THE STATE OF CORPORATE GOVERNANCE THE PUBLIC SECTOR

Transcription

1 REPORT ON THE STATE OF CORPORATE GOVERNANCE IN THE PUBLIC SECTOR (PARASTATAL BODIES) 2011 Office of Public Sector Governance (OPSG) Prime Minister s Office September 2011

2 Acknowledgements The Office of Public Sector Governance would like to thank all the survey participants for the considerable time spent preparing the responses to the survey questionnaire and for their participation in the interview process. We are also grateful to the participants of the three Workshops/Seminars for providing valuable comments. The information we received from the respondents was indispensable for the conduct of the survey and for developing the resulting conclusion and recommendations. We hope that the survey and the recommendations contained in this Report will prove to be useful in improving corporate governance practices in Mauritius. Each participating organisation has secured its own copy of corporate governance practices which is being annexed to this Report. We hope that this report will be helpful in driving forward the ongoing Corporate Governance reform activities in state-owned enterprises. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 2

3 CONTENTS Executive Summary Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Appendix A Appendix B Introduction The role of the Board of Directors The board composition The role and responsibilities of the Chairman The role and responsibilities of Directors The role of the Chief Executive Officer (CEO) The role of the Secretary The role of stakeholders Disclosure and Transparency Board Committees Corporate Social Responsibility Conclusion List of State-Owned Enterprises Survey Questionnaires Office of Public Sector Governance (OPSG), Prime Minister s Office Page 3

4 Executive Summary 1.0 INTRODUCTION 1.1 Purpose of the Report The Office of Public Sector Governance (OPSG) has, amongst other duties, been mandated to promote, disseminate and monitor the implementation of the Code of Corporate Governance in public sector organisations. In this context, the OPSG carried out a survey in seventeen state-owned enterprises (SOEs) in order to review the state of governance in public sector organisations. The purpose of this report is to provide an assessment of the actual level of compliance of state-owned enterprises with the National Code of Corporate Governance and where appropriate, to identify issues which may assist those organisations in bridging the gap between current and best corporate governance practices. In addition, the report seeks to identify what further improvements that can be brought to demonstrate and improve compliance with, the spirit, rather than just the letter, of the Code. 1.2 Scope and Methodology of the Survey For the purpose of the survey, two rounds of interviews were carried out with the Chairperson, some board members, Chief Executive Officer (CEO), the Secretary and some senior officers of each of the seventeen organisations (Annex A). In addition, three workshops were organised this year to sensitize on good corporate governance practices with the participation of eminent resource persons and the findings of the survey were discussed in those workshops. 1.3 Areas of Corporate Governance covered in the Survey The following ten areas of corporate governance have been covered in this report: Role and Responsibilities of the Board; Board Composition; Role and Responsibilities of the Chairperson; Role and Responsibilities of Directors; Office of Public Sector Governance (OPSG), Prime Minister s Office Page 4

5 Role and Responsibilities of the Chief Executive Officer; Role and Responsibilities of the Secretary; Role of Stakeholders; Disclosure and Transparency; Board Committees; and Corporate Social Responsibility. 2.0 MAIN OBSERVATIONS 2.1 Level of Compliance with the Code The findings of the survey indicate that there is a reasonable level of compliance by SOEs with the Code and they are putting considerable effort into building a robust corporate governance framework based on the principles enshrined in the Code. The findings reveal that translating the principles of the Code into specific action is often challenging and several policy issues emerge given the special circumstances of stateowned enterprises. However, it is encouraging to note that some organizations have already taken note of our recommendations and have already initiated a series of corrective measures to enhance corporate governance. 2.2 Areas of Compliance, Non-Compliance and Recommendations The areas where there have been compliance and non compliance with good corporate governance practices are highlighted below. In addition, in the light of our findings and observations, a number of recommendations are proposed to allow for the: 1. improvement of the quality and level of compliance of current Corporate Governance practices with the Code and guidelines for SOEs; and 2. adoption of international best practices of corporate governance: Office of Public Sector Governance (OPSG), Prime Minister s Office Page 5

6 2.3 AREAS OF COMPLIANCE Role and Responsibilities of the Board Strategic Planning The Boards of several organisations have adopted an effective strategic planning process. It was noted that those organisations have formulated strategies in medium to long term corporate plans and action plans which contribute towards better performance. These plans enable the Chief Executive Officer to accomplish the mission of the organisation, take appropriate decisions and report to the Board on the status of the organization on a regular basis. Board Meetings Board meetings are held regularly in most of the organisations. As regards attendance at board meetings, it was noted that more than 80% of members are present at board meetings Board Composition Right Mix Most of the organisations have a right mix of Board members adequately representing key stakeholders as mentioned in their respective Acts. All organisations have a majority of non-executive directors on their Boards. Right Size A board should be large enough to include a diversity of competencies to exercise its responsibilities but small enough to engage in active discussions, make timely decisions and work together as a team. Generally, 7 to 10 members is the workable size range for boards of SOEs. In the case of one parastatal, the board is quite heavy with more than 18 members. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 6

7 Term of office The term of office for directors is staggered (i.e directors are appointed for different terms of one, two or three years) to ensure continuity of the Board. This also ensures a regular influx of fresh and objective thinking The Role and Responsibilities of Chairperson Profile of Chairperson The survey shows that there are a few highly qualified and well experienced Chairpersons who operate in a pro-active manner. This is reflected in the good performance of their organisation. Conduct of Board Meeting - Leadership It is observed that in more 60% of the organisations, the Chairperson provides overall leadership to the board while at the same time he encourages and ensures active participation of each member in board deliberations. Inter-personal relationship Our survey also reveals that in several organisations, the Chairperson holds a good working and inter-personal relationship with the members of the Boards by bringing out the best in each member and adopting a collaborative approach. Relationship between Chairperson and CEO It has been noted that in most cases, the CEO is getting the support and advice of his Chairperson in fulfilling his executive responsibilities. This working relationship is further consolidated when the Chairperson abstains from interfering in the day to day management of the organisation. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 7

8 2.3.4 Role and Responsibilities of Directors Participation of Directors In general, it is observed that directors are assuming their role and responsibilities in a satisfactory manner in terms of attendance, participation, objectivity, confidentiality and professionalism. As mentioned earlier, the rate of attendance in board meetings is quite acceptable. According to the Chairpersons, the Board receives the support and contribution of most Directors Role and Responsibilities of the Chief Executive Officer (CEO) Separation of Supervision and Management In all organisations, the title, function and role of the Chief Executive Officer are separate from that of the Chairman which is a major requirement of the Code. The CEO is responsible for the day-to-day operational management of the organisation while the Chairperson together with the Board is responsible for formulating strategies and policies as well as having an oversight over the affairs of the organisation. Profile of CEO Most of the CEOs are found to have the experience, skills and knowledge necessary to discharge their duties and responsibilities effectively and efficiently. They work towards the achievement of the organisation s financial and operating goals and objectives as set by the Board and ensure that the day-to-day business of the organisation is properly managed and monitored. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 8

9 2.3.6 Role and Responsibilities of the Secretary Appointment of Secretary All organisations have appointed a Secretary with the responsibility for taking notes of meetings, preparing agenda, and convening meetings of the Board and Board committees. In most cases, administrative officers are performing the duties of the secretary to the board. According to Chairpersons interviewed, these officers are performing to the satisfaction of the Board Role of Stakeholders Rights of Stakeholders In most organisations, the rights of stakeholders are mirrored by their representatives on the Board. Their active participation in Board meetings ensures that their interests are safeguarded. According to the respondents, there is an effective cooperation and collaboration between the organisation and its stakeholders like government, employees, contractual parties and the public. This relationship improves the quality of service delivery and ensures long term sustainability of the organisation. Communication with Stakeholders Most of the organisations have developed various means of communication such as websites, brochures, regular meeting, fairs, etc to be in close contact with their stakeholders as well as disseminating their policies and values. This ensures stakeholder engagement in compliance with good corporate governance practices. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 9

10 2.3.8 Disclosure and Transparency Submission of Annual Report It is observed that few organisations are complying to the Code and to the relevant Acts (Financial Reporting Act 2004 and Finance and Audit Act 2009) as regards submission of their annual reports which should, among others, include their audited financial statements and corporate governance reports, within the time schedule as laid down in legislation Board Committees Meeting and Reporting The survey reveals that in those organisations that have well-structured board committees, meetings are held at regular interval and the rate of attendance is appreciatively high. It has also been pointed out the Board Committees are meeting their purpose and objectives and are reporting to the Board in an effective manner. Most organisations have appointed a secretary to assist Board Committees and the deliberations are duly recorded Corporate Social Responsibility Most organizations are aware of the need to participate in such activities that may benefit the society and some have already operationalised their CSR activities Degree of Compliance The degree of compliance to the National Code as regards to the ten areas of good corporate governance covered by the survey is illustrated in the Chart below. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 10

11 80% Degree of Compliance 70% 65% 62% 67% 63% 60% 50% 51% 56% 58% 54% 50% 40% 30% 28% 20% 10% 0% 23rd March The Chart above shows that the degree of compliance to the Code of corporate governance is satisfactory. The average level of compliance is estimated at more than 50% in most of the 10 corporate governance topics surveyed. 2.4 AREAS OF NON COMPLIANCE - Observations and Recommendations The areas of non compliance together with recommendations are detailed below Role of the Board Responsibility of the Board It is noted that, in some organisations, the Boards are not aware of the need and benefits of complying with the Code of corporate governance. Boards should be responsible for good governance activities such as monitoring and evaluating the implementation of strategies and policies, identification of key risk areas, compliances to relevant laws, regulations and code of best practice, etc. Recommendations (Number 1) Boards should ensure that directors fully understand the role and responsibilities of a Board and the contribution they are expected to make, including in particular the Office of Public Sector Governance (OPSG), Prime Minister s Office Page 11

12 commitment of time and energy that the organization expects of its directors. Board members are required to promote the vision and mission of the organisation and not act solely as representatives of their respective ministries/departments. Decisions of the Board should be taken in the interest of the organisation. Corporate Objectives Statement (COS) Most organisations have not formulated a Corporate Objective Statement (COS) which allows them to focus on strategies, service standards and performance targets. They are, in fact, not aware of the COS, which is a requirement of the Code, though in some cases the organisations do have a strategic plan. Recommendation (Number 2) A Corporate Objectives Statement (COS) spelling out the strategies, service standards and performance of the organisation have to be formulated and agreed with the Parent Ministry. This document will then serve as a basis for implementation of government policies and the organisational objectives. It will as well help to monitor the performance of the organisations and their boards. The COS should include, in respect of an organisation, among others, the followings: Vision, mission and values Purpose(s) and objectives; Value drivers, A statement of expected behaviour of stakeholders; A statement of accountability by the Board; and Expectations of financial as well non-financial performance for the year Evaluation of Effectiveness of the Board Most organisations do not have a mechanism to monitor and evaluate the performance of the Board, Chairpersons and other board directors in terms of level and quality of strategies and policies development, oversight of implementation of strategies, control Office of Public Sector Governance (OPSG), Prime Minister s Office Page 12

13 and risk management system. For this purpose, directors should be assessed both individually and collectively as a Board. Recommendation (Number 3) It is necessary to conduct, on an annual basis, some form of performance measurement for board members including the Chairperson as well as the board as a whole. This exercise can be effected internally or, for more objectivity, by an external body Board Composition Absence of Executive Directors Many Boards do not have the appropriate balance of executive and non-executive directors. In fact, the Boards do not have any executive directors while the Code recommends the appointment of at least two such directors. In addition to contributing to decision making, executives have the experience and insight on the activities and management of the organisation. Recommendation (Number 4) The appointment of Executive Directors will bring inside experience and a wider perspective to a Board due to their familiarity with the specific issues connected to the organization's governance. Initially, OPSG considers that the board should comprise at least one executive director i.e preferably in the person of the CEO. Size of the Board It is observed that one of the seventeen organisations surveyed is headed by a board with not less than 16 members. This situation may be a major hindrance for timely and rapid decision-making due to potential lengthy deliberations where many directors may be, for active discussion purpose, willing to voice out their opinions. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 13

14 Recommendation (Number 5) There is a need to review the size and composition of the board of organisations with heavy boards with a view to render the board more effective and efficient. In fact, a right size leads to more cohesive functioning and decision making could be expedited will add to the efficiency of the organisation. In this context, the Act regulating the organisations has to be reviewed and amended as regards the size and composition of the board, as some date back prior to Profile of Directors It has been observed that board members are recruited and appointed in accordance with the respective Act of the organisation. In addition, the Act requires that some directors are nominated by the Minister. In certain cases, it is noted that the profile of some directors in terms of skills, competencies, experience and integrity, is lacking and inadequate which results into an ineffective and inefficient Board. They are unable to contribute through poor involvement in Board deliberations which require a certain level of professionalism, knowledge and experience. Recommendation (Number 6) The choice of Chairpersons and members of the Board should be individuals of integrity who can bring a blend of objectivity and commitment to the Board. The nomination or appointment should be made out of a list of eligible candidates (maintained by a central government agency) with appropriate professional background, skills, experience and knowledge. The Board may consider having a Nomination Committee to appoint new directors from the eligibility list. Non-fulfilment of Vacancies of Directors Prolonged vacancies of directors at board level hinders the smooth running of the organisation in terms of imbalanced and uninformed decision, inadequate discussion, lack of representation of required interests and also lack of required quorum. It was Office of Public Sector Governance (OPSG), Prime Minister s Office Page 14

15 noted that in one particular case, there were more than four vacancies at Board level which have not been filled since more than two years. Recommendation (Number 7) The Board of an organisation should ensure that vacancies at Board level be filled within reasonable time to allow for a full board necessary for the smooth running of the organisation. The parent ministry should keep a watch on such situation and initiate appropriate action, if necessary, in consultation with the central government agency The Role and Responsibilities of Chairperson Relationship between Chairperson and CEO In a few cases, it has been noted that, the conflictual relationship between Chairperson and CEO is impairing the proper functioning of the organisation. The reasons for this situation are, in the first place, the poor understanding and awareness of their respective roles and responsibilities by the Chairperson and CEO as laid down in the Code and secondly, the unwelcome interference of the Chairperson in the day-to-day management of the organisation. This often seems to be more a problem of conflict of personalities. Recommendation (Number 8) A better understanding of the role and function of the Chairperson and the Chief Executive Officer as laid down in the Code would largely contribute to avoid conflicts as well as unwelcome interference of the Chairperson and also board members in the day-to-day management of the organisation. The OPSG would continue its sensitisation activities through regular workshops, seminars, etc. Unawareness of Role and Functions The survey reveals that there are a number of common core functions which are not performed by the Chairperson in some cases. These include, amongst others, ensuring monitoring and evaluation of Board and director appraisal, maintaining sound Office of Public Sector Governance (OPSG), Prime Minister s Office Page 15

16 relationship with stakeholders through the desirable level of communication and disclosures. Recommendation (Number 9) It is recommended that the letter of appointment for Chairperson should stipulate the main responsibilities and functions, taking into account the specificity of the nature of business of their organisations. It is advisable that Chairpersons should have undergone training in directorship prior to appointment. After appointment, he should follow an induction course organised by the concerned organisation Role and Responsibilities of Directors Contribution of Directors In few cases, the inadequate and poor input of some directors has been highlighted in that they do not participate actively in board deliberations and their contributions are considered to be uneven. Some directors are not involved in overseeing the strategic direction and management of the organisation and promoting its overall success and keeping abreast of development in its business sector. Recommendation (Number 10) To address the above issue, the organisation should put in place an appropriate mechanism for the assessment of the performance of the Directors. This will allow the organisation to take corrective action such as providing relevant training to or replacement of non-performing directors. This mechanism will encourage directors to bring better contribution at Board level. Training and Development No formalised induction or training course has been observed to be carried out in respect of new members joining the board. There is also a need to provide for specific training Office of Public Sector Governance (OPSG), Prime Minister s Office Page 16

17 of directors and the executive management in regards to both corporate governance issues and the fiduciary duties and other board responsibilities. Recommendation (Number 11) The Code requires that a formal induction programme be set in place to familiarise new directors with the organisation s operations, its strategic plan and its business environment. It should also include such important issues as fiduciary duties and responsibilities of directors, situation of potential conflict of interest and personal liability as directors. Multi-Directorship The survey reveals that some members are sitting on more than one board thereby giving rise to multi-directorship. Multi-directorship may affect the directors commitment by diluting their effectiveness and capacity to participate fully in boards deliberations. Moreover, this may give rise to conflict of interest by directors being required to take decision on matters which may not be in the best interest of other related organisations. Recommendation (Number 12) For the purpose of nominating or appointing Directors, the essential criteria, among others, regarding multi-directorship should be taken into account. This will allow the selection of directors who have the time and energy to meet the demands of their role as directors Role and Responsibilities of the Chief Executive Officer Relationship between Chairperson and CEO In most cases of the conflicting relationship between the Chairperson and the Chief Executive Officer, this conflictual environment is mainly the result of the chairperson s ignorance or disregard of his role and function in as much as his appointment letter does not define his role, function and accountability. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 17

18 Recommendation (Number 13) A better understanding of the role and function of the Chairperson to lead the Board and oversee the affairs of the organisation and that of a Chief Executive Officer to manage and execute Board decisions will assist in creating the appropriate relationship free from potential conflicts. It is in the interest of both parties to shoulder their respective responsibilities in a manner that display sound corporate governance. Moreover, it is advisable that Chairpersons receive a formal letter of appointment with well-defined roles and responsibilities and deliverables. Evaluation of Effectiveness of the Chief Executive Officer Most organisations do not have a proper mechanism to monitor and evaluate the performance of the CEO as regards implementation of policies and strategies and maintenance of an adequate system of internal control. Recommendation (Number 14) To ensure that the objectives of the organisations are achieved, organisational performance indicators should be set against which the performance of the CEO can be assessed on an annual basis. Management Information The effectiveness and efficiency of the Board depend to a large extent on the intelligent, timely and accurate information provided by management. Moreover, the information obtained should be appropriate and comprehensive to make informed decision Role and Responsibilities of the Secretary Duties of Secretary In most organisations, the officers who are acting as Secretaries are not aware of the relevant statutory and regulatory requirements of their organisations. They are not fulfilling their role as required by the Code which includes, amongst others, advising the Office of Public Sector Governance (OPSG), Prime Minister s Office Page 18

19 board on good corporate governance practices and also guiding the board in discharging its fiduciary duties while ensuring that the organisations and its directors operate within the ambit of the law. Recommendation (Number 15) Necessary training relating to the duties and responsibilities as a secretary as required by the Code should as far as possible be provided to them. Such responsibilities include, among others, assuring compliance with necessary statutory and regulatory requirements, code of conduct and internal rules and regulations, acting as focal point of contact for stakeholders, and providing guidance and advice to the Board on matters of ethics and corporate governance. Notice of meeting In a few organisations, notice of meeting including the agenda as well as other board papers are not sent to Directors well in advance of the Board (or/and Board Committees) meeting. Recommendation (Number 16) Notice of meeting should be forwarded to Directors within a reasonable time before the Board (or/and Board Committees) meeting to apprise themselves of the Board papers. This will allow the Directors to participate constructively in discussions at Board meeting and to contribute to decision-making The Role of Stakeholders Non-representation on Board It has been pointed that, in few cases, some stakeholders of the organisations are not represented on Boards which may lead to their interests being overlooked. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 19

20 Recommendation (Number 17) To enhance participation of major stakeholders in the organisations, it is proposed that as far as possible, their representatives should form part of the board. In this respect, the respective Acts need to be amended accordingly. Communication Most organisations do not hold regular meetings with their stakeholders with a view to encouraging the latter to participate in the affairs of the organisations. It was also noted that they do not carry out any survey to assess their performance in service delivery and the needs of stakeholders. Recommendation (Number 18) As service providers, the organisations need to carry out surveys with the major stakeholders or other related means to assess the level and quality of services delivered. In order to encourage participation of the stakeholders in the affairs of the organisation, two-way communication is vital. In this context, there is a need to adapt a proactive approach by holding regular meetings with them or informing them of the recent activities of the organisation through letters, s, sms, etc. Website All organisations have their own high-quality websites which are convenient tools to add value and satisfaction, display corporate information and improve communication with stakeholders. However, it is observed that the information on some websites are not updated on a regular basis and are not user-friendly. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 20

21 Recommendation (Number 19) The websites of most organisations need to be upgraded to be more user-friendly and should be updated on a regular basis. The information which is displayed on the website should be easily understood by the public at large Disclosure and Transparency Non-submission of Annual Reports Most organisations are not adhering to the timeframe as required by the Finance and Audit Act 2009 for the submission of their annual reports. In some cases, the CEO has failed to prepare the report within the stipulated period. Where the report has been prepared, it has not yet been approved by the Board within the prescribed three months following the year end to be submitted to the auditor. It has been reported that one of the main reasons for not preparing the financial statements within the required timeframe is the non-availability of internal accounting expertise. Also, the current practice requires that organisations submit their annual reports to the parent ministry which thereafter tables them at the National Assembly. There are also cases where the parent ministry has received the annual report but has not tabled same at the National Assembly. Recommendation (Number 20) The National Audit Office has made representations year after year about nonsubmission of annual reports by SOEs within the laid down legal time framework. In terms of accountability and transparency and to comply with the law, the Board should ensure that annual reports are prepared within the legal timeframe. It is the responsibility of the CEO to ensure that the financial statements are prepared and that of the Board to approve same and for the Ministry to submit to the National Assembly. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 21

22 In the Consolidated Finance and Audit Act 2009, there is no mention of the time frame for tabling annual reports of SOEs by parent ministries at the National Assembly. Necessary amendments should be brought to relevant Act to require a reasonable time frame for the preparation, approval, audit, submission to parent ministry and tabling at the National Assembly. Incompleteness of Information It is also observed that most of the financial and non-financial information disclosed by organisations were accurate but not necessarily complete. Information on areas such as Directors details, profile of Senior Management team and terms of reference of Board Committees, etc have not been disclosed in the Annual Report. Recommendation (Number 21) For the purpose of completeness, it is recommended that all financial and non-financial information be disclosed in the annual report in accordance with the relevant Acts, International Accounting Standards (IASs) and the Code. This will enhance the degree of disclosure and transparency enabling all stakeholders to obtain a full and fair view of the performance of the organisation. It should be pointed out the Financial Reporting Act 2004 requires that designated institutions such as listed companies, banks, large public and private companies and more especially stated-owned enterprises, including statutory corporations and parastatal bodies should disclose or explain the reasons for their non-compliance of the national code. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 22

23 2.4.9 Board Committees Absence of an Audit Committee and a Corporate Governance Committee According to the Code, all organisations should have, at a minimum, an audit committee and a corporate governance committee. Our survey shows that the majority of the seventeen organisations have not set up these committees. In the absence of an audit committee and corporate governance committee, internal auditors are reporting directly to the CEO just impairing the independence and objectivity of the auditor while issues relating to good governance are being overlooked. Consequently, the Board may be unable to exercise adequate oversight. Recommendation (Number 22) To comply with the Code, the Boards of the organisations should have, as a minimum, an audit committee and a corporate governance committee. The Audit Committee should focus, among others, on the functioning of internal control system and the internal audit department, risk areas, external audit and compliance with relevant rules, regulations and laws. On the other hand, the Corporate Governance Committee should ensure that the reporting requirements on corporate governance are in accordance with the principles of the national Code. Terms of Reference of Board Committees In the few cases where all required Board committees have been set up, their terms of reference have not been clearly defined and documented as required by the Code. This may not allow those committees to meet their intended purpose and to perform effectively. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 23

24 Recommendation (Number 23) In establishing Board committees, the Board must clearly define and document their terms of reference, life span, role and function. The terms of reference of each committee should include its objectives, purpose and activities, composition, tenure and reporting mechanism to the Board. Composition of Board Committees Sub-committees are set up to assist and to make well-considered recommendations to the Board on issues delegated to them. It is observed that in some organisations, the Chairperson of the Board also chairs Board committees. This is not a good governance practice as it may influence the ultimate Board decision. The views and recommendations of the Chairperson at Board Committee level are more likely to prevail during final decision making at Board level. Recommendation (Number 24) As far as possible, Boards should ensure that their Board Committees are not chaired by the Chairperson and should comprise mainly independent directors to allow for better and independent decision making. In addition, the Chairperson and the CEO should not form part of the audit committee to allow for objectivity and independence in both internal and external audit function and reporting. Where necessary, the respective Acts should be verified accordingly. Evaluation of Board Committees In nearly all organisations, Board committees are not subject to regular and formal evaluation by the Board to assess their performance and effectiveness. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 24

25 Recommendation (Number 25) The Board should devise an appropriate mechanism to be able to assess and evaluate the performance and effectiveness of Board committees as a whole and of the members individually Corporate Social Responsibility (CSR) Though many of the organisations are more or less involved in CSR activities, they do not have a defined policy on CSR. The absence of CSR activities will hinder the organisations from benefits such as long term economic sustainability and social harmony through acceptable employment policies and ownership structure. Recommendation (Number 26) Corporate social activities are in the long-term economic interest and success of the organisations and help them in conducting themselves as responsible citizens. To encourage greater involvement of SOEs in CSR activities, parent ministries should formulate workable policies on CSR together with appropriate incentives. 3.0 CONCLUSION A review of the findings of the survey reveals that, in overall, the degree of compliance to the national Code by the seventeen organisations is around 50%. The OPSG has proposed a number of recommendations to improve the existing non-conformities, the main ones being the absence of a mechanism to evaluate board and board committees effectiveness, Directors profile inadequacy, formulation of Corporate Objectives Statement, conflict between Chairperson and CEO, passiveness of certain Directors, non submission of Annual Reports, etc. In line with the OPSG corporate governance programme, the review and survey on corporate governance will, in the near future, be extended to other public sector organisations with a view to ensuring that public sector organizations become a model Office of Public Sector Governance (OPSG), Prime Minister s Office Page 25

26 of good corporate governance by actively inculcating, advocating and promoting good governance practices in the public sector. In the context of making public sector organisations more outcome-oriented, a closer monitoring of service standards, through the Parastatals Information Management System (PIMS), will encourage and enforce greater accountability on Boards, Chairpersons and CEOs. The OPSG would wish that the practices of corporate governance, more particularly, the nomination of Chairpersons, Board Members and CEOs, follow international standards as indicated in the Code approved by the Government in The OPSG undertakes to monitor the implementation of these recommendations. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 26

27 Chapter One: Introduction 1. Introduction T he Report on Corporate Governance (the Report), which sets out the current state of corporate governance in seventeen State-owned enterprises and recommendation of measures to raise corporate governance standards, reflects the on-going effort of the Government to ensure that the public sector organizations become more cost-effective and outcome-oriented and to re-establish confidence in the Mauritian public sector service delivery. In line with the above objectives, the Office of Public Sector Governance (OPSG) was given an expanded mandate of making state organizations a model of good corporate Governance by actively inculcating, advocating and promoting good governance practices in the public sector. 2. Background The globalization of markets within most industries, technological changes and liberalization in many infrastructure sectors have made readjustment and/or restructuring of the state-owned enterprises(soes) an imperative. And at the same time, Corporate governance took the centre stage internationally as governments and multilateral institutions sought to address issues such as the nature of transactions between companies, financial institutions and capital markets, the design of corporate laws, bankruptcy procedures and practices, the structure of ownership and crony capitalism, the fiduciary responsibility of boards, disclosure and transparency and accounting and auditing standards. 3. State-owned enterprises State-owned enterprises (SOEs) occupy a prominent position in the Mauritian economy and play an integral part in Mauritius development. They are engaged in various activities from the airport, port, public housing, water and electricity services to marketing boards. The activities of SOEs impact on the quality, accessibility and affordability of services provided to the community, especially the poor and vulnerable. Indeed the peculiarity of SOEs is that they are an effective vehicle for socio-economic development and the pursuit of growth and development as an integrated effort. SOEs are founded (and their legal position defined) in separate acts that also outline their raison d etre. SOEs are in principle supervised by associated parent ministries. The SOEs legal status requires them to be audited on an annual basis with the audits submitted to the National Assembly for discussion. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 27

28 Due to conflicting objectives, SOEs do not only have commercial goals but that they are also under obligation to serve social objectives such as providing jobs, serving public interests and providing basic necessities. This is different from the conditions faced by private companies where they have a single goal as a business entity, i.e. profit maximization. Simply put, SOEs have the burden of satisfying public needs in addition to pursuing their business activities. Therefore due to these multiple tasks, SOEs can be disadvantaged in competing with their private company counterparts for profits. Thus, the incentives for board members and managers to maximize the value of the company and keep costs in check are reduced. Accountability and performance may also be hindered by political interference, poorly defined non-commercial objectives, and an absence of transparency. Strong internal controls, good disclosure, independent boards of directors, and other CG tools can help state -owned enterprises perform well and act in the best interests of citizens and other shareholders. To help make state owned enterprises more competitive, efficient and transparent, the National Committee on Corporate Governance has developed a set of Guidance Notes, as a complementary document to the Code issued in May The Guidance Notes For State-Owned Enterprises (GNSOE) is also designed to inform directors, senior executives and other stakeholders of the requirements under the different sections of the Code so that they can discharge their duties and responsibilities efficiently. 4. The Code of Corporate Governance The Code of Corporate Governance (The Code in short form) which was launched on October 6th 2003 provides a roadmap for our enterprises to raise our corporate governance structure to international levels of best practice and will surely usher in a radical transformation of our corporate image. The goal of the Code is to build greater trust between the Company and investors to lower the cost of capital essential for companies to buy-in to the project- between the Company and their other stakeholders to help build a culture of social and environmental responsibility and between SOEs and the public to enable SOEs to enhance the quality of service they deliver to the public at large. The Code purports to be more than a set of rules. It is an essential element that enables stakeholders to exercise better oversight of a company s business and affairs. The premise is that a company that is well governed is transparent and accountable to its shareholders and other stakeholders, including the broader community. It also seeks to provide a set of principles to better harmonise our corporate objectives with the values of our society. It includes Office of Public Sector Governance (OPSG), Prime Minister s Office Page 28

29 considerations that would uplift society in relation to sustainable development issues, environmental and social concerns, stability of employment, and wealth creation. 5. Compliance and Applicability. The Code of Corporate Governance for Mauritius was launched in October 2003 and gazetted in May As from the reporting year ending 30 June 2005, all designated institutions (set out in section 1.1 of the Code) are obliged to comply or explain why they have not complied. All state-owned enterprises (SOEs), including statutory corporations and parastatal bodies, are designated institutions. The Financial Reporting Act2004 and the Financial Reporting Council The Financial Reporting Act 2004 requires that all state owned enterprises should apply the Code of Corporate Governance. In case of non-compliance, these SOEs shall disclose and explain reasons for their non-compliance. The Financial Reporting Council (FRC), a body corporate set up under the Financial Reporting Act 2004 act as a custodian for the CODE. The FRC is mainly responsible for promoting confidence in corporate reporting and good corporate governance in SOEs. 7. Conformance and Performance Good corporate governance on its own cannot make an organisation successful. Strategy and performance are also important. The key message of enterprise governance is that an organisation must balance the two dimensions of conformance and performance needs to ensure long-term success. The conformance dimension covers corporate governance issues such as roles of the chairman and CEO, the role and composition of the board of directors, board committees, controls assurance and risk management for compliance. The performance dimension tends to take a more forward looking view. It centres on strategy and value creation. The focus is on helping the board to make strategic decisions, to understand its appetite for risk and its key performance drivers. 8. Corporate Governance Reform : Survey The OPSG conducted a preliminary survey to evaluate the present state of Corporate Governance in seventeen Public Sector Organisations (Annex A) out of the 35 organisations which sought assistance and come up with recommendations to improve the Corporate Governance practices in these organizations. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 29

30 9. Purpose, methodology and structure of the Survey Purpose: The primary objectives of the survey were the following: Methodology To allow stakeholders to gain an understanding of the extent to which public sector agencies follow corporate governance practices To assist public sector organizations close any gaps between best and current practices by identifying areas of improvement and To provide organisations with some guidelines on which to base its corporate governance reform activities The officers of OPSG were required to conduct separate meetings and interviews with at least three officers including the Chairman, the Chief Executive Officer/ Manager and the Secretary or a member of the Board. Structure In the course of the meetings, the following issues were addressed and the respondents were asked to give their views on the following CG reforms: The Board-- Its role and responsibilities, composition and frequency of meetings The Chairperson, Chief Executive Officer, Board Members and the Secretary--Their profile, appointment, role and responsibilities. The Board Committees-- The role, responsibilities and composition. Transparency and disclosure of information. The role and rights of the stakeholders Corporate Social Responsibility The findings of phase I of the survey were discussed at a workshop held in June 2011 and further investigated in a second round. Phase II of the survey explored additional areas at the level of performance, which were not covered in Phase I and tested the validity of selected responses from Phase I. In each corporate governance category, the specific areas of overall strongest and weakest compliance with international good practices were observed through specific questions. The respondents were also asked to provide their comments on the draft copy of their own individual reports and for suggestions on how their organisations can improve upon its present CG practices. A copy of the survey questionnaires is at Annex B. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 30

31 10. Survey findings The Findings of the Survey have been structured into these three main categories; Compliance to the Code of Corporate Governance Non compliance or Limitations/Barriers to improve Corporate Governance Practices and Recommendations on some of the limitations and barriers to the implementation of best practices in Corporate Governance. 11. Structure of the Report The different sections in this report will discuss in detail the following CG related topics: Role of the Board Board composition Role and Responsibilities of the Chairperson: Role and Responsibilities of Directors Role and Responsibilities of Chief Executive Officer Role and Responsibility of Secretary Role of stakeholders Disclosure and Transparency Board Committees Corporate Social Responsibility Each section starts with some background information on a particular corporate governance topic and the role and responsibilities as defined by the Code followed by an analysis of the results from the survey on each topic and concludes with appropriate recommendations for best CG practices. Where relevant, the analysis includes comments and suggestions given by the survey respondents or discussion group members. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 31

32 Chapter Two: The Role of the Board 1. Boards B oard of directors is a corporate governance instrument in charge of monitoring and advising the management, in both private and state-owned enterprises. The Board of directors is believed to be of significance in improving the enterprise performance as it provides expert advice, acts as safeguards, brings skills, knowledge and experience. On Boards, the Guidance Notes for State-Owned Enterprises (GNSOE) draws attention that: Every state-owned enterprise should be led by an effective board which exercises leadership, enterprise, integrity and judgment in directing the enterprise, and one which acts in the best interest of the enterprise in a transparent, accountable and responsible manner. The board should be empowered to function in full operational autonomy, and should be the link between the shareholders/ stakeholders and the enterprise. 2. Main Functions The main purpose of a Board of a public body is to provide effective leadership, direction, support and guidance to the organization and to ensure that the policies and priorities of the Government are implemented. The responsibilities of the Board as defined in Sections to of the Code of Corporate Governance (The Code) apply to state-owned enterprises. This can be summarised into these three main functions: To report to the Parent Ministry and ultimately to Government which is the shareholder. Board members should be clear about Ministerial policies and expectations of their organisation. To provide active leadership of the public body by agreeing the organisation s strategy; setting cost effective plans to implement the strategy; establishing a performance management framework which enables under-performance to be addressed quickly; establishing the values and standards of the organisation and ensuring that the highest standards of governance are complied and that a framework of prudent and effective controls is in place to enable risks to be assessed and managed. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 32

33 To hold the Chief Executive (and senior staff) to account for the management of the organisation and the delivery of agreed plans on time and within budget. 3. Strategic Planning Strategic planning is a useful tool for the Board to meet its responsibilities. Strategic planning refers to the process by which directors go about shaping the direction, future and vision of the organisation. Boards are constantly under pressure to add value to the performance of the organisation and stakeholders expect directors to recognise their responsibility for direction setting and the suitability of strategies. Boards have to determine its objectives, seek opportunities and set priorities to improve performance aiming at becoming more outcome and results oriented. Strategic planning is one way of clarifying and communicating this strategic direction to all stakeholders. Strategic planning process assists the board and management to focus on the purpose of the business. It involves developing a framework within which the organisation is able to: assess the environment within which it operates; review and analyse target markets in which it competes to ensure that customer's expectations are met; examine its performance and assess its strengths and weaknesses; evaluate internal policies and legal requirements and compliance; and Formulate strategies which guide the organisation to achieve the desired objectives. Provide clear-cut instructions to management on the strategic direction of the business Lay down the basis for the allocation of resources Ensure that investment priorities are met Builds up a shared vision to meet the objectives, values and principles agreed upon and Establish a proximity between stakeholders and management 4. Corporate Objectives Statement (COS) Good corporate governance should be integrated with the organisation s business strategy and not viewed as simply a compliance obligation. Within the corporate governance structure, every SOE should conclude a COS. The COS must be agreed by the Board and the Parent ministry. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 33

34 This means that the Board has to: establish the corporate mission, aims and objectives of the organisation; This should be made explicitly clear: why the organisation exists? - what it hopes to achieve and what are the obligations? oversee the development (and review) of strategies, plans and policies of the public body; ensure the operation and work of organisation is closely aligned with the policies and performance targets to ensure efficiency and effectiveness; and oversee the development (and review) of performance targets, including key financial targets. It is thus recommended that these be reflected in a Corporate Objectives Statement (GNSOE, Section 2) as shown below: Office of Public Sector Governance (OPSG), Prime Minister s Office Page 34

35 5. An Effective Board In the wake of the recent spate of corporate malfeasance globally, it became apparent that in many organizations, boards of directors did not function according to relevant laws and codes and the spirit behind those laws and codes. The board of an organisation represents the stakeholders and is intended to make decisions that are in the best interests of the organisation Office of Public Sector Governance (OPSG), Prime Minister s Office Page 35

36 and of its stakeholders. Many boards have thus introduced an extensive set of reform measures to become more responsible and effective. An Effective Board ensures that: Alternative strategies for the organisation are developed The selected strategy is totally aligned to the organisation s purpose, consistent with Ministerial objectives and aspirations and is affordable Cost effective plans to implement the agreed strategies are developed, adopted and implemented It monitors organisational performance ensuring any underperformance is addressed swiftly The organisation complies with any Ministerial guidance or direction issued The organisation adopts and complies with its Code(s) It maintains its focus on strategy, performance and behaviour and is not diverted by detail. 6. Evaluation and Appraisal Corporate governance is centred on organisational performance and how boards value the companies they direct. Accordingly, the enhancement of board effectiveness has become a focus of attention and various methods for measuring board effectiveness have been worked out. The performance of the Board and each individual Director should be formally assessed at least once annually. The Code of Corporate Governance (section and ) makes the following recommendations with regard to board appraisal: Organisations must have controls in place to improve their financial sustainability. As this is a function of the board, it makes sense for the performance of the board and directors to be included in the monitoring and evaluation process. Directors should be assessed both individually, and collectively as a board. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 36

37 7. Survey Findings Generally, there is awareness of good corporate governance practices with the majority of respondents stating that they considered implementation of corporate governance practices to be important, presumably because the Code of Corporate Governance requires adoption of these practices. Compliance: It can be concluded from the survey that, the organisations, as envisaged by the Code of Corporate Governance, complied as follows: Strategic Planning The Boards of several organisations have adopted an effective strategic planning process. It was noted that those organisations have formulated strategies in medium to long term corporate plans and action plans which contribute towards better performance. These plans enable the Chief Executive Officer to accomplish the mission of the organisation, take appropriate decisions and report to the Board on the status of the organization on a regular basis. Board Meetings Board meetings are held regularly in most of the organisations. As regards attendance at board meetings, it was noted that more than 80% of members are present at board meetings. Non-compliance and Recommendations: Responsibility of the Board It is noted that, in some organisations, the Boards are not aware of the need and benefits of complying with the Code of corporate governance. Boards should be responsible for good governance activities such as monitoring and evaluating the implementation of strategies and policies, identification of key risk areas, compliances to relevant laws, regulations and code of best practice, etc. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 37

38 Recommendations (Number 1) Boards should ensure that directors fully understand the role and responsibilities of a Board and the contribution they are expected to make, including in particular the commitment of time and energy that the organization expects of its directors. Board members are required to promote the vision and mission of the organisation and not act solely as representatives of their respective ministries/departments. Decisions of the Board should be taken in the interest of the organisation. Corporate Objectives Statement (COS) Most organisations have not formulated a Corporate Objective Statement (COS) which allows them to focus on strategies, service standards and performance targets. They are, in fact, not aware of the COS, which is a requirement of the Code, though in some cases the organisations do have a strategic plan. Recommendation (Number 2) A Corporate Objectives Statement (COS) spelling out the strategies, service standards and performance of the organisation have to be formulated and agreed with the Parent Ministry. This document will then serve as a basis for implementation of government policies and the organisational objectives. It will as well help to monitor the performance of the organisations and their boards. The COS should include, in respect of an organisation, among others, the followings: Vision, mission and values Purpose(s) and objectives; Value drivers, A statement of expected behaviour of stakeholders; A statement of accountability by the Board; and Expectations of financial as well non-financial performance for the year Office of Public Sector Governance (OPSG), Prime Minister s Office Page 38

39 Evaluation of Effectiveness of the Board Most organisations do not have a mechanism to monitor and evaluate the performance of the Board, Chairpersons and other board directors in terms of level and quality of strategies and policies development, oversight of implementation of strategies, control and risk management system. For this purpose, directors should be assessed both individually and collectively as a Board. Recommendation (Number 3) It is necessary to conduct, on an annual basis, some form of performance measurement for board members including the Chairperson as well as the board as a whole. This exercise can be effected internally or, for more objectivity, by an external body. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 39

40 1. Composition Chapter Three: The Board Composition T he composition and procedures to be followed for the appointment of directors is laid down in the respective Acts of organisations. The Code recommends that only the best qualified persons who can add value to the board should be appointed as directors. 2. The Right Mix A Board functions effectively if it is composed of the "right people. A board is a team combining many strengths. A Board that includes a mix of members with fresh perspectives as well as with experience and competencies, suited to the challenges at hand, usually make timely decisions and bond together as a team. The personal attributes that every member should bring to board work are: personal integrity and an understanding of the difference between the role of management and governance, intellectual strength, sound business acumen, and an ability to consider and discuss issues laterally and strategically, knowledge about government policies, support to the enterprise s mission and values and commitment. 3. The Right Skills The skills required of one Board are not necessarily the same as the skills required of another Board, given the circumstances, industry and market the SOE operates in. While an individual member of the Board probably does not have all the skills required by the Board as a whole, the Board should collectively possess all the skills needed. When new board members are nominated, the board should seek to broaden and strengthen its overall competence. 4. The Right Size Quality matters more than quantity. A board should be large enough to include a diversity of the competencies it needs to exercise its responsibilities but small enough to engage in active discussion, make timely decisions and bond together as a team. Generally, 7-15 members is the ideal size range for boards of SOEs. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 40

41 5. Term Limits The longer an individual serves a board, the more vested he or she becomes in the current direction and policies. A limit on terms ensures the board has a regular influx of fresh and objective thinking. Most SOES have as common limit three consecutive, three-year terms as defined in their Acts. Usually, the common practice is that a member must be off the board for at least one year before being eligible to serve another term. 6. The Code Aligning a Board s composition with the challenges and opportunities an organization faces in a rapidly changing, globalised world and then building that group into a cohesive unit requires a sustained effort. The GNSOE notes that the The board should have the appropriate balance of executive, non-executive and independent directors (as defined in Section of the Code). The specific recommendations under the various sections of the Code are listed hereunder: State-owned enterprises should encourage executives to be on their boards Aspiration: the Chairman of the board should be independent boards should have at least two independent directors to protect the interests of any minority shareholders and stakeholders other than government boards should have two executives as member the board should propose names of persons, giving a short CV of each as well a short justification for its choice, for the consideration of the Minister applies to boards of state-owned enterprises state-owned enterprises which are registered under the Companies Act should abide by that Act succession planning - in some state-owned enterprises, the appointment of directors are staggered (i.e. directors are appointed for different terms of one, two or three years) to ensure continuity of the board Proposal directors of state-owned enterprises should be appointed for a two to threeyear term applies to state-owned enterprises Office of Public Sector Governance (OPSG), Prime Minister s Office Page 41

42 A. Survey Findings The majority of the responding organisations have more than seven directors. B. Compliance Right Mix Most of the organisations have a right mix of Board members adequately representing key stakeholders as mentioned in their respective Acts. All organisations have a majority of nonexecutive directors on their Boards. Right Size A board should be large enough to include a diversity of competencies to exercise its responsibilities but small enough to engage in active discussions, make timely decisions and work together as a team. Generally, 7 to 10 members is the workable size range for boards of SOEs. In the case of one parastatal, the board is quite heavy with more than 18 members. Term of office The term of office for directors is staggered (i.e directors are appointed for different terms of one, two or three years) to ensure continuity of the Board. This also ensures a regular influx of fresh and objective thinking. C. Non-compliance and Recommendations Absence of Executive Directors Many Boards do not have the appropriate balance of executive and non-executive directors. In fact, the Boards do not have any executive directors while the Code recommends the appointment of at least two such directors. In addition to contributing to decision making, executives have the experience and insight on the activities and management of the organisation. Recommendation (Number 4) The appointment of Executive Directors will bring inside experience and a wider perspective to a Board due to their familiarity with the specific issues connected to the Office of Public Sector Governance (OPSG), Prime Minister s Office Page 42

43 organization's governance. Initially, OPSG considers that the board should comprise at least one executive director i.e preferably in the person of the CEO. Size of the Board It is observed that one of the seventeen organisations surveyed is headed by a board with not less than 16 members. This situation may be a major hindrance for timely and rapid decision-making due to potential lengthy deliberations where many directors may be, for active discussion purpose, willing to voice out their opinions. Recommendation (Number 5) There is a need to review the size and composition of the board of organisations with heavy boards with a view to render the board more effective and efficient. In fact, a right size leads to more cohesive functioning and decision making could be expedited will add to the efficiency of the organisation. In this context, the Act regulating the organisations has to be reviewed and amended as regards the size and composition of the board, as some date back prior to Profile of Directors It has been observed that board members are recruited and appointed in accordance with the respective Act of the organisation. In addition, the Act requires that some directors are nominated by the Minister. In certain cases, it is noted that the profile of some directors in terms of skills, competencies, experience and integrity, is lacking and inadequate which results into an ineffective and inefficient Board. They are unable to contribute through poor involvement in Board deliberations which require a certain level of professionalism, knowledge and experience. Recommendation (Number 6) The choice of Chairpersons and members of the Board should be individuals of integrity who can bring a blend of objectivity and commitment to the Board. The nomination or appointment should be made out of a list of eligible candidates (maintained by a central Office of Public Sector Governance (OPSG), Prime Minister s Office Page 43

44 government agency) with appropriate professional background, skills, experience and knowledge. The Board may consider having a Nomination Committee to appoint new directors from the eligibility list. Non-fulfilment of Vacancies of Directors Prolonged vacancies of directors at board level hinders the smooth running of the organisation in terms of imbalanced and uninformed decision, inadequate discussion, lack of representation of required interests and also lack of required quorum. It was noted that in one particular case, there were more than four vacancies at Board level which have not been filled since more than two years. Recommendation (Number 7) The Board of an organisation should ensure that vacancies at Board level be filled within reasonable time to allow for a full board necessary for the smooth running of the organisation. The parent ministry should keep a watch on such situation and initiate appropriate action, if necessary, in consultation with the central government agency. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 44

45 Chapter Four: The role and responsibilities of the Chairperson Basic function T he Chairperson of the Board is responsible for the management, the development and the effective performance of the Board of Directors, and provides leadership to the Board for all aspects of the Board s work. The Chairperson acts in an advisory capacity to the Board and Chief Executive Officer (CEO) and to other officers in all matters concerning the interests and management of the organisation. What makes an effective Chaiperson? To be an effective leader and mediator, a Chairperson must be trusted by the other members of the Board of Directors and by the officers and management of the organisation as well as the stakeholders. In order to gain the trust of Board members, as well as management, it is important that the Chairman be fair. A good Chairperson should also be open minded and should encourage Board members to voice their views. This is critically important because the whole concept of having a Board of Directors is based on the belief that the best decisions are those that are made after a free and open sharing of views by people with different types of experiences. The Chairperson, however, must also ensure that meetings are run efficiently. Board members have limited time to attend meetings and often become bored and impatient with endless debate. Business decisions must be made fairly quickly to enable the company to compete. Therefore, the Chairperson must balance encouraging discussion and questions with moving a meeting forward to make important decisions within relatively short time periods. On occasion, this means the Chairperson must call an end to discussion and call for a vote before all Directors feel they have had sufficient time to convince others of the validity of their viewpoints. Terminating debate and driving the Board to a decision without discouraging Directors from sharing their views in future meetings is the hallmark of a good Chairman. In fact, the best collective decisions are the product of disagreement and contest, not consensus or compromise. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 45

46 Thus an effective Chair Develops and maintains a positive relationship with the Minister and the Parent Ministry Ensures that the Board maintains a focus on strategy and performance and is not distracted by detail Sets the agenda, style and tone of the Board discussions to promote effective decision-making and constructive debate Promotes the highest standards of corporate governance and seeks compliance with the provisions of the Code of Conduct for Board Members, upholding the highest ethical standards of integrity and probity. Ensures effective implementation of Board decisions Establishes a relationship of trust with the Chief Executive, providing support and advice while respecting Executive responsibility and Develops and maintains positive relationships at Board level with stakeholders ensuring mutual understanding and cooperation Responsibilities The Chairperson of the Board: Plans and organizes all of the activities of the Board of Directors including: the preparation for, and the conduct of, Board meetings; the quality, quantity and timeliness of the information that goes to Board members; the formation of Board committees and the integration of their activity with the work of the Board the evaluation of the Board s effectiveness and implementation of improvements the development of the Board, including Director appointment, evaluation and compensation and the ongoing formal and informal communication with and among Directors Chairs annual and special meetings of the stakeholders. In conjunction with the CEO, the Chairman may meet with various groups, governments, the press, and industry associations Works closely with, and through the CEO, to Office of Public Sector Governance (OPSG), Prime Minister s Office Page 46

47 i) participate in the development of the Corporation s vision, strategic agenda, and business plan to facilitate communication and understanding between management and the Board; and ii) ensure operations conform with the Board s view on corporate policy; and Carries out special assignments in collaboration with the CEO and management or the Board of Directors. The Guidance Notes for State-Owned Enterprises (GNSOE) identifies the function of Chairpersons of SOEs as such: 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. Performance Review At the end of every financial year, the Directors shall meet to review the performance of the Chairman of the Board. The Code All the provisions of the Section of the Code on the role and function of the Chairperson apply to state-owned Enterprises. 1. All boards should be subject to the firm and objective leadership of a chairperson who brings out the best in each director. The chairperson should bring independence of mind and intellectual honesty to his/her role, irrespective of whether he/she is officially categorised as independent. 2. The chairperson s primary function is to preside over meetings of directors and to ensure the smooth functioning of the board in the interests of good governance. The chairperson will usually also preside over the company s Meetings of Shareholders. 3. The role and function of the chairperson will be influenced by such matters as the size or particular circumstances of the company, the complexity of its operations, the qualities of the chief executive officer and the management team, and the skills and experience of each board member. There are a number of common, core functions which should be performed by the chairperson: Office of Public Sector Governance (OPSG), Prime Minister s Office Page 47

48 providing overall leadership to the board without limiting the principle of individual responsibility for board decisions. The chairperson should also encourage and ensure the active participation of each director in discussions and board matters; participating in the selection of board members to ensure that the board has an appropriate mix of competencies, experience skill and independence; overseeing a formal succession plan for the board, chief executive officer and senior management; attending meetings of the relevant board committees whose responsibilities include those listed in Section 3 of the Code. arranging for new directors appointed to the board to be properly inducted and oriented. In this regard the chairperson must ensure that each new member of the board is made fully aware of his or her duties and responsibilities; monitoring and evaluating board and director appraisals; determining, normally in conjunction with the chief executive officer and the company secretary, the formulation of an annual work plan for the board against agreed objectives and goals, as well as playing an active part in setting the agenda for board meetings; acting as the main link between the board and management, and particularly between the board and the chief executive officer; maintaining sound relations with the company s shareholders and ensuring that the principles of effective communication and pertinent disclosure are followed; ensuring that all directors play a full and constructive role in the functioning and decisions of the board; taking a lead role in removing non-performing or unsuitable directors from the board. The corollary to this is that the board should appraise the performance of the chairperson on an annual or such other basis as the board may determine; ensuring that all the relevant information and facts are placed before the board to enable the directors to reach informed decisions; 4. The titles, functions and roles of chairperson and chief executive officer must be kept separate as a cornerstone of good governance. The chairperson is primarily responsible for the working of the board. This position is made more onerous by the complex environment in which many modern companies now operate. The chief executive officer s task is to run the business and to implement the policies and strategies adopted by the board. It is essential Office of Public Sector Governance (OPSG), Prime Minister s Office Page 48

49 that there should be a clearly accepted division of responsibilities at the head of the company to ensure a balance of power and authority, so that no one individual has unfettered powers of decision-making The chairperson can be any non-executive or independent non-executive director elected by his or her fellow directors to fill this function. 6. The chairperson should fill this role for a pre-agreed period. Once this period has expired, and if the chairperson has been re-elected to serve as a director, he/she may be re-elected by the board to serve as chairperson. Survey Findings While Chairpersons have the confidence of their Boards and are deemed to work well with their CEOs, though in some cases their relationship is seen as conflicting, the results of the survey show that their own role is not widely understood. Compliance: Profile of Chairperson The survey shows that there are a few highly qualified and well experienced Chairpersons who operate in a pro-active manner. This is reflected in the good performance of their organisation. Conduct of Board Meeting - Leadership It is observed that in more 60% of the organisations, the Chairperson provides overall leadership to the board while at the same time he encourages and ensures active participation of each member in board deliberations. Inter-personal relationship Our survey also reveals that in several organisations, the Chairperson holds a good working and inter-personal relationship with the members of the Boards by bringing out the best in each member and adopting a collaborative approach. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 49

50 Relationship between Chairperson and CEO It has been noted that in most cases, the CEO is getting the support and advice of his Chairperson in fulfilling his executive responsibilities. This working relationship is further consolidated when the Chairperson abstains from interfering in the day to day management of the organisation Non-compliance and Recommendations: Relationship between Chairperson and CEO In a few cases, it has been noted that, the conflictual relationship between Chairperson and CEO is impairing the proper functioning of the organisation. The reasons for this situation are, in the first place, the poor understanding and awareness of their respective roles and responsibilities by the Chairperson and CEO as laid down in the Code and secondly, the unwelcome interference of the Chairperson in the day-to-day management of the organisation. This often seems to be more a problem of conflict of personalities. Recommendation (Number 8) A better understanding of the role and function of the Chairperson and the Chief Executive Officer as laid down in the Code would largely contribute to avoid conflicts as well as unwelcome interference of the Chairperson and also board members in the day-to-day management of the organisation. The OPSG would continue its sensitisation activities through regular workshops, seminars, etc. Unawareness of Role and Functions The survey reveals that there are a number of common core functions which are not performed by the Chairperson in some cases. These include, amongst others, ensuring monitoring and evaluation of Board and director appraisal, maintaining sound relationship with stakeholders through the desirable level of communication and disclosures. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 50

51 Recommendation (Number 9) It is recommended that the letter of appointment for Chairperson should stipulate the main responsibilities and functions, taking into account the specificity of the nature of business of their organisations. It is advisable that Chairpersons should have undergone training in directorship prior to appointment. After appointment, he should follow an induction course organised by the concerned organisation. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 51

52 Chapter Five: The role and responsibilities of Directors T he directors are the persons in whom the management and control of the organisation are vested. An effective director must contribute both to enterprise and control and realize that the two objectives complement rather than conflict with each other. Individual directors have only those powers which have been given to them by the board. Such authority need not be specific or in writing and may be inferred from past practice. However, the board as a whole remains responsible for actions carried out by its authority and it should therefore ensure that executive authority is only granted to appropriate persons and that adequate reporting systems enable it to maintain overall control. Directors provide the leadership and accountability that determine the success of a company or organization. 1. Responsibilities of Directors Directors look after the affairs of the organisation, and are in a position of trust. They are not expected to take advantage of their position to the detriment of their organisation, and, therefore, at the expense of the stakeholders of the organisation. Consequently, the law imposes a number of duties, burdens and responsibilities upon directors, to prevent abuse. Directors are responsible for ensuring that proper books of account are kept. Directors must always exercise their powers for a 'proper purpose' that is, in furtherance of the reason for which they were given those powers by the stakeholders. Directors must act in good faith in what they honestly believe to be the best interests of the organisation, and not for any collateral purpose. This means that, particularly in the event of a conflict of interest between the company's interests and their own, the directors must always favour those of the organisation. Directors must act with due skill and care. They must consider the interests of employees of the organisation. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 52

53 2. The Core Competencies of Directors Concern for both conformance and performance requires respectively, that directors be equipped with short-term organizational efficiency and long-term organizational effectiveness competencies. The conformance-related functions of boards of directors demand abilities in supervision of management and accountability. Their performance-related functions call for aptitudes in policy formulation and foresight as well as strategic thinking. To help boards of directors become more effective, it has been suggested that the main personal attributes that directors need are (i) strategic perception, (ii) decision making, (iii) analyzing and using information, (iv) communication, (v) interacting with others, and (vi) achievement of results. The areas of knowledge that is recommended for directors to be learned in are (i) the role of the organisation, director and the board, (ii) strategic business direction, (iii) basic principles and practice of finance and accounting, (iv) effective marketing strategy, (v) human resource direction, (vi) improving business performance, and (vii) organizing for tomorrow. 3. Duties of Directors The directors owe the company: Fiduciary duties of good faith; and Duties of care and skill. Fiduciary duties. Their fiduciary duties however rest upon them individually and require that: they act only within their powers and use their powers only for the purposes for which they are conferred; they act with the required care and skill; they avoid conflicts of interest and use their powers only for the benefit of the company; they do not use information acquired in their capacity as directors for personal gain; and they retain their independence of action and do not enter into any agreement to fetter the discretion they have as directors. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 53

54 Act within Powers Directors must not enter into transactions on behalf of the organisation which are not under the powers of the organisation as set out in its memorandum and articles of association. Act with care and skill Directors must exercise care and skill in carrying out their duties. A director need not exhibit in the performance of his duties a higher deqree of skill ay as reasonably be expected of a person of his knowledge and. experience. In addition, directors discharge both their equitable as well as their legal duties to the organisation, if they act within their powers, if they act with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company they represent. In short a director is not liable for mere errors of judgment. A director should not be liable for a breach of the duty of care and skill if a business' judgment has been exercised in good faith in a matter in which the following three criteria were satisfied. : the decision was an informed one based on all the facts of the case; the decision was a rational one; and there was no self- interest 4. Calling a Directors' meeting Each director must be given reasonable notice of the meeting, stating its date, time and place. Commonly, seven days is given but what is 'reasonable' depends in the last resort on the circumstances 5. Role of the Executive, Non-Executive and Independent Non-Executive Director The board should ensure that there is an appropriate balance of power and authority on the board, such that no one individual or block of individuals can dominate the board s decisionmaking. All directors, whether executive, non-executive or independent non-executive ( independent ) are bound by fiduciary duties and duties of care and skill. Non-executive and independent directors perform such duties intermittently and have less regular access to the books and records of the company than do executive directors. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 54

55 Executive directors on the other hand, must always manage the conflict between their management responsibilities and their fiduciary duties as a director in the best interests of the company. Non-executive and independent directors play a particularly vital role in providing independent judgement in all circumstances. Although the law does not recognise the distinction between executive and non-executive director, every director has both a legal and moral duty to act independently, in good faith, with due care and skill, and without fetter or instruction. Non-executive and independent directors should be individuals of calibre and credibility, and have the necessary skill and experience to bring judgement to bear, independent of management, on issues of strategy, performance, resources, transformation, equal opportunities, standards of conduct, and evaluation of performance. Thus, legally speaking, there is no distinction between an executive and non-executive director. Yet there is inescapably a sense that the non-executive's role can be seen as balancing that of the executive director, so as to ensure the board as a whole functions effectively. Where the executive director has an intimate knowledge of the company, the non-executive director may be expected to have a wider perspective of the world at large. 6. The Code To competently fulfil their obligations under the Code, directors, irrespective of the category under which they fall, must; ensure that they have the time to devote to diligently carry out their responsibilities and duties to the company; exercise the utmost good faith, honesty and integrity in all their dealings with or on behalf of the company and must act independently of any outside fetter or instruction; in line with global best practice, not only exhibit the degree of skill and care as may be reasonably expected from persons of their competence and experience (which is the traditional legal formulation), but must also: exercise both the care and skill any reasonable persons would be expected to show in looking after their own affairs as well as having regard to their actual knowledge and experience when performing their duties as a director of the company; 6qualify themselves on a continuous basis with a sufficient (at least a general) understanding of the company s business and the effect of the economy so as to Office of Public Sector Governance (OPSG), Prime Minister s Office Page 55

56 discharge their duties properly, including where necessary relying on expert advice; always act in the best interests of the company and never for any sectoral or other outside interest or party; never permit a conflict of duties and interests and must disclose potential conflicts of interest to the board at the earliest possible opportunity; be informed about the financial, industrial, environmental and social milieu in which the company operates; be satisfied that they are in a position to take informed decisions; treat any confidential matters relating to the company, learned in their capacity as a director, as strictly confidential and not divulge them to anyone without the authority (on a case by case basis) of the board; insist that board papers and other material information regarding the company are provided in time for them to make informed decisions; ensure that procedures and systems are in place to act as checks and balances on the information being received by the board and ensure that the company prepares annual budgets and regularly updated forecasts against which the company s performance can be monitored by the board; ensure that a proper risk assessment of the company s current operations and proposed projects under a variety of relevant scenarios is undertaken on a regular basis; be diligent in discharging their duties and obligations to the company, regularly attend meetings and must acquire a broad knowledge of the business of the company so that they can meaningfully contribute to its direction; be prepared and able, where necessary, to express disagreement (constructive dissent, not disloyalty) with colleagues on the board including the chairperson and chief executive officer; act with enterprise for and on behalf of the company and always strive to increase shareholders value, while having regard for the interests of all stakeholders relevant to the company; and if in doubt about any aspect of their duties, obtain independent professional advice at the earliest opportunity in accordance with Chapter 1, clause 3.6(i) of this Section. It is incumbent on every director to ensure that that he/she has the time to properly carry out his/her duties. In addition the board must ensure that any new or potential director has been Office of Public Sector Governance (OPSG), Prime Minister s Office Page 56

57 made clearly aware of the time requirements and responsibilities before he/she seek election. Executive directors may be encouraged to take one or two other non-executive directorships, provided these are sanctioned by the board. These should not be detrimental to their immediate responsibilities as an executive director of the company, nor represent an actual or potential conflict of interest. Non-executive and independent directors should be judicious in the number of directorships they accept, in order to ensure that they do full justice to their onerous and demanding responsibilities as board members. The level of directors fees and other forms of remuneration should be sufficient to attract, retain and motivate individuals of the quality required by the board. The non-executive and independent directors are encouraged to acquire shares from their own resources in order to positively align their interests with those of the shareholders. 7. Conflicts of interest and Conflictual relationship Is there a clearly defined division of responsibilities at senior management level? The main cause of poor performance of many SOE s is the conflicting relationship between the Chairperson and the Chief Executive Officer. The conflicting relationship arises as a result of the chairpersons ignorance or disregard of their roles and functions in as much as their appointment letter does not define their roles, functions and accountability. In cases of conflicts of interest, GNSOE recommends that all directors on appointment and on a continuous basis, should, in good faith, disclose any business or other interest that is likely to create a potential conflict of interest. The other recommendations as per the CODE are namely:- Where an actual or potential conflict does arise, on declaring their interest and ensuring that it is entered on the Register of Interests of the company, a director can participate in the debate and/or indicate their vote on the matter, although such vote would not be counted. The director must give careful consideration in such circumstances to the potential consequences it may have for the board, company and him. Any director who is appointed to the board at the instigation of a party with a substantial interest in the company, such as a major shareholder, substantial creditor or significant supplier or advisor, should recognise that their duty and responsibility as director is always to act in the interests of the company and not the party who nominated them. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 57

58 Any such director must treat confidential matters relating to the company, learned in his/her capacity as director, as strictly confidential and must not divulge them to anyone without the authority of the board. The board must consider each such request on its merits and on a case by case basis. No such director may refer back to the interested party before voting on a board matter. 7. Performance The code recommends that Directors be assessed both individually, and collectively as a board and that formal evaluations be conducted by the chairperson and, if peer reviews are in place for executive management and that these should be extended to director level. The chairperson should ensure that the directors know that they will be the subject of a review, the criteria used for assessment and the procedure that will be followed. A series of assessment questions should be distributed in time for directors to complete prior to any meeting with the chairperson. 8. Survey Findings The Survey confirmed that directors are becoming increasingly aware of corporate issues like strategic planning, succession planning, risk management, the Code of corporate governance, Audit committees etc which will enable them to better handle their responsibilities. A. Compliance: Role and Responsibilities of Directors Participation of Directors In general, it is observed that directors are assuming their role and responsibilities in a satisfactory manner in terms of attendance, participation, objectivity, confidentiality and professionalism. As mentioned earlier, the rate of attendance in board meetings is quite acceptable. According to the Chairpersons, the Board receives the support and contribution of most Directors. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 58

59 B. Non-compliance and Recommendations: Role and Responsibilities of Directors Contribution of Directors In few cases, the inadequate and poor input of some directors has been highlighted in that they do not participate actively in board deliberations and their contributions are considered to be uneven. Some directors are not involved in overseeing the strategic direction and management of the organisation and promoting its overall success and keeping abreast of development in its business sector. Recommendation (Number 10) To address the above issue, the organisation should put in place an appropriate mechanism for the assessment of the performance of the Directors. This will allow the organisation to take corrective action such as providing relevant training to or replacement of non-performing directors. This mechanism will encourage directors to bring better contribution at Board level. Training and Development No formalised induction or training course has been observed to be carried out in respect of new members joining the board. There is also a need to provide for specific training of directors and the executive management in regards to both corporate governance issues and the fiduciary duties and other board responsibilities. Recommendation (Number 11) The Code requires that a formal induction programme be set in place to familiarise new directors with the organisation s operations, its strategic plan and its business environment. It should also include such important issues as fiduciary duties and responsibilities of directors, situation of potential conflict of interest and personal liability as directors. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 59

60 Multi-Directorship The survey reveals that some members are sitting on more than one board thereby giving rise to multi-directorship. Multi-directorship may affect the directors commitment by diluting their effectiveness and capacity to participate fully in boards deliberations. Moreover, this may give rise to conflict of interest by directors being required to take decision on matters which may not be in the best interest of other related organisations. Recommendation (Number 12) For the purpose of nominating or appointing Directors, the essential criteria, among others, regarding multi-directorship should be taken into account. This will allow the selection of directors who have the time and energy to meet the demands of their role as directors. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 60

61 Chapter Six: The role of the Chief Executive Officer (CEO) T he Board of Directors has delegated to the Chief Executive Officer, working with the other executive officers of the Company and its affiliates, the authority and responsibility for managing the business of the organisation in a manner consistent with the standards of the organisation, and in accordance with any specific plans, instructions or directions of the Board. The Chief Executive Officer seeks the advice and, in appropriate situations, the approval of the Board with respect to actions to be undertaken by the organisation, including those that would make a significant change in the financial and non-financial prospects of the organization. 1. Main responsibilities The CEO is responsible for executing the strategy agreed by the Board and developing the objectives through leadership of its executive team. He will recommend to the Board any investment or new business opportunities which meet this strategy. He also ensures that the Group s risks are adequately addressed and appropriate internal controls are in place. The CEO is responsible for meeting with shareholders and ensuring effective communication. 2. Main functions of the CEO The Chief Executive Officer Helps create the vision by providing technical support and Advice Leads the development of alternative strategies for achieving the vision, ensuring creativity is allied to realism Leads the development of innovative plans to achieve the full implementation of agreed strategies Builds capable and inspiring teams and organises them into a fit-for-purpose organisation structure with management processes that provide for plan delivery Provides inspiring leadership to the public body to ensure the complete delivery of agreed plans on time and to budget Monitors organisational performance closely, keeping the Board appropriately informed Ensures operational/performance issues are quickly and effectively dealt with. Maintains an ability to innovate and question the status quo even when he/she created it him/herself Office of Public Sector Governance (OPSG), Prime Minister s Office Page 61

62 Fulfils all the responsibilities of being the public body s Accountable Officer reports on whether the financial statements are fairly presented; adequate accounting records and an effective system of internal controls and risk management have been maintained; appropriate accounting policies supported by reasonable and prudent judgments and estimates have been used consistently; applicable accounting standards have been adhered to or, if there has been any departure in the interest of fair presentation, this must not only be disclosed and explained but quantified; and the Code of Corporate Governance has been adhered to, or if not, to give reasons where there has not been compliance 3. The Code All the provisions of the Code pertaining to the role and function of the Chief Executive Officer apply to state-owned enterprises. The chief executive officer should fulfill the following: develop and recommend to the board a long-term strategy and vision for the company that will generate satisfactory levels of shareholder value and positive, reciprocal relations with relevant stakeholders; develop and recommend to the board annual business plans and budgets that support the company s long-term strategy. In the development of these plans, it is essential that the chief executive officer ensures that a proper assessment of the risks under a variety of possible or likely scenarios is undertaken and presented to the board (whether through a separately constituted Board Risk Committee or through an Executive Risk Management Committee); strive consistently to achieve the company s financial and operating goals and objectives, and ensure that the day-to-day business affairs of the company are appropriately monitored and managed; ensure continuous improvement in the quality and value of the products and services provided by the company, and that the company achieves and maintains a satisfactory competitive position within its industry(ies); ensure that the company has an effective management team and actively participate in the development of management and succession planning (including the chief executive officer s own position); develop and recommend to the board major corporate policies and oversee their implementation;63 Office of Public Sector Governance (OPSG), Prime Minister s Office Page 62

63 serve as the chief spokesperson for the company on all operational and day-today matters. The chairperson and chief executive officer should discuss and agree with the board the division of responsibilities for communication to shareholders and other stakeholders. As mentioned in Chapter 1, however, it is important that the chief executive officer and other key officers attend Meetings of Shareholders and be prepared to present material operational developments to the meeting. The chief executive officer should maintain a positive and ethical work climate conducive to attracting, retaining and motivating a diverse group of top-quality employees at all levels of the company. In addition, it is incumbent on the chief executive officer to foster a corporate culture that promotes ethical practices, offers equal opportunities, encourages individual integrity, and fulfills social responsibility objectives and imperatives. 4. Survey Findings Most of organizations surveyed show that the CEOs have established governance structures and processes to monitor the organisation s wider economic, social and environmental performance. The results of our survey also illustrate a high level of importance being attached by CEOs to their role as communicators with stakeholders. A. Compliance: Role and Responsibilities of the Chief Executive Officer (CEO) Separation of Supervision and Management In all organisations, the title, function and role of the Chief Executive Officer are separate from that of the Chairman which is a major requirement of the Code. The CEO is responsible for the day-to-day operational management of the organisation while the Chairperson together with the Board is responsible for formulating strategies and policies as well as having an oversight over the affairs of the organisation. Profile of CEO Most of the CEOs are found to have the experience, skills and knowledge necessary to discharge their duties and responsibilities effectively and efficiently. They work towards Office of Public Sector Governance (OPSG), Prime Minister s Office Page 63

64 the achievement of the organisation s financial and operating goals and objectives as set by the Board and ensure that the day-to-day business of the organisation is properly managed and monitored. B. Non-compliance and Recommendations: Role and Responsibilities of the Chief Executive Officer Relationship between Chairperson and CEO In most cases of the conflicting relationship between the Chairperson and the Chief Executive Officer, this conflictual environment is mainly the result of the chairperson s ignorance or disregard of his role and function in as much as his appointment letter does not define his role, function and accountability. Recommendation (Number 13) A better understanding of the role and function of the Chairperson to lead the Board and oversee the affairs of the organisation and that of a Chief Executive Officer to manage and execute Board decisions will assist in creating the appropriate relationship free from potential conflicts. It is in the interest of both parties to shoulder their respective responsibilities in a manner that display sound corporate governance. Moreover, it is advisable that Chairpersons receive a formal letter of appointment with well-defined roles and responsibilities and deliverables. Evaluation of Effectiveness of the Chief Executive Officer Most organisations do not have a proper mechanism to monitor and evaluate the performance of the CEO as regards implementation of policies and strategies and maintenance of an adequate system of internal control. Recommendation (Number 14) To ensure that the objectives of the organisations are achieved, organisational performance indicators should be set against which the performance of the CEO can be assessed on an annual basis. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 64

65 Management Information The effectiveness and efficiency of the Board depend to a large extent on the intelligent, timely and accurate information provided by management. Moreover, the information obtained should be appropriate and comprehensive to make informed decision. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 65

66 Chapter Seven: The role of the Secretary 1. Duties T he 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. 2. Key Responsibilities The Corporate Secretary is the confidant and counselor to the Board, advising on governance matters and ensuring that the organisation and its directors operate within the ambit of the law. A key responsibility for the Corporate Secretary is to ensure that the Board has the proper advice and resources for discharging its fiduciary duty under state law, and to ensure that the records of the Board's actions reflect that the Board has done so. Providing advice on corporate governance issues is an increasingly important role for corporate secretaries. The Corporate Secretary usually assists directors in these efforts, providing information on good practices and helping the board to adopt corporate governance principles and practices so as to fit the board's needs and expectations of stakeholders. 3. The Code The code defines the role and function of the Secretary at three levels namely the Board, Corporate body and Stakeholders. These are given below. The Board The Secretary must guide the board collectively, and each director individually, as to their duties and responsibilities and make them aware of all relevant legislation, regulations, listing rule obligations and corporate governance requirements. The Secretary must ensure that the procedure for the appointment (as opposed to selection) of directors is carried out according to the legal provisions and he/she Office of Public Sector Governance (OPSG), Prime Minister s Office Page 66

67 should assist the board in the proper induction and orientation of directors. He/she should also assist the Corporate Governance Committee (or Nomination Committee if separate) in assessing the specific training needs of directors and executive management in regard to their fiduciary and other responsibilities. The Secretary needs to be available to provide comprehensive practical support and guidance to directors, with particular emphasis on supporting the non-executive directors and chairperson. The Secretary should ensure unhindered access to information by all board and committee members so that they can contribute to board meetings and other discussions. The Secretary is responsible for the compilation of board papers and for filtering them to ensure compliance with the required standards of good governance. The Secretary s role should also be to raise matters that may warrant the attention of the board. Corporate Body The Secretary should ensure that the company complies with all relevant statutory and regulatory requirements, having due regard for the specific business interests of the company. In particular, the organisation secretary must be aware of the duties set out in the Companies Act. The Secretary should help to carry out corporate strategies by ensuring that the board s decisions and instructions are clearly communicated to the relevant persons. The Secretary should be available to provide a central source of guidance and advice within the organisation on matters of ethics and good governance. Stakeholders The Secretary needs to communicate with the shareholders as appropriate, and to ensure that due regard is paid to their interests. The procedure must be agreed and harmonised with the respective roles of the chairperson and chief executive with regard to communication. The Secretary needs to act as the primary point of contact for institutional and other shareholders (unless a specific committee has been set up for that purpose in which case the Secretary should be a member of that committee, or a separate appointment Office of Public Sector Governance (OPSG), Prime Minister s Office Page 67

68 has been made in which case the secretary should liaise with that individual), especially with regard to matters of corporate governance. It is of particular importance to ensure that all shareholders are treated in a fair and equal manner. The Guidance Notes for State-Owned Enterprises (GNSOE) clearly marks out that the provisions of this Section of the Code on the Role and Function of the Company Secretary apply to the Secretary of the Board of state-owned enterprises. 4. Survey Findings A. On compliance: Role and Responsibilities of the Secretary Appointment of Secretary All organisations have appointed a Secretary with the responsibility for taking notes of meetings, preparing agenda, and convening meetings of the Board and Board committees. In most cases, administrative officers are performing the duties of the secretary to the board. According to Chairpersons interviewed, these officers are performing to the satisfaction of the Board. B. Non-compliance: Role and Responsibilities of the Secretary Duties of Secretary In most organisations, the officers who are acting as Secretaries are not aware of the relevant statutory and regulatory requirements of their organisations. They are not fulfilling their role as required by the Code which includes, amongst others, advising the board on good corporate governance practices and also guiding the board in discharging its fiduciary duties while ensuring that the organisations and its directors operate within the ambit of the law. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 68

69 Recommendation (Number 15) Necessary training relating to the duties and responsibilities as a secretary as required by the Code should as far as possible be provided to them. Such responsibilities include, among others, assuring compliance with necessary statutory and regulatory requirements, code of conduct and internal rules and regulations, acting as focal point of contact for stakeholders, and providing guidance and advice to the Board on matters of ethics and corporate governance. Notice of meeting In a few organisations, notice of meeting including the agenda as well as other board papers are not sent to Directors well in advance of the Board (or/and Board Committees) meeting. Recommendation (Number 16) Notice of meeting should be forwarded to Directors within a reasonable time before the Board (or/and Board Committees) meeting to apprise themselves of the Board papers. This will allow the Directors to participate constructively in discussions at Board meeting and to contribute to decision-making. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 69

70 T Chapter Eight: Role of stakeholders he relationship between stakeholders and the organisation is one of the key elements of corporate success, if not the most critical factor. The role of various stakeholders may be even greater in many organisations, where a key challenge is to prevent the abuse of power by controlling management. 1. Who are the stakeholders Stakeholders primarily include investors, managers and employees, customers, suppliers and other business partners, and local communities. Regulatory and supervisory agencies, civil activists, and the media may play an important role in enhancing corporate governance. Regulatory bodies and trade commissions are directly involved in setting and enforcing the rules on the conduct of business by corporations for the purpose of protecting investors. Media attention can motivate politicians, bureaucrats, controlling families, and managers, who are concerned about damage to their reputations, to adopt more effective corporate governance laws, policies, and practices. 2. The Code The code defines the stakeholder in modern Mauritius as follows: stakeholder as providers of capital; employees and officers of the enterprise; parties that contract with the enterprise; non-contractual parties, including civil society, local communities, nongovernmental organisations, trade unions and other special interest groups whose concerns may be issues such as customer protection, market stability and the environment; the State as a policy maker, legislator and regulator. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 70

71 An organisation should take into consideration the interest of all stakeholders such as its customers, employees and suppliers when implementing the company s strategies. The organisation s policies and values should, as far as possible, be communicated to all stakeholders so as to build a mutually beneficial relationship. International experience suggests that this inclusive approach favours sustained business success and steady long-term growth. The organisation must ensure that an appropriate balance is maintained between the interests of stakeholders and the interests of the organisation. It is now agreed that there is a need to weigh the shareholders expectations of maximum returns against other priorities which are the interests of those with whom the organisation is contractually engaged as well as the concerns of its immediate community and society at large. Companies should consider that although responsibilities of certain stakeholders such as its officers might be confined to the interests of the corporation, organisations are responsible to society as regards their social role and functions. 3. Role of the stakeholder Stakeholder engagement allows organisations to understand and address issues that are important to society. With this information, organisations can improve the effectiveness of their decision-making processes in order to result in improved sustainability. Engaging with stakeholder is therefore an important component of a successful approach to corporate responsibility (CR). However, for stakeholder engagement to be effective it must be designed and implemented effectively. Developing stakeholder engagement that is effective and efficient ensures compliance to good corporate governance practices, 4. Stakeholder engagement Has the Board established: clear channels of communication with the body s stakeholders? appropriate processes to ensure that such channels operate effectively in practice? Has the Board made an explicit commitment to openness in all the activities of the body? Does the Board make publicly available the all the information on the organization including names of all Board members, together with their relevant other interests? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 71

72 OECD---Relations with Stakeholders. Section iv of OECD guidelines on Corporate Governance of State-owned Enterprises stresses that: The SOEs should recognise and respect stakeholders rights established by law or through mutual agreements. SOEs should report on stakeholder relations. 10. Survey Findings Most of the directors surveyed seem to view the roles of stakeholders as being very important. A. Compliance. Role of Stakeholders Rights of Stakeholders In most organisations, the rights of stakeholders are mirrored by their representatives on the Board. Their active participation in Board meetings ensures that their interests are safeguarded. According to the respondents, there is an effective cooperation and collaboration between the organisation and its stakeholders like government, employees, contractual parties and the public. This relationship improves the quality of service delivery and ensures long term sustainability of the organisation. Communication with Stakeholders Most of the organisations have developed various means of communication such as websites, brochures, regular meeting, fairs, etc to be in close contact with their stakeholders as well as disseminating their policies and values. This ensures stakeholder engagement in compliance with good corporate governance practices. B. Non-compliance and Recommendations. The Role of Stakeholders Non-representation on Board Office of Public Sector Governance (OPSG), Prime Minister s Office Page 72

73 It has been pointed that, in few cases, some stakeholders of the organisations are not represented on Boards which may lead to their interests being overlooked. Recommendation (Number 17) To enhance participation of major stakeholders in the organisations, it is proposed that as far as possible, their representatives should form part of the board. In this respect, the respective Acts need to be amended accordingly. Communication Most organisations do not hold regular meetings with their stakeholders with a view to encouraging the latter to participate in the affairs of the organisations. It was also noted that they do not carry out any survey to assess their performance in service delivery and the needs of stakeholders. Recommendation (Number 18) As service providers, the organisations need to carry out surveys with the major stakeholders or other related means to assess the level and quality of services delivered. In order to encourage participation of the stakeholders in the affairs of the organisation, two-way communication is vital. In this context, there is a need to adapt a proactive approach by holding regular meetings with them or informing them of the recent activities of the organisation through letters, s, sms, etc. Website All organisations have their own high-quality websites which are convenient tools to add value and satisfaction, display corporate information and improve communication with stakeholders. However, it is observed that the information on some websites are not updated on a regular basis and are not user-friendly. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 73

74 Recommendation (Number 19) The websites of most organisations need to be upgraded to be more user-friendly and should be updated on a regular basis. The information which is displayed on the website should be easily understood by the public at large. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 74

75 Chapter Nine: Disclosure and transparency T ransparency is the cornerstone of good governance principles. Disclosure and transparency are the partners of good governance. They demonstrate the quality and reliability of information -- financial and non-financial-- provided by the Board to stakeholders. Disclosure and transparency matters Recent experiences in some countries have demonstrated the following benefits by adopting the principles of disclosure and transparency. A. High standards of transparency and disclosure can have a material impact on the cost of capital. B. Reliable and timely information increases confidence among decision-makers within the organization and enables them to make informed good business decisions which can directly affect growth and profitability. C. Information also affects decision makers outside the entity--shareholders, investors lenders, and central government-- who must decide where and at what risk to place their money. D. The information the organization provides should show decision-makers and outside interests whether and to what extent it corporations meets legal requirements. E. Disclosure helps public understanding of a organisation's activities, policies and performance with regard to environmental and ethical standards, as well as its relationship with the communities where the organisation operates. F. Disclosure and transparency, as well as proper auditing, serve as a deterrent to fraud and corruption. I. Essential features Disclosure should include material information - information whose omission or misstatement could influence the economic decisions taken by the users - on: Organisation objectives Members of the board and key executives Office of Public Sector Governance (OPSG), Prime Minister s Office Page 75

76 Governance structure- in particular the division of authority between stakeholders, management and board members The organisation's financial and operating results (Audits should be conducted by an independent auditor in order to provide an objective assurance that the financial statements have been properly prepared and presented) Material issues affecting employees and other stakeholders Managerial compensation Related party transactions Foreseeable risk factors Corporate Governance Compliance II. The Code. The Code highlights that it is the directors responsibility to prepare financial statements that fairly present the state of affairs of the organisation as at the end of the financial year and the profit or loss and cash flows for that period; the external auditors are responsible for reporting on whether the financial statements are fairly presented; adequate accounting records and an effective system of internal controls and risk management have been maintained; appropriate accounting policies supported by reasonable and prudent judgments and estimates have been used consistently applicable accounting standards have been adhered to or, if there has been any departure in the interest of fair presentation, this must not only be disclosed and explained but quantified; and the Code of Corporate Governance has been adhered to, or if not, to give reasons where there has not been compliance Another area in which significant improvements have been made in relation to information disclosure is the provision of information about directors. Stakeholders need to have accurate information on directors and how they perform as directors, especially because the role of directors has become increasingly important since the economic crisis. There should be a separate corporate governance section in the annual report. The relevant items which are considered relevant to be disclosed by the SOEs are as follows: Office of Public Sector Governance (OPSG), Prime Minister s Office Page 76

77 Directors resume and the category (i.e executive, independent etc) in which they fall. The number of other directorship held should be disclosed. Related party transactions between the organization and a director, chief executive. Total Remuneration of individual directors. Terms of reference of board committees as well as the composition of committees. The number of times in the year the board and committees met, including attendance details. Identification of key risks of the organization including a brief discussion of how they are managed. Charitable donations, Political donations. Its policies and practices as regards social, ethical, safety, health and environmental issues. The Financial Reporting Act2004. The Financial Reporting Act 2004 requires that all state owned enterprises should apply the Code of Corporate Governance. In case of non-compliance, these SOEs shall disclose and explain reasons for their non-compliance. The Finance and Audit Act 2009 The Finance and Audit Act 2009 requires the Director of Audit to report on whether the disclosures in the Corporate Governance Report are consistent with the requirements of the Code (Section 8) III. Survey findings There were significant disparities in the level of disclosure and transparency of information from one SOE to another A. Compliance Disclosure and Transparency Submission of Annual Report It is observed that few organisations are complying to the Code and to the relevant Acts (Financial Reporting Act 2004 and Finance and Audit Act 2009) as regards submission Office of Public Sector Governance (OPSG), Prime Minister s Office Page 77

78 of their annual reports which should, among others, include their audited financial statements and corporate governance reports, within the time schedule as laid down in legislation. Non-compliance and Recommendations. Disclosure and Transparency Non-submission of Annual Reports Most organisations are not adhering to the timeframe as required by the Finance and Audit Act 2009 for the submission of their annual reports. In some cases, the CEO has failed to prepare the report within the stipulated period. Where the report has been prepared, it has not yet been approved by the Board within the prescribed three months following the year end to be submitted to the auditor. It has been reported that one of the main reasons for not preparing the financial statements within the required timeframe is the non-availability of internal accounting expertise. Also, the current practice requires that organisations submit their annual reports to the parent ministry which thereafter tables them at the National Assembly. There are also cases where the parent ministry has received the annual report but has not tabled same at the National Assembly. Recommendation (Number 20) The National Audit Office has made representations year after year about nonsubmission of annual reports by SOEs within the laid down legal time framework. In terms of accountability and transparency and to comply with the law, the Board should ensure that annual reports are prepared within the legal timeframe. It is the responsibility of the CEO to ensure that the financial statements are prepared and that of the Board to approve same and for the Ministry to submit to the National Assembly. In the Consolidated Finance and Audit Act 2009, there is no mention of the time frame for tabling annual reports of SOEs by parent ministries at the National Assembly. Necessary amendments should be brought to relevant Act to require a reasonable time frame for the preparation, approval, audit, submission to parent ministry and tabling at the National Assembly. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 78

79 Incompleteness of Information It is also observed that most of the financial and non-financial information disclosed by organisations were accurate but not necessarily complete. Information on areas such as Directors details, profile of Senior Management team and terms of reference of Board Committees, etc have not been disclosed in the Annual Report. Recommendation (Number 21) For the purpose of completeness, it is recommended that all financial and non-financial information be disclosed in the annual report in accordance with the relevant Acts, International Accounting Standards (IASs) and the Code. This will enhance the degree of disclosure and transparency enabling all stakeholders to obtain a full and fair view of the performance of the organisation. It should be pointed out the Financial Reporting Act 2004 requires that designated institutions such as listed companies, banks, large public and private companies and more especially stated-owned enterprises, including statutory corporations and parastatal bodies should disclose or explain the reasons for their non-compliance of the national code. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 79

80 B Chapter Ten: Board Committees oard committees are set up when it is apparent that issues are too complex and/or numerous to be handled by the board and a more comprehensive and detailed evaluation of specific issues needs to be undertaken The fact that the board is delegating its authority through the establishment of board committees does in no way discharge the board from its duties and responsibilities. 1. The Code. In establishing the board committees, the board must determine the terms of reference which should include the following: Objectives, purpose and activities Composition Tenure Reporting mechanism to the board Agreed procedure for seeking independent outside professional advice when necessary Life span Board Committees should, as far as possible, only comprise members of the board but it may if necessary co-opt specialists who should form a minority on the committee. A secretary should be appointed for each committee and minutes of each meeting recorded. All organizations should have at a minimum an audit committee and a corporate governance committee. The board can however also set up other board committees depending on the nature of the activities of the organization. The terms of reference and composition of the Audit committee, the Corporate Governance committee and the Risk committee are elaborated below as per the Code. 2. The Audit committee. Terms of reference. The Audit committee assists the board in overseeing the management of the organization s businesses particularly with respect to financial matters which includes the following main issues: To approve the internal audit programme and review and monitor the effectiveness of the internal audit function and the internal control system. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 80

81 Composition The reliability and accuracy of the financial information provided by management to the board and other users of financial information. Any accounting or auditing concerns identified as a result of the internal or external audits. The organisation s compliance with legal and regulatory requirements with regard to financial matters. The financial information to be published by the board. The Audit committee should exclusively comprise non-executive directors who should have financial awareness. The chairperson should have substantial accounting or financial experience. Neither the chairperson nor the chief executive officer should form part of the committee. The Corporate Governance Committee. Terms of Reference. The main role of the Corporate Governance Committee is to ensure that the reporting requirement s on Corporate Governance whether in the annual report or on an ongoing basis are in accordance with the principles of the code. Composition. The chairman of the Corporate Governance Committee should normally be an independent nonexecutive director. The chief executive officer may be a member of the Corporate Governance Committee. The Corporate Governance Committee should normally compose of a majority of non-executive directors. The Board Risk Committee. The need to set up a Risk Committee would depend on the nature and complexity of the organization. In relatively small organizations, it is acceptable for risk management to be the direct responsibility of the board rather than the board committee. Responsibility for setting risk strategy will remain with the board but the responsibility for assessing and assuring the quality of the risk management process may be delegated to the Audit Committee in the absence of the risk committee. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 81

82 Composition. The chairman of the Risk Committee should be a non-executive director. The chief executive officer should be a member of the Risk Committee. The organization may appoint a chief risk officer who would report to the Risk Committee. IV. Survey Findings A. Compliance Board Committees Meeting and Reporting The survey reveals that in those organisations that have well-structured board committees, meetings are held at regular interval and the rate of attendance is appreciatively high. It has also been pointed out the Board Committees are meeting their purpose and objectives and are reporting to the Board in an effective manner. Most organisations have appointed a secretary to assist Board Committees and the deliberations are duly recorded. B. Non-compliance and Recommendations Board Committees Absence of an Audit Committee and a Corporate Governance Committee According to the Code, all organisations should have, at a minimum, an audit committee and a corporate governance committee. Our survey shows that the majority of the seventeen organisations have not set up these committees. In the absence of an audit committee and corporate governance committee, internal auditors are reporting directly to the CEO just impairing the independence and objectivity of the auditor while issues relating to good governance are being overlooked. Consequently, the Board may be unable to exercise adequate oversight. Office of Public Sector Governance (OPSG), Prime Minister s Office Page 82

83 Recommendation (Number 22) To comply with the Code, the Boards of the organisations should have, as a minimum, an audit committee and a corporate governance committee. The Audit Committee should focus, among others, on the functioning of internal control system and the internal audit department, risk areas, external audit and compliance with relevant rules, regulations and laws. On the other hand, the Corporate Governance Committee should ensure that the reporting requirements on corporate governance are in accordance with the principles of the national Code. Terms of Reference of Board Committees In the few cases where all required Board committees have been set up, their terms of reference have not been clearly defined and documented as required by the Code. This may not allow those committees to meet their intended purpose and to perform effectively. Recommendation (Number 23) In establishing Board committees, the Board must clearly define and document their terms of reference, life span, role and function. The terms of reference of each committee should include its objectives, purpose and activities, composition, tenure and reporting mechanism to the Board. Composition of Board Committees Sub-committees are set up to assist and to make well-considered recommendations to the Board on issues delegated to them. It is observed that in some organisations, the Chairperson of the Board also chairs Board committees. This is not a good governance practice as it may influence the ultimate Board decision. The views and recommendations of the Chairperson at Board Committee level are more likely to prevail during final decision making at Board level. Recommendation (Number 24) As far as possible, Boards should ensure that their Board Committees are not chaired by the Chairperson and should comprise mainly independent directors to allow for better and Office of Public Sector Governance (OPSG), Prime Minister s Office Page 83

84 independent decision making. In addition, the Chairperson and the CEO should not form part of the audit committee to allow for objectivity and independence in both internal and external audit function and reporting. Where necessary, the respective Acts should be verified accordingly. Evaluation of Board Committees In nearly all organisations, Board committees are not subject to regular and formal evaluation by the Board to assess their performance and effectiveness. Recommendation (Number 25) The Board should devise an appropriate mechanism to be able to assess and evaluate the performance and effectiveness of Board committees as a whole and of the members individually. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 84

85 C Chapter Eleven: Corporate Social Responsibility SR 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. Organisations are now also expected to perform well in non-financial areas such as human rights, business ethics, environmental policies, corporate contributions, community development, corporate governance, and workplace issues. Some examples of CSR are safe working conditions for employees, environmental stewardship, and contributions to community groups and charities. CSR is becoming more commonplace among corporations, there are concerns that some organisations promote an image of CSR whether or not they have a true strategy in place and the results to show for. Accountability and transparency are key to conducting business in a responsible manner. 1. The Code. The Code does not make specific reference to corporate social responsibility although the code however places emphasis on the following: Organisations should develop and implement safety, health and environment policies and practices to comply with existing legislative and regulatory frameworks. Organisations should be actively involved in managing their activities so as to minimise any negative impact on the environment. Best practices should be adopted to protect environmental assts. Organisations need to play an important role in sustaining social harmony, especially through their employment policies and their ownership structure. 2. Survey findings: Office of Public Sector Governance (OPSG), Prime Minister s Office Page 85

86 A. Compliance: Corporate Social Responsibility Most organizations are aware of the need to participate in such activities that may benefit the society and some have already operationalised their CSR activities. B. Non-compliance and Recommendations: Though many of the organisations are more or less involved in CSR activities, they do not have a defined policy on CSR. The absence of CSR activities will hinder the organisations from benefits such as long term economic sustainability and social harmony through acceptable employment policies and ownership structure. Recommendation (Number 26) Corporate social activities are in the long-term economic interest and success of the organisations and help them in conducting themselves as responsible citizens. To encourage greater involvement of SOEs in CSR activities, parent ministries should formulate workable policies on CSR together with appropriate incentives. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 86

87 Chapter Twelve: Conclusion 1.1 From the findings of the survey carried out in the seventeen SOEs, we can safely conclude that the degree of compliance to the code of corporate governance is satisfactory. As depicted in the graph below, the average level of compliance to the major sections of the code is more than 50% in most of the 10 CG topics surveyed. 80% Degree of Compliance 70% 65% 62% 67% 63% 60% 50% 51% 56% 58% 54% 50% 40% 30% 28% 20% 10% 0% 23rd March In the individual reports submitted to the respective bodies, we have highlighted the compliant and non- compliant issues to the code together with the proposed recommendations to improve the existing governance practices. Given the fact that the code of corporate governance is dynamic and will have to evolve in line with best practices, we have the duty to monitor that not only that our proposals are properly implemented but also to sensitize on the new evolving concept of good governance. With the positive response received, OPSG is planning to extend the survey in other SOEs and also include the parent Ministries in the near future. Corporate governance is a journey, not a destination and it is hoped that this document will provide guidance for continuing that journey in Mauritius. However, as the corporate environment develops in Mauritius the Code of Corporate Governance will need to be adapted to address new developments, especially in the specific circumstances of the SOEs. Therefore, Office of Public Sector Governance (OPSG), Prime Minister s Office Page 87

88 both the Code of Corporate Governance and the Guidance Notes for State-Owned Enterprises will need to be reviewed and revised following the experience gathered after some years of implementation and application, and thereafter as the need arises. Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 88

89 List of State-Owned Enterprises Annex A S.N Organisations 1 Central Water Authority 2 Wastewater Management Authority 3 Agricultural Marketing Board 4 Farmers Service Corporation 5 Early Childhood Care and Education Authority 6 Mauritius Examination Syndicate 7 Mauritius Oceanography Institute 8 Mauritius Broadcasting Corporation 9 Mauritius College of the Air 10 Irrigation Authority 11 Mauritius Qualifications Authority 12 Vallée d'osterlog Endemic Garden Foundation 13 Mauritius Institute of Training & Development 14 Rajiv Gandhi Science Centre 15 Beach Authority 16 Cargo Handling Corporation Limited 17 Mauritius Ports Authority Office of Public Sector Governance (OPSG), Prime Minister s Office Page 89

90 Survey Questionnaire No 1 Appendix B In carrying out the review, it is important to have the clear objectives, mission and vision of the organizations. 1.0 The Responsibilities of the Board Whether the Board is fulfilling its role in ensuring the strategic guidance of the organization which includes the formulation of the policies and strategies? The frequency of the Board Meetings. frequency of meeting of the Board? Is there any statutory need for the Is there a policy to evaluate and monitor the performance of the Board, Chairperson and other directors of the Board? Is there a Performance Agreement between the Parent Ministry and the Organisation? If yes, in what form is the agreement? If no, is there a need to have one? 2.0 The Board Composition Whether the interests of all stakeholders are well represented on the Board. The profile (C.V, skills, experience, knowledge) and commitment of the Board Directors. Is there a policy for the rotation, election, and training of the members of the Board? How are Board Members appointed and how are their remunerations determined? 3.0 The Chairperson How far is the Chairperson fulfilling his role in presiding the Board Meeting? E.g. Is the Chairperson too authoritative in the decision making process? Is there a code of conduct (Responsibilities, Role, Duties and Conflict of Interest etc ) for the Chairperson? If so, how far the latter is complying to it? What is the inter-personal /working relationship of the Chairperson with other members of the Board and the CEO? 4.0 The Role of Directors Office of Public Sector Governance (OPSG), Prime Minister s Office Page 90

91 Do the Directors have a broad knowledge of the organization so as to enable them to meaningfully contribute to the direction of the organization? Do the directors form part of the Board of Directors of other organizations? If so, name the organizations. Are the directors regularly attending the Board Meetings or relevant Sub- Committees? 5.0 The Chief Executive Officer/General Manager The C.V, skills, experience, knowledge and commitment of the CEO to discharge his responsibilities and duties in the day to day running of the organization. How is the CEO appointed? Is the CEO fully aware of his role, responsibilities and limitations? Is there a code of conduct for the CEO? Is the CEO fulfilling his function of developing and recommending to the Board a long term vision and strategy for the organization? 6.0 Role of Secretary The C.V, skills, experience, knowledge and commitment of the Secretary to discharge his responsibilities and duties. Is the Secretary discharging his duties professionally (Guiding the Board about all relevant legislation regulations etc, Preparation of notes of Board meetings, Communication with shareholders and Board Members)? How is the Secretary appointed? 7.0 The rights of Shareholders and key ownership functions Does the organization adopt a corporate governance framework that protects and facilitates the exercise of shareholders rights? 8.0 The equitable treatment of shareholders Does the organization adopts a corporate governance framework that ensure the equitable treatment of all shareholders, more specially minority shareholders? Are all shareholders of the same category treated equally? Are minority shareholders protected from abusive actions by controlling shareholders? And do they have the opportunity to obtain effective redress for violation of their rights? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 91

92 9.0 The Role of Stakeholders in Corporate Governance To what extent are the rights of stakeholders recognized by the organizations? How are stakeholders encouraged to actively co-operate with the organizations? What is the policy of the organization in providing relevant, sufficient and reliable information on a timely and regular basis? 10.0 Disclosure and Transparency Are timely and accurate disclosure is made on all material matters regarding the organization including the financial situation, performance, and governance of the organisation? Are the following information disclosed: Financial and operating results of the organization. Organisation s Objectives Remuneration and relevant information of board members and key executives. Corporate Governance Code and Policy What are the medium used for the dissemination of information for equal, timely and cost-efficient access to relevant information by users? Are the organizations publishing their Annual Report and tabled to the National Assembly within the legal timeframe? How far do the contents of the Annual Report meet the objectives of all stakeholders? Is the organization disclosing any non-financial information? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 92

93 11.0 Sub Committees. Do the Sub-Committees provide reports to the Board either for approval or for information? 11.1 Finance Cttee What is the role, responsibilities and limitations of the Cttee? What is the composition of the Cttee? 11.2 Staff Cttee What is the policy in the recruitment, nomination or promotion of staff? Is there a policy for promoting the welfare of employees? 11.3 Audit Ctte What is the role, responsibilities and limitations of the Internal Audit Cttee? What is the composition of the Cttee and what is the frequency of the meeting? How far is the management responding to the Internal Audit Report (effectiveness of the Cttee)? Whether the Audit Cttee examines the External Auditor s Report Risk Management What are the risks involved in the running of the organization e.g Interest rate risk, foreign exchange risk, any payment default on the part of debtors etc? Is there a risk management Cttee, if so, what is its role, responsibilities? What is the composition of the Cttee? What has been the frequency of the meeting and has there been any report of the Cttee? 12.0 Corporate Social Responsibility. What are the initiatives taken by the organizations to enhance the condition of living of the society? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 93

94 Supplementary Survey Questions 1.0 The responsibilities of the Board Is the Board ensuring good corporate governance practices? Is there a suitable induction program in place to maintain a well-informed and competent Board? Does the board fulfill the following tasks: Policy formulation,strategic thinking, and accountability 2.0 The Board Composition Is there a policy for the review of the Board Composition taking into account the changing environment? Is there a policy to encourage female members to the Board? 3.0 The Chairperson Is the Chairperson performing the following tasks inter alia: Providing leadership, setting agendas, reviewing minutes of meetings, and preparing work programme. Is the Chairperson on full -time or part- time basis? 4.0 The role of Directors. Are Directors devoting reasonable time to diligently carry out their responsibilities and duties? Do Directors express,where necessary, disagreement(constructive) with other members of the Board including the Chairman and the CEO? Are Directors in a position to take informed decisions? 5.0 The Chief Executive Officer/General Manager. Does the C.E.O provide regular and reliable reports to the Board? Does the C.E.O maintain an effective organisation al structure with clearly assigned duties? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 94

95 6.0 Role of the Secretary Does the Secretary advise the Chairperson and the Board on their responsibilities? Does the Secretary ensure that Board procedures are established and properly followed? Does the Secretary record and maintain minutes of Board meetings, records of Board documentation and records of attendance? Does the Secretary give sufficient time to the Directors for holding Board meetings? 7.0 The rights of shareholders and key ownership functions Do shareholders have the right to nominate Directors? Is there any restriction for the shareholders to sell their shares? 8.0 The equitable treatment of shareholders Are all information communicated to all shareholders irrespective of their shareholding? 9.0 Role of Stakeholders in Corporate Governance? What is the place of stakeholders (namely employees, public, suppliers etc) in the Governance Cycle? e.g. Management/ Control /Supervision/Accountability. To what extent they participate in the decision- making- process? To what extent does the organization promote harmonious relationships between stakeholders? Does the organization have set up and maintained an integrated Data base system and disseminate information through Internet and other media? Are latest ICT facilities available? e.g. Website Does management encourage the dissemination of relevant information at all operational levels? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 95

96 11.0 Sub-Committees. Does the organization provide for an Alert Cell to foresee risks factors? Do the Chairperson of the Board also act as Chairperson of Sub-committees? Do they possess the required skills and competencies? On what basis the members are remunerated? 12.0 Corporate Social Responsibility. Does the organization participate in programmes and projects relating to eco- friendly and green environmental issues? Does the organization sponsor NGO activities e.g. donations to charitable institutions, blood donation and elimination of social ills (Aids, Drugs, etc.) 13.0 Other Issues. Is the organization ISO Certified? If not, is the organisation planning to acquire such certification? Back to Page 3 - Contents Office of Public Sector Governance (OPSG), Prime Minister s Office Page 96

97 1.0 The Responsibilities of the Board Survey Questionnaire No 2 Appendix B Does your organization have a Corporate Objectives Statement (Strategic Plan, Action Plan, measurable outputs, targets, financial and non-financial statements etc)? Has it been approved by the Board and the Parent Ministry? Are all the items listed in the COS being implemented and monitored? Are the strategies and annual performance discussed by the Board What are the constraints/ encountered in the implementation of the strategic plan and other issues contained in the COS? What achievements have so far been realised regarding the issues in the COS as at the first quarter 2011? ( % completed) Is there any monitoring on the part of the Parent Ministry? If so, how frequently it is made? In the absence of a COS, when does the organization intend to prepare one? Is the Chairperson aware that as per the code (sec25.3), he has the duty to evaluate the Board and its members and inform the Parent Ministry and stakeholders accordingly? Following directives to parastatals bodies from the Secretary to the Cabinet to hold board meetings after office hours, does this affect the attendance and functioning of the Board? Duration? Does the Board periodically review the policies and procedures designed to ensure that proper internal controls are instituted and maintained? 2.0 The Board Composition/ Directors As per the code, there is a need to provide induction courses to new Board members. How far do you consider it necessary and in what form do you consider the most appropriate one? Is there a need to provide training to existing members e.g their rights, conflict of interest,new rules and regulations etc Office of Public Sector Governance (OPSG), Prime Minister s Office Page 97

98 How far do you consider the rotation of Board members necessary? Is frequent rotation of members can enhance or hinder the proper functioning of the Board? By what means can Board members be encouraged to participate more constructively in Board Deliberations? Submit the list of directors and their profile (CV, skills and experience)? Give details of regarding Directors who concurrently sit on other Boards and in what capacity? 3. The Chairperson Is the Chairman fulfilling his function as per the Code? Leadership -- ensure participation Monitoring of Board pertinent disclosure to enable informed decisions What is the style adopted by the Chairman in presiding the Board? Authoritative, Democratic, or participative What steps are taken by the Chairperson to ensure good relationship with the members of the Board and the CEO? 4. The Chief Executive Officer. Is the CEO fulfilling his function as per the Code? Develop and recommend to the board annual business plans and budgets; long term vision and strategy; proper assessment of risks; Aim at achieving the organization s goals; day to day business affairs are appropriately managed and monitored Maintain a positive and ethical work climate conducive for better outcomes What are the contributions by the CEO to the Board in formulating the Strategic Planning, mission etc of the organization? What have been the achievements of the CEO in terms of performance indicators and other improvement to the organization? What have been the major constraints/issues faced by the CEO in performing his duty? How have they been addressed? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 98

99 5. The Secretary. Is the secretary fulfilling his function as per the Code? Provide guidance and advice on matters of ethics and good governance; the organization is complying with all relevant statutory and regulatory requirements, codes of conduct and rules established by the board ; detailed guidance on the responsibilities of directors act as focal point of contact between the organization and stakeholders Besides taking notes of Board meetings and convening meetings, what are the other duties performed by the Secretary? Are all board papers circulated well in advance to allow members to take informed decision.? When did the Secretary receive his/her last training on secretarial duties? What are the difficulties faced by the secretary in the performance of her duties? ( interference, reporting line, ) 6. Role of Stakeholders. Can you identify other stakeholders of the organization that can contribute to the organization? List the main initiatives taken by the organization to encourage interaction and involvement with stakeholders. How do you sell your organization to the public? Does the institution s goal reflect the expectations of all the stakeholders? Particularly, - what do stakeholders want from your organisation? - what will be needed for the future? How does the institution protect the interests of its various stakeholders? What are the channels of communication with them? What are the information that are being passed through these channels to satisfy all the stakeholders? Office of Public Sector Governance (OPSG), Prime Minister s Office Page 99

100 7. Disclosure and Transparency. Which is the last Annual Report which has been sent to the Ministry? A copy of the AR is requested from the organization. Are all issues such as Statement of non-compliance to code, disclosure of nonfinancial information, etc are disclosed in the AR? If not, why? Which are other means used by the organization to disclose information to stakeholders or to the public? E.g website etc. Are you aware that your Institution as part of its Annual Report should issue a Corporate Governance Report disclosing the extent to which it is or is not complying with the Code of corporate governance policies and procedures? Does your institution disseminate the following information through a website? Details about the Board Details about Senior Management Financial and non-financial Statements Organizational chart and strategy Annual Report 8. Sub Committees. List out the functions of all sub committees of the organization. List out the members of these sub-committees. What was the frequency of the meetings of the sub-committees during the last year? Are you aware that there should be an Audit/Risk Cttee and G.Governance Cttee as per the code? Are your internal auditor work plans reviewed by the Audit Committee? Back to Top Office of Public Sector Governance (OPSG), Prime Minister s Office Page 100