What is Corporate Governance Finance Essay

Ideally, a responsible corporate governance system would promote shareholder wealth, restrict managerial shirking, protect minority shareholders and minimize controlling shareholders' misappropriation of private benefits of control In Mauritius, the country has also witness some scandals such as the Air Mauritius saga and this was subsequently followed by the National Pension Fund scandal. Following public outcries, Government took the bold decision to pass the appropriate legislation for parastatal bodies to comply with the Code of Good Governance The Code of Good Governance was published in 2004 following the work of a Committee set out under the chairmanship of Tim Taylor. Although it is code, it has been given legal backing by various enactments such as the Companies Act and the Financial Reporting Council Act.

1.2 Research Background

Government felt the need to require parastatal bodies to comply with the code in view that massive amount of fund are channeled to these organizations for delivering an effective and efficient service to the public. Any shortcoming on the part of these organizations results in the poor utilization of public fund which above all is subject to greater accountability and transparency and is scrutinized by Parliament. It should be pointed out the Director of Audit, has over the years, given unfavorable reports on these organizations and the major issues that keep on repeating are delays in the preparation of the financial statement and the submission of the Annual Report which have to be laid before Parliament, thus openly defying the concept of accountability and transparency. This shortcoming is a pure reflection of the state of corporate practices in those organizations

1.3 Research Problem

Although, Government has established the necessary framework for promoting good corporate governance in parastatal bodies, its implementation and consequently its resulting effects is taking time to materialize. This is substantiated by the fact that there has been only a marginal decrease in non compliance organizations as highlighted in the latest report of the Director of Audit (2011). In addition, the subject of compliance and performance of parastatal bodies is a regular subject of debate in both the parliament and in the Media. Presently there, 146 State Owned Enterprises (SOEs) in Mauritius. Some of them operates within the framework as set out by their respective Act of Parliament while other operates within the framework of the Companies Act.

1.4 Aim of the Study

The researcher's aim is to investigate into the level and degree of good governance practices in parastatal bodies with a view to identify the cultural, organisational and individual changes and initiative that are required on the part of these organisations. In this respect the study will be carried out at the Mauritius Meat Authority and the Outer Island Development Corporation. The key features between the two organisations is that the MMA has all its operations carried out locally while the OIDC has all its operation being carried out in Agalega islands

1.5 Research Objectives

The objectives of this dissertation are set out below: To assess and evaluate respondents knowledge and awareness of the requirement of the Code of Good Corporate Governance To assess and evaluate the extent that it is being implemented in their respective organizations To identify the factors and conditions that are inhibiting the effective implementation of the Code To make recommendations for the furtherance of good corporate governance in parastatal bodies

1.6 Research Questions

In order to meet the research objectives, the following research questions will be addressed in this study: To what extent respondents are aware about the right and obligations of the Chairman, CEOS, the Board and Secretary as required by the Code? Does the organization have the appropriate framework for implementing good corporate governance? What factors and conditions are inhibiting the effective implementation of the Code

1.7 Significance of the study

It expected that the outcomes of this research will provide practical solutions to the problems presently faced by parastatal bodies in furthering good corporate governance in particular training of board members, setting of audit committees, redefining the role of the internal audit, etc

1.8 Structure of the dissertation

The dissertation report will be organized into 5 chapters. The areas and topics to be covered under each one are summarized below- CHAPTER 1: - INTRODUCTION Chapter 1 states the problem statement, aim and objectives of the research. It gives a brief introduction of the subject under study and the significance of the dissertation. CHAPTER 2: - LITERATURE REVIEW Chapter 2 deals with the literature review on the subject of good corporate governance CHAPTER 3: - RESEARCH METHODOLOGY Chapter 3deals with the methodology used to carry out the survey It describes the objectives as well as the techniques that will be used during the various stages of the research CHAPTER 4: - ANALYSIS OF FINDINGS Chapter 4 deals with the analysis of data. The findings and inference drawn from the analysis will be fully elaborated and these will pave the way for drawing the appropriate conclusions and for making practical recommendations CHAPTER 5: RECOMMENDATIONS AND CONCLUSION Chapter 5 contains the recommendations and conclusions that have been reached based on the results of the survey

2.0 Literature Review

2.1 ntroduction

A number of recent corporate scandals are tainted by fraud. New regulations, as well as recommendations of corporate governance codes intend to reduce fraud and lawsuits have been introduced For example, the Sarbanes-Oxley Act of 2002 resulted in major changes to compliance practices of listed companies in the USA requiring executive, boards of directors and external auditors to undertake measures to implement greater accountability, responsibility and transparency of financial reporting. The main advantages are that good-governed firms are less liable to fraud and lawsuits

2.2 What is corporate governance? Theoretical considerations

Corporate governance is a very general phrase, denoting, as the Cadbury Report (1992), says, "the system by which companies are directed and controlled." It is concerned with structures and the allocation of responsibilities within companies. More specifically, discussions on corporate governance have concentrated on the relations between the directors and managers of the corporation and other parties. Corporate governance is also concerned with the way in which corporations are governed and in particular the relationship between the management of a company and its shareholders. This focus in corporate governance has continued to underlie the provisions of subsequent corporate governance reports in the UK, including Greenbury Report (1995), Hampel Report (1998), Turnbull Report (1999), Higgs (2003), and Smith Report (2003). The OECD (1999) hints at a wider network of relationships, while maintaining the emphasis on the relationship between shareholder and director, defining corporate governance as: A set of relationships between a company's management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives Shleifer and Vishny (1997) propose a broad definition of corporate governance: corporate governance concerns the ways in which suppliers of funds and the corporations themselves ensure returns on investment. This definition is based on agency theory and the principal-agent relationship, which posits that the delegation of management responsibilities by the principal to the agent creates problems of adverse selection and moral hazard that result in agency costs: Using a similar approach, Picou and Rubach (2006) define corporate governance as the construction of rules, practices, and incentives to align effectively the interests of the agents (boards and managers) with those of the principals (capital suppliers). Kyereboah-Coleman and Biekpe (2006) view the set of legal protections (company laws, stock exchange listing rules, and accounting standards) as a way to both shape and be shaped by the system of corporate governance mechanisms in place An entrepreneur, or a manager, raises funds from investors either to put them to productive use or to cash out his holding in the firm. The financiers need the manager's specialized human capital to generate returns on their funds. The manager needs the financiers' funds, since he either does not have enough capital of his own to invest . According to Shleifer and Vishny (1997 the agency problem in this context refers to the difficulties financiers have in assuring that their funds are not expropriated or wasted on unattractive projects In order to minimize these agency costs, a good corporate governance system should provide some kind of legal protection for the rights of both large and small investors Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently. The introduction of other stakeholders raises the question of where exactly the shareholders' interests rank in terms of directors' priorities, notwithstanding the emphasis subsequently placed on the primacy of shareholders' interests in what the OECD perceives as good corporate governance. The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises There are many views on the scope and perspective of good corporate governance .One view assumes that the corporation serves purely as an agency for wealth-maximization for all concerned. The shareholders' interests are assumed to be synonymous with those of the company ("objectives that are in the interests of the company and shareholders") and the role and interests of stakeholders are narrowly defined in terms of economic activity ("wealth, jobs, and the sustainability of financially sound enterprises"). Another view is stakeholders are carefully defined in close legal terms: only rights protected by law - whether through contract or by statute - need be respected. Wider, non-statutory or non-contractual relationships are not considered in this framework Some authors have also pointed that corporate governance cannot be dealt with in an abstract model, as it is a product of hierarchal, cultural, and political systems. Also, any model or a governance structure must entail the four basic ingredients namely: accountability, independence, transparency, and integrity. It is evident that these components are interdependent and cannot be isolated or separated. Separation of ownership and control Corporate governance refers to internal and external monitoring mechanisms that have an impact on the decision of managers in the context of separation of ownership and control. Shleifer and Vishny (1997) illustrate corporate governance as how to make sure managers do not shirk or steal capital from the firm or make bad investments. Berle and Means (1932) were of the view that the separation of ownership and control constitutes agency problems between managers and the suppliers of capital Suppliers of capital want to know how managers take care of their money and maximize shareholder wealth and how to prevent them from consuming perks, such as expenses in favor of managers that do not necessarily maximizes shareholders wealth. Jensen and Meckling (1976) consider the firm as a nexus of contracts in which the conflicting objectives of managers and shareholders (and other participants) are brought in equilibrium within a framework of contractual relationships. Within this setting, Macey (1998) establishes the need for corporate governance principles because of the incomplete nature of corporate contracts and the need to control managerial shirking and to control agency costs. Several mechanisms can be used to overcome the problems associated with separation of ownership and control: alignment of shareholders' interest with managerial interests (compensation plans, stock options, bonus schemes); board monitoring by large shareholders and lenders; legal protection of (minority) shareholders from managerial expropriation through shareholder rights and the market for corporate control as an external device. Practices of good corporate governance Durnev and Kim (2005) analyzed potential determinants of CG practices. They investigated how certain attributes of firms influence their choice of CG practices and how they interact with the legal environment in which they operate. Their theoretical model yields three predictions confirmed by their empirical evidence: The three main attributes that make firms adopt good CG practices are their growth opportunities, their need for external funding, both debt and equity, and their concentration of ownership. The market value of firms increases with good CG practices. The adoption of good CG practices is most relevant in countries where investor legal protection is poor. Anand et al. (2006) empirically examined the adoption of recommended CG guidelines in Canada and found an increasing voluntary adoption and convergence of good CG practices over time. Their results suggest that the presence of a majority shareholder or an executive block holder is negatively associated with good CG practices Legalizing good corporate governance A number of recent corporate scandals are tainted by fraud. New regulations, as well as recommendations of corporate governance codes intend to reduce fraud and lawsuits in the future. For example, the Sarbanes-Oxley Act of 2002 resulted in major changes to compliance practices of listed companies in the USA requiring executive, boards of directors and external auditors to undertake measures to implement greater accountability, responsibility and transparency of financial reporting. The main device is that good-governed firms are less liable to fraud and lawsuits. The main focus of regulators and corporate governance reforms is the constitution and duties of audit committees in order to reduce financial accounting frauds. The International Federation of Accountants (IFAC) recommends that firms should have an independent audit committee that operates independently of management, have financial experience, meet regularly, and review the integrity of financial reports. Corporate governance is concerned with the way in which corporations are governed and in particular in the United Kingdom the relationship between the management of a company and its shareholders. The introduction of other stakeholders raises the question of where exactly the shareholders' interests rank in terms of directors' priorities, notwithstanding the emphasis subsequently placed on the primacy of shareholders' interests in what the OECD perceives as good corporate governance. The OECD to some extent answers this question, in its remarks on the role of stakeholders:

The corporate governance framework should recognise the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

2.3 Need for good corporate governance.

Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently. The introduction of other stakeholders raises the question of where exactly the shareholders' interests rank in terms of directors' priorities, notwithstanding the emphasis subsequently placed on the primacy of shareholders' interests in what the OECD perceives as good corporate governance. The corporate governance framework should recognize the rights of stakeholders as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises There are many views on the scope and perspective of good corporate governance .One view assumes that the corporation serves purely as an agency for wealth-maximization for all concerned. The shareholders' interests are assumed to be synonymous with those of the company ("objectives that are in the interests of the company and shareholders") and the role and interests of stakeholders are narrowly defined in terms of economic activity ("wealth, jobs, and the sustainability of financially sound enterprises").

2.4 Separation of ownership and control

Corporate governance refers to internal and external monitoring mechanisms that have an impact on the decision of managers in the context of separation of ownership and control. Shleifer and Vishny (1997) illustrate corporate governance as how to make sure managers do not shirk or steal capital from the firm or make bad investments. The separation of ownership and control (Berle and Means, 1932) constitutes agency problems between managers and the suppliers of capital Suppliers of capital want to know how managers take care of their money and maximize shareholder wealth and how to prevent them from consuming perks, such as expenses in favor of managers that do not necessarily maximizes shareholders wealth. Jensen and Meckling (1976) consider the firm as a nexus of contracts in which the conflicting objectives of managers and shareholders (and other participants) are brought in equilibrium within a framework of contractual relationships. Within this setting, Macey (1998) establishes the need for corporate governance principles because of the incomplete nature of corporate contracts and the need to control managerial shirking and to control agency costs. Several mechanisms can be used to overcome the problems associated with separation of ownership and control: alignment of shareholders' interest with managerial interests (compensation plans, stock options, bonus schemes); board monitoring by large shareholders and lenders; legal protection of (minority) shareholders from managerial expropriation through shareholder rights and the market for corporate control as an external device.

2.5 Composition of the Board

The board composition decision allocates board seats over the set of potential board members, which include the stakeholder representatives as well as professional managers and board members. Boards are normally elected by the owners, but in some countries other stakeholders (employees, governments) also appoint board members. Owners delegate many decision rights concerning corporate values to the board. In companies that separate ownership and control this implies that managers play a pivotal role in creating or changing corporate value systems, and that the composition of the board is a key determinant of this process. Legally, board members share a joint responsibility to all shareholders (and creditors), but organizational theorists (Jones and Goldberg, 1982; Evan and Freeman) have argued that board members may also serve as agents for specific stakeholders, a dual role, which may sometimes conflict with their fiduciary duty. For example, employee representatives (which are mandatory in countries like Germany (Charkham, 1994)) may take a special interest in labor conditions.

2.6 The corporate value function

Corporate values can be defined, in a classical sense, as beliefs that help companies make choices among available means and ends (Rockeach, 1973), or more technically, as the weight which corporate decision makers attach to alternative goals when making their decisions. Alternative goals could be accounting profitability, stock returns, customer value, market share, company growth, employee satisfaction, supplier surplus or measures of corporate social performance (like image, environmental impact, tax revenue). They could be present or future values of these variables to capture a trade off between the short and the long run (Fama and Jensen, 1985). They can be probabilistic to capture different attitudes towards risk (Sitkin and Pablo, 1992Effectively, they can even encompass the weight, which managers attach to their personal goals (Jensen and Meckling, 1976). For example, if the managers of a company value empire building, and if this inclination is not checked by shareholders or stakeholders, growth and diversification goals may effectively belong to the corporate value system.and they may be even more important in private corporations. Finally, the board will need to take non-owner stakeholder considerations into account, even if shareholder value remains the overall goal. And again one way to do this is to include representatives from the relevant constituencies.

2.7 Implicit contracts with stakeholders

There is a need for companies to internalize stakeholder concerns is to increase their creditability and trustworthiness through implicit contracts based on reputation (Fombrun and Shanley, 1990; Kay, 1995) and corporate culture (Kreps, 1990) or socialization (Scott and Lane, 2000). Reputation may be built by consistent behavior over a long period of time and facilitated by communication (Fombrun, 1996). Following Kreps (1990), a reputation for honesty is a valuable asset which will be lost if the company is not truthful, which implies an economic incentive to honesty. Commitments to employee satisfaction, customer value and creditor protection may also be a valuable, self-sustainable assets. Arrow (1973), Sen (1993) and others have argued that ethical codes may improve economic efficiency when other social institutions fail to achieve optimal results, in particular, the classic market failures when the firm has access to unique information (Arrow, 1973).

2.8 Corporate Governance and Performance

The shareholder model, the ultimate goal of the firm is to maximize shareholder wealth and corporate governance has to be seen as a mechanism to realize this goal. As a consequence, supporters of this concept expect a positive relationship between corporate governance and firm performance. According to Maher and Andersson, 2002, firms that do not adopt cost-minimizing corporate governance mechanisms are less efficient and will be taken over or replaced in the long-run Conventional wisdom on corporate governance predicts that good corporate governance increases firm valuation and firm performance and reduces the cost of capital and financial fraud. A widely accepted statement is that good corporate governance results in a lower cost of capital. One explanation is that good corporate governance will lead to lower firm risk and subsequently to a lower cost of capital. Using various measures of corporate governance, researchers have examined the extent to which corporate governance environment is related to the firm's financial performance (Gompers et al., 2003; Bebchuck et al., 2009; Klein et al., 2005; Gupta et al., 2006; Brown and Caylor, 2006) Generally, their results tend to show that good corporate governance practices, as measured by different variables, are positively associated with financial performance although the associations are not very strong. Among the indicators that are significantly related to firm financial performance are: All directors attend at least 75 percent of board meetings Board members are elected annually; Board guidelines are in each proxy statement; The firm has either no poison pill or else a shareholder-approved one; Re-pricing did not occur within the last three years; Average options granted in the last three years as a percentage of basic shares outstanding did not exceed 3 percent; Directors are subject to stock ownership guidelines (Bebchuck et al., 2009; Brown and Caylor, 2006); and The board is more than 50 percent controlled by independent outside directors (Black et al., 2006). According to the shareholder model, the ultimate goal of the firm is to maximize shareholder wealth and corporate governance has to be seen as a mechanism to realize this goal. As a consequence, supporters of this concept expect a positive relationship between corporate governance and firm performance. Firms that do not adopt cost-minimizing corporate governance mechanisms are less efficient and will be taken over or replaced in the long-run (Maher and Andersson, 2002). Conventional wisdom on corporate governance predicts that good corporate governance increases firm valuation and firm performance and reduces the cost of capital and financial fraud. Corporate governance ratings From the literature review, corporate governance ratings seemed to concentrate on the following general categories: board characteristics; ownership structure; compensation plans; anti-takeover devices; financial disclosure; internal controls; and director education (Allen et al., 2004). Corporate governance cannot be dealt with in an abstract model, as it is a product of hierarchal, cultural, and political systems. Also, any model or a governance structure must entail the four basic ingredients namely: accountability, independence, transparency, and integrity. It is evident that these components are interdependent and cannot be isolated or separated. Corporate governance refers to internal and external monitoring mechanisms that have an impact on the decision of managers in the context of separation of ownership and control. Shleifer and Vishny (1997) illustrate corporate governance as how to make sure managers do not shirk or steal capital from the firm or make bad investments. The separation of ownership and control (Berle and Means, 1932) constitutes agency problems between managers and the suppliers of capital. Suppliers of capital want to know how managers take care of their money and maximize shareholder wealth and how to prevent them from consuming perks, such as expenses in favor of managers that do not necessarily maximizes shareholders wealth. Jensen and Meckling (1976) consider the firm as a nexus of contracts in which the conflicting objectives of managers and shareholders (and other participants) are brought in equilibrium within a framework of contractual relationships. Within this setting, Macey (1998) establishes the need for corporate governance principles because of the incomplete nature of corporate contracts and the need to control managerial shirking and to control agency costs. Several mechanisms can be used to overcome the problems associated with separation of ownership and control: alignment of shareholders' interest with managerial interests (compensation plans, stock options, bonus schemes); board monitoring by large shareholders and lenders; legal protection of (minority) shareholders from managerial expropriation through shareholder rights and the market for corporate control as an external device. Within the paradigm of the shareholder model, the ultimate goal of the firm is to maximize shareholder wealth and corporate governance has to be seen as a mechanism to realize this goal. As a consequence, supporters of this concept expect a positive relationship between corporate governance and firm performance. Firms that do not adopt cost-minimizing corporate governance mechanisms are less efficient and will be taken over or replaced in the long-run (Maher and Andersson, 2002). Most organizations that sell corporate governance ratings refer to this relationship. Larcker et al. (2004) find that corporate governance variables have weak explanatory power for explaining management decisions or firm valuation. Further, they find some unexpected, opposite relationships, such as: firms with large boards, busy directors and anti-takeover provisions are showing better debt ratings. Structural indicators of corporate governance used in empirical research and rating agencies tend to have limited ability to explain managerial behavior and firm valuation. A widely accepted statement is that good corporate governance results in a lower cost of capital. One explanation is that good corporate governance will lead to lower firm risk and subsequently to a lower cost of capital. Although historic financial performance can be factored in predicting future performance but it is definitely not the only factor that must be counted. This necessitated the need for a financial scorecard that gives the investor a guideline on the financial status of an enterprise. As the twenty first century economy can be characterized as a dynamic one, a way to measure adaptability to sustained customer satisfaction is becoming indispensable. Leadership that is courageous, willing to adapt to changing economic environment and equipped with common-sense can be considered the choice of tomorrow's leading companies Methods of assessment During the last few years, several rating systems have been proposed and implemented. The most recognized of which are the four rating services that provide metrics that rank the quality of the firm's directors. These rating services are: Institutional Shareholder Services (ISS); Standard and Poor (S&P); Governance Metric International (GMI); and The Corporate Library (TCL). These systems are based what is known as the Scoreboard. The main objectives of the scoreboard system are:to facilitate the work of analysts and investors though a systematic and easy overview of all relevant issues of good governance;enable companies to easily assess the reach and the quality of their own governance situation; and allow to set minimum scores by investors for governance as part of general investment policy. Category 1: Board structure and accountability The pure fact that the board and executives structure exists on the scoreboard rating system is in itself a positive sign as it ensures some kind of improvements and adjustments after each report card is issued for the company. The following topics are considered in this category include: independency of board members; board size; board attendance; chairman/CEO separation; directors serving on boards of other companies; composition of audit committees, nominating committees and compensation committees; annual election of the board of directors; disclosure of corporate governance guidelines and code of conducts and ethics; share ownership of executive directors. Board structure refers mainly to the composition of the board of directors. Rating agencies evaluate firms with more independent (no affiliated) board members higher than firms with less independent board members. Independent board members may be more critical towards ethical and fraud issues, as well as restructuring activities than dependent members. However, it is questionable whether more independent board members would improve firm performance (Bhagat and Jefferis, 2002). For example: Former non-executive directors have the knowledge and expertise in the company and business environment that enable them to advise incumbent management. Other topics in this field are disclosure of corporate governance guidelines and codes of conducts and ethics. More disclosure means a higher ranking. However, a firm that discloses information about corporate governance or codes of conduct and ethics (stated preferences) will not necessary act in favor of these guidelines (revealed preferences). Further, the number of meetings and attendance is counted. A high attendance means that the firm is better governed. However, not the number of meetings and attendance is important, but the content of discussion and items on the agenda are indicators of good corporate governance. Category 2: Executive and director compensation In this category, the following topics are rated: level and form of compensation; performance evaluation criteria; independence and integrity of compensation setting process; shareholder approval of compensation policy; pension plans; option-repricing policy; directors and executives are subject to stock ownership guidelines; presence of company loans to employees. Fixed and variable compensation policies and practices that reward management with little regard to for shareholder interest indicate weak, ineffective board. When long-term compensation is tie to shareholder returns then it is considered good governance. Recently, many CEOs' salaries exceeded the one million dollars barrier and their compensation plans include bonus and variable pays in form of stocks and stock options. Such conditions are a recipe for bad governance. This category is not examined thoroughly in any of the four systems. In our view, a compensation plan should be related to the corporate performance and performance of peer companies. Category 3: Audit The crucial issue in this category is the audit committee (Yakhou and Dorweiler, 2005). Who appoints it, its mandate, and its authority? Are the members of the audit committee independent and do they discuss financial issues on a regular base with the external auditor? Category 4: Shareholder rights and takeover practice In this category, the following issues are considered: one-share, one vote system; a simple majority vote of shareholders is required to amend the charter or bylaws; shareholders may call special meetings; shareholders may act by written consent; presence of a majority shareholder and staggered board, Interdependences among variables Agrawal and Knoeber (1996) showed the importance of interrelations among different control mechanisms. They examined different corporate control mechanisms, such as insider shareholdings, monitoring by large shareholdings and lenders, independency of boards, external labor market, and the market for corporate control. They mentioned that when alternatives exist, the use of one corporate control mechanism may depend on the use of others. Therefore, empirical estimates of the influence that single corporate control mechanisms have on firm performance will likely be misleading. If variables are endogenous (because of interdependences), the results are not reliable. And that is exactly what happens with the use of a single corporate governance index. Bhagat and Jefferis (2002) argue that takeover defenses, corporate performance, corporate ownership structure are interrelated and should be studied by simultaneous equations. Using a simple index ignores interdependences among different corporate governance mechanisms.

2.9 Corporate Governance in Mauritius

Mauritius has chosen as its economic model a version of the free market economy. The driving force of the model is investment by the Private Sector. Government sets the rules, provides the physical and social infrastructures and it is the private sector that creates wealth employment. A system of corporate governance is required to keep a balance between the interest of the outside investors, the entrepreneurs and the management. Furthermore, there are other stakeholders, employees, customers, suppliers, banks and society in general whose interest has to be taken into account. Governance has been an issue in Mauritius and elsewhere for many years. Mauritius has institutions, some guaranteed by the constitution and others by legislation and rules, which act watchdog against corruption and malpractices to ensure implementation of good governance principles. These include: The National Audit Office and an effective system of internal and external audit for all ministers/departments. The Independent Commission Against corruption (ICAC) which acts as a watchdog against corruption and wrong doings. The Ombudsman Office with large constitutional power to enquire into administrative malpractices. A free and highly critical media gives a large and detailed coverage of all government activities. Public Procurement Laws ensure that there is fair, equitable and transparent mechanism in the allocation of contracts funded by public funds. The newly created Office of Public sector Governance (under the aegis of the Prime Minister's Office) has a vision of making Mauritian Public Sector organisations become model of good corporate governance. Its mission is to inculcate, advocate and promote good corporate governance practices in the public sector. There is the "Code of Ethics for Public Officers" issued by the Ministry of Civil Service and Administrative Reforms. However, it was in 2001 that Sushil Kushiram, the then Minister of Finance, Economic Development and Financial Services, decided that as part of the modernization of the economy, it was time to create a legal and institutional framework that would give an up o tune and efficient system of governance. A number of initiatives were put in place. The committee of CG was formed, the listing rules of SEM were put in place, a new Companies Act was pressed and International Accounting Standard was introduced. This series continued and we had the Financial Reporting Act which amongst other things provided for the setting up of the National Committee on CG-NCCG, the service commission was set up and in 2009, the Mauritius Institute of Directors was launched. The NCCG, as its first task, prepared the code of Corporate Governance for Mauritius which was launched in 2003.The code is on a "Comply or explain basis" and in 2009, the NCCG commissioned a survey on the state of compliance was high in private companies at 83% but very low in State Owned Enterprises (SOEs) at 44%.SOEs are the stewards of public money and it is very desirable thus levels of governance be improved in these organizations. The NCCG is currently working with the National Audit office and the office for the public sector Governance to find out how this can be improved, Taylor (2011)

2.10 Conclusion

Corporate governance remains a complex and dynamic issue as it deals with cultural, political, technological, and market variations. From the above literature review, it can be noted that the debates on corporate governance is still an evolving issue and that research are being carried out on the various facets of corporate governance.

3.0 RESEARCH METHODOLOGY.

3.1 Introduction

The previous chapter was concerned with a review of current literature to identify the dimensions and to develop a survey questionnaire to collect the primary data to answer the research question and to achieve the aim of this study. This chapter explains in details the methodology used in gathering the necessary information to conduct the research study. It highlights the sources of data, the survey design, and the data analysis method employed. The steps which are necessary to conduct a research have also been highlighted. The overall aims were to plan and carry out the study in a systematic manner so as to achieve a high degree of reliability and validity of the findings.

3.2 Purpose of the Research

As mentioned in Chapter 1, this study is on assessing the implementation of good corporate governance in parastatal bodies. The finding of the research will make a significant contribution toward improving corporate governance in parastatal bodies in particular at the Outer Island Development Corporation and the Mauritius Meat Authority.

3.3 Scope of the Research

The aim of this research is to enhance the good practice of corporate governance in parastatal bodies..

3.4 Research Philosophy

The research philosophy is considered to be critical to any empirical research because the research philosophy dictates the type or research method and strategy to be adopted. Saunders et al (2009) argue that positivism and interpretivism are the two dominant research philosophies in business management. They argue that the interpretivism is about the way people make sense of the world whereas the positivism is into the form of a universal law. For this study an interpretivism philosophy has been adopted because it is considered to be the most appropriate one to answer the research question of the study as it involves the interpretation of a situation involving the human element.

3.5 Research Approach

According to Saunder, Lewis and Thornhill (2007), research can be either inductive or deductive. The inductivism is based on the development of a theory after analysis of the primary data. The benefit of this approach, it takes a holistic view of the situation before the formulation of the theory. However, for the purpose of this study it has been considered most appropriate to adopt a deductive approach where the research started with testing the existing theories. The deductivism is about testing the theories and is more appropriate for the natural sciences. The benefits of this approach for this study are to make use of theories to explain a situation, the cause effect relationship and the data collected is of a quantitative nature.

3.6 Type of Research Approaches

There are three type of research. These are detailed below Exploratory research Exploratory research is a type of research conducted when a problem has been clearly defined. It helps determining the best research design, selection of subjects, data collection method. Secondary research is therefore based on exploratory research. Hence, research that is conducted with an intention to explore is called exploratory research. Descriptive research Descriptive research describes data and characteristics about the population or phenomenon being studied. If the purpose of the research is to describe, then the study is considered to be descriptive in nature. It basically gives the researcher a choice of perspective, terms, levels, aspects, concepts, as well as to observe, register, systemize, classify and interpret. Explanatory research The desire to know 'why' to explain is the purpose of explanatory research. Explanatory research is applied when the issue is already known and has a description of it. Furthermore it builds on exploratory and descriptive research and goes on to identify the reasons for something that occurs. Explanatory research looks for causes and reasons.

3.7 Research Methods

The two research methods identified in the literature are the qualitative and quantitative research methods. Both have its merits and limitations but the choice between the two depends on the purpose of the study and the type and the availability of information. The qualitative method is commonly used to measure views, attitudes, feelings and opinions. It has been criticized for its subjectivity in the way data is interpreted. The interpretation is based on the researcher and the instrument used. This study has used the quantitative approach for the analysis of the data. All the dimensions forming part of the study are measured in quantitative terms. The quantitative approach supports the deductive strategy as the theory is placed at the beginning of the research and is tested through set of questions. This approach has been favored for its objectivity.

3.8 Research Strategy

The research strategy presents a plan of how the research question has been answered. There are several strategies that can be adopted to generate the primary data. For this study, a survey method has been adopted because it allows the gathering of a large volume of data in a short time. According to Saunders, Lewis and Thornhill (2007), a research could be explanatory, exploratory and descriptive. This research is both an exploratory (i.e. review of the literature) and explanatory (analysis of data and making conclusion there from) research

3.9 The Research Process

The research process will be completed in six steps are mentioned as under: Identifying the research problem Defining the research problem Determining how to conduct the research or the method Collecting research data before analyzing Interpreting the data Presenting the results

3.10 Data Access

For this study, the sources of data have been primary data to answer the research questions. In the initial phase of the research, the literature review was carried in journals, publications and internet that reflect the topic of the study. The primary data was generated through the self administered questionnaire to trainees.

3.11 Census/ Sample

The population consists of 160 parastatal bodies. However, survey deals with only two parastatal bodies. The rational for choosing the two parastatal bodies is that one has over the years a very good track record, i.e. it has an unqualified audit report. It prepares its account on time as well as its Annual Reports, whereas the other one has been adversely reported by the auditors and there are delays in preparation of its account and Annual Report.

3.13 Questionnaire Design

The questions in the questionnaires (refer to appendix) are designed and adapted on research papers and articles on the QFD models. The questionnaire is based on three factors. The questionnaire was designed in such a way to capture the respondents' needs and their perception of the quality of the training. Respondents were given a series of statements where they will be required to opine on the degree of agreement and disagreement on each of the statement on a rating scale of 1 to 5 as set out below: 1- Disagree 2- Disagree 3- Neutral 4- Agree 5- Strongly agree

3.14 Pre-Testing

A pre-testing was done prior to launching a full-scale survey. It is important to identify flaws and weaknesses towards improving the questionnaire to ensure the reliability and validity. Even minor mistakes are important as it can cause great changes in meaning and interpretation. A pre-testing was carried out on 6 potential respondents including 2 experts. Suggestion from the respondents were sought which helped to refining the questionnaire. Initially, some questions were removed, as the respondents stated that the questionnaire was too lengthy and time consuming. The questionnaire has been reviewed and amended accordingly prior to launching full-scale survey.

3.15 Data Collection Method

From information available at the MSB , the questionnaires were forwarded by both the internet and by post to the 60 trainees A total of 42 questionnaires were received but only 39 were found valid and reliable. These has been used to conduct the analysis

3.16 Data Analysis

All the completed questionnaire were screened to establish their consistency, reliability, validity, accuracy, uniformity and completeness. The data collected during the survey was computed using the statistical package SPSS 16.0. The data analysis tools used were the mean, standard deviation and the excel for graph presentation.

3.17 Ethical Consideration

The research was conducted by taking into account all ethical issues as there is the involvement of human beings. The risk of injury or health hazard was not an issue as no equipment was used. The confidentiality and anonymity of respondents were assured. They were not asked to relate their names or addresses. The questionnaire carried a covering letter to inform them about the purpose of the research. The approval letter from management was forwarded together with the questionnaire to ensure transparency. In the covering letter it was well stated that the purpose of this survey was for the presentation of a dissertation for a degree award. Moreover, they were informed that, no part of the research will be published without the authorization from management. The respondents act in their free will and there was no personal influence or pressure has been used.

3.18 Conclusion

This chapter has given a detailed description of the methodology used for this research to generate the primary data to answer the research question of this study. The purpose of the research was defined and research methods used (exploratory, explanatory and descriptive). The research strategy has been a survey. The method used is the quantitative to measure the dimensions in quantitative terms. The instrument used was a closed ended questionnaire where respondents were required to express their level of agreement or disagreement with the statements. The next chapter will present the findings of the analysis of the primary data and a discussion will follow on the findings of the study.

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