yandraduth googoolye : corporate governance address by mr yandraduth googoolye, first deputy governor of the bank of mauritius, at the workshop on “ corporate governance ”, organised by the mauritius institute of directors, port - louis, 11 january 2013. * * * ladies and gentlemen a very good morning to you. i would like to thank the mauritius institute of directors – the miod – for organizing this workshop on corporate governance and inviting me to speak before such a distinguished audience. i understand that this is the second workshop in this series – the first one was held in november last year at this very same venue and due to the vast interest expressed by its members, the miod had to organize this second workshop. corporate governance is turning out to be a very topical issue indeed! not only in mauritius, but worldwide. international standard setters like the bank for international settlements and the oecd, among others, have recommended that bolder initiatives be taken to promote higher corporate governance standards in organisations. these initiatives, as you all know, were driven mainly by the corporate governance failures and lapses noted during the global financial crisis. the crisis has shown that there is not only the need for banks to improve their corporate governance practices, but that supervisors also must ensure that sound corporate governance principles are thoroughly and consistently implemented. but why should banks be subject to more stringent rules than other companies? one would be tempted to ask. well, simply because banks play a critical role in the economy. they are highly leveraged institutions and most of their funds come from depositors – regulators cannot condone that a customer loses his money on account of lax corporate governance standards being maintained in institutions they regulate. regulators have the ultimate responsibility of ensuring the safety and soundness of the financial system while at the same time safeguarding the interests of the depositors and the public at large. hence, it is vital that this special position of trust that banks have in the economy is maintained through principles of good corporate governance. and it is within the remit of the regulators to make sure that these principles are effectively adhered to by banks. predictably, the best option available to the bank of mauritius to ensure that these best practices are being adhered to in the banking sector is to prescribe them in the form of guidelines. in fact, as far back as 2001, the bank of mauritius issued the first guideline on corporate governance, which shows that corporate governance has always ranked high on

our agenda. the first guideline, however, provided only a broad framework of corporate governance whereby banks were advised to put in place a set of parameters without being prescriptive enough. the growth and increasing complexity of banks domestically coupled with the sad experiences which unfolded during the financial crisis, however, heightened the need for the bank of mauritius to revisit the codes and principles of corporate governance governing banks. as you all know, the history of banking contains many examples of banking crises. you may recall the high profile failures such as enron and parmalat and nearer to us, the failure of bis central bankers ’ speeches banks in the global financial crisis largely attributed to failures in corporate governance and risk management practices and the underpinning poor corporate culture and ethics. in response, many standard setting bodies and banking supervisors around the world have revamped their corporate governance standards requirements and reassessed their adequacy. whilst these changes may have increased the burden of regulated financial institutions, they provide a safeguard for the financial system as a whole. the bank of mauritius has also kept pace with the evolving best practices set by international standard setters and issued a new guideline on corporate governance in august 2012. this guideline, i must say, was released to the industry after rather lengthy consultations with the banking community and the public at large. the guideline was issued for public consultation in november 2010 and it was finalized after nearly two years. the bank of mauritius adopted a collaborative approach on this front and discussion groups were set up with banks. we even received comments from the miod for which we are very thankful and we thank everyone who participated in this initiative. i must emphasize here that the new guideline has been finalized taking into account the specificities of the local context. let me now run you through the broad principles underpinning the guideline. the financial crisis has shown that in certain instances, the board – which plays a significant role in safeguarding the corporate governance principles and is ultimately responsible for overseeing the organization and management of the company ’ s affairs as well as the individual board directors were simply unaware of and did not understand the risks taken by the businesses which they were supposed to oversee. other factors in corporate governance breakdown were attributed to conflicts of interest, lack of board director independence, weak internal and external audit practices and deficient internal control systems. moreover, the complexity of the organisational structure of some financial firms impeded transparency and disclosure so that the firms ’ true conditions were not