1.

0 DEFINITION OF CORPORATE GOVERNANCE

Sir Adrian Cadbury of the Committee on the Financial Aspects of CG in the UK defines the CG thus:
“the system by which companies are directed and controlled” (Cadbury Committee Report, 1992).

2.0 THEORIES OF CORPORATE GOVERNANCE

2.1 AGENCY THEORY

Agency theory is an economic theory, related to business organisation that was evolved in the 1970s.
According to agency theory, a business firm is in contract between two parties where one is a principal,
and the other one is the agent; here the shareholder acts as the principal, and directors are the agents.
Hendry (2001) and Jensen and Murphy (1990) argued that recent economics is dominated by such a
kind of firm having agency relationship; these firms rapidly engage with best corporate governance
practices. In this respect, it should be addressed that conflict between principal and agent comes from
policy and contractual conditions of the firms. Zahra and Pearce (1989) argued that there are some
assumptions in the agency model that focus on the conflict between agent and principal, which is very
important for controlling and monitoring board’s function.
In addition, agency theory established the necessary mechanisms to defend shareholders from
administration’s conflict of interest (Fama and Jensen, 1983). Daily and Dalton (1994) they advocate
that the board should contain outside and independent directors in the positions of chairman and CEO
or the agency cost becomes higher and the firm will suffer in the financial market. From the control
viewpoint, CEO has more influence than chairman (Johnson et al., 2005).

2.2 SIGNALLING THEORY

According to Ross (1979), the disclosure system of strong and weak firm signalling theory is used for
differentiation, in which it is observed that weak firms are more unwilling to disclose their information
than the strong firms. Regarding this issue, Grossman (1981) said that because of the tendency of people
to discuss the undisclosed matter, the firm should disclose both good and bad information about the
company, if that is costless. In addition, Skinner (1994) says that the disclosure of bad news helps the
company to prevent declining share price by signalling the reduction of reputation cost for non-
disclosure of information where good news indicates the quality of the company. The company may
also disclose its difference with companies who have bad information, if the company has no important
information to disclose. Consequently, quality signalled information can add great value to the company
with the trade-off decision between the informational advantage and financial advantage.
Verrecchia (1983) advocated that considering the consequence of disclosure on the market, a directors’s
decision will be made regarding disclosing information (i.e. to release or withhold the signal).

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Hypothesized by Verrecchia, an “inception level of disclosure” will be present; the director will reveal
information above this level and will suspend information below this level. By way of non-disclosure,
interpretation by the market of this level will be defined in portion and for withholding information, the
market’s speculation on the directors’s motivation will disrupt that. Verrecchia recommended in an
earlier paper (1990) that the initial level may be prejudiced by the quality of information existing to the
director; in essence, there is an inverse relationship between the quality of information and the threshold
level of disclosure.

2.3 STAKEHOLDER THEORY

Stakeholder theory has been perceived as an interesting aspect in light of the companies’ behaviour
regarding corporate financial reporting (Gray et al., 1995). Gray et al. (1995) stated that agency theory
deals with the relationship between directors (the agent) and shareholders (the principal). On the other
hand, stakeholder theory deals with the relationship between managers and all other stakeholders (the
principal) such as staff, shareholders, customers, government and suppliers. From the viewpoint of
Crowther and Jatana (2005), stakeholder theory involves a number of stakeholders in the organisation.
All of them expect some output for their investment.
Therefore, the focal point of the theory is the answerability of the company towards its shareholders
(Sternberg, 1997). Management intends to balance the stakeholders’ interest with the company’s
objective. Thus, the company attains its objectives and maintain ethical conduct. To attain stakeholders’
support and approval, their perceptions are managed by disclosure (Gray et al., 1996). Also disclosure
is used to deflect stakeholders’ disagreement and disapproval. In this regard, Deegan (2002) argued that
managers intend to disseminate information toward some specific group of stakeholders to prove that
they are meeting those stakeholders’ desire.

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3.0 LAWS SUPPORTING CONFLICT OF INTEREST AND DISCLOSURE
3.1 Conflict of interest according to PoCA:
Section 13 of the PoCa Act 2002 makes it ‘’mandatory for public officials in situations of CoI to declare
forthwith the interest in writing to that public body and not vote or take part in any proceedings of that
public body relating to the decision.’’ Any public official failing to do so shall commit a wrongdoing
and will be convicted to serve a penalty of a term not exceeding 10 years.(ADAM, 2019)
3.2 THE LANDMARK CASE OF DIRECTOR OF PUBLIC PROSECUTIONS
(APPELLANT) V JUGNAUTH AND ANOTHER (RESPONDENTS)(MAURITIUS)
[2019] UKPC 8
The Code 2016 does not elucidate what may constitute a conflict of interest. As a matter of
fact, many directors may take shelter from this judgement, involving conflict of interest.
The Judicial Committee of the Privy Council dismissed yesterday the appeal of the Director of Public
Prosecutions (DPP) against a decision of the Supreme Court of Mauritius quashing the conviction of
the Prime Minister, Mr Jugnauth for an offence of “conflict of interests” contrary to section 13(2) and
(3) of the Prevention of Corruption Act 2002 (“POCA”) as amended by section 4(b) of the Act No
1/2006.
The basis of the charge was that Mr Jugnauth whilst being then a public official, whose relative had a
personal interest in a decision which a public body had to take, did wilfully, unlawfully and criminally
take part in the proceedings of that public body relating to such decision. The particulars of the charge
were that Mr Jugnauth whilst being then the Vice Prime Minister and Minister of Finance and Economic
Development had approved the reallocation of funds amounting to Rs 144,701,300 to pay Medpoint
Ltd.
Mr Jugnauth was convicted of the offence on 30 June 2015 following a trial before the Intermediate
Court and on 2 July 2015 he was sentenced to 12 months’ imprisonment. On 25 May 2016, the Supreme
Court allowed an appeal and quashed the conviction and sentence. On 22 June 2017, the Supreme Court
granted the prosecution conditional leave to appeal to the Judicial Committee of the Privy Council. On
15 January 2018, the Supreme Court granted final leave to appeal.

The judgment of the Judicial Committee of the Privy Council sheds light on matters which were up to
now in controversy as the Office of the DPP was of the view that the judgment of the Supreme Court
gave rise to important questions, crucial to establishing an offence under section 13(2) of the Prevention
of Corruption Act (the POCA).

The Supreme Court gave rise to important questions, crucial to establishing an offence under section
13(2) of the Prevention of Corruption Act (the POCA), in particular –
(a) the requisite degree of knowledge and criminal intent of a public official to establish an offence of
Conflict of Interests, and whether good faith can be invoked as a defence;

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(b) the meaning of the term “personal interest” and whether it excludes the shareholding of the relative
of a public official in a company;
(c) the nature of participation in proceedings prohibited under that provision and whether a public
official is precluded from taking any step in the execution of a contract which has been awarded by a
public body to a company in which a relative of that public official has shares.
In granting leave to appeal to the Privy Council, the Supreme Court agreed that the matters referred to
above raised substantial and significant issues of law of great general or public importance which ought
to be submitted to the Privy Council for determination.

The Privy Council in its judgment has accepted the position of the Office of the DPP on the points of
law in issue in this case and has confirmed the legal reasoning adopted by the Intermediate Court. On
the other hand, the Privy Council has also found that on the facts of the present case, payment to
Medpoint would have been effected irrespective of the re-allocation of funds and, therefore, the sister
of Mr Jugnauth, Mrs Malhotra had no personal interest within the meaning of section 13(2) of the
POCA. The Privy Council also underlined that by the same token, Mr Jugnauth could not have had
knowledge of the existence of facts giving rise to a personal interest in the decision in his sister, because
there were none.

He won the appeal on the basis that the transaction was done in bonafide and that the Mens Rea of not
engaging in CoI was proven.(ADAM,2019)
3.3 The good governance and integrity reporting act 2015(GGIR):
The GGIR Act was introduced in 2015 with the main objective to provide a good culture of good
governance, encourages disclosure and protect and reward individuals for making disclosure for
unexplained wealth in Mauritius.( ADAM, 2019)

4.0 PRINCIPLE 4: DIRECTOR DUTIES, REMUNERATION AND PERFORMANCE.

4.1 Code of Ethics
It is essential to have a code of ethics for directors. It sets out guidelines and principles which will allow
directors of the company to manage critical situations and make sound decisions with integrity and
honesty and this is provided in the Code 2016.
Significanlty, the Companies Act 2001 does not even make mention of the word ‘Ethics’ at all. In fact,
section 143 of the Act stipulates that the directors of a company must act in good faith and in the best
interest of the company. However, this provision does not give substantive details concerning ethical
conducts that would foster good management of companies. Probably, the Mauritian legislators did not
anticipate the drastic evolution and implication of financial crimes and other forms of misconduct at
that time. However, the inability to englobe a code of ethics in the Act has proved many malpractices
that had a devasting implication in our financial systems in the recent years.

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A famous global example is the demise of the Enron Company in 2001. The company became insolvent
due to the unethical practices of its executive directors. They overstated their profits by falsifying
balance sheets. Similarly, such dishonest conducts struct Mauritius in a ruinous way in 2013 with the
Whitedot Limited scandal. The directors took advantage of their position and were withdrawing huge
amount of money from the company as and when they wanted. They were not operating according to
any sort of code of ethics. They equally defrauded their clients for almost Rs.1 billion through a Ponzi
scheme system.
The lack of clarity for ethical conducts in the Companies Act 2001 is clearly a limitation in director’s
duties. According, the Code 2016 would emphasise objectively on the implementation of a code of
ethics. The code 2016 provides a model of code of ethics for directors to follow to avoid conflict of
interest, comply with laws and regulations such as tax management activities, enable whistleblowing
mechanisms and report unethical behaviours. The Code 2016 demonstrates that it ultimately requires
people of integrity. It is not possible to regulate personal integrity. However, confidence of investors
can be boosted if companies clearly articulates acceptable practices for directors.
Following the Code 2016, in the application of the code of ethics for directors, companies would be
able to formulate policies on directors’ behavior, integrate such policies on directors’ behavior, integrate
such policies in company-wide management practices and monitor compliance. Ultimately, whist
following the principle of the Code 2016, such an accountability on directors would definitely bring
high chances of stability and profitability in many organisations and less abuses and defects of
operation.
4.2 CONFLIC OF INTEREST AMONG DIRECTORS
It is very probable that directors of companies have interests elsewhere outside the company that may
influence their 100% commitment to their organisations. Conflict of interest in terms of directors can
arise when there is a conflict between a director’s responsibility to uphold the company’s interest and
his own interest through transactions with the company. This is a feasible situation since there are not
restrictions upon directors to own a separate business or deal with the company as a related party. The
danger in such types of situation, is that the director can use his authority to influence decisions of the
company to enter into such transactions with himself, whereby the company could miss better options
elsewhere. Therefore, the Code 2016 comes in that context to help put a mechanism in place to manage
such a situation.
The Code 2016 takes into consideration family ownership enterprises such as ENL when it emphasizes
on the development of a ‘conflict of interest’ and ‘related party transactions’ policy so as to avoid using
extreme solution like banning all transactions containing conflict of interests which will not make sense
and will be detrimental to commercial activities. But the Code would be more precise in the sense that
decisions to enter into a transaction involving a conflict of interest with a related party require the
ratification by the board and not the approval of a single director or the CEO.

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Hence, there is a sort of filtering mechanism. Therefore, decisions would not be taken lightly and the
issue of conflict of interest is well-catered for by the Code 2016. (OOCHIT, 2019)
However, despite any related party transactions or any potential CoI are approved, there are
still limits pertaining to them. For example, the case of I-Mediate Ltd V Taranee R. & Ors 2015
SCJ 75, whereby the applicant sued the respondents for being shareholders and directors of the
applicant while being directors and shareholders of the insurance broker company. (ADAM
2019 cited MEDIO 2016)
4.3 DIRECTORS
A simple definition would be ‘a person who directs the business path of the Company’. A legal
definition is obtained at S.128 of the CA MUR which states that a director is someone who has the
power to exercise control over the company on behalf of the BoD. Directors have the responsibility to
act under the director and instruction in respect of the powers and duties conferred to them. A
corporation follows rules of agency, this has been recognized long time ago namely in the case Ferguson
V Wilson(1866) where it was stated that ‘directors are agents of the Company in the eyes of the law’
(Shodganga, 200). S.128 of CA MUR has taken this understanding as it expounds that the BoD has the
responsibility to control the affairs of the company which can be delegated to managing and executive
directors with the consent of both that person and the board. (DEEDAREE,2018)
4.4 DUTY OF DISCLOSURE TO AVOID CONFLICT OF INTEREST
S.143(1)(i) states that directors should disclose information of any interest they hold in any transaction
to which the company is a party. Though the CA MUR makes no mention of the tern ‘conflict of
interest’, it is implicitly referring to it as the interest that directors have either directly or indirectly may
conflict with the company’s interests. The interest could be in the form of a material financial benefit
(S.147) and evidence of such benefit should be adduced by the plaintiff as expressed in the case Saturn
Investment V Wah Bon(2016). Its monetary value, whether quantified or not, should be disclosed in
the interest register of the Company or to the board. However, this is not required where the transaction
is between the Company and that director or where the transaction is for the ordinary course of business.
Another disclosure provided by S.148(3) is where a director being also a director, shareholder or officer
of another company needs to disclose any interest he holds in that company to the board of the first
company before entering into any transaction which would have otherwise made him compete with the
Companies.
Any ‘conflict transaction’ can be avoided after being disclosed to all shareholders within 6 months.
Directors forming part of a public company cannot vote for that transaction while directors of private
companies can attend meetings as well as sign documents, as if he is not interested, though after
disclosing the interest.(DEEDAREE,2018)

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4.5 EXCEPTION TO DISCLOSURE OF INFORMATION BY DIRECTORS:
S.143(1)(g) and S.153 is relevant to the duty of not disclosing information that is information not readily
available should be kept confidential. Disclosure is permitted only where it is authorized by law, by the
company through the BoD or by the Company’s Constitution; where it will not cause prejudice to the
Company. Where confidential information is disclosed, it should only be to a person under whose
instructions the director acts or to a person whose interest the director is
representing.(DEEDAREE,2018)

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5.0 RECOMMENDATION AND CONCLUSION
5.1 DUTIES THAT CAN BE ADDED:
The CA has a very clear regime when it comes to the continuous disclosure obligations of directors and
the need to maintain an informed market. Such duties are present in other acts of Parliament in Mauritius
namely at S.32 in the FSA which protects consumers of financial services, but it is nowhere mentioned
in the CA MUR; it is therefore important to include such duties in the CA MUR to harmonise them to
domestic Companies that are not regulated by the other acts. Even for insider trading offence, the same
is provided at S.111 of Securities Act 2005 but it is exclusively for the trading of shares and includes
only those Companies who have shares listed on the Stock Exchange. It is to be noted that inside
information can include all other information that are not generally available to the public and which
directors may use to obtain an advantage for themselves, therefore such information should be protected
by including a section in the CA MUR.
5.2 A FREEDOM OF INFORMATION ACT FOR MAURITIUS:
The freedom of information will help to answer a lot of question which are never given response to and
fact that all information can be made available would create more transparency and a clearer
environment for Mauritius. In the freedom of information act all public sector bodies would have to
furnish all information about there doing to any member of the general public asking for it so that in
case of refusal under the act the individual could contest it in court of law and these public bodies would
have to show why for refusal which can be important in extreme case like provided in the Official
Information Act 1982 for New Zealand like for example for protecting Mauritius economic. The
freedom of information will also help the member of the press to better do their democratic work over
the doing of the government or directors of company like for one example in the UK where the act help
the imprisonment of 5 member of parliament over expenses scandal. This will diminish the CoI.
5.3 REVISION OF THE CODE
It is essential that Mauritius revise its Code of corporate governance periodically to curb its weaknesses
and to be in line with international standards. It should be updated at regular interval like in the UK and
Germany to better reflect the realities of companies
6.0 CONCLUSION
We can only hope that the coming years will lead to greater acceptance of corporate governance by the
business community, because the board of director recognizes that corporate governance is a valid
means of achieving desired outcome of improved corporate performance (Rathod, 2018)

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