categories (a) Qualified (b)

Qualified with reservation and (c) Unqualified audit report. This is shown in the table below

Table 6: Audit Report

Audit Report Frequency Percent Cumulative Percent

Qualified 2 6.5 6.5

Qualified with reservation 12 38.7 45.2

Unqualified audit report 17 54.8 100.0

Total 31 100.0

It is noted that the financial statements of 2 organisations have been qualified while the auditor

has made some reservations in respect of 12 organisations. 17 organisations have an unqualified

audit report.

4.4.2 Final Account

Information was gathered from the auditors report to identify organisations which are not

meeting their regulatory obligation. It must be pointed out that under the Finance and Audit Act,

a parastatal body has to submit its account to its parent ministry 6 months after the closing of the

financial year and the account has to be tabled in the National Assembly within a further 6

months. The table below shows the level of compliance by the 31 organisations under this study:

Table: 7 (a): Final Account



Level of Compliance Frequency Percent Cumulative Percent

Non Compliance organisation 8 25.8 25.8

Fully compliant organisations 23 74.2 100.0

Total 31 100.0

It is noted that 8 organisations (i.e. 25 %) are not complying with their statutory obligations. In

fact, this is a matter which has become a regular feature in the Director of Audit Report although

it can be said that this situation has been improving over the last past 10 years.

A Chi test has been carried to test as to whether there is some association between the

qualification raised in the audit report and the delays in the submission of the final statements

Ho: There is no association between the qualification raised in the audit report and the delays in

the submission of the final statements.

H1: There is an association between the qualification raised in the audit report and the delays in

the submission of the final statements.

The result is shown below:

Table 7 (b): Chi Test – Final Account

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 10.851 2 .004

From the analysis, the p value is lower than 0.05. As such, there is sufficient evidence to reject

the null hypothesis. The late submission of account does in fact reflect poor governance

practices in some organisations.

4.4.3 Publication of Annual Report

A further analysis shows that there are some organisations which incur some delays in the

publications of their Annual Reports although they have already submitted their financial

statements as per their respective Acts. The information is tabulated below:



Table 8: Publication of Annual Report

Account submitted on time

Annual report published on time

No Yes Total

No 8 - 8

Yes 5 17 22

Total 13 17 30

From the table, it is noted that there are a few organisations (N=5) which have submitted their

accounts as prescribed in their Act but still, they have not published their Account Report on

time. This reflects in a way an internal management problem in those organisations.

4.5 Investigation by ICAC

As part of the survey, respondent organisations were required to state whether their organisations

are subject to some investigation by ICAC. Unfortunately, 15 organisations fail to respond. 5

organisations are under investigation and 11 organisations are not subject to any inquiry. The

information is tabulated below:

Table 9: Investigation by ICAC

Organisations Frequency Percent Cumulative Percent

No answer 15 48.4 48.4

Under investigation 5 16.1 64.5

No investigation 11 35.5 100.0



Total 31 100.0

4.6 Corporate Objectives Statement (COS)

According to the Guidance Notes for State Owned Enterprises, good corporate governance must

be integrated with the organisation’s business strategy and not viewed as simply a compliance

obligation. Within the corporate governance structure, every SOE must prepare a Corporate

Objectives Statement( COS). The COS must be agreed by the Board as well as by the parent

ministry.

4.6.1 Corporate Governance Index

On the basis of the requirement of the Code, a corporate governance index has been worked. It

covers the publication and the implementation of Corporate Objectives Statement. The points

allotted have been grouped in three categories (1) full compliance (2) partial compliance and (3)

non compliance. These are given at Appendix B. Using the criteria, an organization can score a

maximum of 15 points and a minimum point of 3 points

4.6.2 General Findings: Corporate Objectives Statement

The table below set out the situation with respect to the preparation and implementation of the

Corporate Objective Statement.

Table 10(a): Corporate Objectives Statement (COS)

COS Frequency Percent Cumulative Percent

Not yet prepared 6 19.4 19.4

Under preparation 11 35.5 35.5

Has published 14 45.2 45.2

Total 31 100.0 100.0



From the above table, it is noted that most of the organisations (N=14) has already prepared their

Corporate Objective Statement and 11 organisations are in the process of preparing this

document. 6 organisations have not yet started the process of preparing this document.

On the basis of the above information, a cross tabulation has been carried between the COS and

its comprehensiveness. This is given in the table below:

Table 10 (b): Cross Tabulation-The comprehensiveness of Corporate Objectives Statement

Organizations Not Comprehensive

Partially Comprehensive

Fully Comprehensive

Total

Not published 6 - - 6

Under preparation 11 - - 11

Has published 1 13 14

Total 17 1 13 31

Out of the 13 organisations that have published their COS, 12 organisations have stressed that

their COS is comprehensive whilst only one organisation considers that the COS is

comprehensive but it has to be further refined. The Pearson Chi-Square provides the following

data: the degree of freedom is 4 and the p value is 0.000. These are shown in the table below:

Table 10 (c): Chi Test

Value Df Asymp. Sig. (2-sided) Pearson Chi-Square

31.000 4 .000

N of Valid Cases 31

The statistics shows that there is an association between the publication of the COS and its

comprehensiveness.

A further cross tabulation has been carried out between the COS and the degree that it is being

used to monitor performance. This is given in the table below:



Table 11: Cross Tabulation- Monitoring Performance and Corporate Objectives statement

COS Not used to monitor

performance

Partially used to monitor

performance

Fully used to monitor

performance

Total

Not published 6 - - 6

Under preparation 11 - - 11

Has published 7 7 14

Total 17 7 7 31

It is noted that 7 out of the 14 organisations that have published their COS are using them to

monitor performance and the remaining 7 organisations are partially using the COS to monitor

their performance. The Pearson Chi-Square provides the following data: the degree of freedom is

4 and the p value is 0.000. These are shown in the table;

Table 12: Chi Test

Value df Asymp. Sig. (2-sided)

Pearson Chi-Square 31.000 4 .000

N of Valid Cases 31

The statistics show that there is an association between the publication of the COS and its use in

monitoring the performance of the organization

4.6.3 Corporate Governance Rating – Corporate Objectives Statement



Using the aggregate points score achieved on the 3 above statements, a corporate governance

index has been prepared and this is given below:

Table 13: Corporate Governance Index- Corporate Objectives Statement

Aggregate point

Score

Number of

organisations

Rating Percentage

3to5 6Very poor

19

6 to 11 11Poor

36

12 to 13 7Inadequate

22

14to15 7Fair

22

From the above information, it is noted that 6 organisations are not have not prepared their COS

while 7 organisations are effectively using the COS. As for the other 18 organisations , it is

found out that either their COS are not comprehensive or it is not being used to monitor

performance .Overall it can be concluded that most of the organisations are not effectively

complying with the requirements of the Code in term of the preparation and the publication of a

statement of corporate objectives. However, Bhagat and Jefferis (2002) questioned the

assumption that a firm which disclose information does not necessarily mean it will put them

into practice.

The above information is depicted in the histogram below:



Figure 2: Corporate Governance Index – COS

The statistics for above data are as follows: The mean is 8.2258 and the median are 5.0000.

4.6.4 – Corporate Objectives Statement Sector Analysis

The analysis has been further elaborated by matching the aggregate scores with the sector that

the parastatal bodies are operating. The relevant information is given in the table below:

Table 14: Sector based Aggregate Score

Aggregate point score

Education Social Public utilities

Economic development

TOTAL

3 to 5 0 7 1 9 17

6 to 11 1 0 0 0 1

12 to 13 3 1 0 2 6

14 to155 0 1 1 7

TOTAL 9 8 2 12 31

Mean 13.8889 5.0000 10.0000 6.8333 8.6129



Median 15.0000 4.0000 10.0000 5.0000 5.0000

Range

On the basis of the above statistics, it can be concluded that organisation operating in the social

services and the economic sectors are not effectively complying with the provision of Guidance

Notes for State Owned Enterprises. In fact their mean are 5.0000 and 6.8333 respectively. These

are comparatively below the overall mean which is 8.2258. .The above information is illustrated

in the figure below:

Figure 3: Box Plot Diagram – Corporate Objectives Statement

4.7 Structure of the Board

4.7.1 Requirement of the Code –Board

As for the structure of the board, GNSOE recommends that “the concept of “unitary board”

should apply to state-owned enterprises, and that these boards should lead and control these

organisations keeping in mind that:-

The population and its clients/users are the stakeholders, and



Government, as the representative of the population, is the shareholder

The Code states that the “The board should have the appropriate balance of executive, non-

executive and independent directors. In this respect, Guidance Notes for State Owned

Enterprises recommended the nomination of two Executives on the board.”

4.7.2 Corporate Governance Index-Board

The corporate governance index has been worked out on the basis of 15 questions. These are

given at Appendix C. Using the criteria, an organisation can score a maximum of 75 points

and a minimum point of 15 points. The findings from the survey are tabulated below:

4.7.3 Corporate Governance Findings –Board

Table 15: Structure of the Board

Board in the organisationNo/Not

applicableTo some Extent

Yes

The composition of the Board is specified in the relevant Act - - 31

The composition of the present Board is in line with the Act - 8 23

Board members are rotated regularly1 25 5

The CEO is a board member22 - 9

There is a representative of the concerned sector on the Board 12 - 19

There is a representative of employees/union on the Board 19 - 12

There is a policy for conducting an induction course for members 24 - 7

There is a policy to avoid conflict of interest between a director and the organization

26 - 5



The policy of conducting an induction course is being implemented 24 6 1

The policy of avoiding conflict of interest between a director and the organisation is being implemented

26 1 4

The organisation has a code of ethics for its directors

30- 1

From the above table the following pertinent points have been noted:

There is only one organisation that has developed a code of ethics for its directors.

There is no formal policy in 26 organisations for avoiding conflict of interest between a

director and the organisation. 4 out of 5 organisations which have a policy for avoiding

conflict of interest between a director and the organisation is fully implementing the

policy. It should be pointed out that Code recommend that, on appointment and on a

continuous basis, all directors should, in good faith, disclose any business or other

interest that is likely to create a potential conflict of interest.

There is no formal policy in for conducting an induction course for members in 24

organisations. Only one of the 7 organisations that have a formal policy for conducting

an induction course for members is effectively implementing this policy. In fact, Barret,

Todd and Schlaudecken (2004) pointed out GMI highly discount organization that do

not have a training programme for its directors.

The composition of the Board has been specified in the relevant Acts for all the

organisations. However, the present composition of the Board is not in line with the

relevant Acts in 8 organisations. From information obtained, this is mainly due to the

non replacement of directors when the former incumbent retires from the Board.

The CEO is a member of the Board in only 19 organisations. As already pointed the

Code (2006) recommend the appointment of 2 executive directors



There is no representative of the concerned sector on the Board in 12 organisations. It

has also been noted that for those organisations which has a representative of the

concerned sector, this has been specified in the relevant Act.

There is a representative of employees/union on the Board of 12 organisations only.

From the statistics, there is little rotation of Board Members in parastatal bodies. In fact

the Guidance Note on Corporate Governance draws attention to this phenomenon. There

are only 10 organisations that this policy is being fully practiced.

Most of the Acts made provisions for the concerned Minister to appoint and nominate

members on the Board. In this respect, respondents’ organisations were required to state

percentage of the board members which are nominated by the Minister. The result from the

survey is given in the table below:

Table 16: Nomination by Ministers

Members Frequency Percent Cumulative PercentUp to 10 % 18 58.1 58.1

Up to 20 % 5 16.1 74.2

Above 30 % 8 25.8 100.0

Total 31 100.0

From the table above, it is noted that there is only 8 organisations where the Act provides for the

nomination of more than 30 % of the Board Members by the concerned Minister. From a deeper

analysis made, most of these organisations fall either in the social services or the agricultural

sector. As such, there are not enough independent members in most of the Board. The Code

provide for the nomination of more independent board members on the assumption that they may

be more critical towards ethical and fraud issues than dependent members. However, Bhagat

and Jefferis (2002) have raised the question as to whether more independent board members

would improve firm performance.

Most of the Acts make provisions for the representative of the Ministries to act as directors on

the Boards of a parastatal body that is under the jurisdiction of the Ministry. In this respect,



respondents’ organisations are required to state percentage of their members which are

representative of Ministries. The information is summarized in the table below:

Table 17: Representative of Ministries

Members Frequency Percent Cumulative Percent

Up to 10 % 11 35.5 35.5

Up to 20 % 18 58.1 93.5

Above 30 % 2 6.5 100.0

Total 31 100.0

From the table above, it can be noted that in 18 of the organisations, representatives of the

different ministries account for representatives up to 20 % of the Board members, in 2

organisations they account for 30% and in 11 organisations they account for up to 10%. Further

investigation has revealed that representatives from Ministries occupy administrative position

(Permanent Secretaries, Permanent Assistant Secretaries and Assistant Secretaries) and they may

not have the technical knowledge to participate on matters dealing with scientific/educational

and other such issues. The same civil servants are sitting on many boards thus diluting their

capacity to participate fully in boards’ deliberations and at times this may lead to some cases

where it can result in a conflict of interest situation.

It is noted from the data that there is a representative of the Ministry of Finance on all the

organisations under this study. These representatives are mostly economists and accountants.

4.7.4 Corporate Governance Rating –Board

On the basis of the above statements, the aggregate score for the 31 organisations have been

worked out and these are given in the table below:

Table 18: Board Corporate Index

Point Score Number of organisations

Rating Percentage



Between 13 and 34 7 Very poor 22

Between 35 and 38 8 Poor 26

Between 39 and 42 7 Inadequate 23

Between 43 and 60 9 Fair 29

Total 31

The above information is illustrated in a histogram below:

Figure 4: Board Corporate Index

The statistics for above data are as follows :The mean is 38.3226 and the median are 38.0000

The 1st quartiles is 34.0000, the 2nd quartile is 38.0000 and the 3rd quartile is 42.000.

There are only 9 organisations (29%) which are effectively managed within the parameters

established by the Code but some effort is required to be become fully compliant with the Code.

Overall, there is a low compliance with the Code. There are 7 organisations (22%) have been

very poorly rated and they require a fundamental change in their governance practices. 15

organisations (50%) are either poor or inadequate and they require a major shift in their

corporate governance practices.

4.7. 5 The Board – Sector Analysis





Table 19: The Board – Sector Analysis

Aggregate

Points

Education Social Public

utilities

Economic

Development

0 < 34 1 3 1 7

35 < 38 2 2 1 3

39 < 42 2 2 0 1

42 < 60 4 1 0 1

Total 9 8 2 12

Mean 44.8889 35.5000 36.0000 35.6667

Median 40.0000 36.0000 36.0000 34.0000

On the basis of the above statistics, it can be concluded that organisation operating in the social

services, the public utilities and economic development sectors are not effectively complying

with the provision of Guidance Notes for State Owned Enterprises. In fact their mean are

35.5000, 36.0000 and 34.0000 respectively. These are comparatively below the overall mean

which is 38.3226. The same observations are made with respect to their median.

As for the parastatal bodies in the education sector, the mean stands at 44.8889 which are well

above the average for parastatal bodies in Mauritius. This finding is confirmed through a box

plot diagram.



Figure 5: Box Plot Diagram –The Board .

4.8 The Chairperson

4.8.1 Requirement of the Code –The Chairman

The Guidance Notes for State-Owned Enterprises (GNSOE) identifies the function of

Chairpersons as “The Chairperson of the board of a state-owned enterprise is appointed in terms

of the provisions of the Act setting up the enterprise. It is the duty of the Chairperson to provide

overall leadership to the board, to assist the board in the selection of directors, to ensure that

strategies for monitoring and evaluating the effectiveness of the board and the management are

in place, and to bring out the best in each director. The Chairperson should bring independence

of mind and intellectual honesty in the discharge of his functions.”

4.8.2 The Corporate Governance Index – The Chairperson

The corporate index for the chairman has been worked out on 7 statements in Appendix D. Using

the rating system, the maximum point is 35 whilst the minimum point is 7. The data obtained

from the survey is tabulated below.



Table 20: General Findings - The Chairman

Chairman No To some Extent

Yes

The chairperson is an independent person 0 0 31

The term of office of the chairperson has been specified

4 0 27

The chairperson office has expired 27 0 4

There is a policy for chairperson to evaluate board members

29 0 2

There is too much interference of the chairman in day to day matters

19 5 7

There is an effective communication between the CEO and the chairman

9 0 22

The chairperson chair subcommittees 22 5 4

From the data obtained, the following pertinent points are noted:

There are only 2 organisations which have established a policy to evaluate board members.

Barret, Todd and Schlaudecken (2004) pointed out that GMI give a high rating to this factor in

their assessment and rating of an organization.

From the data obtained, the following pertinent points are noted:

1) There are only 2 organisations which have established a policy to evaluate board

members

2) It is noted that there is a communication problem between the CEO and the chairperson

in 9 organisations

3) The chairperson does not interfere in the day to day management in 19 organisations.

There is too much interference in 7 of these organisations and there is some interference

in 5 organisations.



4) The term of office of the chairperson is not specified in 27 organisations.

5) The term of office of the chairperson has expired in 4 organisations.

6) On the positive side, all organisations have stated that they have an independent

chairperson.

7) In 4 organisations, the chairperson also chair subcommittees

The governance index for the 31 organisations is given below:

Table 21: Corporate Governance Rating – Chairman

Point Frequency Rating Percentage

7 to 23 5 Very poor 16

23to 27 6 Poor 19

27.to 31 9 Inadequate 29

31 to 35 11 Fair 35

Total 31

The statistics for above data are as follows: The points that have been achieved by the

organisations are in the range of 11 to 35. The mean is 26.5484 and the median are 27.0000.

The 1st quartiles is 23 .0000, the 2nd quartile is 27 .0000 and the 3rd quartile is 31 .000.

There are only 11 organisations (29%) which are effectively managed within the parameters

established by the Code but some effort is required from them to become fully compliant with

the Code. Overall, there is a low compliance with the Code. There are 5 organisations (16%)

have been very poorly rated and as such they require a fundamental change in their governance

practices. 15 organisations (48 %) are either poor or inadequate and these require a major shift

in their corporate governance practices.

From the statistics it has been noted that only one organisation has achieved the maximum score

of 35 and there is one organisation which has a score of 11.

The above information is illustrated in the chart below:



Figure 6: Corporate Governance- The Chairman


the parastatal bodies are operating . The relevant information is given in the table below:

Table 22: Chairman –A Sector Analysis

Aggregate

Points

Education Social

7 to 23 0 3

24to 27 2 2

28.to 31 2 1

32 to 35 5 2

TOTAL 9 8

Mean 28.7778 23.0000

Median 31.0000 23.0000

From the above data, it can be concluded that that the chairman in the parastatal bodies operating

in the social services has received a lower rating as compared in to organisations operating in the

other 3 sectors. This information is illustrated in a box plot diagram below:



Figure 7: Box Plot: Chairman –A Sector Analysis

4.9 The Chief Executive Officer

4.9.1 Requirement of the Code – The Chief Executive Officer

The Board of Directors delegates the authority and responsibility for managing the business of

the organisation in such a manner which is consistent both with the standards of the organisation,

and in accordance with any specific plans, instructions or directions of the Board to the CEO.

4.9.2 The Corporate Governance Index – The Chief Executive Officer

In this respect, respondent organisations were required to give their views on 2 statements as per

Appendix E On the basis of the points allowed, the maximum score amount to 10 while the

minimum score amount to 2.

4.9.3 General Findings: The Chief Executive Officer

The information obtained from the survey is tabulated hereunder:



Table 23: The Chief Executive Officer

CEO

There is a specified scheme of service for the CEO

There a full disclosure of the salary and other benefits allowed to the CEO

From the above table, it is noted that all the organisations have a formal scheme of service which

serve as the basis for the recruitment of the CEO. However, it is found out that in 8

organisations, there is not a full disclosure of the salary and other benefits allowed to the CEO.

According to Rose (2004), TCL give a very low rating to an organisation that does not disclose

the benefits and compensation to its CEO.

The governance rating relating to the CEO is summarized in the table below:

4.9.4 Corporate Governance Rating – The Chief Executive Officer

The governance index relating to the CEO is summarized in the table below:

Table 24: Corporate Governance Index - the Chief Executive Officer

Governance Index Frequency

8.00 8

10.00 23

Total 31

From the above, it is noted 75 % of the organisations have achieved the full score i.e. 10 points.

The above information is illustrated in the chart given below:



Figure 8: Corporate Governance Rating - The Chief Executive Officer The statistics are as follows: the Mean is 9.4839 and the median is 10.

4.9.5 The Chief Executive Officer – Sector Analysis

A sector- wise analysis has shown that most of the CEOs in the social services and the economic

development are recruited as per the scheme of service and there is full disclosure of their salary

and other benefits. It is only that some CEOs in the education and the public utilities that

additional benefits have been allowed to the CEO. This information is illustrated by a box plot.



Figure 9: Box Plot Diagram –The Chief Executive Officer

From the above data, it is noted that most CEO in the social services and the economics

developments are recruited strictly as per the scheme and there is a full disclosure of the benefits

that are allowed to them.

4.10 The Secretary

4.10.1 Requirement of the Code – The Secretary

The Corporate Secretary in today's world is a senior corporate officer with wide-ranging

responsibilities, who serves as a focal point for communication with the board of directors,

senior management and the organisation’s stakeholders, and who occupies a key role in the

administration of critical corporate matters. The secretary must guide the board collectively, and



each director individually and make them aware of all relevant legislation, regulations, listing

rule obligations and corporate governance requirements.

4.10.2 The Corporate Governance Index - The Secretary

The corporate index for the Secretary has been worked on the basis of 4 statements as per

Appendix F. Under the scaling system, the maximum point is 20 and the minimum points are 4.

4.10.3 General Findings: The Secretary

From the data obtained, only 12 out of the 31 organisations have an official position of Secretary

in their organisation structure/ chart. This is given in the table below:

Table 25: Official Position of Secretary

Answers Frequency Percent

No 19

Yes 12

Total 31

With regard to the function of the Secretary, the table below highlight the category of staffs that

perform this function.

Table 26: Job Title and Official Position of Secretary

Is the position of Secretary is an official post in the organisation?

Who perform the function of the Secretary?

A confidential Secretary

No

Yes

Total

From the above table, it is noted that all the officially nominated secretaries (N=12) perform this

function. However, for the other 19 organisations, this function is being shouldered by staffs in

the administrative cadre in 13 organisations and by confidential secretaries in 6 organisations.



Staffs in the administrative cadre are either administrative managers or administrative officers. In

the universities, this function is being carried out by the Registrar. In one particular organisation,

this function is even carried out by the deputy director.

As for the organisations where the confidential secretaries are acting as the Secretary , they are

usually small organisations and as per say, it will not be cost effective to have a full time

secretary from an economic perspective although from a governance perspective , this must be

considered as a serious shortcoming.

With respect to the qualification held by the secretaries of the respondent organisations, a cross

tabulation has been carried out with their official positions. This is given in the table below:

Table 27: Qualification of Secretaries

Who perform the function ofSecretary?

Do not hold a degree

A confidential Secretary

An administrative staff

The Secretary

Total

On the basis of the above information, it is noted that:

One of the confidential secretaries is a degree holder;

No administrative staff holds a professional qualification such as ACIS, ACCA or an

LLB;

Out of the 12 official nominated secretaries, only 7 hold professional qualifications such

as ACIS, ACCA or an LLB.

Finally, respondents’ organisations were required to state the extent and level that the people

performing the function of secretaries have been formally trained on the Code.

Table 28: Training of Secretaries



The Secretary have received formal training on the Code

Who perform the function of the Secretary?A confidential Secretary

Not at all

To some extent

Fully trained

Total

From the above table, it is noted in 11 out of the 31 organisations, no secretaries has been

formally trained on the Code. 16 secretaries have received some training and only 4 out of the 8

officially nominated secretaries have been fully trained .The latter have followed training at the

Institute of Directors.

During the study, it has been reported that the duties of the secretary are being normally

restricted to the taking of notes of meetings during board and its sub committees meetings and to

convening board meetings. Within such a restricted perspective, many SOEs have failed to meet

their regulatory obligations and some secretaries are not in a position to advise the Board on

statutory and regulatory requirements as well as on the Codes because they have not been

provided with adequate training.

4.10.4 Corporate Governance Rating – The Secretary

The aggregate point score with respect to the position of Secretary is given below:

Table 29: Corporate Governance Index – Secretaries

Score Frequency Rating Percentage Between 1 and 8 6 Very poor 19

Between 8 and 10 5 Poor 16

Between 10 and 16 8 Inadequate 26

Between 16 and 20 12 Adequate 39

Total 31 100.0



The point score that have been achieved by the organisations are in the range of 4 to 20. The

mean is 11.6129 and the median is 10. The 1st quartile is 8.0000, the 2nd quartile is 10.0000

and the 3rd quartile is 16.000.

On the basis of the above statistic, the function of the secretary is very poor in 6 organizations.

In 13 organizations, the function of the Secretary has been classified as either poor or inadequate.

However, there are 12 organizations (39%) where this function has been considered to be

adequate out of which 4 are fully compliant with the Code. However, some effort is required to

make them fully compliant in particular through upgrading the position and competence of the

Secretary. The above information is depicted in the histogram below:

Figure 20: Corporate Governance Rating – Secretaries





Table 30: The Secretary – Sector Analysis

Aggregate Points Education Social

Between 1 and 8 0

Between 9 and 10 1

Between 11and 16 4

Between 18 and 20 4

Total 9

Mean 13.1111 8.2500

Median 10.0000 6.0000

From the above, the function of the Secretary in public utilities organisation are very effective

(M=18.0000) as compared to those social services sector (M=8.2500).

From the available information, it has been found out that parastatal bodies in the social sector

are generally small and they have a very lean structure. The mean point score is 18 for public

utilities organisation as compared to social services sector where it is 8.250. In addition, the

point score for the organisations in the education sector and the economic development sector is

considered to be inadequate as the mean point ratings are 13.1111 and 11.6667 respectively.

However, these are well above the average for parastatal bodies which is 11.6129.

The above information is presented in a box plot chart.



Figure 31: Box Plot Diagram –The Secretary

4.11 Sub Committees

4.11.1 Requirement of the Code – Sub Committees

The Code of Good Corporate Governance has specifically recommended 4 subcommittees as

part of the good governance process: The Code, however, recommends that as a minimum a

company/ SOE should have as a minimum an Audit Committee and a Corporate Governance

Committee.

Committee structure is considered by all the rating agencies with a focus as to whether the key

committees of Audit, Compensation, Nominating and Governance are in place. ISS give a lower

rating where the compensation committee interlocks with other committees . (Wright 2004)



4.12. The Audit Committee

4.12 The Audit Committee

4.12.1 Requirement of the Code – The Audit Committee

The Audit committee assists the board in overseeing the management of the organisation’s

businesses particularly with respect to financial matters (internal and external audit, financial

statement and compliance with laws and Standard).

According to the code, the Audit committee should exclusively comprise non-executive directors

who should have some degree and level of financial awareness. Moreover, the chairperson

should have substantial accounting or financial experience.

4.12.2 The Corporate Governance Index – The Audit Committee

In this respect, respondents’ organisations were required to answer 4 questions are at Appendix

G. On the basis of the point allocation system , the maximum and minimum points will amount

to 20 and 4.

4.12.3 General Findings: The Audit Committee

The number of organisations which have instituted an Audit Committee is shown in the table

below:

Table 31: Audit Committees

Audit Committee Frequency

No

Yes

Total

From the above table, it is noted that 19 out of the 31 organisations (i.e. 61 %) have already

established an Audit Committee.

Moreover, in none of the organisation that has established an Audit Committee, the chairperson

of the Committee is the Chairman or CEO. This information is given in the table below:



Table 32: Meetings of Audit Committees

There is an Audit Committee

The chairperson of the Committee is neither the Chairman nor the CEO Total

No Yes

No 12 0 12

Yes 0 19 19

Total 12 19 31

With regard to the regularity of the meeting, it is not consistent across the 19 organisations. This

information is tabulated below:

Table 33: Chairperson of Audit Committees

Meetings Frequency

Not Applicable

Rare

To some extent

Fully effective

Total

On the basis of the above, it can be noted that there are 5 organisations where the Audit

Committee meet very rarely, in five organisations they meet occasionally while in 9

organisations the Audit Committee is fully operational.

In most of the parastatal bodies, there is usually a representative of the Ministry of Finance .In

this respect; it is a usual practice for the representative of the Ministry of Finance to chair the

Finance Committee. However, at times, he is also required to chair the Audit Committee. This

may give rise to conflict as the Code required that the members must be a non executive director.

In order to meet the requirement of the Code, in some organisation, one board member who has a

sound knowledge of finance chairs the Committee while some organisations have co-opted

financial experts in the Audit Committee and the latter have been devolved the function of the

Chairperson. It should be pointed out that DeFond, Hann and Hu (2004) posit that "the market



reacts positively to the appointment of financial experts to a firm's audit committee, but only

when the director has accounting-related expertise and only when the appointing firm has a

relatively strong corporate governance

From the survey, the current position as regard the need for the chairperson to have substantial

accounting or financial experience is given in the table below:

Table 34: Financial Expertise –Audit Committees

Financial Experience Frequency

No

A financial expert has been co-opted in the CommitteeYes

Total

It is noted that out of the 19 organisations, 3 organisations have co-opted a financial expert to

chair the Committee. In general, all the 16 organisations are fully compliant with the requirement

of the Code.

4.12.4. Corporate Governance Rating – Audit Committees

The corporate governance index with respect to the position of Audit Committee is given below:

Table 35: Corporate Governance Index Audit Committees

Overall point score Frequency

0to 4

4to 16

16to 18

18 to 20

Total

The mean of the above distribution is 12.2581 and the median is 16.000. The fist quartile is 4, the

second quartile is 16 and the third quartile is 18.



From the above information, 9 organisations are fully compliant. 12 organisations are not

compliant with the Code. As for the other 10 organisations, they have been rated as either poor

the score falls in the range of 4 to 18. This is mainly due to the irregularity of the meeting of the

Audit Committee. The above information is presented in the histogram below:

Figure 42: Corporate Governance Rating Audit Committees

4.12.5 Audit Committees – Sector Analysis

A sector analysis has been carried out in respect of the 31 organisations in the survey. The details

are given in the table below:

Table 36: Audit Committees - Sector Analysis

Aggregate Points Education

0to 4 1

5 to 16 1

17 to 18 2

19 to 20 5

Total 9

Mean 16.7778

Median 18.0000



From the above data, it is noted that there is a very effective Audit Committee in parastatal

bodies operating in the public utilities sector. These parastatal bodies are very capital intensive

and employed a considerable amount of workforce. This is followed by the Education Sector.

However, it is noted that the concept of Audit Committee has not been fully operational in the

social services sector. However, there is some effort on the part of organisations operating the

economic development sector.

4.13 The Board Risk Committee

4.13.1 Requirement of the Code – The Board Risk Committee

According to the Code, the need to set up a Risk Committee would depend on the nature and

complexity of the organisation. In relatively small organisations, it is acceptable for risk

committee to be undertaken by the full board.

4.13.2 The Corporate Governance Index – The Board Risk Committee Corporate

Governance Index

The index has been worked and this is given at Appendix H. On the basis of the point allocation

method, the maximum point is 10 points and the minimum point is 2.

4.13.3 Corporate Governance Rating – The Board Risk Committee

The ratings of the Board Risk Committee are tabulated below:

Table 37: Corporate Governance Index: The Board Risk Committee

Risk Committee Frequency

2.00

6.00

8.00

10.00

Total



From the above table, there are only 6 organizations which are fully compliant with the Code. 8

organisations have been rated as very poor, 14 organisations have been rated as poor and 3

organisations have been rated as inadequate. The relevant statistic is as follows: The mean is

5.9355and the median is 6.0000. The findings from the study are illustrated below:

Figure 53: Corporate Governance Rating: The Board Risk Committee

4.13.4 – The Board Risk Committee- Sector Analysis

A sector analysis has been carried out in respect of the 31 organisations in the survey. The

details are given in the table below:

Table 38: The Board Risk Committee- Sector Analysis

Aggregate Points

Education

2.00 06.00 68.00 110.00 2

TOTAL 9Mean 7.1111

Median 6.0000



From the above information, the risk is an element that is adequately addressed in parastatal

bodies operating the public utilities sector (M=9.0000) This is followed by that organization

operating in the education sector (M=7.1111) However risk is an element that is poorly

considered in organization operating in the economic development sector (M=5.8333) and the

situation is worse for those operating in the social services sector (4.0000). The above

information is illustrated below:

Figure 64: Box Plot Diagram the Board Risk Committee

4.14 Internal Audit

4.14 .1 Requirement of the Code – Internal Audit

According to the Code, internal audit is an objective assurance function reporting to the board of

directors and management. It provides assurance as to the adequacy and effectiveness of the risk

management and internal control framework in an organisation. The Board of directors is

responsible for determining the need for an internal audit, where it is established, the structure,

scope, work plan and reporting line function.



The internal audit must possess appropriate skill and sufficient resources for the discharge of its

duties. It is not a requirement for the internal audit function to report to the Audit Committee but

the Board may delegate the responsibility for managing the internal audit function and for

receiving internal audit report to an Audit Committee.

4.14.2 Corporate Governance Index – Internal Audit

In this respect, respondents’ organisations were required to answer 3 questions and this is given

at Appendix I. Using the point rating system, the maximum point is 15 and the minimum point is

3

4.14.3 General Findings: Internal Audit

The information obtained from the survey shows that there is an internal audit function in 21

organisations, 2 organisations have contracted this service to private accounting firms and 8

organisations do not have an internal audit function. This is depicted in the table below:

Table 39: Reporting line of the Internal Audit Function

The internal audit report to the Audit Committee

There is an internal audit function in the organisation

There is no internal Audit Function in the organisationThere is an internal audit function in the organisationThe organization contract this service

Total

As already mentioned, the Code requires that an internal audit function should be headed by a

competent person. The data obtained from the survey is tabulated below:



Table 40: Competence - Internal Audit Function


The internal audit is headed by a competent person

Not applicable

There is no internal Audit Function in the organisation

8


0

The organization contract this service

0

Total

8

From the table, it can be noted that in most organisations (N=8), the internal function is headed

by a qualified person, it is headed by a partly qualified accountant in 7 organisations and by a

non qualified accountant in 6 organisation. All firms (N=2) which undertake auditing services

are professional organisations.

4.14.4 The Corporate Governance Index

The corporate governance index with respect to the position of internal audit function is given below:

Table 41: Corporate Governance Index: Internal Audit Function

Frequency Rating Percent 1 to 3 8 Very poor 25

4 to 7 6 Poor 20 8 to 9 6 Inadequate 2010 to15 11 Adequate 35Total 31 100

The data are in the range of 1 to 15. Both the mean and the median are 9.0000

From the above data, it can be noted that there is no internal audit function in 8 of the 31

organisations. 11 organisations are adequately compliant with the code i.e. they have an internal



audit function which is headed by a qualified person and the audit function report to an Audit

Committee.

As for the remaining 12 organisations they have been rated to be either poor or inadequate.

These organisations have to either amend the reporting line or they have to increase the

competence of their internal auditors.

The above information is further illustrated by a histogram

Figure 75: Corporate Governance Rating: Internal Audit Function

4.14.5 Internal Audit Function- Sector Analysis





Table 42: Internal Audit -Aggregate Points

Aggregate Points Education

1 to 3 0

4 to 7 5

8 to 9 4

10 to15 0

Total 9

Mean 11.6667

Median 9.0000

From the above statistics, there are two sectors (i.e. Education and Public Utilities) that the

internal audit fairly complies with the Code. This is substantiated by the mean point score of

11.6667 and 13.0000.

The statistic shows that there is a need to further improve and reinforce the audit function in

parastatal operating in the social services sector and the economic development sector. The

above data is further illustrated by a box plot diagram:



Figure 16: Box Plot Diagram –The Internal Audit

4.15 Corporate Social Responsibility

4.15.1 Requirement of the Code – Corporate Social Responsibility

CSR represents "the integrity with which a organisation governs itself, fulfils its mission, lives by

its values, engages with its stakeholders, measures its impact and reports on its activities". While

corporations must have good CSR policies in order to maintain their reputation, they are also

expected to maximize benefits for stakeholders.

The code does not make specific reference to corporate social responsibility although the code

however places emphasis on the following:

Organisations should develop and implement safety, health and environment policies and

practices to comply with existing legislative and regulatory frameworks.



Organisations should be actively involved in managing their activities so as to minimise

any negative impact on the environment. Best practices should be adopted to protect

environmental assets.

Organisations need to play an important role in sustaining social harmony, especially

through their employment policies and their ownership structure.

4.15.2 The Corporate Governance Index – Corporate Social Responsibility

The corporate governance index for CSR has been worked out for CSR on two statements as per

Appendix J. The maximum and minimum points are respectively 2 and 10 points.

Findings - The result with respect to CSR is summarized in the table below:

Table 43: Corporate Social Responsibility

CSR

The organisation is involved in CSR activitiesThere is a formal policy with respect to environmental and social issues

On the basis of the above figures, it can be safely concluded that CSR is not a concept that is

being fully practiced by parastatal bodies in Mauritius. The Corporate Rating with respect to

CSR is given below:

Table 44: Corporate Governance Index Corporate Social Responsibility

Corporate Index Frequency

2 to 4 18

5-6 5

7-8 6

9-10 2

Total 31



The mean score and the median score are respectively 3.5484 and 2.0000.On the basis of the

above table there are only 2 organisations which adequately comply with the requirement of the

Code. However, some 11 organisations have already taken some initiative in this direction. This

information is illustrated below:

Figure 17: Corporate Governance Rating –: Corporate Social Responsibility

A sectoral analysis has been carried out and the data is given below:

Table 45: Sectoral Analysis

Corporate Index Education

4 8

5-6 1

7-8 0

9-10 0

Total 9

Mean 2.2222

Median 2.0000

From the above table, it is noted that the mean score for the Social services and the Public

Utilities are respectively 4.5000 and 5.0000. These are much higher than the average for the

parastatal bodies. It can be concluded that parastatal bodies in the two sectors are the pioneer in



the promotion of CSR in public sector organizations. The data also shows that CSR has also

been adopted by a few organizations in the economic development sector .The Education Sector

appears not be involved in CSR activities. The above data is illustrated in a box plot chart below:

Figure 18: Box Plot Diagram – Corporate Social Responsibility

4.16 Corporate Governance Practices in SOEs

This section summarises the findings from the corporate governance practices on the 8

requirements of the Code. A composite index has been worked using the following ratings:

Very Poor - 1 Poor - 2 Inadequate - 3 Adequate - 4

Using this criterion, the composite index for an organisation that operates according to the Code

is 124 on the basis that all the 31 organisations score a maximum of four points. The result of the

analysis is given below:



Table 46: Overall Rating of Corporate Governance practices in SOEs

Corporate Objectives Statement

Very Poor

Poor Inadequate

The Board 7 8The Chairman 5 6The CEO 0 0The Secretary 6 5Internal Audit 8 6Audit Committee

12 6

Risk Committee

8 14

CSR 18 5

On the basis of the above table, the function of the CEO, the Chairman and the Secretary are

relatively low when compared with the Code but they are relatively higher when compared to the

other requirements.

The Internal Audit occupies the fourth rank and this is an area that needs to be further improved

in term of its importance, its reporting line and the competence of its personnel. With respect to

the Board, the data shows that parastatal bodies are not adequately complying with the

requirement of the Code with respect to transparency, accountability, competence, ethics,

conflict of interest, a wider participation of stakeholder etc. This is alarming in view that this

element is the driving force for all the other components.

There are two elements that appear to be an introductory phase i.e. Risk Committee and Audit

Committee although this has been recommended by the Code since 8 years back. The analysis

shows that CSR has been ranked last as it is an activity that is not carried out by most parastatal

bodies.



In addition to the above, the performances of parastatal bodies operating in the 4 difference

sectors have been ranked using the mean score achieved on the 8 component of the Code. This is

given in the table below:

Table 47: Sector Analysis Corporate Governance practices in SOEs


1st Position 2nd Position 3rd Position 4th Position

The Board Education Public utilities Economic development

Social Services

The Chairman Education Public utilities Economic development

Social Services

The CEO Economic development

Social Services Education Public utilities

The Secretary Public utilities Economic development

Education Social Services

Internal Audit Public utilities Education Economic development

Social Services

CSR Public utilities Social Services Economic development

Education

Audit Committee

Public utilities Education Economic development

Social

Risk Committee

Public utilities Education Economic development

Social

On the basis of the above, it is noted that parastatal bodies operating in the public utilities

practice relatively good governance in the following areas: Secretary, Internal Audit and CSR.

On the other hand, parastatal organizations operating in the social services are lacking in the

following areas: The Board, The Chairman, the Secretary, Internal Audit, Audit Committee and

Risk Committee. As for the Education sector, good corporate governance is practice with respect

to the Board and the Chairman. There are mixed result as regard organization operating in the

Economic Development sector.

Finally, a statistical tests at the 5 % significance level (p<0.05) have been conducted to identify

as to whether there is a difference in corporate governance practices between organisations

operating in the four sectors. The result is tabulated below:



Table 48: Corporate Governance practices in SOEs


The Board The Chairman

The CEO

The Secretary

Internal Audit

Audit Committee

Risk Committee

CSR

S=Significant (p<0.05) NS =Not Significant (p>0.05)

On the basis of the above information, it is found out that there is no statistically significant

difference (p>0.05) between the parastatal bodies with respect to : the Chairman, the CEO, the

Board, CSR and the Secretary but there is a statistically significant difference(p < 0.05) with

respect to Corporate Objectives Statement, Internal Audit, Audit Committee and Risk

Committee.

4.16.1 Corporate Governance – Size of Organisation (number of employees)

The aggregate point score has been used to perform a correlation analysis between good

corporate governance practices and the size of the organisation. The data is given below:

Table 49: Correlation: Corporate Governance– Size of Organisation (no. of employees)

Size (employees)Correlation 1.000

Sig. (2-tailed)

From the above table it is noted that the correlation coefficient is 0.072. This indicates that the

size of an organisation is not a determinant with respect to the practice of good governance



4.16.2 Accountability

For this study, the preparation of the final account is being taken as a surrogate measure of

accountability. In this respect a correlation analysis has been carried out between the overall

corporate governance index and the timely preparation of the account.

The result obtained is given in the table below:

Table 50: Correlation -Corporate Governance – Accountability

BOARD

Correlation 1.000

Sig. (2-tailed) -

From the above table it is noted that there is a positive correlation coefficient of 0.276. This

indicate that the practice of good governance improve the accountability of organisations to its

stakeholders.

4.16.3 Transparency

For this study, the timely preparation of the Annual Report is being taken as a surrogate measure

of transparency. In this respect a correlation analysis has been carried out between the aggregate

point score and the timely preparation of the annual report. The result obtained is given in the

table below:

Table 51: Correlation -Corporate Governance – Transparency

BOARD

Correlation 1.000

Sig. (2-tailed) -

From the above table it is noted that there is a positive correlation coefficient of 0.109.

Therefore it can be concluded that good corporate governance practices improve the

transparency of parastatal bodies.



4.17 Conclusion

This chapter has presented the analysis of the information obtained from the survey. Overall,

there are many parastatal bodies which are not adequately being operated as per the requirements

of the Code. The findings are in line with the alarm which has been raised by the World Bank. It

should be recalled that the latter has been pressing Government for the privatization of some

parastatal bodies. The next chapter concludes the study and makes recommendations.



CHAPTER 5

5.0 Conclusions and Recommendations

5.1 Introduction

This chapter presents the findings from the literature review and the survey. It also concludes the

study and makes recommendations to improve corporate governance practices in Mauritius.

5.2 Conclusion

This dissertation deals with the practice of corporate governance in parastatal bodies in

Mauritius. Many studies have been carried out on corporate governance in public sector

organizations in Mauritius but very few have been published. Those that are available are in the

form of dissertations that are available at the universities in Mauritius. This comparative study,

although not being first of its kind, uses a governance index to discriminate and to report on good

governance practices in parastatal bodies which are operating in the various sectors in Mauritius.

Although corporate governance index have been institutionalized in other countries and the

services are provided by well renowned rating agencies, this still remain to be done in Mauritius.

The Institute of Directors and the Mauritius Employer Federation have not yet nurtured this idea.

However, it is understandable that many private companies operate in a cloak of secrecy and

they are not keen that their corporate governance practices become public knowledge. As for the

public sector, this is an area that should be considered by policy makers and the Government.

However, care has to be exercised in the formulation of a corporate governance rating system as

it may also be a cause of dysfunctional behaviour Agrawal and Knoeber (1996) have shown

that there is a strong interrelation among different variables in a corporate governance index and

he recommended that it is risky to use a simple index.



Larcker (2004) find that corporate governance ratings have weak explanatory power for

explaining future management decisions or firm valuation. As such some authors have

recommended that these should be used with caution due to the dynamic of the various

endogenous and exogenous variables affecting a firm.

The study has clearly demonstrated that organisations practicing good corporate governance are

highly perceived in terms of accountability, independence, transparency, and integrity. In fact

this is a circular situation as the latter are an integral part of good corporate governance practices

i.e. they affect and are affected by good corporate governance practices.

The Code of Good Governance was published in 2004 and a guidance note was issued to address

the specificities of SOEs in Mauritius. The Code was given a legal backing through the Financial

Reporting Act 2004 and the Finance and Audit Act 2009. However the study shows that most

parastatal bodies are not effectively meeting the requirements of the Code, not to say the Act.

There is a lack a lack of transparency and accountability in the management of parastatal bodies

This is reflected through the non publication of the Corporate Objectives Statement, many boards

are dominated mostly by public officials who consider themselves as a representative of their

Ministries rather than “directors”, not enough representation of Civil Society on the Board and

lack of representation of employees in the decision making process of their organizations. Many

organizations are not preparing their accounts and submitting their Annual Report on time. All

these factors have resulted toward a lack of transparency and accountability. Ultimately,

parastatal bodies are not fulfilling their mission and meeting their obligations toward the

nation/state.

Upon the analysis of the corporate governance factors recommended in the Code, it has been

found out that most parastatal bodies are not involved in CSR activities, some have not yet

established an Audit Committee, enough consideration is not being given to risk management

and the internal audit function is weak in term of its personnel and its reporting line. As for the

Board, various shortcomings have been identified in term of competence of the members, lack of

transparency, poor accountability, poor ethics and conflict of interest.



On a sector wise basis, the study shows the level of poor governance is more acute with

organization operating in the social services sector. They appear to be weak in the following

areas :The Board, The Chairman, the Secretary and Internal Audit, Audit Committee and Risk

Committee. These organizations are characterized by their small size, a lack of professional staff

etc. However, the level of governance is much higher in public utilities organizations which are

characterized by its importance in the economy, its high level of investment and the

professionalism of its personnel. They are relatively stronger in the following areas: Secretary,

Internal Audit, Audit Committee, Risk Committee and CSR.

As for the Education sector, good corporate governance is practice with respect to the Board and

the Chairman. This is followed by organizations operating in the economic development sectors

whereby mixed results have been obtained.

However, the study has demonstrated that good governance promotes greater accountability and

transparency in parastatal bodies.

5.3 Recommendations

In order to improve the governance practices in parastatal bodies, the following

recommendations are being made.

5.3.1 Implementation of the Code

All parastatal bodies should implement the Code but in practice some of them are faced with

some inherent constraints such as funding and access to technical know-how. As such

Government must commission a study on the state of governance in each of the parastatal body

and this must be followed by an Action Plan. The Action Plan must contain the resources and the

technical support that are required in each of the organisation. The implementation of the Plan

must be jointly monitored by the Prime Minister Office and the Minister of Finance.



5.3.2 Performance Evaluation

Performance evaluations of the board as a whole and the individual directors including the

Chairman must be carried out on an annual basis in each organisation. This must be reported to

the concerned Minister. In view its complexity and in order to ensure consistency between

organisation, Government must publish the criteria that have to be used for performance

evaluation.

5.3.3 Training of Board members

Induction or training courses must be introduced for newly appointed directors and continuous

training should be given to existing directors. There is an urgent need to develop detailed

guidelines and provide training to directors on Internal Control and Risk Management.

5.3.4 Training of Secretaries

The Secretary must be provided with relevant training so as to ensure that the latter can properly

discharge his duties as required by the Code.

5.3.5 CSR activities

At present there is not a clear cut policy on CSR activities and these are being done on an ad hoc

basis .Government must have a clear-cut policy in respect of CSR activities in parastatal bodies.

5.3.6 Benchmarking

Parastatal bodies must be encouraged to benchmark their governance practices with other

organisations. This recommendation is mostly applicable to those operating in the social services

sector.

5.3.7 Code of Conduct

The report shows that many organisations do not have a code of conduct for its directors. It is

recommended that Government issue the appropriate guidelines for a code of conduct for



directors. In this respect, the seven general principles of conduct that that should underpin

public life and which have been recommended by Mitchell, Agle and Wood,(1997) could be

used The seven general principles are selflessness, integrity, objectivity, accountability,

openness, honesty and leadership.

5.3.8 CEO Remuneration

The study shows that rating organisations in the USA give a high score when there is a full and

fair disclosure of the benefits and compensation given to CEOs. However, this is not a

requirement in Mauritius. In this respect, the Code could be amended to make provision for this

element.

5.4 Limitation of the Study

The approach adopted for the study is a quantitative one. As such most of the information has

been collected through self administered questionnaires. In addition the answers were restricted

in most of the cases to either a binary or trinary response. It is likely that a better understanding

could have been obtained of the current situation had interviews been carried out among the

respondents. However, this was not possible due to time and limited resources.

5.5 Topic for further Research

In view of the limitations of the present study, it is recommended that a similar study be carried

out using a qualitative approach. As already pointed out the study focus only on conformance

Future research could be carried out to establish the linkage between conformance and

performance , a subject which has been highly debated in the literature review.

5.6 Conclusion

Corporate governance remains a complex and a dynamic issue as it influences and is being

influenced by changes in the cultural, political, technological, and market. Good Governance is



about the business integrity, wealth creation and reputation enhancement. Good Governance is

the fundamental foundations on which effective and successful organisations are built and

managed and it is an important element in the nation building process.


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Corporate Governance in parastatal bodies in Mauritius Appendix A

Appendix A

SURVEY QUESTIONNAIRE

Sir/Madam,

I am a student at University of Technology (UTM) enrolled for the MBA Finance Course. As a pre-requisite of the MBA Finance MBA Finance, I am presently working on a dissertation on ‘The Practice of Corporate Governance in the Parastatal Bodies in Mauritius.’ As part of the study, I need to gather some information through this survey and would be most grateful if you could spare some of your time in filling this questionnaire. Without your valuable support, this project cannot be completed.

In this context, a survey is being conducted among officers of specified categories through the attached questionnaire with a view to identifying the strength, weaknesses and what are the impacts of governance practices in your organization.

Please be assured that all the information gathered through the questionnaire would be strictly confidential and used solely for the research purposes. No individual answers will be analyzed. Rather, only composite information will be used.

This is an important study; your cooperation in providing the information is vital and represents a major contribution to my research. I am grateful to you for agreeing to spare a few minutes of your valuable time to complete the questionnaire. If you have any difficulty please do not hesitate to call me on the number below or contact me by mail.

Thanking you wholeheartedly for your support and fruitful cooperation.

Yours faithfully,

MBA - Finance & Investment

V. Mathoorah (Mrs.)

Contact No: Office 2122056 Mobile 9139826E- Mail Address: [email protected]

i


Please tick ( ) or cross (X) the appropriate box to signify your answer)

Section 1: Corporate Governance Principles (To assess the level of corporate governance in

your organization)

Does your organization publish a statement of corporate objectives? If yes, please answer

questions 2 and 3.

Not Published Under Preparation Has Published

2. Is the statement of corporate objectives used to monitor performance?

No At Times Fully Used

3. Is the statement of corporate objectives comprehensive?

No To some extent Yes

Section2 : The role and function of the Board of Directors

4. Is the composition of the Board specified in the relevant Act?

Yes No

5. Is the composition of the Board in line with the Act?

Not at all To some extent Fully compliant

MBA - Finance & Investment ii


6. Using a cross (X), please tell us how is your board composed of?

Percentage (%) <10 10and 20 >30

i) Board members which are nominated by the Minister

ii) The Board are representatives of Ministries

7. What is the composition of the Board?

Executive directors only Non-Executive directors only

Mixture of (i) and (ii) If other, (Please specify): ……………………

Section 3: The Constitution of the Board Members

8. How does the board operate?

No To some extent

Yes

Is the CEO a board member?

Do the board members rotate regularly?

Is there a policy for conducting an induction course for new members?

10. Is there a representative of your sector on the Board?

None Only 1 >1

11. Is there any representative of employees/union on the Board?

Yes No

MBA - Finance & Investment iii


12. Is there a policy to avoid conflict of interest between the director and the organization? If

yes answer the next question (Q 13).

Yes No

13. How far is the policy implemented?

Not at all To some extent Fully implemented

14. Does the organization have a code of ethics for its directors?

Yes No

15. Is there is a specific scheme of service for the CEO?

Yes No

16. Is the CEO appointed as per the scheme?

Yes To some extent No

Section 3 (a): The Chairman Effectiveness

17. What are the roles of the chairman?

Yes No Uncertain

The chairperson is an independent person

The term of office of the chairperson has been specified

MBA - Finance & Investment iv


The chairperson office has not expired

There is a policy for chairperson to evaluate board members

You consider that there is too much interference of the chairman in day to day matters

18. How would you rate the communication between the CEO and the chairman?

Not effective To some extent Highly effective

Section3 (b) The Secretary’s

19. Does the position of Secretary accounted as an official post in the organization?

Yes No

20. Who perform the function of the Secretary?

A confidential Secretary An administrative staff The secretary

21. Has the Secretary received formal training on the Code of corporate governance?

Not at all To some extent Fully trained

22. What are the qualifications of Secretary?

Not a degree holder A degree holder A professional (ACCA, ACIS)

23. Does the Board Committees held at regular interval?

Yes No

MBA - Finance & Investment v


Section 4 : Types of Committees (To review whether there are appropriate committees in your organization)

24. Do you have the following committees?

Yes No

Audit Committee

Remuneration Committee

Nomination Committee

Audit &Risk Committee

Corporate Governance Committee

25. State whether the following are observed for the above committees?

Yes No sometimes

Does the chairperson or the CEO chair these committees?

Do the meetings held at regular intervals?

Audit Committee

26. How effective and independent is your audit committee?

Yes No

Does the internal audit report to the Audit Committee?

Does it have someone with accounting/finance expertise?

Is it chaired by a genuine independent director?

MBA - Finance & Investment vi


Are there written rules governing overall audit function?Does it autonomously select/recommend the external auditor and conduct a

proper review of his work?

Does it approve the appointment of the internal auditor and supervise him to routinely review risk exposure and accounting procedures?

Risk and Audit Committee

27. Is there is an internal audit function in the organization?

No Audit is contract out Yes

28. Is the internal auditor a qualified person?

Not qualified Partly qualified Fully qualified

29. Please tell us how the organization agrees with each of the following.

Using a scale of 1 to 5 and please tick (( ) as appropriate where:

(1: Strongly Disagree 2: Disagree 3: Neutral 4: Agree 5: Strongly Agree)

1 2 3 4 5

Your organization has a Corporate Objectives Statement which contains the purpose of the organization, its objectives, its mission and vision statementAccording to you, the interests of all stakeholders are well

represented on the Board.

Section 5: General Information

30. In which sector does your organization operate?

……………………………………………………..

MBA - Finance & Investment vii


31. How many employees does your organization employ?

<50 51>200 >201

32. Management level of respondent:

Manager Secretary Chairman Senior Officer

33. Does your organization involved in CSR activities?

Not at all To some extent Fully

34. Do you have any policy with respect to environmental and social issues?

No To some extent Yes

END OF QUESTIONNAIRE

Thank you for your precious time and cooperation.

MBA - Finance & Investment viii

Corporate Governance in parastatal bodies in Mauritius Appendix B

Appendix B

Corporate Governance Index - Statement of Corporate objectives.

(a) The Organisation has published a statement of corporate objectives.

Point Rating: 1 - not published 3 - under preparation 5 - has already published

(b) The statement of corporate objectives is comprehensive.

Point Rating: 1 - No 3 - To some extent 5- Yes

(c) The statement of corporate objectives is used to monitor performance.

Point Rating: 1 - No 3 - To some extent 5- Yes

.

MBA - Finance & Investment ix

Corporate Governance in parastatal bodies in Mauritius Appendix C

Appendix C

The Board Index

The constituents of the Board index are follows

(a) Is the composition of the Board specified in the relevant Act?

Rating: 1: No 5: Yes

(b) Is the composition of the present Board in line with the Act?

Rating: 1: No 3: To some Extent 5: Yes

(c) What is the percentage of the Board members nominated by the Minister?

Rating: 1: <10%: 3: up to 20% 5 : >30 %

(d) Percentage of the Board that are representatives of Ministries

Rating: 1 :> 20% 3: >10% but <20%: 5: <10%:

(e) Is the CEO is a Board Member?


(f) Is there is a representative of that sector on the Board?


(g) Is a representative of employees/union on the Board?


(h) Do the board members rotate regularly?

Rating: 1: No 3: To some extent 5: Yes

(i) Is there is a policy for conducting an induction course for board members?

MBA - Finance & Investment x

Corporate Governance in parastatal bodies in Mauritius Appendix C


(j) Does the policy of conducting an induction course being implemented?


(k) There is a policy to avoid conflict of interest between a director and the organisation.


(l) Does the policy of avoiding conflict of interest between a director and the organisation implemented?


(m) Does the organisation have a code of ethics for its directors?


MBA - Finance & Investment xi

Corporate Governance in parastatal bodies in Mauritius Appendix D

. Appendix D

The constituents of the chairman index are follows

(a) The chairperson is an independent person.


(b) The term of office of the chairperson has been specified.


(c) The chairperson office has expired.

Rating: 1: Yes 5: No

(d) There is a policy for chairperson to evaluate board members.


(e) There is too much interference of the chairman in day to day matters.

Rating: 1: Yes 3: To some extent 5: No

(f) There is an effective communication between the CEO and the chairman.


(g) The chairman chairs some subcommittees.

Rating: 1: Yes 5: No

MBA - Finance & Investment xii

Corporate Governance in parastatal bodies in Mauritius Appendix E

. Appendix E

The constituents of the CEO index are follows

(a) Is there is a specified scheme of service for the CEO?


(b) Is there a full disclosure of the salary and other benefits allowed to the CEO?


MBA - Finance & Investment xiii

Corporate Governance in parastatal bodies in Mauritius Appendix F

. . Appendix F

The constituents of the Secretary index are follows

(a) Does the position of Secretary an official post in the organisation?

Rating: 5: Yes 4: To some extent 1: No

(b) Who perform the function of the Secretary?

Rating: 5: The Official Secretary: 3: An Administrative Staff 1: A Confidential Secretary

(c) Have the Secretary receive formal training on the Code?

Rating: 1: No 3: To some extent 5: Fully Trained

(d) What are the qualifications of Secretary?

Rating: 1: Do not hold a degree 3: Hold a degree 5: Professional Qualification (ACIS, ACCA, LLB)

MBA - Finance & Investment xiv

Corporate Governance in parastatal bodies in Mauritius Appendix G

. Appendix G

The constituents of the Audit Committee index are follows

(a) Is there an Audit Committee?


(b) The chairperson of the Committee is neither the Chairman nor the CEO


© The chairperson has substantial accounting or financial experience?

Rating: 1: No 3: cooption of a financial expert 5: Yes

(d) Are Meeting of the Audit Committee are held at planned interval?

Rating: 1: Rarely 3: Quite Often 5: Regular interval

MBA - Finance & Investment xv

Corporate Governance in parastatal bodies in Mauritius Appendix H

. Appendix H

The constituents of the Risk Committee index are follows

a) Is there a Risk Committee?

Rating: 1: No 3: It function under Audit Committee or the Board 5: Yes

(b) The chairperson of the Committee is neither the Chairman nor the CEO


MBA - Finance & Investment xvi

Corporate Governance in parastatal bodies in Mauritius Appendix I

Appendix I

The constituents of the internal audit function index are follows

(a) Is there is an internal audit function in the organisation?

Rating: 1: There is no internal audit function 3: The organisation has contracted out this function 5: There is an internal audit function

(b) Does the internal audit report to the Audit Committee?


© Is the internal audit headed by a competent and qualified person?

Rating: 1: Not qualified 3: Partly qualified 5: Qualified 0: Not applicable

MBA - Finance & Investment xvii

Corporate Governance in parastatal bodies in Mauritius Appendix J

Appendix J

The constituents of the CSR index are follows

(a) The organisation is involved in CSR activities

Rating: 1: Not at all 3: To some Extent 5: Fully

(b) There is a formal policy with respect to environmental and social issues

Rating: 1: Not at all 3: To some Extent 5: Fully

MBA - Finance & Investment xviii

Corporate Governance in parastatal bodies in Mauritius List of Tables

List of tables

MBA - Finance & Investment xix

Corporate Governance in parastatal bodies in Mauritius List of Figures

Table of Contents

List of Figures

Figure 1: Framework of Research Process....................................................................................19

Figure 2: Corporate Governance Index – COS..............................................................................34

Figure 3: Box Plot Diagram – Corporate Objectives Statement....................................................35

Figure 4: Board Corporate Index...................................................................................................40

Figure 5: Box Plot Diagram –The Board.......................................................................................42

Figure 6: Corporate Governance- The Chairman.........................................................................45

Figure 7: Box Plot: Chairman –A Sector Analysis........................................................................46

Figure 8: Corporate Governance Rating - The Chief Executive Officer.....................................48

Figure 9 Box Plot Diagram –The Chief Executive Officer..........................................................49

Figure 10: Corporate Governance Rating – Secretaries................................................................53

Figure 11: Box Plot Diagram –The Secretary...............................................................................55

Figure 12: Corporate Governance Rating Audit Committees.......................................................59

Figure 13: Corporate Governance Rating: The Board Risk Committee......................................61

Figure 14: Box Plot Diagram the Board Risk Committee............................................................62

Figure 15: Corporate Governance Rating: Internal Audit Function............................................65

Figure 16: Box Plot Diagram –The Internal Audit.......................................................................67

Figure 17: Corporate Governance Rating –: Corporate Social Responsibility............................69

Figure 18: Box Plot Diagram – Corporate Social Responsibility................................................70

MBA - Finance & Investment xx

Dcorporate Governance Ratings

Documents

box plot diagram

snow ball

chief executive

box plot chart

state trading

economic development

market reacts

corporate