The adoption of the corporate governance code in a developing economy: a study of reality and appearances

Following the recent adoption of a national code of corporate governance (CG) in a developing economy (Mauritius), the authors assessed the level of CG adoption by locally-listed companies using annual report disclosures. Whilst a satisfactory level of adoption is observed for a numberof CG requirements/mechanisms, a number of disclosure aspects (or the lack thereof) - involving the status/role of independent non-executive directors, directors’ remuneration/related interests, and the actual operation of sub-board meetings – is suggestive of a selective adoption and behaviour towards the CG code. In addition, a significant number of compliance statements were found to be unrelated or even inconsistent with the actual level of adoption. The authors contended that some of the companies appeared to project an appearance of CG adoption which was at odds with the reality - possibly in bid to maintain or enhance organizational legitimacy. A selected number of directors from these companies were also interviewed to assess their attitudes, perceptions and motivations vis-à-vis the CG implementation/disclosure process.Overall, organizational legitimacy, rather than a strict efficiency-led rationale, does emerge as atheoretical explanation but companies/directors’ conceptualisation of organizational legitimacydiffer, thereby explaining the varying levels of CG adoption at company level

Corporate Governance Implementation in an African Emerging Economy: The case of State-Owned Entities

The objective of this paper is to examine how state-owned entities (SOEs) engage with the requirements of the corporate governance code in an African developing economy (Mauritius). A content analysis of the annual reports of SOEs and National Audit Office (NAO) reports is undertaken. This is supplemented by semi-structured interviews with relevant directors and regulatory bodies. We report a substantial non-implementation of the code and identify several impediments to the transposing of the corporate governance model to the state-owned entities. The salient issues relate to the inadequate definition of SOEs in the code, the different conceptualisations of ownership and accountability, the influence of political rivalries, and the low level of financial accountability in SOEs. We also consider our findings in relation to the theoretical perspectives of ‘efficiency gains’ and ‘social legitimation’. Very few studies have looked into the applicability of codes of corporate governance in state owned entities. In spite of the prominence of SOEs in many African developing countries, empirical evidence on corporate governance implementation in such entities has been scant. The findings are of relevance to policy-makers and regulators who seek to rely on mainstream corporate governance principles and practices to enhance the accountability and transparency of SOEs. Key enabling conditions for corporate governance implementation involve a de-politicisation of board appointments and a re-definition of the accountability relationships between SOEs and their ultimate owner (i.e. elected representatives and tax payers). <br/

Selective compliance with the corporate governance code in Mauritius: Is legitimacy theory at work?

Purpose of this paper: This study investigates compliance with the corporate governance code in an African developing economy (Mauritius).Methodology/approach: We examine the annual reports of 41 listed companies to assess the extent of compliance with the code and to analyze the wording of compliance statements. We also carry out in-depth semi-structured interviews with selected company directors to understand the reasons for compliance (or non-compliance).Findings: Initial findings indicate a reasonable level of compliance with the more visible requirements of the code but noteworthy non-compliance also emerges, particularly in relation to the low number of company boards being chaired by independent directors, to uncertainties on the actual operation of board committees, and to the widespread non-disclosure of directors’ remuneration. Furthermore, compliance statements were found to be vague, ambiguous, or even inconsistent with the extent of compliance disclosed in the reports. We believe these are indications that many of the companies are adhering selectively with the code to project an image of symbolic compliance. Our in-depth follow-up interviews with directors largely confirm this behaviour of selective compliance.Research implications: We suggest that the pursuit of legitimacy as an operational resource – rather than efficiency-led rationales – emerges as a potential theoretical explanation for the adoption of the corporate governance code in Mauritius.Originality /value of paper: We bring evidence on how the corporate governance code is being understood and rationalized in a developing economy. We rely on a combination of annual report disclosures, compliance statements, and interview data to investigate corporate governance compliance.<br/

Do corporate governance Codes improve board accountability? Evidence from an emerging economy

This study examines whether the expectations and requirements contained within the corporate governance code have an impact on how accountability is perceived, understood and practiced by company board members in an emerging economy (Mauritius). We rely on 24 semi-structured interviews of board members in listed and non-listed companies and also analyse the accountability implications present in the local code of corporate governance and relevant reports. Our analysis is informed by the typologies of board accountability and process developed by Roberts (2001) (socialising, individualising, sovereign and complementary) and is complemented by Pettigrew and McNulty’s (1995) notions of minimalist and maximalist boards.From a state which can largely be associated to the notion of sovereign governance and a minimalist board, our findings reveal a substantive change in the type of board accountability but it is one which privileges an individualising form of board interactions. A move to a more empowered ‘maximalist’ board is also noted. Notwithstanding, we uncover specific issues with the independent non-executive director (INED) as an accountability mechanism in that there is much fuzziness on his/her role and motivations and whether INEDs can conceivably contribute to a socialising form of board accountability. We respond to calls for more qualitative research on how boards actually operate in emerging economies, at a time when an increasing number of countries have adopted corporate governance requirements drawn primarily from the Anglo-American model. This paper contributes to the literature by providing empirical evidence on corporate board processes and dynamics in non-Western contexts

Community disclosures in a developing country: insights from a neo-pluralist perspective

Purpose: We analyse changes in community disclosures by listed companies in Mauritius. Design/methodology/approach: We carried out a quantitative and qualitative assessment of annual report disclosures over the period 2004-2010. In particular, we consider the influence of a corporate governance code and a government intervention to first persuade and subsequently mandate corporate social responsibility investment (known as a ‘CSR Levy’). Findings: From a predominantly limited and neutral form of communication, narratives of community involvement morph into assertive and rhetorical statements, emphasising commitment, permanency and an intimate connection to the community, and a re-organisation of activities and priorities which seek to portray structure and order in the way companies deliver community interventions. Informed by Gray et al.’s (1995) neo-pluralist framework and documentary evidence pertaining to the country’s social, political and economic context, we relate the change in disclosures to the use of corporate impression management techniques with a view to maintain legitimacy and to counter the predominant public narrative on the insufficient extent of community involvement by local companies. Research limitations/implications: We find that community disclosures are not only legitimating mechanisms driven by international pressures but are also the result of local tensions and expectations.Originality/value: This study provides evidence on forms of ‘social’ - as opposed to environmental - disclosures. Furthermore, it examines a unique setting where a government enacted a legally-binding regime for greater corporate social involvement

The Implementation of the Corporate Governance Code in an African Developing Economy: A Longitudinal Study

This study investigates how listed companies have implemented the requirements of the corporate governance code in an African developing economy (Mauritius). There is still little empirical evidence as to whether (and if so to what extent) companies in developing economies on the African continent have been implementing such codes. Furthermore, we argue that past empirical studies have been too narrowly focused by only analysing one particular year of implementation and/or examining some requirements of the code. We seek to contribute to the literature by focusing on the progression (or the lack thereof) in the implementation and disclosure requirements of the code over time. This paper will hence rely on disclosures in the annual reports of listed companies in Mauritius over a four year period - namely one year (2004) prior to the code's enactment and thereafter for a period of three years (2005-2007). In addition, a notable aspect in the local code has been the requirement to provide corporate social responsibility (CSR) disclosures. In this respect, we examine the extent of progression of CSR disclosures in relation to the 'traditional' requirements of the corporate governance code. We hence bring some empirical evidence on the links between corporate governance and CSR to inform some of the recent conceptual discussions emerging in the literature. Finally, in contrast to the various un-weighted and dichotomous measures used in previous studies, a weighted scoring framework is devised to assess implementation consistently over the survey period. The analysis of the scores reveals a progressive adoption of the code during the first two years (2005 and 2006) but this process has now slowed down. Although the overall level of adoption does appear to be beyond the mere symbolic, detailed implementation and disclosure requirements regarding directors' appraisal and training, determination of remuneration policies, remuneration information and directors' interest, and CSR disclosures are resisted by many companies. Furthermore, a correlation analysis of the corporate governance scores and firm level measures shows that the level of association between these different variables fluctuates significantly over time, except for the consistent positive influence of independent non-executive directors. The findings bring much needed empirical evidence on corporate governance in African developing nations and emphasise the need for researchers to study corporate governance implementation on a longitudinal basis. In particular, we contend that corporate governance changes at the board level (e.g. new composition, decision-making structures, empowerment over executives) are akin to an organisational change process that cannot be reliably assessed over a one year period. Furthermore, we demonstrate the relevance of a weighted and non-dichotomous scoring approach for the assessment of corporate governance implementatio

Board composition and financial performance: uncovering the effects of diversity in an emerging economy

We examine the key elements of board diversity (or heterogeneity) amongst listed companies operating in an emerging economy (Mauritius) and the extent to which these influence financial performance. Specifically, we ask whether there is evidence of tangible benefits in pursuing a strategy of board diversity in terms of gender-, age-, educational background and independence in a corporate context which has long been dominated by family-led and ‘closed’ boardrooms. In light of recent corporate governance developments which appear to foster greater diversity, we examine data from the 2007 annual reports of all 42 companies listed on the Stock Exchange of Mauritius. We find that (i) women remain poorly represented on boards (ii) there is a relatively satisfactory level of heterogeneity in terms of educational background, age and independence in relation to developed countries. We also find significant regression coefficients for all four variables in terms of their impact on short-term performance. However, these relationships are characterised by both negative and positive impacts thereby leading to discussions on the validity of a strict heterogeneous or homogeneous board composition in the context of a developing economy

Changes in social and environmental reporting practices in an emerging economy (2004 to 2007): Exploring the relevance of stakeholder and legitimacy theories

We examine social and environmental reporting (SER) practices of listed companies in the island economy of Mauritius. Based on a content analysis of annual reports, quantitative and qualitative changes in SER were analyzed in light of recent developments in corporate governance and with regard to the prevailing social and political contexts of this emerging economy. We find a significant but selective increase in the volume and quality of SER over the period under review (2004-2007). We rely on Suchman’s (1995) conceptualizations of legitimacy to argue that the changes in SER are related to a need for companies to demonstrate an affiliation to pro-social objectives (moral legitimacy) and, to a lesser extent, are motivated by the need to manage specific stakeholders (pragmatic legitimacy). More specifically, the increase in ethical disclosures reflects an attempt at gaining procedural legitimacy in response to criticisms of corruption and unfair/unethical business practices. Furthermore, the increase in social disclosures can primarily be seen as a mechanism to gain consequential legitimacy in response to concerns that local companies are not sufficiently contributing to the country’s social development. We suggest that future empirical research should devote more attention to the specific characteristics of emerging economies (such as levels of corruption and unethical business practices and the level of corporate governance) and examine whether these can explain patterns of corporate SER in a given national context or on a cross-country basis