Corporate Governance in Banking Sector

Only available on StudyMode
  • Download(s) : 221
  • Published : April 18, 2013
Open Document
Text Preview
To what extent are the banks of Mauritius complying with the national code of corporate governance?

CHAPTER 1

INTRODUCTION

Sir Adrian Cadbury (2002) stated that corporate governance is “the direction and control process within an organization”.

Corporate governance is a systematic approach of controlling and monitoring a business operation.

The term corporate governance has came to light in the 19th Century when the theory of separation of ownership and control developed. The idea was that shareholders want the safeguard of their assets and their business controlled by managers and directors. Therefore, they require proper accountability of the financial performance of their business.

Corporate governance examines the decision process in corporations. It can also be defined as a system and process that ensure accountability, probity and openness in the operation of a corporation.

Corporate governance entails the compliance of its various codes of conduct and Government Regulations. As such, companies are required to publish their business activities in their annual reports.

However, some companies in UK such as Polly Peck, Bank of Credit and Commercial Bank (BCCI) and Maxwell group, have failed to meet these required regulations. These firms have failed because the directors were acting against shareholders’ interests.

Most famous corporate scandals have been companies like Enron, WorldCom and Barings Bank. There was poor governance in these companies, which has been the main reason for their failure.

In 1980’s, corporate governance has been a great issue of concern due to big corporate scandals resulting from lack of accountability of board members and weak accounting standards.

Enron, the seventh largest American company, known as the giant energy company, has also collapsed due to lack of control and poor governance. In this case, the members of the directors were falsifying the company’s accounts to show a good picture of the position of the firm.

Enron ended in bankruptcy due to inadequate internal control, unethical behavior by directors and lack of independence by qualified members.

According to Financial Sector Assessment (2003), Mauritius is among the groups of developing countries and its domestic bank assets indicate nearly 100% of its Gross Domestic Product (GDP). The Mauritius banking sector represents two-third of its domestic financial system. And, over the past five years it has increased at an average of 13% per year.

The financial sector in Mauritius is normally good and lucrative.

There are 19 banks in Mauritius with 173 branches over the country. Apart from domestic banks, in Mauritius there are also big and famous banks such as HSBC, Barclays, Deutsche, Bank of Baroda, State Bank of India, South East Asian Bank, and others. Appendix (i) provides a list of banks operating in Mauritius.

Financial Services Authority (FSA), Banks of Mauritius and Code of Governance regulate banks in Mauritius.

Mauritius Institute of Directors (MIOD 2008) state that due to corporate scandals in the country a code of recommended best practices were in review so that there would be responsible corporate behavior. Therefore, in 2005, the national code of corporate governance was in use in Mauritius.

Everyone in the organization should participate in achieving effective corporate governance. It ranges from shareholders to employees, as they are accountable in reaching the aim and objectives of their business.

Sir Adrian Cadbury (World Bank 2000) states, “ the aim is to support as much as possible the interests of individuals, corporations and society”

In September 2001, the previous Minister, Sushil Kushiram, established the committee on corporate governance. The aim of this committee was to increase the public awareness of the term governance in those periods.

The first report on corporate governance was introduced on 6th October 2003....
tracking img