The original Code was over 12 years old and the majority of the respondents of the 2014 National Committee of Corporate Governance survey believed that the 2003 Code needed to be revised. The main reasons for revision included:
- the need to align the Code with new laws and guidelines;
- to recognise, learn and apply governance lessons from global financial crisis;
- the importance of identifying and applying international best practices; and
- the fact that one size governance rules did not “fit all”.
The new Code consists of eight principles with guidance notes. It uses an “apply and explain” methodology which requires entities to apply each of the eight principles contained in the Code to their business and to explain in their annual reports how these principles have been implemented in their business. Where there is a material deviation from any guidance notes accompanying the eight principles, the reasons for such deviation should be explained in the annual report or website of the entity.
The new Code adopts a principles-based rather than a rules-based approach. The principles-based approach provides an organisation with the flexibility to adopt systems and procedures that suit its individual circumstances. Each principle should be applied to the business in the way that the board of directors best decide and be explained in the company’s annual report and website.
Deviation from any principle/guidance contained in the Code is not considered as a breach as long as the annual report or website provides a convincing and credible explanation. The ‘apply and explain’ methodology allows for more flexibility and enables corporations to adapt each of the principles to their business model.
The new Code is applicable from the reporting year (financial period) ending 30th June 2018 onward, i.e., companies should apply the principles of the new Code from July 2017 onward.
All companies should have a Secretary. The Board, as a whole, is responsible for ensuring that the appropriate procedures for the appointment and removal of the Secretary are followed. The Board must satisfy itself that the appointee is fit and proper and has the requisite attributes, experience and qualification to properly discharge his/her duties. The Secretary’s responsibilities should include ensuring that good information flows within the Board and its committees and between senior management and non-executive directors. The Secretary, or his or her nominee, shall act as the Secretary of the committee and will ensure that the committee receives information and papers in a timely manner to enable full and proper consideration to be given to issues. The latter sees to it that the Board follows correct procedures and complies with its obligations under the law. The statutory duties of the Secretary are also set out in the Companies Act 2001.
The definition of these positions is left to the Board of companies to decide upon, since organisation structures and job title positions differ from organisation to organisation. Boards may wish to describe these positions to include: Chairman, Senior/Lead Independent Director (if appropriate), Chairman of board committees, Non-Executive Directors, Company/Board Secretary, Chief Risk Officer (if appropriate), Chief Finance Officer or considerations of any positions that the Board appoints.
The Board should include an appropriate combination of executive directors, independent and non-independent non-executive directors to prevent one individual or a small group of individuals from dominating the Board’s decision making. The Board needs to explain the appropriateness of combination in either the annual report or the website of the company. The Code also recommends that the Board considers board diversity issues and report thereon.
There should be a formal, rigorous and transparent process for the appointment, election, induction and re-election of directors. The search for Board candidates should be conducted and appointments made on merit against objective criteria. The Board should explain the process that is being used, the level of transparency that they think is appropriate and how directors are nominated and elected.
The Board, committees and individual directors should have their performance evaluated and should be held accountable to appropriate stakeholders. The Code recommends that it is up to the Board to decide on how this evaluation is to take place. The Board should ensure that evaluation takes place and provides justification about the appropriate method used.
Appropriate board committees may be set up to assist the Board in the effective performance of the duties. It is recommended that it is up to the Board to decide how the committee structure is organized. As long as the Board considers the committee reporting, structure and oversight of internal controls to be appropriate, the organisation will normally have satisfied the requirement of the Code.
A cross directorship exists when a director from Company A sits on the board of Company B and a director of Company B sits on the board of Company A.
The Code recommends that the Board should decide and determine independence on a case to case basis. The Board must thus take the responsibility and make its own decision.
The Code defines a PIE as an entity specified in the First Schedule of the Financial Reporting Act 2004 which is not the holder of a Category 1 Global Business Licence or Global Business Licence issued under the Financial Services Act.
Entities falling under the definition of a PIE should apply all principles of the Code. According to the First Schedule of the Financial Reporting Act 2004 and the Financial Reporting (Amendment of Schedule) Regulations 2016 (together referred to as the “Act”), PIEs comprise of:
- Entities listed on the Stock Exchange of Mauritius
- Financial institutions, other than cash dealers, regulated by the Bank of Mauritius
- Financial institutions regulated by the Financial Services Commission, from the following categories-
- insurance companies, other than companies conducting external insurance business, licensed under the Insurance Act;
- collective investment schemes and closed-end funds, registered as reporting issuers under the Securities Act;
- CIS managers and custodians licensed under the Securities Act;
- persons licensed under section 14 of the Financial Services Act to carry out leasing, credit finance, factoring and distributions of financial products to the extent that the services supplied are by retail.
- (1) Any company which has, during 2 consecutive preceding years, at least one of the following-
- an annual turnover exceeding 500 million rupees; or
- total assets exceeding 500 million rupees.
- an annual turnover exceeding one billion rupees; or
- total assets exceeding one billion rupees.
- Agricultural Marketing Board established under the Mauritius Agricultural Marketing Act.
- Beach Authority established under the Beach Authority Act.
- Central Electricity Board constituted under the Central Electricity Board Act.
- Central Water Authority established under the Central Water Authority Act.
- Gambling Regulatory Authority established under the Gambling Regulatory Authority Act.
- Irrigation Authority established under the Irrigation Authority Act.
- Mauritius Broadcasting Corporation established under the Mauritius Broadcasting Corporation Act.
- Mauritius Cane Industry Authority established under the Mauritius Cane Industry Authority Act.
- Mauritius Meat Authority established under the Meat Act.
- Mauritius Ports Authority established under the Ports Act.
- National Transport Corporation established under the National Transport Corporation Act.
- Road Development Authority established under the Road Development Authority Act.
- Rose Belle Sugar Estate Board established under the Rose Belle Sugar Estate Board Act.
- State Trading Corporation established under the State Trading Corporation Act.
- Sugar Insurance Fund established under the Sugar Insurance Fund Act.
- Waste Water Management Authority established under the Waste Water Management Authority Act.”
16. Should management companies and holders of Category 1 Global Business Licence (“GBC1”) comply with the Code?
Pursuant to the Circular Letter issued by the Financial Services Commission on 28 February 2018, the Code is applicable to Management Companies as well as to holders of GBC1 which provide financial services or conduct financial business activities. This is further supported by the “Guidance for Holders of a ‘Category 1’ Global Business Licence and Management Companies” of the Code which provides that both holders of a GBC1 and management companies falling under the definition of a PIE should comply with the Code.
The Code recommends that the Board should decide whether to disclose in the annual report and/or on the company’s website. The website and annual report should identify areas of material non-applicability with the principles and give reasons, where applicable, for any alternative practice(s) adopted. Existing legislation may require certain information to be disclosed in the annual report rather than on the website. Moreover, some principles of the Code do require certain disclosures to be made on the website of the company.
Effective governance requires that responsibilities are allocated within the organisation and that the oversight of these responsibilities are undertaken within the organisation. The statement of accountabilities sets out the roles and responsibilities of the key members of the organisation. For instance, the Chief Executive Officer (CEO) and the Secretary are accountable to the Board and the Internal Audit Head and Chief Risk Officer are accountable to the Chairman of the Risk and Audit Committee.