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 a theoretical explanation but companies/directors’ conceptualisation of organizational legitimacy differ, thereby explaining the varying levels of CG adoption at company level.