Professor Chris Pierce, formerly Director of Professional Standards and Professional Development at the Institute of Directors (IoD) in the UK, and former Director of the Centre for Director Education at Leeds Business School, gives his views on Corporate governance.

¦ Corporate governance: buzzword or agent of transformation?

Corporate governance is a relatively new term. It’s seen as a way of creating an engine of growth in terms of employment, efficiency and productivity within businesses. It only really integrated popular parlance as recently as ten years ago. Basically, it’s about the way in which a company is managed and controlled. It applies to listed and unlisted companies in the private sector, to NGOs, parastatals, state-owned enterprises in fact it applies to any organization interested in improving the way it is governed, with regards namely to its constitution, articles of association, memorandum of association, policies, bylaws, strategies and code of ethics. About eight years ago, the Mauritian government invited the World Bank to explore the level of corporate governance here. One of the recommendations of the report developed by the World Bank was the setting up of a Mauritius Institute of Directors (MIoD), which would be responsible for encouraging and promoting corporate governance.

¦ What’s the most basic prerequisite for sound corporate governance?

The most important area is probably leadership from the top. That’s why most new developments in the field of corporate governance focus on the chairmen, CEOs, finance directors, the executive and non-executive directors, company secretaries, etc. because they have the discretion to decide how the company is managed and directed.

¦ On a scale of one to ten, how would you rate Mauritius’s performance in terms of corporate governance?

In terms of general ease of doing business, Mauritius is in the top twenty countries in the world according to the World Bank. You have legislation which states how companies should be managed, as well as a code of corporate governance that is comparable with that of any other country in the region and which has just been reviewed by the national committee in order to gauge just how well it’s operating and where it can be improved. This is evidence that Mauritius is not resting on its laurels and is concerned about implementing the best international practices. For that to happen, directors must both be aware of what’s happening and have the desire to incorporate corporate governance into their operations.

¦ And that’s the tricky part, isn’t it? Desire isn’t really something that can be imposed.

That’s partly what the MIoD’s programmes are about: not just telling people what they need to do but also about the practical skills they need to implement corporate governance through team rather than individual leadership.

¦ The days when companies were just money-making machines seem to be over. Governments and communities also expect them to behave responsibly with regard to society and the environment. Can corporate governance really help them achieve is?

At the very least, when a decision is being made at board level, the directors should ask not only how it’s going to affect the company but also how it’s going to impact upon the community, the environment and other areas of public interest and concern. In the same way the individuals comprising the company should behave like responsible citizens so too should the corporation behave responsibly as a corporate citizen. That’s where Corporate Social Responsibility (CSR) comes in.

¦ It also brings us smack bang to the next question. Government recently imposed a 2% levy on profits for CSR. Companies denounced this, saying that CSR is by definition voluntary. A storm in a teacup?

Obviously, it’s up to government to make decisions for the good of the public interest. If left to their own devices, certain companies might decide during years of hardship not to engage in socially responsible activities. The levy is a mechanism to ensure that companies do behave responsibly by making these funds available.

¦ Another one of your specializations is government regulation. The financial crisis showed what can happen when there’s inadequate regulation. But we also know that too much regulation can stifle creativity. Any chance of a middle way?

That’s what everybody wants to know. I believe in free enterprise and in the power of the market. But when certain situations exist, such as monopolies, oligopolies and cartels, they might not act in the interests of all the stakeholders. Some of the behaviour of the investment banks in recent years has been highly questionable and they’re currently being investigated by the relevant authorities. In the UK, there are all sorts of investigations. As a result, we’re trying to learn from what’s happened and stop it from happening again in the future.

¦ And what, for instance, are we meant to have learnt?

We’ve learnt that boards should be more active, they should be composed of more professionals who ask difficult questions and are much more demanding of evidence. Risk management should also be considered far more cautiously.

¦ In essence then, the change has to come from within. Is that realistic given the massive amounts of money involved?

Yes, but it involves a complex change in the values of the organization, its work culture, practices and so on. But the big change has to come from the top: the chairman has to behave responsibly, as do the directors.

¦ The problem is they often have different interpretations about what “being responsible” consists of. How does one avoid conflicts between the chairman and the CEO, for instance?

The chairman manages the conduct of the board meetings whereas the CEO manages the business. Both are appointed by the board of directors so the latter should ensure that there is the appropriate chemistry between the two, that their respective roles and responsibilities are absolutely clear. The common situation is to have the two roles separated and, in the majority of cases, it works.

Interview by Nicholas RAINER

Nicholas RAINER