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Transcript of 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
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Corporate Governance in parastatal bodies in Mauritius Chapter 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
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Corporate Governance in parastatal bodies in Mauritius Chapter 1
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.
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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?
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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-
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Corporate Governance in parastatal bodies in Mauritius Chapter 1
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.
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Corporate Governance in parastatal bodies in Mauritius Chapter 2
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.
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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
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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)
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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
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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)
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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.
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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
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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.
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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:
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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.
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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
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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:
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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).
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Design of Research Methodology
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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%
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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
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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
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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.
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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.
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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:
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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
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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
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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:
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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
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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
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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:
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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
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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:
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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
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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
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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
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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
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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,
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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
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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
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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 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.
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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.
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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.
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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:
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Figure 6: Corporate Governance- The Chairman
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 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:
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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:
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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:
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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.
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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
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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.
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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
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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
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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
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:
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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.
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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)
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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:
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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
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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.
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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
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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
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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
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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.
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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:
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Table 40: Competence - Internal Audit Function
There is an internal audit function in the organisation
The internal audit is headed by a competent person
Not applicable
There is no internal Audit Function in the organisation
8
There is an internal audit function in the organisation
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
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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
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:
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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:
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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.
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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
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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
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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:
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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.
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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
Corporate Objectives Statement
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:
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Table 48: Corporate Governance practices in SOEs
Corporate Objectives Statement
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
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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.
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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.
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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.
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Corporate Governance in parastatal bodies in Mauritius Chapter 5
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.
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Corporate Governance in parastatal bodies in Mauritius Chapter 5
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.
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Corporate Governance in parastatal bodies in Mauritius Chapter 5
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
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Corporate Governance in parastatal bodies in Mauritius Chapter 5
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
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Corporate Governance in parastatal bodies in Mauritius Chapter 5
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.
MBA - Finance & Investment 81
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Barret, Todd and Schlaudecken (2004) Corporate Governance Ratings CDF Corporate Governance Committee , Towers Perrin
Bhagat, S., Jefferis, R.H. (2002), The Econometrics of Corporate Governance Studies, MIT Press, Cambridge, .
Bhojraj, S. and P. Sengupta. 2003. “Effect of Corporate Governance on Bond Ratings and Yields:
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Brown, L.D., Caylor, M.L. (2004), “Corporate governance and firm performance”, working paper, Georgia State University, Atlanta, GA, .
Cadbury, Sir Adrian (1992), “Report of the Committee on the Financial Aspects of Corporate Governance”, Gee Publishing, London.
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Child and Y. Lu (eds) (1996) Management issues in China: International Enterprises, London
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Creswell, J.W. (2003) Research Design: Qualitative, Quantitative and Mixed Method Approaches. California: Sage Publications.
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Jensen, M.C., (1993). The modern industrial revolution, exit and the failure of internal control systems. J. Finance, 48: 831-880.
Jensen, M.C., Meckling, W. (1976), "Theory of the firm: managerial behavior, agency costs and capital structure", Journal of Financial Economics, Vol. 3 pp.305-60.
Kiare, M.: The Failure of Corporate Governance in State Owned Enterprises and The need for restructured governance in fully and partially privatized enterprises: The caseof Kenya. In: Fordham International Law Journal 31(2007)34, P 1-31
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Klein, A. 1998. “Firm Performance and Board Committee Structure,” Journal of Law and Economics41: 275-303.Klein, A. 2002. “Audit Committee, Board of Director Characteristics, and Earnings Management,”Journal of Accounting & Economics 33: 375-400.
Klein, A. 2003. “Do Audit Committees with Financially Literate Directors Experience Less Earnings
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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
Corporate Governance in parastatal bodies in Mauritius Appendix A
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
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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?
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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?
……………………………………………………..
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Corporate Governance in parastatal bodies in Mauritius Appendix A
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
.
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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?
Rating: 1: No 5: Yes
(f) Is there is a representative of that sector on the Board?
Rating: 1: No 5: Yes
(g) Is a representative of employees/union on the Board?
Rating: 1: No 5: Yes
(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?
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Corporate Governance in parastatal bodies in Mauritius Appendix C
Rating: 1: No 5: Yes
(j) Does the policy of conducting an induction course being implemented?
Rating: 1: No 3: To some extent 5: Yes
(k) There is a policy to avoid conflict of interest between a director and the organisation.
Rating: 1: No 5: Yes
(l) Does the policy of avoiding conflict of interest between a director and the organisation implemented?
Rating: 1: No 3: To some extent 5: Yes
(m) Does the organisation have a code of ethics for its directors?
Rating: 1: No 5: Yes
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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.
Rating: 1: No 5: Yes
(b) The term of office of the chairperson has been specified.
Rating: 1: No 5: Yes
(c) The chairperson office has expired.
Rating: 1: Yes 5: No
(d) There is a policy for chairperson to evaluate board members.
Rating: 1: No 5: Yes
(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.
Rating: 1: No 3: To some extent 5: Yes
(g) The chairman chairs some subcommittees.
Rating: 1: Yes 5: No
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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?
Rating: 1: No 5: Yes
(b) Is there a full disclosure of the salary and other benefits allowed to the CEO?
Rating: 1: No 3: To some extent 5: Yes
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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)
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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?
Rating: 1: No 5: Yes
(b) The chairperson of the Committee is neither the Chairman nor the CEO
Rating: 1: No 5: Yes
© 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
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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
Rating: 1: No 5: Yes
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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?
Rating: 1: No 0: To some extent 5: Yes
© 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
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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
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