Corporate Governance Country Assessment€¦ · This assessment of corporate governance in Senegal...

Report on the Observance of Standards and Codes (ROSC)Corporate Governance

Corporate GovernanceCountry Assessment

Senegal

June 2006

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WHAT IS CORPORATE GOVERNANCE?

Corporate governance refers to the structuresand processes for the direction and control of com-panies. Corporate governance concerns the relation-ships among the management, Board of Directors,controlling shareholders, minority shareholders andother stakeholders. Good corporate governance con-tributes to sustainable economic development byenhancing the performance of companies andincreasing their access to outside capital.

The OECD Principles of Corporate Governanceprovide the framework for the work of the WorldBank Group in this area, identifying the key practicalissues: the rights and equitable treatment of share-holders and other financial stakeholders, the role ofnon-financial stakeholders, disclosure and trans-parency, and the responsibilities of the Board ofDirectors.

WHY IS CORPORATE GOVERNANCE IMPORTANT?

For emerging market countries, improving corpo-rate governance can serve a number of importantpublic policy objectives. Good corporate governancereduces emerging market vulnerability to financialcrises, reinforces property rights, reduces transactioncosts and the cost of capital, and leads to capitalmarket development. Weak corporate governanceframeworks reduce investor confidence, and can dis-courage outside investment. Also, as pension fundscontinue to invest more in equity markets, good cor-porate governance is crucial for preserving retire-ment savings. Over the past several years, the impor-tance of corporate governance has been highlightedby an increasing body of academic research.

Studies have shown that good corporate gover-nance practices have led to significant increases ineconomic value added (EVA) of firms, higher produc-tivity, and lower risk of systemic financial failures forcountries.

THE CORPORATE GOVERNANCE ROSC ASSESSMENTS

Corporate governance has been adopted as oneof twelve core best-practice standards by the inter-national financial community. The World Bank is theassessor for the application of the OECD Principles ofCorporate Governance. Its assessments are part ofthe World Bank and International Monetary Fund(IMF) program on Reports on the Observance ofStandards and Codes (ROSC).

The goal of the ROSC initiative is to identifyweaknesses that may contribute to a country’s eco-nomic and financial vulnerability. Each CorporateGovernance ROSC assessment reviews the legal andregulatory framework, as well as practices and com-pliance of listed firms, and assesses the frameworkrelative to an internationally accepted benchmark.

n Corporate governance frameworks are bench-marked against the OECD Principles of CorporateGovernance.

n Country participation in the assessment process,and the publication of the final report, are volun-tary.

n The assessments focus on the corporate gover-nance of companies listed on stock exchanges. Atthe request of policymakers, the ROSCs can alsoinclude special policy focuses on specific sectors(for example, banks, other financial institutions,or state-owned enterprises).

n The assessments are standardized and systematic,and include policy recommendations. In response,many countries have initiated legal, regulatoryand institutional corporate governance reforms.

n Assessments can be updated to measure progressover time.

By the end of June 2005, 48 assessments had beencompleted in 40 countries around the world.

Overview of the Corporate Governance ROSC Program

REPORT ON THE OBSERVANCE OF STANDARDS AND CODES (ROSC)

Corporate governance country assessment

Senegal June 2006

This report provides an assessment of Senegal’s corporate governance policy framework, enforcement and compliance practices. It highlights recent improvements in corporate governance regulation, makes policy recommendations, and provides investors with a benchmark against which to measure corporate governance in Senegal.

Achievements and Key Obstacles The awareness of modern corporate governance principles is in its early stages of development. Most companies practice a traditional form of corporate governance, in which boards are weak and provide little independent oversight, and many board members do not understand their role and responsibilities. Transparency is low. The adoption of more modern practices has been the greatest at the single listed company (SONATEL) and among the privatized banks. An Institute of Directors was recently created to discuss and address corporate governance issues.

Next steps The report identifies several key next steps that can be carried out in Senegal and that focus on implementation, including:

Developing program to build awareness of the importance of corporate governance and to train directors in modern corporate governance principles.

Drafting a Code of Corporate Governance. Addressing governance weaknesses in the state-owned enterprises. A

separate report reviews the special issues for the corporate governance of state-owned enterprises in Senegal.

Revising the OHADA uniform act for commercial companies (over the long term) to incorporate modern corporate governance principles.

Acknowledgements This assessment of corporate governance in Senegal was conducted in May

2006 by Alexander S. Berg of the Corporate Governance Department of the World Bank, as part of the Reports on Observance of Standards and Codes Program. The ROSC was based on a corporate governance template-questionnaire completed by Africa Investment and Business Advisors. Special assistance and support was received from the IFC office in Dakar. The mission met with the Ministère de l’Economie et des Finances, Ministère du NEPAD et de la Bonne Gouvernance, Ministère de l’Industrie, Cellule de Gestion et de Contrôle du Portefeuille de l’Etat, Ministère de l’Energie, Conseil National du Patronat (CNP), Confédération nationale des employeurs du Sénégal (CNES), CGF Bourse, Institut Sénégalais des Administrateurs, Antenne Nationale, Bourse Régionale des Valeurs Mobilières (BRVM), Chambre de Commerce et d’Industrie de Dakar, Cours des Comptes, Commission de Vérification des Comptes, Contrôle Financier, Agence nationale chargée de la Promotion et de l’Investissement et des Grands Travaux (APIX), legal and financial experts, directors, managers, and syndicates of private and public sector companies and banks.

Messrs. /Mmes.: Aida der Hovanessian, Olivier Fremond, Ghita Alderman,

Philippe de Meneval, and David Robinett provided advice and comments. The ROSC assessment was cleared for publication by His Excellency

Abdoulaye Diop, Minister of Economy and Finance, on October 1, 2007.

Table of Contents

Market profile .......................................................................................................................................1 Key issues............................................................................................................................................3

Investor protection..............................................................................................................................3 Disclosure ..........................................................................................................................................4 Company oversight and the board .....................................................................................................4 Enforcement .......................................................................................................................................5

Recommendations ..............................................................................................................................6 Summary of Observance of OECD Corporate Governance Principles ........................................10

Principle - By - Principle Review of Corporate Governance .........................................................11 Section I: Ensuring The Basis For An Effective Corporate Governance Framework .......................11 Section II: The Rights of Shareholders and Key Ownership Functions............................................15 Section III: The Equitable treatment of Shareholders ......................................................................20 Section IV: The Role of Stakeholders in Corporate Governance .....................................................22 Section V: Disclosure and Transparency .........................................................................................24 Section VI: The Responsibilities of the Board ..................................................................................27

Annex I: Disclosure Obligations of Listed Companies ..................................................................31

Annex II: Policy Options to Increase the Doing Business Protecting Investors Index...............32

Corporate Governance Assessment Senegal

June 2006 Page 1

Country assessment: SENEGAL This ROSC assessment of corporate governance in Senegal benchmarks law and

practice against international good practices. Corporate governance refers to the structures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders. This definition focuses on company performance and shareholder value. The OECD Principles of Corporate Governance provide the framework for the corporate governance ROSC, identifying the key practical issues: the rights and equitable treatment of shareholders and other financial stakeholders, the role of non-financial stakeholders, disclosure and transparency, and the responsibilities of the Board of Directors. Good corporate governance contributes to sustainable economic development by enhancing the performance of companies and increasing their access to outside capital. Poor corporate governance raises cost of and limits access to capital. Corporate governance is sometimes given a wider definition that places more emphasis on corporate social responsibility (e.g. corporate citizenship, corporate social responsibility, socially responsible investing, political governance, business ethics, and anti-corruption). Although these issues are very important, the ROSC does not focus on these issues. However, it is widely recognized that good corporate governance (as defined above) reinforces other work in these areas. For emerging market countries, improving corporate governance can serve a number of important public policy objectives. Good corporate governance reduces emerging market vulnerability to financial crises, reinforces property rights, reduces transaction costs and the cost of capital, and leads to capital market development. Weak corporate governance frameworks reduce investor confidence, and can discourage outside investment. Also, as pension funds continue to invest more in equity markets, good corporate governance is crucial for preserving retirement savings. Over the past several years, the importance of corporate governance has been highlighted by an increasing body of academic research. Studies have shown that good corporate governance practices have led to significant increases in economic value added of firms, higher productivity, and lower risk of systemic financial failures for countries.

Market profile Senegal’s basic legal framework is relatively strong, but has not kept pace with some recent developments in corporate governance

Senegal’s legal system is based on the French civil law tradition. Company and securities law is set at the community level, and not at the national level. Senegal is part of the West African Monetary and Economic Union (Etats Membres de l’Union Economique et Monétaire de l’Afrique de l’Ouest - UEMOA). The UEMOA zone has adopted the OHADA legal framework (Organization for Harmonization of Business Laws in Africa). In Senegal the main statute that governs companies is the Uniform OHADA Act on company law (Acte Uniforme de OHADA relatif au droit des sociétés commerciales et du Groupement d’intérêt économique, or AUSCGIE), adopted in 1997. The basic law is relatively strong, but because the law has not been updated since 1997, it has not kept pace with recent developments in corporate governance (in France and elsewhere).

Awareness of The awareness of modern corporate governance principles is in its early stages of


June 2006 Page 2

corporate governance is in its early stages of development

development. Most companies are governed by weak boards that provide little independent oversight, and many board members do not understand their role and responsibilities. Transparency is low.

Some companies are introducing more modern practices, and reform is under discussion

Adoption of modern corporate governance principles has been the greatest at SONATEL and among the privatized banks, many of whom have audit committees in line with the governance policies and procedures of their international parents. No code of corporate governance or board guidelines have been drafted or adopted in Senegal (or by the regional stock exchange, the Bourse Régionale des Valeurs Mobilières, BRVM). A director training organization (the Institut Sénégalais des Administrateurs, or ISA) was recently created to discuss and address corporate governance issues, including director training and the drafting of a Chartre de l’Administrateur (board charter).

The equity market in Senegal is at an early stage of development

The UEMOA countries share a common securities regulator (Le Conseil Régional de l'Epargne Publique et des Marchés Financiers, or CREPMF) and stock exchange (the BRVM). The BRVM is based in Abidjan, and has 39 listed companies (including one from Senegal). BRVM had a market capitalization of CFA 1,226.7 billion (USD 2.3 billion) at the end of 2005. BRVM market capitalization represented about five percent of the total member country GDP in 2004. Turnover was 2.7 percent of market capitalization. Both figures are both low in comparison with most other markets. While share prices have generally increased in recent years, they have not kept pace with price increases in other emerging markets. One factor weighing on the market has been the political disturbances in Cote d’Ivoire, which have increased perceptions of overall risk in the region.

SONATEL is a regional leader in corporate governance

The listed company in Senegal is SONATEL, the privatized national telecommunications company. SONATEL is the most widely respected company in Senegal, and is the “blue chip” of the BRVM. Its market capitalization at the end of 2005 was about half of the total, equivalent to about 15 percent of Senegal’s GDP. SONATEL is controlled by France Telecom (42.33 percent of shares); the state owns 27.67 percent, employees hold 10 percent, and 20 percent is held by small investors and trades on the BRVM. There have been no new listings (or de-listings) of Senegalese companies since the listing of SONATEL in 1997. Three large Senegalese enterprises have issued corporate bonds to the public, including two SOEs: ICS, le Port Autonome de Dakar, and SENELEC.

The private sector is relatively small, and despite privatization the largest companies are owned to some degree by the State

There are relatively few large companies in Senegal. In 2002, there were 30 companies with more than 500 employees, of which 9 were wholly- or majority-owned by the State (and a number of others recently privatized). Large companies in Senegal can be placed into four groups: • State-Owned Enterprises (SOEs) majority or 100 percent owned by the

State. There are 24 majority-owned SOEs in Senegal (see companion report, Corporate Governance of State-Owned Enterprises in Senegal). These include many major infrastructure companies, including the electricity utility (SENELEC), the water infrastructure assets (SONES), and the railway (SNCS).

• Recently privatized SOEs and banks, often with minority state ownership. This group includes many of the largest companies, including ICS (Industries Chimiques du Sénégal, phosphate mining / processing), and SONACOS


June 2006 Page 3

(peanut oil processing), and SONATEL. In general, large privatized companies and banks have a strategic partner or consortium of stable shareholders, and minority state ownership.

• Wholly-owned local subsidiaries of foreign companies. This group includes both foreign-owned companies active in Senegal for many years, and wholly owned subsidiaries of large multinationals (e.g. the oil refinery).

• Other locally owned companies (including family-owned and managed companies). There are a growing number of other locally controlled companies. Many of these companies are controlled by families and family groups. These companies have much in common with similar companies in other countries, including a reliance on family managers, and a lack of formal governance structures and transparency.1

Key issues The following sections highlight the principle-by-principle assessment of

Senegal’s compliance with the OECD Principles of Corporate Governance.

Investor protection

The shareholder recordkeeping system works well for listed companies

Shareholder recordkeeping for listed companies is handled by the central depository in Abidjan (the DC/BR) and its member broker/custodians (SGI). Listed shares are freely transferable.2

The rules for the conduct of shareholder meetings are well crafted and there are no reported problems in practice

The AGM must be held within 6 months of the end of the financial year, and with at least 15 days notice. The quorum is at least 25 percent (AGM) and 50 percent (EGM) of capital for the first call. The law does not specify the method of voting, but in practice, it is most frequently by show of hands. The company must make a variety of information available to shareholders before the meeting. Matters not listed on the agenda are not discussed at the AGM, except for replacing board members and managers. Items can be placed on the agenda by a small number of shareholders.

Some important shareholder powers can be delegated to the board

Shareholders control many key decisions, including amendments to the company Articles and capital increases. However, the EGM can delegate these powers to the board. In addition, shareholders are not required to approve large transactions or to pre-approve related party transactions.

The law requires board members to disclose conflicts of interest, but is somewhat weak regarding review and approval of related party transactions

The law requires all board members to disclose conflicts of interest to the board, and the board is required to disclose them to shareholders at the following AGM. The auditor is required to prepare a summary report to assist shareholders. However, the definition of conflicts of interest does not cover all forms of self dealing or transaction types, and excludes “ordinary transactions concluded under normal conditions”; this type of exclusion has been abused in other countries. In general, these rules do not appear to explicitly cover related party transactions in which the related party is a controlling shareholder of both counterparties. In addition, in other countries, shareholders are protected because the law requires

1 For more information on the governance of family companies (in English), please see http://www.ifc.org/ifcext/corporategovernance.nsf/Content/FamilyFirmGovernance. 2 As in other legal systems, shareholder agreements that limit share transferability are common in smaller, privately-held companies. The OECD Principles require the free transferability of shares in listed companies.

http://www.ifc.org/ifcext/corporategovernance.nsf/Content/FamilyFirmGovernance


June 2006 Page 4

listed companies to obtain shareholder approval of large related party transactions before they take place. In Senegal, the current process only requires ex poste approval by shareholders.

Disclosure

Transparency and disclosure are fundamental concerns

Transparency is a major concern. This issue is described in more detail in the recent World Bank Accounting and Auditing ROSC for Senegal.3

• Market participants and the Accounting and Auditing ROSC report that information about companies (including financial statements) is difficult to obtain in practice.

• Many financial statements reviewed for the Accounting and Auditing ROSC contained significant discrepancies from accounting principles in force, and some financial statements of state companies had qualified audit reports.

• Market participants expressed significant reservations about the quality of the audit function.

The disclosure requirements for listed companies are considerable, but some of the non-financial disclosure items in the OECD Principles are not covered in the regulatory framework

Information on directors, including their professional profile and aggregate remuneration is available from the company before the AGM. Information on related party transactions (as defined by the AUSGIE) is presented at the annual meeting. Information on share ownership and voting rights is available at the Commercial Register (greffe du tribunal), and listed company shareholders whose ownership passes certain thresholds must disclose it publicly. However,

• The definition of related parties in the AUSGIE does not cover the full range of possibilities that are covered by IAS 24.

• There is no detailed risk analysis, no rules for disclosure of employee and stakeholder issues, and no requirements for disclosure of governance structures and policies.

Company oversight and the board

Public limited companies in Senegal have single-tier boards, with a minimum of three and a maximum of 12 members. BRVM listed company boards typically have between 9 and 12 members. Boards are elected and removed by ordinary shareholders. The positions of Chairman (Président) and the CEO (Directeur Général) are generally separate, although are frequently combined in family-owned companies.

Fiduciary-type duties are relatively weak in theory, and absent in practice

Directors owe a duty to the company and to third parties to obey the law and applicable regulations, as well as the company Articles. There is a general duty of care; officers must act as “a good father” towards the company. There is no general duty for board members to act in the interests of the company and all shareholders (i.e. a duty of loyalty). There are few precedents of any attempts to take directors or managers to court for the violation of these duties. Even during recent corporate governance problems at major companies, no legal action has been taken against management or directors.

3 Available (in French) at http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf.

http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf


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Board independence is rare, but is in place at SONATEL

Board independence member is relatively new concept in Senegal. In practice, almost all companies practice a form of “parliamentary representation” in which board seats are allocated to shareholders in proportion to their ownership. This contradicts modern practice, and encourages the idea that board members act only in the interests of the shareholders that appoint them. SONATEL has had two independent directors on its board since 1997, and the experiment is generally considered to be a success. SONATEL’s board includes four members nominated by France Telecom (including the Chairman), three members nominated by the State, one member nominated by the employees, and the two independent directors (who represent 20 percent of the board, equivalent to the ownership share of the public).

Some responsibilities of the board of directors are relatively well-defined…

• The board is responsible for hiring and firing management, defining company objectives and management guidelines and management oversight, and setting remuneration

• There are no regulations or best practice recommendations that give the board any clarity or clear responsibility over the director nomination process.

• The board is responsible for authorizing any possible conflicts of interest. • There does not appear to be any practice of the board overseeing or managing

the process of internal controls. Many companies have internal auditors, but they report to the general director, not the board.

• The board oversees the annual financial statements. The directors or manager do not need to certify the financial statements.

But many directors do not understand their duties

Market participants noted that many board members do not understand their duties. Three factors are considered by many observers to contribute to the presence of board members without any business experience, and thus to the general weakness of boards: • Political considerations behind the nomination of board chairmen of SOEs. • The lack of qualification requirements for directors. • The lack of any relevant director training. The Senegalese Institute of

Directors (L’Institut Sénégalais des Administrateurs) was created in July 2005, and is expected to take an active role in promoting good corporate governance. Possible activities include the provision of director training and the development of a code of good practice. The CNP is also planning a corporate governance training program for its members.

Other weaknesses include very low board compensation, and a lack of board committees

Board remuneration remains very low, especially compared to Chairman and general director pay. Board committees are not common, and audit committees are not required by law. A number of banks have audit committees of the board. The concept is under discussion at a few other companies.

Enforcement

Key corporate governance enforcement institutions lack resources and authority…

The key institutions that are mandated to oversee companies and capital markets in Senegal play a secondary enforcement role. CREPMF has limited authority over listed companies, is resource constrained, and appears to have undertaken no enforcement actions against listed companies. The company registry (greffe du tribunal) has no authority over governance matters, and is not a source of redress.


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… and the Courts are not a useful form of redress for shareholder disputes and other corporate governance matters

Company law provides a wide variety of potential legal actions that can be taken by minority shareholders. However, courts are not a significant source of redress for minority shareholders. While the reasons for the weaknesses in the court system are complex, they include a lack of training and experience in dealing with commercial matters, fears of corruption on the part of potential litigants, and lack of awareness of decisions (in Senegal and other OHADA countries).

Recommendations Good corporate governance will help to ensure that companies use their resources

more efficiently. It is an important prerequisite for attracting the patient capital needed for sustained long-term economic growth. The following policy recommendations are broken down into two groups. The first group includes a set of steps that can be taken by the government and private sector in Senegal. The second group requires action at the community / regional level (BRVM / OHADA).

Draft a Code of Corporate Governance for Senegal

The public and private sectors should work together to draft a corporate governance code

Corporate governance codes of best practice are sets of nonbinding recommendations aimed at improving and guiding the governance practices of companies in a specific legal environment and business context. Codes are typically based on principles and focus on country-specific issues. Codes of best practice have now been adopted in many countries as a way to introduce international standards and adapt them to the local environment.

The Code should apply to all “public interest entities” in Senegal

The scope of the Code should be set by the drafting committee, but should include at a minimum all public interest entities: listed companies (including those issuing bonds to the public), financial institutions (banks and insurance companies), and significant State Enterprises (including all companies where the State holds a minority shareholding).

The code should be voluntary for most companies, but its adoption could be made mandatory in certain cases

Because most corporate governance regulation is set at the community level, it will be difficult to adopt a code with any mandatory provisions, or on a “comply or explain” basis, as has been done in other countries. The code will thus be voluntary for most large unlisted companies. However, the State can facilitate adoption and acceptance of the Code, setting a clear policy for large companies with any level of state ownership to adopt the code (and report on their compliance with the code).

The board of directors should be the main focus of the Code

In Senegal, many of the issues identified in this assessment relate to the role, responsibilities, and functioning of the board of directors. As a result, the Code could focus on board issues. Issues to be addressed should include:

• Board duties. The Code should clearly state that directors owe their loyalty to the company and all shareholders, and discuss how to balance this against duties to the institution that may have appointed them.

• Board nomination. The Code should present options that allow minority shareholders to nominate representatives to the board, and should encourage a transparent nomination process.

• Functionality. The Code should list the responsibilities of board members (in line with the OECD Principles), and distinguish the responsibilities of the board from management.


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• Board member commitment and compensation. The Code should set recommendations for increasing the frequency of board meetings, and at the same time increasing board member compensation in line with the increased commitment, and higher expected levels of professionalism, qualifications, responsibility, and liability.

• Board composition and independence. The Code should develop a concept of independence, and encourage boards to add independent experts as full board members.

The Code can also increase demand for high-quality financial reporting by private and public-sector companies

The Code should require:

• Continuous improvement in the quality and timeliness of financial statements.

• High-quality audit services and auditor independence, ideally carried out according to International Standards of Audit.

• A reinvigorated internal audit function, reporting to the board of directors.

• Disclosure (for public interest entities) of the full financial statements on the company’s website.

• Audit committees for listed companies, banks, and large SOEs.

The Code should be drafted by a wide group of stakeholders

Experience in other countries suggests that the drafting process is almost as important as the final result. The working group should include a wide variety of stakeholders from the private sector, financial institutions, and the State. The Global Corporate Governance Forum’s Toolkit, Developing Corporate Governance Codes of Best Practice, will be of assistance to the code drafting process.4

Build Key Corporate Governance Institutions in Senegal

More support and resources should be provided by the public and private sector to the Institut Sénégalais des Administrateurs (ISA)

As in many countries, increasing director professionalism is important to building strong boards of directors. More resources should be invested in training board members (of both public and private companies). For ISA to become an established and valuable contributor to corporate governance reform in Senegal, it must become self-sufficient. Achieving this goal will require a combination of incentives, including recommendations for training in the Code, more support from the corporate and investor communities, and continued work to develop relevant curricula. The ISA could also develop guidelines for audit committees, and training courses based on the guidelines. The State can also support the Institute by requiring formal training of board members in companies where the state has participation.

Implement the recommendations of the Accounting and Auditing ROSC

The Accounting and Auditing ROSC made a number of recommendations aimed at improving the quality of audits and building a strong audit profession, including creating of a system of audit oversight and quality control, improving continuous education, adding a magistrate to the ONECCA disciplinary committee, bringing all audit activities under ONECCA’s oversight, and (long term) bringing audit standards in line with International Standards of Audit.5

4 Available at http://www.gcgf.org/ifcext/cgf.nsf/AttachmentsByTitle/Toolkit2-read.pdf/$FILE/Toolkit2-read.pdf (English). A French version is currently under preparation. 5 Detailed information on accounting and financial reporting standards can be found in the Accounting & Auditing ROSC conducted by the World Bank in 2005 and published in French at http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf.

http://www.gcgf.org/ifcext/cgf.nsf/AttachmentsByTitle/Toolkit2-read.pdf/$FILE/Toolkit2-read.pdf



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Comprehensive reform is needed for the greffe du tribunal

Priority must be given to strengthening other institutions responsible for implementing good corporate governance and transparency. Comprehensive reform is needed for the Commercial Registry (greffe du tribunal). This should start with technical upgrades to modernize its systems and procedures for filling and documentation. However, it should also include broader changes to refocus the Commercial Registry on providing company information and facilitating the implementation and enforcement of the Company Act. The Commercial Registry should be able and willing to demand that delinquent companies make proper fillings, and should have the resources, capacity and political independence needed for its mission. Additional support from donors will be a necessary part of this process, given the extensive and technical nature of the required reform.

Provide specialized training for judges in the area of shareholder and commercial disputes

As in many countries, the judicial system is relatively unprepared to adjudicate complex disputes between and among companies and shareholders. Future legal reform programs should include specialized training in this area.

Legal Reform and other changes at the Community / Regional Level (long-term)

Many aspects of the corporate governance framework are set at the regional / community level; reform over the long term will require further discussion at the level of UEMOA and OHADA.

BRVM and CREPMF BRVM and CREPMF play a major role in the corporate governance of listed companies. Possible next steps to improve corporate governance could include:

• The creation of a Code of Corporate Governance for listed companies; • Enhanced disclosure requirements (in line with the non-financial

disclosure requirements of the OECD Principles); • Active enforcement of the quality (as well as the timeliness) of financial

statements; • Greater use of company and BRVM websites to disseminate information.

Legal reform at the level of OHADA

Longer-term, moves toward compliance with the OECD Principles of Corporate Governance will require reform to the OHADA Uniform Act on Commercial Companies. A basic set of recommended revisions to the law are presented in the table on the following page. These recommended revisions correspond to weaknesses identified in the principle-by-principle review. These changes refer only to sociétés anonymous and not necessarily to other company forms.

Legal reform will also work to increase the Doing Business Report’s “Protecting Investors” Index for Senegal

As a side effect of comprehensive legal reform, changes to the AUSGIE present the opportunity to significantly increase Senegal’s ranking in the World Bank / IFC Doing Business index. Annex 2 presents a prediction of the impact of changes to the Protecting Investors index if the described below were to be implemented. The analysis projects that Senegal’s index score would increase from 4.0 to 6.33.6

6 Please note that this analysis is preliminary. Any final modification of Senegal’s score on the Doing Business “protecting investors” indices would first require confirmation by local partners.


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Suggested Reforms to the OHADA Uniform Act on Commercial Companies

Large transactions should be pre-approved by shareholders. The OECD Principles explicitly recommend that sales of major corporate assets should be subject to shareholder approval. Remove requirements for shareholders to own a minimum number of shares to attend a shareholders meeting, increase the meeting notice period, and specify formal polls to count votes at the demand of a relatively small number of shareholders. The rules governing the conduct of the shareholders meeting should be carefully reviewed in the light of the last ten years of international reform experience, and the experience in Senegal (and other OHADA countries). Introduce international good practice for disclosure and approval of related party transactions • At a minimum, all transactions that present conflicts of interest should be approved by the board of

directors. The exemption for “ordinary transactions under normal conditions” (AUSCGIE §439) should be removed. This type of exemption has been abused in other countries.

• Widen the definition of related parties in AUSGIE §438 to include the full definition of International Accounting Standard 24 (see Annex II below for the full definition presented in IAS 24).

• Require unanimous board approval of related party transactions. If board approval is not unanimous, then the law should require extraordinary shareholder meeting. For listed companies, consider requiring pre-approval by a separate committee of the board (audit committee) composed of a majority of independent directors.

• Modify 2nd and 3rd paragraphs of article 440 to change role of commissaire aux comptes (CAC). The CAC should submit a special report to the board, prior to board approval, and not prior to shareholder approval. This change would be consistent would French law on this question.

• BRVM listing rules / CREPMF regulation should explicitly require immediate disclosure to the public of a medium or large-sized related party transaction, including the details of the conflicts of interest.

• If the agenda of an extraordinary shareholders meeting includes the approval of a related party transaction, then the notice for the shareholder meeting should include a detailed description of the transaction, including all terms and potential conflicts of interest.

• Clarify / make explicit in the AUSGIE that the full details of the transaction (including all aspects of conflicts of interest) should be included in the report prepared by the commissaires aux comptes prepared for the general meeting of shareholders (AUSGIE §439). AUSGIE §439 could go further and require full harmonization with IAS 24 disclosure requirements, including the disclosure of the entity in “control”.

• Clarify that board members with material conflicts must fully disclose all material facts about the transaction (AUSGIE §440).

Directors and managers should not be able to use business opportunities that they become aware of during the course of their duties. Improve certain other aspects of the disclosure regime. Company Articles of Association should be included in list of materials that shareholders are able by law to obtain from the company. Companies should also be required to provide information on share rights, including special any special share classes, voting caps, or any special capital structures. Update provisions governing the board of directors, based on the consensus gained from drafting the Code of Corporate Governance. The key is to clarify and strengthen the duties of directors in the law, particularly the fiduciary-type duty of loyalty to all shareholders. The revisions to the law should remove any shareholder requirements to be a board member, and should consider removing the ability of legal persons to be board members (because this dilutes the responsibility of individual board members). Board members should have explicit rights to all company information, and should be able to directly hire outside experts at company expense.


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Summary of Observance of OECD Corporate Governance Principles Principle O LO PO MO NO Comment

I. ENSURING THE BASIS FOR AN EFFECTIVE CORPORATE GOVERNANCE FRAMEWORK IA Overall corporate governance framework X

IB Legal framework enforceable /transparent. X

IC Clear division of regulatory responsibilities. X

ID Regulatory authority, integrity, resources. X

II. THE RIGHTS OF SHAREHOLDERS AND KEY OWNERSHIP FUNCTIONS IIA Basic shareholder rights X

IIB Rights to part in fundamental decisions. X

IIC Shareholders AGM rights X

IID Disproportionate control disclosure X

IIE Control arrangements allowed to function. X

IIF Exercise of ownership rights facilitated X

IIG Shareholders allowed to consult each other. X

III. EQUITABLE TREATMENT OF SHAREHOLDERS

IIIA All shareholders should be treated equally X

IIIB Prohibit insider trading X

IIIC Board/Mgrs. disclose interests X

IV. ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE

IVA Legal rights of stakeholders respected. X

IVB Redress for violation of rights X

IVC Performance-enhancing mechanisms X

IVD Access to information X

IVE “Whistleblower” protection X

IVF Creditor rights law and enforcement X

V. DISCLOSURE AND TRANSPARENCY

VA Disclosure standards X

VB Standards of accounting & audit X

VC Independent audit annually X

VD External auditors should be accountable X

VE Fair & timely dissemination X

VF Research conflicts of interests X

VI. RESPONSIBILITIES OF THE BOARD

VIA Acts with due diligence, care X

VIB Treat all shareholders fairly X

VIC Apply high ethical standards X

VID The board should fulfill certain key functions X

VIE Exercise objective judgment X

VIF Access to information X

Note: O=Observed, LO= Largely Observed, PO= Partially Observed, MO= Materially Not Observed, NO=Not Observed


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Principle - By - Principle Review of Corporate Governance This section assesses Senegal’s compliance with each of the OECD Principles of Corporate Governance. Policy recommendations may be offered if a Principle is less than fully observed. Observed means that all essential criteria are met without significant deficiencies. Largely observed means only minor shortcomings are observed, which do not raise questions about the authorities’ ability and intent to achieve full observance in the short term. Partially observed means that while the legal and regulatory framework complies with the Principle, practices and enforcement diverge. Materially not observed means that, despite progress, shortcomings are sufficient to raise doubts about the authorities’ ability to achieve observance. Not observed means no substantive progress toward observance has been achieved.

SECTION I: ENSURING THE BASIS FOR AN EFFECTIVE CORPORATE GOVERNANCE FRAMEWORK The corporate governance framework should promote transparent and efficient markets, be consistent with the rule of law and clearly articulate the division of responsibilities among different supervisory, regulatory and enforcement authorities.

Principle IA: The corporate governance framework should be developed with a view to its impact on overall economic performance, market integrity and the incentives it creates for market participants and the promotion of transparent and efficient markets.

Assessment: Partially observed

Capital markets. The equity market in Senegal is at an early stage of development. Senegal is part of the West African Monetary and Economic Union (Etats Membres de l’Union Economique et Monétaire de l’Afrique de l’Ouest -- UEMOA), and shares a securities regulator and a stock exchange with the other member-countries of the union. The stock exchange, BRVM (La Bourse Régionale des Valeurs Mobilières) is based in Abidjan, and has 39 listed companies. BRVM had a market capitalization of CFA 1,226.7 billion (USD 2.3 billion) at the end of 20057. This market capitalization of BRVM represented about five percent of the total member country GDP in 2004, and market turnover was 2.7 percent of market capitalization, which are both low in comparison with most other markets. Share prices have generally increased in recent years, but have not kept pace with price increases in other emerging markets. One factor weighing on the market has been the political disturbances in Cote d’Ivoire, which have increased perceptions of risk in the overall market. There are three brokerage firms (SGI, Sociétés de Gestion d’Intermédiation), but one firm (CGF Bourse) is the most active and has most of the market. There are no rating agencies. One company is quoted on a foreign exchange. The listed company in Senegal is SONATEL, the privatized national telecommunications company. SONATEL is the most widely respected company in Senegal, and is the “blue chip” of the BRVM. Its market capitalization at the end of 2005 was about half of the total, equivalent to about 15 percent of Senegal’s GDP. SONATEL is controlled by France Telecom (42.33 percent of shares); the state owns 27.67 percent, employees 10 percent, and 20 percent is held by small investors and trades on the BRVM. There have been no new listings (or de-listings) of Senegalese companies since the listing of SONATEL in 1997. The most active securities in Senegal are corporate bonds. Three large Senegalese enterprises have issued corporate bonds to the public: ICS, le Port Autonome de Dakar, and SENELEC. Ownership framework / Structure of the Private Sector. There are relatively few large companies in Senegal. In 2002, there were 30 companies with more than 500 employees, of which 9 were wholly- or majority-owned by the State (and a number of others recently privatized).

Number of Companies by Size and Ownership (2002) Employee Private State-Owned Grand Total 10 to 100 475 5 480 100 to 500 105 7 112 Less than 10 703 2 705 More than 500 21 9 30 Grand Total 1304 23 1327 Source: World Bank analysis of data from Prevision de la Statistique. 2002 chosen because data was most complete. “State-owned” defined as majority-state owned at the end of 2002.

Large companies in Senegal can be placed into four groups: • State-Owned Enterprises (SOEs) majority or 100 percent owned by the State. There are 19 majority-owned SOEs in

Senegal (see companion report, Corporate Governance of State-Owned Enterprises in Senegal). These include many major infrastructure companies, including the electricity utility (SENELEC), the water infrastructure assets (SONES), and the railway (SNCS).

7 Source: World Development Indicators (April 2006)


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• Recently privatized SOEs and banks, often with minority state ownership. This group includes many of the largest companies, including ICS (Industries Chimiques du Sénégal, phosphate mining / processing), SONACOS (peanut oil processing), and SONATEL. In general, large privatized companies and banks have a strategic partner or consortium of stable shareholders, and minority state ownership.

• Wholly-owned local subsidiaries of foreign companies. This group includes both foreign-owned companies active in Senegal for many years, and wholly owned subsidiaries of large multinationals (e.g. the oil refinery).

• Other locally owned companies (including family-owned and managed companies). There are a growing number of other locally controlled companies. Many of these companies are controlled by families and family groups. These companies have much in common with similar companies in other countries, including a reliance on family managers, and a lack of formal governance structures and transparency.

Company groups are relatively rare in Senegal, but at least two groups of major companies have been identified. Institutional Investors. Institutional investors in Senegal are small. Insurance companies place a share of their funds in financial markets and specifically in equity. Public pension funds also play an important role. There are two pension funds in Senegal, for retirement and social security, respectively. They are both under the control of the supranational regulator Conférence Interafricaine de la Prévoyance Sociale. Banks. The banking sector is now controlled by the private sector, following a successful bank privatization program. Six of the 12 commercial banks are controlled by foreign parents, and have adopted governance structures based on the requirements of their parents. The other banks in the sector are also adopting modern corporate governance principles, including professional boards, and audit committees of the board.

Commercial Bank Ownership (December 2003)

Foreign Strategic

Shareholder Other foreign State BCEAO Other Senegalese

SGBS SG-France 57.7 7.1 - - 35.2 BICIS BNP-Paribas 22.3 31.8 24.9 - 21.0 CBAO - 47.1 8.8 - 44.1 CLS CL France 95.0 - 5.0 - - CITIBANK (branch) 100.0 - - - - BHS - 8.6 9.1 9.1 73.2 CNCAS - 20.0 25.6 15.00 39.4 BST - 7.3 5.0 - 87.7 BIS BID 33.3 44.5 22.2 - 0.0 ECOBANK Ecobank Int. 41.5 38.5 - - 20.0 BOA - 90.0 - - 10.0 Source: Jeune Afrique l'Intelligent, Hors Série n°9 Spécial Finance, World Bank internal data.

There are also two insurance companies - AXA Sénégal (21.12 percent state-owned), and Assurances Générales Sénégalaises (AGS) – IART (5 percent).8 The two pension funds are public, and are concerned, respectively, with retirement benefits, and social security. There are no investment funds (SICAV / FCP) operating in Senegal.

Principle IB. The legal and regulatory requirements that affect corporate governance practices in a jurisdiction should be consistent with the rule of law, transparent and enforceable.


Corporate legal framework. Senegal’s legal system is in the French civil law tradition. The UEMOA zone has adopted the legal framework OHADA (Organization for Harmonization of Business Laws in Africa). OHADA countries share common commercial laws.9 As a result, company law is set at the community level, and not at the national level. In Senegal the main statute that governs companies is the Uniform OHADA Act on company law (Acte Uniforme de OHADA relatif au droit des sociétés commerciales et du Groupement d’intérêt économique, or AUSCGIE), adopted in 1997. There is no regulatory body responsible for enforcement of the company law per se. Company types. The large-company form in Senegal is the Société Anonyme, or SA. Corporations have freely transferable shares, unless the Articles of Association provide otherwise, a minimum capital of CFA 10 million, and have no limit in terms of the number of members (AUSCGIE, §387). Only corporations can issue securities to the public, such companies must have a minimum capital of CFA 100 million (AUSCGIE, §58, 824). All commercial SOEs and banks are in the form of Société Anonymes, and are thus covered by standard company law.

8 Source: Performance Management n°27 - Dossier 'Le Classement des Compagnies d'Assurances' 9 The OHADA states are Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Comoros, Congo, Cote d’Ivoire, Gabon, Guinea, Guinea-Bissau, Equatorial Guinea, Mali, Niger, Senegal, Togo.


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Securities law framework. AUSCGIE contains certain basic securities law provisions. Further legislation governing listed companies is contained in the BRVM rules. Listed companies are under the regulation of securities markets regulator CREPMF (Conseil Régional de l’Epargne Publique et des Marchés Financiers). Listing rules. Listed firms are governed by the regulations of the Bourse Régionale des Valeurs Mobilières (BRVM). There are two listing tiers. The first tier admits companies with a market capitalization of CFA 500 million (USD 1 million), profit as a share of revenues of at least 3 percent, audited financials for the past 5 years, at least 20 percent free float. The second tier admits companies with a market capitalization of CFA 200 million (USD 400,000), audited financials for the past 2 years, at least 20 percent free float within 2 years of listing (15 percent in the case of a capital increase). Disclosure obligations at listing include the published prospectus (AUSCGIE, §826). Such initial disclosure is also required of companies with more than 100 shareholders (even if they are not listed), and any other share offer done via a publicity campaign or is done via a credit establishment or a broker (§81 AUSCGIE). The prospectus is approved by the stock exchange and published in the Bulletin Officiel de la Cote, as well as made available to the headquarters of the issuer.10 At listing, companies file with BRVM their Articles of Association; a list of board members, the auditor, and 10 percent shareholders, and their terms; the par value and number of each class of shares; the remuneration of board members and executives; audited financials; provisional financials for the current financial period; off-balance sheet items, a description of related loans above CFA 20 million (including to 10 percent shareholders).11 Continuous disclosure obligations include the publication of an annual report and quarterly revenue and profit projections in the Bulletin Officiel de la Cote, and material facts disclosure. CREPMF approves listing, based on the full disclosure approach, and is responsible for monitoring and enforcing listing requirements.12

Codes of Corporate Governance. Corporate governance reform is in its early stages in Senegal, and no Codes or Charters have yet been adopted. However, corporate governance is now being actively discussed, and several organizations are considering the development of charters or guidelines. The Senegalese Institute of Directors (L’Institut Sénégalais des Administrateurs) was created in July 2005, and is expected to take an active role in promoting good corporate governance, including director and executive training. It is also considering the development of a Charter for directors. The two main business associations, the CNP (Conseil National du Patronat) and the CNES (Confédération Nationale des Employeurs du Sénégal) have each initiated corporate governance programs. The CNP and the Mouvement des Entreprises du Sénégal have been working to promote good practice, provide executive training, and coordinate corporate lobbying efforts. The Dakar Chamber of Commerce, Industry and Agriculture also provides executive training. ONECCA (L’Ordre des Experts Comptables et Comptables agréés) has been working to strengthen awareness of corporate governance and improve the auditing process. Principle IC. The division of responsibilities among different authorities in a jurisdiction should be clearly articulated and ensure that the public interest is served.

Assessment: Largely observed Securities regulator. The securities market regulator is CREPMF (Conseil Régional de l’Epargne Publique et des Marchés Financiers). Its mission is to protect investor protection in the UEMOA. CREPMF is an independent legal body empowered by the UEMOA member-states, is autonomous in its decision-making, and reports to the UEMOA Council of Finance Ministers. Its decision-making organs are the Commission (Collège du Conseil Régional) and the Executive Committee. The Commission has 12 members, including the Governor of the BCEAO (Central Bank), the President of the UEMOA Commission, and 10 non-permanent members, including 8 representatives of the member-states, a magistrate and a chartered accountant. The Commission members are nominated by the UEMOA Council of Finance Ministers for a period of 3 years, renewable once. The President of CREPMF is selected by the UEMOA Council of Finance Ministers from among the 8 representatives of the member-states, on a rotating basis, for a term of 3 years, renewable once. The Executive Committee is composed of the President of CREPMF, the BCEAO Governor, and two other members elected among the persons nominated by the UEMOA Council of Finance Ministers. The term of the Executive Director (Secrétaire Général) is 5 years, renewable once. CREPMF organizes and controls the securities market, as well as market institutions and participants, including the BRVM, the central depository (DC/BR, Dépositaire Central/Banque de Règlement), brokers, dealers, asset managers, investment funds, and investment advisors. CREPMF has regulatory and control powers, and can issue regulations, instructions clarifying its regulations, and specific decisions on disciplinary measures. CREPMF also has investigative rights and administrative judgment / decision-making rights.13 CREPMF regulations are posted on its internet site, and are also disseminated via BRVM. It can sanction by imposing warnings, reprimands, fines, temporary or permanent suspension of activities, suspension or removal of management of market participants, suspension of license, exclusion from the professional lists maintained by CREPMF, and can adjudicate disputes and complaints.14 It has full access to the books and

10 AUSCGIE, §86, 93, 825. The authorities may request additional information or investigations by independent experts (AUSCGIE, §90). 11§122, Principes Déontologiques et Règlement Général du CREPMF. 12 BRVM – Manuel de négociation, manuel d’admission à la cote et instructions – 28 juillet 1998, et Convention du 03/07/96 portant création du CREPMF. 13 §22 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. CREPMF can issue regulations, instructions clarifying its regulations, and specific decisions on disciplinary measures. 14 The latter conditional on the granting of such CREPMF powers by the national laws of each country-member or by default by the


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documents of its regulated entities.15 CREPMF can follow up on all complaints concerning investor rights or the operation of capital markets. However, there have been no significant sanctions against listed companies by CREPMF. CREPMF does not publish enforcement statistics in its annual report, but its decisions and sanctions imposed are published on its website www.crepmf.org. The CREPMF President can summon the accused party under investigation. The proceedings can be internally administered, or channeled via the competent judiciary organs of the member-states.16 Appeal is to the UEMOA Court or the national courts of each member-state.17 No cases have been appealed in practice so far. Monetary sanctions are warranted in cases of market manipulation, usage of insider information, dissemination of false information, and usage of investor funds for personal gain. The amount of the fine is decided by CREPMF according to the seriousness of the transgression.18 Stock exchanges. The BRVM is a corporation registered in Cote d’Ivoire. Its capital is CFA 604 million (USD 1.12 million), divided in 302040 shares held by about 170 individuals and legal entities in UEMOA, of which the states hold 13 percent. All brokers are automatically BRVM shareholders. Its board of directors is composed of 12 members. The BRVM is represented by a branch in each member-state. Its mission includes assisting local market participants (issuers, investors, and brokers), ensuring the dissemination of market information, promoting financial markets, and representing BRVM and DC/BR in front of the national authorities. BRVM can impose sanctions on brokers in case of actions against the interest of the financial market, and can suspend their operations temporarily.19 There do not appear to have been any enforcement actions taken against issuers. Two staff in the BRVM market operations department conduct electronic quasi-real-time market surveillance, and must inform the CREPMF immediately of any potential infractions noted, alerting and possibly staying operations of the broker concerned.20 Automatic alerts are relatively frequent. CREPMF is connected to the trading system of BRVM, and has its own surveillance system as well. It conducts monthly surveillance of deviations and infractions. Central depository. The Central Depository (Dépositaire Central/Banque de Règlement - DC/BR) is a private entity, and carries out depositary, clearing, and settlement functions for securities listed on the BRVM. The DC/BR maintains ownership records at the level of the custodian / SGI, and each SGI is responsible for shareholder recordkeeping at the individual client level. DC/BR handles interest and dividend payments. Banking regulator. The banking sector regulator is the Banque Centrale des Etats de l'Afrique de l'Ouest (BCEAO) - Agence de Dakar. It is charged with clarification and enforcement of the banking regulations, surveillance, and dissemination of international standards. Banks are supervised on a supra-national level by the Commission Bancaire de l’UEMOA. Insurance companies are regulated by the Conférence Interafricaine des Marchés d’Assurances, and pension funds by the Conférence Interafricaine de la Prévoyance Sociale. Company Registrar. All business entities must register at the Commercial Register, filing their legal address, within a month of their creation (the procedure involves a notary public by law).21 The Commercial Register is within each Regional Tribunal (Court). The companies file their Articles of Association, as well as information on the company form, initial capital, members or shareholders, managers and directors. This information is re-filed annually, or upon a significant change. The information filed is public, at the cost of copying and stamp duty.22 The Commercial Register does not have enforcement powers over Company Law. According to market participants, the files are not usually up-to-date, as there is no effective enforcement, due to resource constraints, the lack of a computerized system. Overlap of regulatory functions. The regulatory organs have a clear division of responsibilities. Some regulators, such as the Commission Bancaire and the Conférence Interafricaine des Marchés d’Assurances, have significant enforcement powers and use them. The pension funds regulator, Conférence Interafricaine de la Prévoyance Sociale, is not empowered to enforce, by law. It is also not as effective in practice, since the pension funds are state-owned.23 Finally, CREPMF does have the legal powers and has sanctioned market participants, but has not sanctioned listed companies. There is little regulatory overlap (at least in Senegal) because no Senegalese financial institutions are listed. The banking and insurance regulators hold quarterly coordinative meetings.

adoption of a Regulation by the UEMOA Commission. Current adoption is unclear. 15 §23, 25 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. CREPMF has full investigative powers, including the right to subpoena and question non-regulated entities (§36-50). 16 §39-50 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. 17 §49 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. By law, sanctions are enforced and fines collected, pending appeal. 18 §35 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. 19 §5 du Règlement Général de la BRVM. 20 In fact, surveillance is done after hours each day, not in real time. An automatic alert is generated if at least 1000 securities are involved in a suspect movement. A price differential of 7.5% relative to the previous day’s close price causes automatic listing suspension pending further analysis. 21 §27 de l’Acte Uniforme relatif au Droit Commercial Générale applicable depuis le 1er janvier 1998. 22 §19 de l’Acte Uniforme relatif au droit commercial Générale applicable depuis le 1er janvier 1998. 23 Le statut des caisses de prévoyance sociales empêche la mise en place de sanction (elles ne bénéficient pas d’agrément spécifiques). Ce sont des démembrements de l’Etat bien que jouissant d’une gestion tripartite (Etat, employeurs, employés).


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Principle ID. Supervisory, regulatory and enforcement authorities should have the authority, integrity and resources to fulfill their duties in a professional and objective manner. Moreover, their rulings should be timely, transparent and fully explained.

Assessment: Partially observedAuthority, integrity and resources of regulators. CREPMF has 23 employees, and the remuneration of its staff is benchmarked to that of the Central Bank. However, in practice salaries remain lower due to the lack of financial self-sufficiency of the CREPMF and its continued dependence on subsidies. Over the past 5 years, the CREPMF annual budget was on average CFA 900 million. In 2005, the budget was over CFA 1 billion, in part financed by the Agence Française de Développement, used for resource building and training. CREPMF is funded by commissions from market deals, royalties, and fees (total of CFA 461 million) and a state subsidy of CFA 430 million. In the opinion of market participants, the listed company in Senegal (SONATEL) has fully complied with its obligations, and the lack of sanctions is not indicative of any problems with the authority, integrity or resources of the CREPMF. However, discussions with regulators would be required to confirm these initial observations. Court. The Senegalese court system is in the civil law tradition. There are no specialized courts, and judges are generally in need of commercial training. Judicial proceedings are considered slow, especially due to procedural delays, as well as biased, due to interventions of political, social, or financial character. The average court case takes 3 years. Indicators developed by the World Bank imply that the procedures and cost of recovery to enforce a standard contract in Senegal are longer than the Sub-Saharan Africa average, though the number of procedures and the costs involved are lower. Each indicator is well inferior to the OECD average, indicating that courts are more costly and slower than in more developed economies.

Country (region)

Number of court procedures to enforce a

contract Time (days) Cost (% of

debt) Senegal 33 485 23.8 Sub-Saharan Africa average 35.9 438.5 41.6

OECD: High Income average 19.5 225.7 10.6

Source: World Bank Doing Business Indicators online (2006)

SECTION II: THE RIGHTS OF SHAREHOLDERS AND KEY OWNERSHIP FUNCTIONS The corporate governance framework should protect and facilitate the exercise of shareholders’ rights.

Principle IIA: The corporate governance framework should protect shareholders’ rights. Basic shareholder rights include the right to:

Assessment: Largely observed (1) Secure methods of ownership registration

Shares can be bearer or registered (§745 AUSCGIE). Legal evidence of share ownership for bearer shares is the physical title certificate, and for registered shares – the inscription in the company share registry. Share registration for listed companies is based on the French depository system. The ownership records of listed companies is transferred into the shareholder recordkeeping system of the DC/BR. Shareholder recordkeeping is carried out by the DC/BR (which maintains accounts for each member of the DC/BR) and the separate independent recordkeeping system of the members. Evidence of ownership is the account statement of the owner’s brokerage firm (§764 AUSCGIE). There were no reported problems with the current framework (for listed or non-listed companies).

(2) Convey or transfer shares DC/BR is the central depository, clearing, and settlement institution. It holds listed securities in dematerialized form. Clearing and settlement is DVP, in T+5. The DC/BR is moving to T+3. There has been no assessment of compliance with ISSA G30 (2000). Listed shares are freely transferable. For non-listed companies, the law stipulates that they are freely transferable, unless the Articles of Association provide otherwise. The Articles may allow limited transferability in companies with 100 percent registered shares, and the limitation can involve board or AGM approval.24 Shareholder agreements that limit share transferability in non-listed

24 §765 AUSCGIE. The prospective transferor recluses himself from the vote and for quorum purposes, from both AGM and (if a director) board decisions.

http://www.doingbusiness.org/ExploreEconomies/Default.aspx?economyid=198


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companies are common.

(3) Obtain relevant and material company information on a timely and regular basis

Shareholders have access to quarterly revenue and profit projections and annual audited financials which are published in the Bulletin Officiel de la Cote, but are not available online (§167 Règlement Général du CREPMF). Shareholders and their representatives can consult certain company documents at the corporate headquarters 15 days prior to the AGM, including the financials, the audit and board reports, a list of board members and shareholders, and the inventory of company assets (§525, 526 AUSCGIE). Shareholders also have the rights to AGM minutes and attendance for the prior three years, and the right to ask questions of the Chairman of the board and the general director, twice a year (§158, 526 AUSCGIE). The Articles of Association are available at the Commercial Register.

(4) Participate and vote in general shareholder meetings

Shareholders of all classes of shares can attend the AGM, but preferred shares only vote in certain cases (§53, 125 & 126 AUSCGIE). The Articles of Association may require a minimum number of shares, which shall not be more than ten, for entitlement to attend ordinary general meetings.25

(5) Elect and remove board members

Process. Ordinary shares are entitled to elect board members.26 Board members can be removed by a majority vote of the AGM (§433, 550 AUSCGIE). Board and executive compensation is decided exclusively by the AGM. Directors are nominated by the board. In practice, controlling shareholders have a large influence over the election of directors and management. Cumulative voting/proportional representation. The Articles of Association could provide for special arrangements of board elections, but no class of shares could be deprived of its right to be represented on the board. In practice board representation is often based on proportional representation, although controlling shareholders are not required to adhere to this practice.

(6) Share in profits of the corporation

The AGM approves the distribution of dividends, based on a board proposal (§53, 546 AUSCGIE). There is no minimum mandatory dividend. Dividends distributed can exceed current year’s profits, and must be paid out within 9 months of the end of the financial year (§143, 144, 145, 146 AUSCGIE). Preferred shares may have a preference in dividend distribution, larger dividends, or cumulative dividends (§755 AUSCGIE). One-tenth of net profits must be allocated to a “legal reserve”, until it accumulates up to 20 percent of the company’s registered capital (§546 AUSCGIE).

Principle IIB. Shareholders should have the right to participate in, and to be sufficiently informed on, decisions concerning fundamental corporate changes such as:

Assessment: Largely observed

(1) Amendments to governing company documents

Amending the Articles of Association is one of the exclusive powers of the extraordinary shareholder meeting.27 The decision is taken by an EGM with a 67 percent majority vote. Amendments to the Articles of Association of listed companies are published in the Bulletin Officiel de la Cote.

(2) Authorization of additional shares

Issuing share capital. Capital increases are decided at an EGM with a 67 percent majority vote, following a proposal of the board. (AUSCGIE §564, 565, 568, 571, 591). Only shareholders can vote to increase capital. The EGM can delegate to the board the power to decide on the timetable and method of implementation of the EGM’s decision (AUSCGIE §569,568). An auditor opinion is required on the terms of the capital increase as well as any waivers of pre-emptive rights. Once the capital increase is authorized by the

25 AUSCGIE §548. Several shareholders may come together to obtain the minimum number of shares provided for by the Articles of Association and be represented by one of them. 26 §419, 485 AUSCGIE. The AGM has the exclusive right to appoint directors (§546). 27 AUSCGIE §551. The Articles of Association shall contain the following information: company form, name, office, nature of activities, duration of existence, names and contributions of each contributor in kind, any special benefits and the shareholders enjoying them, the amount of the registered capital; the number and value of shares issued, stating, where necessary, the various classes of shares; the provisions relating to the distribution of profits, the constitution of reserves and the distribution of the bonus after liquidation; the rules governing the functioning of the company; the chosen method of administration and management (board or general director), and a list of management / board members (for corporate board members, the business name, the amount of capital and the form of corporate bodies); provisions relating to the composition, functioning and powers of the organs of the company any restrictions of the free transferability of shares.


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EGM, the board has 3 years to implement the transaction. Pre-emptive rights. Shareholders have pre-emptive rights in case of share issuance (AUSCGIE §573, 757). Pre-emptive rights can be waived individually, or by the AGM (AUSCGIE §586, 587, 593-7, 600). In case of an AGM waiver, the beneficiaries of such a waiver recluse themselves from voting (AUSCGIE §839). The share increase with waived pre-emptive rights must be carried out within three years of the AGM waiving the rights, and must be at least at the price of any 20 of the past 40 days (AUSCGIE §837).

(3) Extraordinary transactions, including sales of major corporate assets

Sales of major corporate assets. The sale of major assets is not explicitly subject to shareholder or board approval, and the decision can be taken by management without a limitation on the amount of the transaction, although civil law tends to prevent it.28 Mergers and other transformations are approved by the EGM (AUSCGIE §671). Shareholder agreements that regulate which transactions require approval are common.

Principle IIC: Shareholders should have the opportunity to participate effectively and vote in general shareholder meetings and should be informed of the rules, including voting procedures, that govern general shareholder meetings:

Assessment: Largely observed

(1) Sufficient and timely information on date, location, agenda, and issues to be decided at the general meeting

Meeting deadline. The board must call the AGM within 6 months of the end of the financial year (AUSCGIE §548). If the board refuses to call the meeting, the AGM can be called by the auditor. The court can also call an AGM if requested by 10 percent of the shareholders. 10 percent of a class of shares can call a meeting of that class of shares (referred to as a “special meeting”) (AUSCGIE §516). Non-listed companies where all shares are registered can use registered mail or hand delivery. The AGM must be held in the country where the corporate headquarters is located (AUSCGIE §517). Knowingly preventing a shareholder from attending a meeting is an offence (AUSCGIE §892). Meeting notice. The notice for listed companies must be published in the Bulletin Officiel de la Cote at least 15 days prior to the AGM (AUSCGIE §518). Notice for second and further calls call must be made at least 6 days prior to the AGM date. Information available. The notice includes the date, place, time, agenda, and type of the meeting (ordinary, extraordinary or special). When bearer shares are used, the date and place where those need to be registered in order to attend the meeting.29 Listed companies either mail shareholders the proxy forms, or must identify in the notice the place and conditions under which the forms may be obtained (AUSCGIE §831). The company must make available to shareholders, at corporate headquarters, 15 days prior to the meeting: financials, a list of directors, auditor report, board report, explanatory statements of resolutions proposed (as needed), the list of shareholders, the aggregate remuneration of the 5 or 10 best-paid employees (including management), and the asset inventory of the company.30 Available details on nominated directors include their professional profile and activities in the past 5 years (AUSCGIE §523). In practice, AGMs are typically sufficiently well-attended to establish quorum; although small shareholders do not usually attend. Institutional investors do attend. Quorum rules. The AGM quorum is a 25 percent for the first call; there is no quorum for the second call (AUSCGIE §549). Simple majority takes decisions.31 The EGM quorum is a 50 percent for the first call; and 25 percent for the second call. The third EGM call must occur within 2 months of the second, and has a quorum of 25 percent as well (AUSCGIE §553). Two-thirds majority takes decisions (AUSCGIE §554). The law does not specify the method of voting, but in practice, it is most frequently by show of hands. Votes are counted by the two largest shareholders.32

28 In civil law systems, courts have developed case law under which the sale of major assets has to be approved by the EGM whenever it has an impact on the company’s ability to implement its purpose as drafted in the articles of association. Under case law, this usually prevents sale of all or core assets without prior approval by the EGM. For other major transactions, shareholders usually provide limits to the boards’ power in the Articles of Association. However, these regulations and case law are typically not sufficient for protecting shareholders. 29 AUSCGIE §519. Registration takes place at least 5 days before the AGM (§541). 30 AUSCGIE §525. With regard to meetings other than the annual ordinary general meeting, the right to examine documents shall concern the text of resolutions proposed, the report of the board of directors or of the managing director, as the case may be, and, where necessary, the report of the auditor or the liquidator. 31 AUSCGIE §550. In the case of voting, blank votes shall not be taken into account. 32 AUSCGIE §530. There are no independent procedures to oversee the ballot.


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In the event of voting, blank votes shall not be taken into account. The decision to transfer the registered office of the company to the territory of another Contracting State shall be taken unanimously by the members present or represented.

(2) Opportunity to ask the board questions at the general meeting

Forcing items onto the agenda. Matters not listed on the agenda are not heard at the AGM, except some matters such as the removal and replacement of members of the board or managers (AUSCGIE §522). Agendas cannot be changed on second or third calls of the same meeting (AUSCGIE §524). Items can be forced on the agenda, at least 10 days prior to the AGM, by shareholders holding 5 percent of capital (if that amount is CFA 1 billion or less), or 3 percent (if the amount is between CFA 1 billion and CFA 2 billion), or 0.5 percent of capital (where the amount is above CFA 2 billion) (AUSCGIE §520, 521). Questions. Shareholders can ask twice a year questions of the board chairman or the general director.33 At the AGM, shareholders can ask questions, as long as those are within the agenda. In practice, shareholder issues and complaints are voiced at AGMs. In Senegal, the shareholders’ club of SONATEL was created at the initiative of the company itself.

(3) Effective shareholder participation in key governance decisions including board and key executive remuneration policy

The AGM approves board remuneration. Directors can be employees. Aside from money paid to them under a contract of employment, directors are only entitled to a fixed annual duty allowance granted by the AGM, as well as exceptional payments for special services, reimbursement of travel and per diem, which need to be reflected in the auditor’s report to the AGM (§430, 431, 432 AUSCGIE).

(4) Ability to vote both in person or in absentia

Proxy regulations. Shareholders can appoint a proxy to the AGM (AUSCGIE §538). If the proxy is another shareholder, voting caps will limit the amount of shares he can vote, irrespective of the proxies held. A power of attorney is necessary for the proxy, which need not be notarized. Postal and electronic voting. Voting by mail or electronic voting is not provided for by law.

Principle IID: Capital structures and arrangements that enable certain shareholders to obtain a degree of control disproportionate to their equity ownership should be disclosed.


Classes of shares. There are two classes of shares: ordinary and preferred, though the latter are not common in practice. Ordinary shares are entitled to one vote by law. Registered shares may receive double votes if held by the same owner for more than two years. Conversion to bearer share costs the owner these excess voting rights (AUSCGIE §751, 752). Preferred shares are not provided a vote by law, except where their rights are concerned and may enjoy a preference in dividends and liquidation, larger dividends, or cumulative dividends. In practice, preferred shares are rare. Cross-shareholdings and pyramid structures are not common (AUSCGIE §755). Voting caps are allowed by law (AUSCGIE § 751, 752, 753). There are no specific requirements to disclose any special control structures, or the use of multiple voting shares or voting caps. The Articles of Association, which are filed with the Company Registrar, should contain information on share classes. Updates and changes to the Articles are also published by law. However, the function of the Companies Register (greffe du tribunal) means that in many cases the information may not be available or up to date. Ownership disclosure by companies. The Articles of Association contain a list of initial shareholders. Companies make available a list if shareholders (for registered shares only) for 15 days prior to the AGM, at the company headquarters. Many market participants were not clear on shareholder rights on this point, and on whether companies had to disclose the entire shareholder list or only the shareholder’s own position. Bearer share-owners are impossible to identify. Listed companies are required to disclose all changes of ownership of the issues that could affect its control.34 There is no requirement to publish ownership in the annual report. Ownership disclosure by shareholders. For listed companies, shareholders who cross, alone or in concert, the threshold of 10 percent, 20%, 33%, 50% and 67%, from above or below, should report so to the CREPMF, the listed company, and to the public (via the Bulletin Officiel de la Cote).35 Among the information to report, is whether the owner is acting alone or in

33 AUSCGIE §526. The answer is also communicated to the auditor 34 Instruction II-C de la BRVM relative à la divulgation d’informations. 35 §171, 172, 173, Principes Déontologiques et Règlement Général du CREPMF. 36 §174, Principes Déontologiques et Règlement Général du CREPMF. 37 §174, Principes Déontologiques et Règlement Général du CREPMF.


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concert, and his intentions for the next 12 months vis-à-vis the company.36

Shareholders are not required to disclose ownership in non-listed companies. Disclosure of shareholder agreements. Shareholder agreements usually specify the arrangements on board representation, the division of control over the selection of management, and any limitations on transfers of shares. Shareholder agreements must be disclosed for listed firms, but not for non-listed.37 It is not clear if this rule is enforced or complied with in practice. Principle IIE: Markets for corporate control should be allowed to function in an efficient and transparent manner.

Assessment: Not applicable

(1) Transparent and fair rules and procedures governing acquisition of corporate control

Basic description of market for corporate control. Very basic tender offer and associated disclosure rules are provided in AUSCGIE. The local corporate control market is inactive, due to the concentrated ownership and the limited size of the market. None of the regulatory provisions appear to have been used in practice. Tender rules/mandatory bid rules. There are no legal rules on mandatory bids. Mergers between two SAs require EGM approval, as well as approval of negatively impacted classes of shares, where relevant. A board report by both companies is disclosed to all shareholders, explaining the effects of the merger and the exchange ratio // evaluation methods of the shares. External audit report on the merger is also required. The merging companies must place in their headquarters, at the availability of shareholders, the following documents, for at least 15 days before the merger: the board and audit report, financial statements and management reports of the past 3 years (AUSCGIE § 670, 671, 672, 674). The CREPMF regulations provide for the following types of public offers – OPA, or a cash tender offer, OPE, or an exchange tender offer, OPV, or buy-back, as well as OPR, or a going private transaction.38 These regulations are contained in title 4 of the General Regulations of the BRVM, which are not publicly available. There do not appear to be any rights for shareholders to withdraw from the company in the event of a merger. Delisting/going private procedures. The decision to delist is within the power of the AGM. Squeeze out provisions. There are no squeeze-out or sell-out provisions. Share buy-backs are not allowed. Abuse to buy-backs/treasury shares. Buy-backs are forbidden, except if the securities are to be cancelled or to be allotted to employees, in which case the decision is AGM-approved (AUSCGIE § 639, 640). The auditor opinion is required on the buy-back transaction (AUSCGIE § 647).

(2) Anti-take-over devices Anti-takeover devices are not regulated by law, and are not used. For private companies, share purchases by outsiders are subject to board approval.

Principle IIF: The exercise of ownership rights by all shareholders, including institutional investors, should be facilitated.

Assessment: Not applicable

(1) Disclosure of corporate governance and voting policies by institutional investors

General obligations to vote/disclosure of voting policy. There is no requirement for institutional investors to disclose their voting policy or their votes at shareholder meetings. CREPMF Regulations do lay out the relationships, information, and investor protection rules for investment funds (Sociétés de Gestion de Patrimoine).39 Regulators of certain institutional investors impose diversification of their investments (e.g. the insurance regulator). Institutional investors use their votes more actively than retail investors.40

Blocked shares/record date. [Record date from notes] The meeting notice specifies, for bearer shares, a record date when shareholders need to register in order to vote at the AGM, but shares are not blocked from trading.

38 §126, Principes Déontologiques et Règlement Général du CREPMF. 39 Principes Déontologiques et Règlement Général du CREPMF, §147-166. 40 Though the CREPMF Regulations do lay out the relationships, information, and protection of clients in the case of investment funds Sociétés de Gestion de Patrimoine). See Principes Déontologiques et Règlement Général du CREPMF, §147-166).


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(2) Disclosure of management of material conflicts of interest by institutional investors

There is no provision for disclosure of conflicts of interest, or policies of nomination of directors.

Principle IIG: Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

Assessment: Not observed / Not applicable There are no special regulations preventing on shareholder cooperation in board nomination/election, communication among minority shareholders, or regulation of proxy solicitation.

SECTION III: THE EQUITABLE TREATMENT OF SHAREHOLDERS The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders. All shareholders should have the opportunity to obtain effective redress for violation of their rights.

Principle IIIA: All shareholders of the same series of a class should be treated equally.

Assessment: Materially not observed

(1) Equality, fairness, and disclosure of rights within and between share classes

Availability of share class information. Information on share rights is available from the Articles of Association of the company (for non-listed companies), which are in principle available from the Commercial Registry (greffe du tribunal), and in the prospectus (for listed companies). Equal rights within classes. Shares carry the same rights within each share class, (AUSCGIE § 744). The auditor is obliged by law to assure the equal treatment of shareholders, as well as the equality of rights of all shares of the same class (AUSCGIE § 714). Approval by the negatively impacted classes of changes in the voting rights. Changes in the rights of a given class of require a special meeting and class approval (AUSCGIE § 555).

(2) Minority protection from controlling shareholder abuse; minority redress

Shareholders have several redress possibilities which do not provide adequate redress. Ability to call meeting. 10 percent of a class of shares can also call a meeting of that class of shares (referred to as a “special meeting”) (AUSCGIE §516). The court can call an AGM if requested by 10 percent of the shareholders. The AGM can be called by the auditor in the case of refusal from the board. Ability to inspect books. 20 percent of shareholders can request an external audit or “an expert report on management operations” (via the court), at company expense.41 A shareholder can request the company to provide a photocopy, going three years back, of the following documents financials, list of directors, auditor report, board report, explanatory statements of resolutions proposed (as needed), the list of shareholders, the aggregate remuneration of the 5 or 10 best-paid employees (including management), and minutes and attendance lists of AGMs. The court can enforce such disclosure via a summary judgment upon shareholder complaint (AUSCGIE §526, 528). Shareholders have the right to ask questions of the Chairman of the board and the general director, twice a year (§158 AUSCGIE). Withdrawal rights. AUSCGIE does not provide for withdrawal rights for dissenting shareholders, following major corporate changes. Ability to challenge shareholder resolutions. Shareholders can apply to court to cancel a general meeting decision based on improper procedure (AUSCGIE §519). In addition, there is a provision for “majority abuse” in the law, which however has not been used in practice.42

Ability to sue for damages. Shareholders have a direct suit against the company for

41 AUSCGIE §159, 160. Where such a request is granted, the judge shall determine the scope of the mission and the extent of the powers of the experts. The report shall be forwarded to the plaintiff and the company. 42 AUSCGIE §130: “Joint decisions may be annulled for undue use of the majority powers and may commit the partners who voted for them vis-à-vis the minority shareholders. There shall be undue use of the majority powers when the majority shareholders vote in favor of a decision which serves solely their interests, goes contrary to the interests of the minority shareholders, and cannot be justified in terms of the company's interests.” The law provides a similar « minority abuse article ».


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damages. Shareholders can sue directors for breach of duty. A shareholder can initiate a suit against a director or manager only if the harm he/she suffered is distinct from that suffered by the company (AUSCGIE §162). Shareholders can also request directors and management to file a suit in the name of the company. Following failure to do so, shareholders can file the quit themselves after 30 days. In this case the damages accrue to the company, not the shareholder, but the costs are borne by the company as well (AUSCGIE §163, 166, 167, 171). The shareholders may, where they represent at least one-twentieth of the registered capital, entrust, in their common interest and at their expense, one or more shareholders to represent them (AUSCGIE §741). A general meeting decision cannot exonerate company management and board members from liability (AUSCGIE §169). None of these provisions appear to have been used in practice. Reasons cited include a lack of awareness of the law, and distrust of the efficiency and fairness of the court system. Regulator Redress. By law, the CREPMF can address shareholder complaints. The CREPMF President can summon the accused party under investigation. The proceedings can be internally administered, or channeled via the competent judiciary organs of the member-states.43 Appeal is made to the UEMOA Court or the national courts of each member-state.44 No cases have been appealed in practice so far.

(3) Custodian voting by instruction from beneficial owners

Custodians are not regulated to provide shareholders with information concerning their options in the use of their voting rights. Similarly, there are no regulations on custodian voting on beneficial owner instructions. In practice, interviews with market participants do not suggest any problems. Blank votes are not counted for voting purposes (AUSCGIE §550). The votes of shareholders not present at the meeting are not automatically cast in favor of management.

(4) Obstacles to cross border voting should be eliminated

Cross-border voting is not regulated. No shares are held in ADR/GDR form.

(5) Equitable treatment of all shareholders at AGMs

Aside from bearer share registration a week or more prior to the meeting, and the cost involved in visiting the company office to obtain the relevant information, there are no significant costs to voting. There is no notarization of the power of attorney. Shareholders may also face voting caps and limited voting rights in the case of preferred shares, which may weaken shareholder voice.

Principle IIIB: Insider trading and abusive self-dealing should be prohibited.

Assessment: Not observed

Basic insider trading rules. AUSCGIE contains no prohibitions against insider trading. There do not appear to be insider trading provisions in the CREPMF regulation or in the BRVM regulation, although this was not available for review. Insider trading disclosure. Insider ownership and trading is not subject to disclosure. Directors of listed companies must convert their and their family’s shares into registered shares within a month of assuming the position (this includes directors representing corporate bodies) (§830 AUSCGIE ). It is an offence to engage in price manipulation of listed securities, as well as in circulation of false rumors affecting the market.45

Criminal/civil/administrative penalties. No penalties or sanctions have been imposed.

Principle IIIC: Members of the board and key executives should be required to disclose to the board whether they, directly, indirectly or on behalf of third parties, have a material interest in any transaction or matter directly affecting the corporation.


43 §39-50 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. 44 §49 de l’annexe portant composition, organisation, fonctionnement et attributions du CREPMF. By law, sanctions are enforced and fines collected, pending appeal. 45 §177, Principes Déontologiques et Règlement Général du CREPMF.


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Conflict of interest rules and use of business opportunities. Conflicts of interest are defined in AUSGIE.46 All conflicts must be disclosed to the board and are subject to the prior authorization of the board, unless it is an ordinary transaction under normal conditions (AUSCGIE §439). The party must recluse himself from voting at the board meeting. The Board must submit these conflicts to the following AGM for ex-post approval. In addition, the board must also inform the auditor of all authorized conflicts within one month of their conclusion, and the auditor must prepare a special report to assist the AGM in evaluating the transactions. 47 The auditor is obliged to denounce to the AGM any non-compliance with these rules (AUSCGIE §441). Related parties are liable for any harm suffered by the company as a result of an RPT which has not been AGM-approved. RPTs which have caused harm to the company will be cancelled (AUSCGIE §443,444, 446). Legal experts state that related party transactions that involve controlling shareholders are covered by these rules, but the legal basis is vague.

The unethical use of business opportunities by directors does not appear to be covered by the law. RPT approval rules/rules for approval of board/AGM. Related party transactions (RPT) fall under the general conflict of interest rules (described above). In general, these rules do not appear to explicitly cover related party transactions in which the related party is a controlling shareholder of both counterparties. AUSCGIE regulates two special RPTs. First, where the company buys, within a period of two years following its registration, property belonging to a shareholder for more than 5,000,000 (five million) CFA francs, the auditor must draw up a report on the value of the property, and shareholders must approve the transaction at the next AGM (AUSGIE §547). Second, directors, general directors and assistant general directors, as well as their spouse and children (and via third parties) are forbidden to take loans or guarantees from the company. Banks and financial institutions are allowed to extend such loans in the ordinary course of business.48

SECTION IV: THE ROLE OF STAKEHOLDERS IN CORPORATE GOVERNANCE The corporate governance framework should recognize the rights of stakeholders established by law or through mutual agreements and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.

Principle IVA: The rights of stakeholders that are established by law or through mutual agreements are to be respected.

Assessment: Partially observed The participation of stakeholders in corporate governance is not regulated. Employees are not typically represented on the board of directors, and do not formally take part in corporate governance. SONATEL is an exception to this general rule, and one seat on the board is reserved for employees, although this is in relation to their role as shareholders. Employee rights are strong in Senegal. Employees have an extensive array of rights proceedings from the Labor Law (e.g. petition, strike). Currently, OHADA is reviewing its Labor Law, but it is considered unlikely that employee protection, and its associated lack of flexibility, will be lost in the revised version. At the national level, three-sided negotiations (state, trade unions, and employers) are sometimes held on important topics (e.g. the introduction of a uniform retirement age of 60 years). Employees have a high level of awareness of their rights. There appears to be a relatively low awareness of corporate social responsibility issues. Some companies (most frequently the multinationals) have drafted codes of conduct on certain stakeholder issues. Interest in this sphere has recently increased (for example, the Conseil National du Patronat du Sénégal, or CNP, an employers’ association, has been recently promoting and diffusing the idea of corporate citizenship). As another example, the SONATEL Foundation has been active in projects of community development.

Principle IVB: Where stakeholder interests are protected by law, stakeholders should have the opportunity to obtain

46 AUSCGIE §438. Conflicts of interest are defined as “all agreements between a public limited company and any of its directors, general directors or assistant general directors”, as well as “agreements indirectly involving a director or general director or assistant general director, or in which he deals with the company through a third party”, and “agreements between a company and an enterprise or a corporate body where one of the directors or a general director or an assistant general director of the company is owner of the enterprise or a partner indefinitely liable, manager, director, managing director, assistant managing director, general director or assistant general director of the contracting corporate body. 47 AUSCGIE §440. The report shall contain a list of agreements submitted for the approval of the ordinary general meeting, the name of the directors concerned, the nature and object of the agreements, their essential terms notably an indication of the price or rates in force, rebates or commissions granted, securities provided and, where necessary, any other information that would enable shareholders assess the interest in concluding the agreements examined. It shall also make mention of the quantity of supplies delivered and services rendered, as well as the sums of money paid or received during the fiscal year, in implementation of the agreements referred to in the third paragraph of this article. The report must be submitted at least 15 days prior to the AGM (§442). 48 AUSCGIE §450. This prohibition does not apply to corporate bodies that are members of the board of directors.


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effective redress for violation of their rights.


Redress mechanisms available to stakeholders. Employees can turn for redress to court, as per the labor law. Creditors can also defend their rights per bankruptcy and debt collection rules. Other stakeholders have no readily available recourse mechanisms. As noted under Principle ID, judicial proceedings in Senegal are considered slow, especially due to procedural delays, as well as biased, due to interventions of political, social, or financial character. This can impede stakeholders seeking to obtain effective redress for violation of their rights.

Principle IVC. Performance-enhancing mechanisms for employee participation should be permitted to develop.


Employee Stock Ownership Programs (ESOPs) and stock options are not specifically regulated in the law. The AUSCGIE provides that corporations may issue shares to employees by buying them back from the market. In practice, employee compensation schemes are not common. At SONATEL, employees were given 10 percent of shares as part of the privatization in 1997. Employees hold their shares directly, rather than through an intermediary institution.

Principle IVD: Where stakeholders participate in the corporate governance process, they should have access to relevant, sufficient and reliable information on a timely and regular basis.

Assessment: Materially not observedThere are no special rights for stakeholder access to information. Stakeholders are hampered by the overall level of company transparency.

Principle IVE: Stakeholders, including individual employees and their representative bodies, should be able to freely communicate their concerns about illegal or unethical practices to the board and their rights should not be compromised for doing this.

Assessment: Largely observed The provisions of the Labor Code provide employee delegates with a legal immunity, which protects them in the carrying out of their functions. All employee-delegates are licenses by the Labor Inspectorate, which also automatically grants them the generalized protection (including whistleblower protection). Senegal’s media also plays a major role in the process, by printing articles based on information from company insiders and investigating corporate problems and scandals.

Principle IVF: The corporate governance framework should be complemented by an effective, efficient insolvency framework and by effective enforcement of creditor rights.


Effectiveness of bankruptcy, security/collateral, and debt collection/enforcement codes. Creditors can protect their rights through collateral arrangements, although judicial proceedings can be long and riddled with uncertainty which limits their effectiveness. When capital falls below 50 percent of registered capital, the board must consider voluntary dissolution or a capital reduction (AUSCGIE §664, 665). Creditors have the right to recall all outstanding debt from merging borrowers (AUSCGIE § 680). Creditors cannot block dividend distributions, but can file for bankruptcy in which case the bankruptcy administrator has adequate powers in this regard. Creditor rights (though not specifically reviewed for this assessment) are considered to be relatively weak in international comparisons. A variety of standard measures developed by the World Bank for 130 countries compare FYR Macedonia to its regional neighbors and the OECD average. In these comparisons legal rights are somewhat stronger than in other countries in the region, but access to credit information and the coverage of credit registries is considerably weaker. See Doing Business 2005 at rru.worldbank.org.

Creditor Rights Indicator Senegal Regional Average

OECD Average

Legal Rights Index (out of a possible 10) 3 4.4 6.3

Credit Information Index 1 1.5 5.0

Public credit registry coverage (borrowers per 1000 adults) 4.3 0.8 7.5

Private credit registry coverage (borrowers per 1000 adults) 0 4.5 59.0

The A&A ROSC reports that the BCEAO has initiated a project for a centralized database of company financial statements in the Union for the exclusive use of banks.


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SECTION V: DISCLOSURE AND TRANSPARENCY The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.

Principle VA: Disclosure should include, but not be limited to, material information on:


(1) Financial and operating results of the company

Annual Reports. Listed companies have a variety of disclosure obligations (see annex 1). They must publish, in a paper of legal announcements, within 4 months of the financial year-end and more than 15 days before the AGM, the unaudited consolidated summary financial statements (balance-sheet, profit and loss account, statement of uses and sources; proposed dividends). Within 45 days after the AGM, listed firms must publish the approved audited consolidated summary financial statements, bearing the certificate of the auditors, and the approved dividend.49 Publication is in the Bulletin Officiel de la Cote and in a journal of legal announcements in the town of the company headquarters.50 Electronic filing has not been implemented. Per the West African Accounting Standards (SYSCOA), an annual report contains a balance sheet, an income statement, a cash flow statement, a statement of changes in equity, notes to the financial statements, an audit report, and a board report (management discussion and analysis).51 SYSCOA requires the filing of consolidated financial statements; however, in practice, this is not yet practiced or enforced. Unlisted companies that are controlled at 50 percent or more by a listed firm, whose assets exceed CFA 200 million, or market capital of CFA 80 million, must publish within 45 days of the AGM; publish audited financials in a paper for legal announcements (§853 AUSCGIE). Unlisted SAs must file financial statements with the Commercial Register (including balance sheet, income statements, statement of sources and uses), as soon as they have been approved by the AGM (§269 AUSCGIE). The Accounting and Auditing ROSC reports that compliance with this requirement has been very low, due to resource constraints of the Commercial Register. Banks file within 6 months of the end of the financial year (by June 30) their audited consolidated financials with BCEAO and the Banking Commission, and publish them in a journal of legal announcements.52 Periodic financial statements (monthly, quarterly, and semi-annual) are also filed with the authorities. The Banking Commission approves the choice of an auditor by the banks.53 Quarterly Reports. Listed companies publish, within 4 months of the first half of the financial year, a semi-annual progress report certified for authenticity by the auditor.54 They also have to publish their quarterly revenue and profit projections. In general, compliance with filing requirements for listed companies (including SONATEL) is relatively good. As a result there have apparently been no sanctions for non-compliance. Compliance for non-listed issuers (including SOEs) has been poor. The sanctions for non-compliance are disciplinary, administrative, fines, and judicial. In practice, no action appears to be taken in the event of non-compliance. Market participants (and the Accounting and Auditing ROSC) consider the quality of financial information to be relatively poor.

(2) Company objectives Listed companies must prepare semiannual progress reports, including a description of the company's operations and a forecast of the development of the operations for the remainder of the year. Any important events which happened during the just-ended half

49 §847, 848 AUSCGIE. §131, Principes Déontologiques et Règlement Général du CREPMF. If the statements are identical, a notice referring to the first publication is sufficient. 50 Instruction II-C de la BRVM relative à la diffusion d’information; Règles d’admission. 51 The management report describes the situation of the company during the past financial year, prospects for continued company activity, the evolution of the cash situation and the financing plan (§138). 52 §39 Loi ou ordonnance portant réglementation bancaire. 53 §40 Loi ou ordonnance portant réglementation bancaire. 54 §849 AUSCGIE. The half-yearly progress report contains information on turnover and income, describes the company's operations during this period, and provides a forecast of the development of the operations up to the close of the fiscal year. Any important events which happened during the just-ended half year are also included in the report (§851).


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year shall also be included in the report. The company must prepare a board report before the annual meeting, which may discuss company objectives (§525 AUSCGIE).

(3) Major share ownership and voting rights

Companies do not publish any ownership information. The shareholder register is made available to shareholders 15 days prior to the AGM, at company headquarters (although there is some debate about whether this is done in practice). By CREPMF regulation, owners who cross specific ownership thresholds must disclose it to the company, CREPMF, and the public.

(4) Remuneration policy for board and key executives, and information about directors

A list of directors, their professional profile and activities in the past 5 years, and the aggregate remuneration of the 5 or 10 highest-paid managers/ board directors are available at the company headquarters 15 days before the AGM (AUSCGIE §523, 525).

(5) Related party transactions RPTs which have been approved by the board are presented to the AGM, and reflected in the auditor’s report, which is annexed to the annual report of the company (AUSCGIE §440, 442). The definition of related parties is more restrictive than the definition in IAS 24.

(6) Foreseeable risk factors There are no requirements for a detailed risk analysis. There is a board report attached to the annual report, whose content is not detailed in any way by the law.

(7) Issues of employees and other stakeholders

There are no rules for disclosure of employee and stakeholder issues.

(8) Governance structures and policies

There are no requirements for disclosure of governance structures and policies.

Principle VB: Information should be prepared and disclosed in accordance with high quality standards of accounting and financial and non-financial disclosure.


Detailed information on accounting and financial reporting standards can be found in the Accounting & Auditing ROSC conducted by the World Bank in 2005 and published in French at http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf. Compliance with IFRS. Companies use the West African Accounting Standards (SYSCOA), which were developed in the mid-1990s under BCEAO, and adopted in identical form in the OHADA states. SYSCOA has numerous differences with IFRS. SYSCOA is exclusively modified by the UEMOA Commission, which has not amended the standards since their original enactment. Banks do not follow SYSCOA, but instead follow the standards imposed by the UEMOA banking legislation, which requires further harmonization with IFRS.55 SOEs file financial statements with the Cellule de Gestion de Portefeuille de l’Etat, which does not have the authority or resources to review or improve their quality. SOE financial statements are also not available to the public.56 Review/enforcement of compliance. The auditor is responsible for compliance with financial reporting standards. Financial reporting by the banking sector is extensively regulated by the Central Bank and the Banking Commission. In general, the market considers most financial reporting outside of the banking sector to be of poor quality.

Principle VC: An annual audit should be conducted by an independent, competent and qualified, auditor in order to provide an external and objective assurance to the board and shareholders that the financial statements fairly represent the financial position and performance of the company in all material respects.

Assessment: Partially observed Detailed information on auditing standards, auditing oversight, and the audit profession can be found in the Accounting & Auditing ROSC conducted by the World Bank in 2005 and published in French at http://www.worldbank.org/ifa/rosc_aa_sen_fre.pdf. Compliance with ISA. Audit standards in the UEMOA are set by national legislation, in contrast to accounting standards, which are homogenous for the West African Union. Senegalese national audit standards were specified in 1988 by Decrees 88-987 and 88-1003, which specify respectively the 29 audit norms applicable in Senegal, and the due diligence duties for auditors. The audit norms are loosely based on the ISA from that period, but do have significant differences, especially in comparison to modern International Standards of Audit. Who must be audited. All SAs, SARLs above a certain size, and all banks and insurance companies must have their

55 Loi Bancaire, le Plan Comptable Bancaire obligatoire depuis 1996, et un « Dispositif prudentiel » établi par le Conseil de Ministres de l’UEMOA en 1999. 56 Cellule de Gestion du Portefeuille de l’Etat.




June 2006 Page 26

annual financial statements externally audited (§694 AUSCGIE). SAs must appoint an auditor and an alternate auditor. Listed SAs must appoint at least two auditors and two alternate auditors (§702 AUSCGIE). Audited financials are also required of unlisted subsidiaries of listed companies (§853 AUSCGIE). The Economic Interest Groups (groupements d’intérêt économique - GIE), which are numerous in Senegal, and whose size can be quite significant, do not have audit requirements. SYSCOA requires the filing of consolidated financial statements; however, in practice, this is not yet practiced or enforced. The semi-annual progress report for listed companies must be certified for authenticity by the auditor.57 Quarterly revenue and profit projections need not be audited. The A&A ROSC reports a widespread non-compliance with the audit requirement. Auditor independence. Independence is extensively defined in company law and the ONECCA Code of Professional Duties.58 However, the ONECCA Code of Professional Duties differs from the current IFAC Code of Ethics in several important respects, such as the duty to act in the public interest, as well as issues of conflicts of interest. Audit committee. The concept of the audit committee of the board is relatively new in Senegal, and there are no regulations that require one. Several banks have established an audit committee (e.g. BST, ECOBANK), and the subject is under discussion at several other companies. Independent audit oversight. Since 2000, the accounting profession has been regulated by ONECCA, which has exclusive licensing rights of auditors and accountants in Senegal. ONECCA is not an IFAC member yet, though efforts are ongoing in that regard. The ultimate supervisors of the profession are, first, at the national level, the Ministry of Finance, and second, at the UEMOA level, the CPPC (Conseil Permanent de la Profession Comptable). There is no mechanism currently for control of the quality and enforcement over the accounting and auditing profession in UEMOA. The CPPC which was provided for by law within UEMOA has been recently put in place, but its role in enforcement and quality control has not been legally defined (see the Accounting and Auditing ROSC). In Senegal, ONECCA is empowered to license auditors (§695, 696 AUSCGIE). Due to its relatively recent creation, ONECCA has an adequate structure to fulfill its mission, but is not yet fully functional. The members of ONECCA, at their annual meeting, elect a Council of 8 members. ONECCA has several technical; and professional commissions, as well as a Disciplinary Chamber composed of two elected members and a magistrate.59

There are relatively few auditors in Senegal – 95 auditors and 37 audit firms are licensed with ONECCA, all based in Dakar.60 The audit demand is coming essentially from bi-lateral and multi-lateral donor projects, banks, insurance companies, large SOEs, and multinationals. Auditor qualifications. The ONECCA criteria for licensing are a degree of accounting studies. Given the recent creation of ONECCA, many professionals do not yet have the academic qualifications required by ONECCA, while new entrants do have those qualifications (A&A ROSC remark). Shareholder elected special auditors. Company law does not provide for any audit body elected by shareholders. In public companies, the Contrôleur Financier de l’Etat plays a similar role; each public company has an expert (contrôleur) appointed to the board, who attends board meetings (without voting) and reports on any administrative deficiencies to the office of the President.

57 §849 AUSCGIE. The half-yearly progress report contains information on turnover and income, describes the company's operations during this period, and provides a forecast of the development of the operations up to the close of the fiscal year. Any important events which happened during the just-ended half year are also included in the report (§851). 58 The duties of auditor shall be incompatible with any activity or act of a nature to compromise his independence; any paid job or any commercial activity, whether such activity is carried on directly or by a third person (§697 AUSCGIE). However, an auditor may give a course of instruction relating to the exercise of his profession or take up a paid job with an auditor or a chartered accountant; The following may not be auditors: the founders, contributors, beneficiaries of special benefits, managers of the company or of its subsidiaries, as well as their relatives up to the fourth degree inclusive; the managers and spouses of companies holding 10% in the company; as well as any persons employed by the above non-independent parties other than for audit services. Auditors' companies one of whose members, shareholders or managers or their spouses fails to be independent as described above, also cannot act as auditors. An auditor or a member of an audit company may not be appointed director, managing director, assistant managing director, general director or assistant general director of the companies which he audits less than five years after cessation of his duties as auditor of the said companies. He may not, during the same period, perform the duties of auditor in the companies holding one-tenth of the capital of the company audited by him or in the companies in which the company audited by him holds one-tenth of the capital after cessation of his duties as auditor of the said companies (§699 AUSCGIE). Persons who have been directors, managing directors, assistant managing directors, general directors or assistant general directors, managers or workers of a company may not be appointed auditors of the company less than five years after cessation of their duties in the said company. §700 AUSCGIE. They may not, during the same period, be appointed auditors in the companies holding 10% of the capital of the company in which they were performing their duties or in the companies in which the latter hold 10% of the capital after cessation of their duties. 59 Les statuts de l’ONECCA sont fixés par la loi 2000-05 du 10 janvier 2000 et son règlement intérieur par le décret 2001-283 du 12 avril 2001. Une Assemblée Générale des membres inscrits au tableau de l’Ordre et à jour de leur cotisation professionnelle se réunit annuellement. Elle élit un Conseil, composé de huit membres titulaires et du Président, qui désigne à son tour un Vice-Président, un Secrétaire Général et un Trésorier parmi les membres. L’Ordre compte, outre plusieurs commissions permanentes chargées des questions professionnelles ou techniques, une Chambre de discipline qui est formée par deux membres élus de l’ONECCA et un magistrat du siège qui en assure la présidence. 60 A&A ROSC. To be exact, there are 95 experts-comptables et 2 comptables agrées, which are also members of the 37 audit firms


June 2006 Page 27

Principle VD: External auditors should be accountable to the shareholders and owe a duty to the company to exercise due professional care in the conduct of the audit.

Assessment: Partially observedAuditor accountability. The auditor is appointed by the AGM, for a term of six years.61 10 percent shareholders, the board, the AGM, and the public prosecutor, can bring an action before the court for the dismissal of the auditor in case of misconduct (731 AUSCGIE). Auditors must inform the board of directors or the managing director of irregularities discovered (§715 AUSCGIE). The auditor shall report to the very next general meeting on the irregularities and inaccuracies he discovered in the performance of his task. In addition, he shall disclose to the public prosecutor's office any offence he discovers in the performance of his task, without committing himself by such disclosure.62 The auditor must be present at the AGM meetings (§721 AUSCGIE). The auditors report must contain a list of RPTs, and an opinion on their nature. The external auditor is responsible for ensuring the equal treatment of shareholders (§714 AUSCGIE). Auditor liability. By law, auditors are liable for fraud and negligence (§725 AUSCGIE). The auditor is not liable for offences committee by the board or management, unless he is aware of those offences and fails to report them to the AGM (§726 AUSCGIE). There is no practice of shareholder suits against auditors. Auditor insurance. Auditors are required to take professional insurance (§19, Law 2000-05).

Principle VE: Channels for disseminating information should provide for equal, timely and cost-efficient access to relevant information by users.


Material events. Listed companies must continuously disclose all material information (Instruction II-C de la BRVM, §1). Materiality is defined as “all information that will considerably affect the price”.63 The disclosure is immediate. The press release is deposited with BRVM; however, need not be pre-vetted (Instruction II-C de la BRVM, §6, 7). Anyone who undertakes an operation that is likely to affect a listed company’s price in a significant way must issue a press release to the public.64

Published information (papers, web). Corporate information is disseminated exclusively via newspaper publication, as well as making it available at company headquarters. The annual report is in summary form. Publication on company websites is not typical. Outside investors do not have access to the documentation available at company headquarters; only to the summary annual report as published in the official gazette. Shareholders do not have access to minutes of board meetings, or board attendance, but can access the AGM minutes (§525,526 AUSCGIE). In general, information on listed companies (SONATEL) is relatively easy to obtain. The overall level of transparency is low for other public interest entities, especially state-owned enterprises, because of limited access to information at the Commercial Registry.

Principle VF: The corporate governance framework should be complemented by an effective approach that addresses and promotes the provision of analysis or advice by analysts, brokers, rating agencies and others, that is relevant to decisions by investors, free from material conflicts of interest that might compromise the integrity of their analysis or advice.

Assessment: Not observed / Not rated

Disclosure of conflicts of interest by analysts, brokers, rating agencies, etc. There are currently no rating agencies, and very little brokerage research. Conflicts of interest of securities analysts, investment banks, brokers, rating agencies and others are not regulated or disclosed.

SECTION VI: THE RESPONSIBILITIES OF THE BOARD The corporate governance framework should ensure the strategic guidance of the company, the effective monitoring of management by the board, and the board’s accountability to the company and the shareholders.

Principle VIA: Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and the shareholders.


61 §703, 704 AUSCGIE. By §546, the AGM appoints the auditor and also approves the auditor report. 62 §716 AUSCGIE. The auditor as well as his assistants shall, subject to the provisions of Article 716 of this Uniform Act, be bound to professional secrecy regarding the facts, acts and information they have knowledge of in the performance of their duties (§716). 63 Instruction II-C de la BRVM, §2. In case of doubt over the materiality of the informant, the issuer is advised to consult with BRVM (§3). §4 provides 18 specific examples of the most frequently encountered material facts and situations requiring disclosure. 64 §167-170, Principes Déontologiques et Règlement Général du CREPMF.


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Basic description of board. Boards are unitary. The law allows companies with less than three shareholders to dispense with the board of directors. Listed companies must have a board, and SOEs have a board in practice (§828 AUSCGIE). The law separately regulates companies where the Board Chairman is also the general director and those where the functions are separated. In practice, the former arrangement is more common in Senegal. Companies majority-owned by the State also have a special non-voting “financial controller” (the contrôleur financier) who advises on proper procedure, and writes special reports to the office of the president when problems are identified. Size requirements and typical size. Boards can have a minimum of three and a maximum of 12 members, for a mandate of up to 6 years (§416, 420 AUSCGIE). Up to one third of the board members can be non-shareholders (§417 AUSCGIE). Boards of listed companies must have between 3 and 15 members (§829 AUSCGIE). SONATEL has 10 board members (plus the financial controller). Listed company boards have usually between 9 and 12 members. Nomination and election. Board nominations are typically made by the board, and are approved by the AGM. The Articles of Association could provide for special arrangements of board elections, but no class of shares could be deprived of its right to be represented on the board (§424 AUSCGIE). The board meets at the call of its Chairman. The quorum is half of the board members. Decisions are taken by majority (AUSCGIE §453, 454). The board Chairman’s duties are to chair board and shareholder meetings, assure that the board oversees management, and conduct verifications as he sees fit (AUSCGIE §465, 480). Eligibility requirements. In general, there are no qualification requirements for directors. This is considered by many observers to contribute to the presence of board members without any business experience, and thus to the general weakness of boards. There are no nationality restrictions for board membership. Bank directors cannot be foreigners, though the Finance Ministry can grant exceptions.65 Bank directors need to have a clean criminal record, and no bankruptcy history (unless the firm was rehabilitated).66 Banks need to file the list of managers and directors with BCEAO and update it upon changes.67

A corporate body may be appointed director, which can act to limit individual responsibility and duties to the company.68

Adequacy of duties of loyalty and care. Directors owe a duty to the company and to third parties to obey the law and applicable regulations, as well as the Articles of Association (AUSCGIE §740). There is a general duty of care; officers must act as “a good father” towards the company. There is no general duty for board members to act in the interests of the company and all shareholders (i.e. a duty of loyalty). Some specific ad-hoc duties are set out by the law: management and directors are liable for false or insufficient disclosure when raising new capital (AUSCGIE §905), and for irregularities related to share issuance, especially handing out share certificates before full payment, and for failure to assure pre-emptive rights to all shareholders or present false or misleading information at the AGM where the pre-emptive rights are being waived (AUSCGIE §893, 894, 895). Management and directors are liable for failure to file with the Commercial Register for dissolution when capital falls below registered capital (AUSCGIE §901). There are no precedents for any enforcement of any of these duties in court, and even during recent corporate governance scandals, no legal action has been taken against management or directors. Management and the board are jointly and severally liable for: distributing dividends without the underlying assets of financial health to do so; false statements in the published financials; using company assets of credit against the interests of the company, for personal gain (AUSCGIE §161, 889, 890, 891). Insurance for directors. The law does not require the purchase of liability insurance policies by directors or by firms on behalf of directors, and in practice insurance is not used. Business judgment rule/board accountability. There is no business judgment rule in the Senegalese legislation.

Principle VIB: Where board decisions may affect different shareholder groups differently, the board should treat all shareholders fairly.


There is no specific rule for directors to treat shareholders equally.

Principle VIC: The board should apply high ethical standards. It should take into account the interests of stakeholders.


The development of company codes of ethics is not common. SENELEC has developed a code of values (Charte de Comportement). Multinational companies follow the policies of the parent company.

65 §14 Loi ou ordonnance portant réglementation bancaire. 66 §15 Loi ou ordonnance portant réglementation bancaire. 67 §17 Loi ou ordonnance portant réglementation bancaire. 68 §421 AUSCGIE. The representative of the corporation is subject to the same duties and liabilities as other directors.


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Principle VID: The board should fulfill certain key functions, including:


(1) Board oversight of general corporate strategy and major decisions

Board functionality by law and in practice. According to the law, “the board of directors shall have the widest powers to act in all circumstances on behalf of the company…The board of directors shall … define the company's objectives and guidelines for its administration”. The board is responsible for defining company objectives and management guidelines and management oversight (§435 AUSCGIE). In practice, the responsibilities of the board of directors are poorly defined, and many directors do not understand their duties. Director training, IOD. There is currently no formal director training. The Senegalese Institute of Directors (L’Institut Sénégalais des Administrateurs) was created in July 2005, and is expected to take an active role in promoting good corporate governance. Possible activities include the provision of director training and the development of a code of good practice. The CNP is also planning a corporate governance training program for its members.

(2) Monitoring CG practices There are no regulations or best practice recommendations that give the board explicit responsibility over the monitoring of corporate governance practices or evaluating their performance. Board self-evaluation does not take place in practice.

(3) Hire/fire/pay of executives According to the law, “the board of directors shall … control, on a permanent basis, the management.” The board appoints, remunerates, and removes the general director (§462 AUSCGIE). The law specifically states that if the board chairman is also serving as general director, the board will also set his or her remuneration, and can be composed of employee salary, a fixed annual duty allowance granted by the AGM, exceptional payments for special services, and reimbursement of travel and per diem, which need to be reflected in the auditor’s report to the AGM (§467). The general director who is not a director will only be remunerated per his employment contract (§490). In practice, in many SOEs, the general director is nominated by the government, and the nomination is then approved by the board. This practice greatly weakens the board in these companies.

(4) Aligning executive and board pay with LT interests

Board compensation is decided exclusively by the AGM. Directors can be employees; however, aside from money paid them under a contract of employment, directors are only entitled to a fixed annual duty allowance granted by the AGM, as well as exceptional payments for special services, reimbursement of travel and per diem, which need to be reflected in the auditor’s report to the AGM (§430, 431, 432 AUSCGIE). In practice, board remuneration remains very low, especially compared to Chairman and general director pay.

(5) Transparent board nomination and election process

There are no regulations or best practice recommendations that give the board any responsibility over the nomination process. Ordinary shares are entitled to elect board members (§419, 485 AUSCGIE). Board members can be removed by a majority vote of the AGM (§433, 550 AUSCGIE). Directors are nominated by the board. Available details on nominated directors include their professional profile and activities in the past 5 years (AUSCGIE §523). In practice, board seats are generally assigned to the main shareholders in proportion to their ownership of the company.

(6) Oversight of insider conflicts of interest

The rules on conflicts of interest are presented in IIIC. The board is responsible for oversight, and must report all violations of these rules to the AGM (§440 AUSCGIE).

(7) Oversight of financial reporting, audit and control

The board “adopts” the annual financial statements (§435 AUSCGIE). However, there does not appear to be any practice of the board overseeing or managing the process of internal controls. Many companies have internal auditors, but they report to the general director, not the board. The directors or manager do not need to certify the financial statements.

(8) Overseeing disclosure and communications processes

There are no regulations or best practice recommendations that give the board any responsibility over the disclosure process.


June 2006 Page 30

Principle VIE: The board should be able to exercise objective independent judgment on corporate affairs.


(1) Director independence Director independence in law. There is no definition of “independence” in the law, and in general the concept is new. Director independence in practice. In general, board composition is based on a “parliamentary” model. Large companies tend to allocate board members to shareholders based on their ownership in the company, sometimes by formal shareholder agreement. There is a clear dominance of controlling owners over corporate decisions. This limits the protection of outside investors. SONATEL has had two independent directors since its privatization in 1997, and this is considered by most observers to be a success. Other companies are now discussing the concept as part of a general corporate governance reform. Some banks also have independent directors. There has been at least one complaint that the definition of independence at the banks is lacking, that real independence has been difficult to achieve because of the board nomination process that is controlled by the strategic shareholder.69

(2) Clear and transparent rules on board committees

Audit committees. Audit committees are not required by law. However, a number of banks have audit committees of the board. The concept is under discussion at a few other companies.Other committees. Board committees are not common. The board may delegate board powers to a sub-group of its members (§437 AUSCGIE).

(3) Board commitment to responsibilities

Restrictions on the number of board seats. A director can serve on a maximum of five boards (§425 AUSCGIE). A board Chairman (whether or not he is also the general director) cannot hold the position of general director in more than two other companies (§464, 479 AUSCGIE). In practice, these limits are sometimes ignored when several enterprises belong to the same group. Board meeting requirements. The law does not prescribe a frequency of board meetings, instead allowing boards to meet “as frequently as needed”. However, if the board has not met for two months, it can be convened by a third of its members who will also provide the agenda (§453 AUSCGIE). In practice, boards meet at least twice a year. Public availability of board attendance. Board attendance is not publicly available. Board minutes are certified by the Chairman and another director, and are kept at the registered office of the company. The minutes include board attendance records (§458, 459 AUSCGIE).

Principle VIF: In order to fulfill their responsibilities, board members should have access to accurate, relevant and timely information.


The law does not confer special information rights to individual board members. Individual board members do not have access to professional advice by law. In practice, management provides board members with all necessary background information for the board meetings. Lack of board member access to information was recently detailed in recent public statement by a former board member of SGBS.70 The independent board member of a major bank was not given access to the information prepared by the board’s credit committee because of issues related to “bank secrecy”.

69 Moubarack Lo, Ex-Administrateur de la SGBS, www.moubaracklo.blog.lemonde.fr. 70 Moubarack Lo, Ex-Administrateur de la SGBS, www.moubaracklo.blog.lemonde.fr.


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Annex I: Disclosure Obligations of Listed Companies • Summary non-audited financial

statements (balance-sheet, profit and loss account, statement of source and expenditure of funds and annexed statement)

• Proposed allocation of income

• For companies with subsidiaries or holdings, the consolidated summary financial statements, where available (AUSGIE §847)

4 months following the end of the financial year and 15 days before the AGM

Shareholders, lead SGI, public

Publication in a journal of legal announcements

• Complete audited financial statements (including annexes / notes)

• Audit reports • Annual board report

• Approval by AGM

45 days after the AGM CREPMF BRVM

By post

• Summary consolidated financial statements (audited and approved)

• Decision on profit distribution

45 days after the AGM CREPMF BRVM Shareholders

• AGM notice 15 days before AGM CREPMF BRVM Shareholders

• Statement of operations and income as well as a half-yearly progress report accompanied by a certificate from the auditor on the authenticity of the information provided (AUSGIE §849)

4 months following the end of the first half-year

CREPMF BRVM Shareholders, lead SGI, public

• Quarterly management report on the evolution of the business and its probable impact on profits

At the latest 1 month after the end of each quarter

CREPMF BRVM Shareholders, lead SGI, public

• Forecast of revenue and profit trends At the latest 1 month after the end of each quarter

BRVM Public

• Dividends 15 days before payment date

BRVM, DC/BR, Shareholders

By post Publication in Bulletin Officiel de la Cote and a journal of legal announcements


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Annex II: Policy Options to Increase the Doing Business Protecting Investors Index This Annex analyzes changes to Senegal’s Doing Business Protecting Investors indicators, assuming that certain changes are made in the governing law and regulation. Please note that this analysis is preliminary, and does not guarantee any changes to the indicators. Any final modification of Senegal’s score on the Doing Business “protecting investors” indices would first require confirmation by local partners.

Protecting Investors Data Senegal 2006

Indicator

(2006) Reform Option

Post-Reform

Indicator

Disclosure Index 4 10

What corporate body provides legally sufficient approval for the transaction?

0 = CEO or managing director alone 1 = shareholders or board of directors vote and Mr. James can vote 2 = board of directors votes and Mr. James cannot vote 3 = shareholders vote and Mr. James cannot vote

1

• Clarify recusal requirements for interested persons at the board of directors and the shareholder meeting.

• Remove the exception for “ordinary operations under normal circumstances” in AUSGIE §439 (explicitly require that the board must vote on all transactions with conflicts of interest.)

• Widen the definition of related parties in §438 to include the full definition of IAS 24 (see below).

• Require unanimous board approval of related party transactions. If board approval is not unanimous, then the law should require extraordinary shareholder meeting.

• For listed companies:

• Require pre-approval by a separate committee of the board (audit committee) composed of a majority of independent directors.

• Require shareholder approval for large or significant related party transactions.

3

Immediate disclosure to the public and/or shareholders

0 = none 1 = disclosure on the transaction only 2 = disclosure on the transaction and Mr. James' conflict of interest

1

• BRVM listing rules / CREPMF regulation should explicitly require immediate disclosure to the public of a medium or large-sized related party transaction, including the details of the conflicts of interest.

• If the agenda of an extraordinary shareholders meeting includes the approval of a related party transaction, then the notice for the shareholder meeting should include a detailed description of the transaction, including all terms and potential conflicts of interest.

2


June 2006 Page 33

Disclosures in published periodic filings

0 = none 1 = disclosure on the transaction only 2 = disclosure on the transaction and Mr. James' conflict of interest

1

• Clarify / make explicit in the AUSGIE that the full details of the transaction (including all aspects of conflicts of interest) should be included in the report prepared by the commissaires aux comptes prepared for the general meeting of shareholders (AUSGIE §439).

• Require that the report be published with the annual report.

• Consider full harmonization of AUSGIE §439 with IAS 24 disclosure requirements, including the disclosure of the entity in “control”.

2

Disclosures by Mr. James to board of directors

0 = none 1 = existence of a conflict without any specifics 2 = full disclosure of all material facts

1

• Remove the exception for “ordinary operations under normal circumstances” in AUSGIE §439.

• Clarify that board members with material conflicts must fully disclose all material facts about the transaction (modification of AUSGIE §440).

2

Requirement that an external body review the transaction before it takes place

0 = No 1 = Yes

0

• Modify 2nd and 3rd paragraphs of article 440 to change role of commissaire aux comptes (CAC) : CAC should submit a special report to the board, prior to board approval, and not prior to shareholder approval.

• This change would be consistent would French law on this question.

1


Indicator

(2006)

Reform Option Post-Reform

Indicator

Director Liability Index 4 4

Shareholder plaintiff's ability to hold Mr. James liable for damage the Buyer-Seller transaction causes to the company

0 = Mr. James is not liable or liable only if he acted fraudulently or in bad faith 1 = Mr. James is liable if he influenced the approval or was negligent 2 = Mr. James is liable if the transaction was unfair, oppressive or prejudicial to minority shareholders

1 • Introduce explicit “duty of loyalty” to that all board members should act in the interests of the company and all shareholders.

• Review recent changes in French law to modernize other aspects of fiduciary duty provisions.

• Enhance AUSGIE §740, which introduces the legal concept of “faute de gestion”. This principle has been developed extensively (in France) through case law – the notion of “faute de gestion” is similar to negligence, which is why there is one point here. If a

1


June 2006 Page 34

transaction was clearly unfair, it is almost certain that the judge would hold the director liable for faute de gestion, and a shareholder could introduce a claim under tort law.

Shareholder plaintiff's ability to hold the approving body (the CEO or board of directors) liable for damage to the company

0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith 1 = liable for negligence in the approval of the transaction 2 = liable if the transaction is unfair, oppressive, or prejudicial to minority shareholders

1 1

Whether a court can void the transaction upon a successful claim by a shareholder plaintiff

0 = rescission is unavailable or available only in case of Seller's fraud or bad faith 1 = available when the transaction is oppressive or prejudicial to minority shareholders 2 = available when the transaction is unfair or entails a conflict of interest

0 0

Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff

0 = No 1 = Yes

1 1

Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff

0 = No 1 = Yes

0 0

Whether fines and imprisonment can be applied against Mr. James

0 = No 1 = Yes

0 • Clarify AUSGIE §891, which provides for fines and imprisonment if actions by directors are taken in bad faith.

• Add specific language to give context on what the legislators consider as examples of bad faith.

0

Shareholder plaintiffs' ability to sue directly or derivatively for damage the transaction causes to the company

0 = not available 1 = direct or derivative suit available for shareholders holding 10% of share capital or less

1 1


June 2006 Page 35


“Doing Business” Criteria (see www.doingbusiness.com)

Indicator

(2006)

Reform Option Post-Reform

Indicator

Shareholder Suits Index

4 5

Documents available to the plaintiff from the defendant and witnesses during trail

Score 1 each for (1) information that the defendant has indicated he intends to rely on for his defense (2) information that directly proves specific facts in the plaintiff’s claim (3) any information that is relevant to the subject matter of the claim and (4) any information that may lead to the discovery of relevant information.

1 1

Ability of plaintiffs to directly question the defendant and witnesses during trial

0 = no 1 = yes, with prior approval by the court of the questions posed 2 = yes, without prior approval

1 1

Plaintiff can request categories of documents from the defendant without identifying specific ones

0 = No 1 = Yes

0 0

Shareholders owning 10% or less of Buyer's shares can request an inspector investigate the transaction

0 = No 1 = Yes

0 • Lower the threshold required to ask for a vérification externe from 20% to 10% of capital (AUSGIE §159/160).

• Clarify the justification for requesting an inspection (e.g. suspected mismanagement, breach of law, etc.)

1

Level of proof required for civil suits is lower than that for criminal cases

0 = No 1 = Yes

1 1

Shareholders owning 10% or less of Buyer’s shares can inspect transaction documents before filing suit

0 = No 1 = Yes

1 C 1

Protecting Investors Index 4 6.33


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DEFINITION OF RELATED PARTIES UNDER INTERNATIONAL ACCOUNTING STANDARD 24

A party is related to an entity if: [IAS 24.9] (a) directly, or indirectly through one or more intermediaries, the party:

(i) controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries); (ii) has an interest in the entity that gives it significant influence over the entity; or (iii) has joint control over the entity;

(b) the party is an associate (as defined in IAS 28 Investments in Associates) of the entity; (c) the party is a joint venture in which the entity is a venturer (see IAS 31 Interests in Joint Ventures); (d) the party is a member of the key management personnel of the entity or its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity.

AGM: Annual General Shareholders Meeting

AUSCGIE: Acte Uniforme de OHADA relatif au droit des sociétés commerciales et du Groupement d’intérêtéconomique, or Uniform OHADA Act on the company law.

BCEAO: Banque Centrale des Etats de l'Afrique de l'Ouest, or the Central Bank

BRVM: La Bourse Régionale des Valeurs Mobilières, the regional stock exchange based in Abidjan.

CREPMF: Conseil Régional de l’Epargne Publique et des Marchés Financiers, the regional securities regulatorbased in Abidjan.

CPPC: Conseil Permanent de la Profession Comptable,

Cumulative voting: Cumulative voting allows minority shareholders to cast all their votes for one candidate.Suppose that a publicly traded company has two shareholders, one holding 80 percent of the votes and anoth-er with 20 percent. Five directors need to be elected. Usually, each shareholder must vote separately for eachdirector. The majority shareholder will get all five seats, as s/he will always outvote the minority shareholder by80:20. Cumulative voting would allow the minority shareholder to cast all his/her votes (five times 20 percent)for one board member, thereby allowing his/her chosen candidate to win that seat.

DC/BR: Dépositaire Central/Banque de Règlement, or the Central Depository

EGM: Extraordinary Shareholders Meeting

GIE: Economic Interest Groups (groupements d’intérêt économique)

ISA: International Standards on Auditing

IFRS / IAS: International Financial Reporting Standards (before: International Accounting Standards)

Pre-emptive rights: Pre-emptive rights give existing shareholders a chance to purchase shares of a new issuebefore it is offered to others. These rights protect shareholders from dilution of value and control when newshares are issued.

Proportional representation: Proportional representation gives shareholders with a certain fixed percentage ofshares the right to appoint a board member.

Pyramid structures: Pyramid structures are structures of holdings and sub holdings by which ownership and con-trol are built up in layers. They enable certain shareholders to maintain control through multiple layers of own-ership, while at the same time sharing the investment and the risk with other shareholders at each intermedi-ate ownership tier.

RPT: Related party transactions. The OECD Principles of Corporate Governance hold that it is important for the mar-ket to know whether a company is being operated with due regard to the interests of all its investors. It is there-fore vital for the company to fully disclose material related party transactions to the market, including whetherthey have occurred at arms-length and on normal market terms. Related parties can include entities that controlor are under common control with the company, and significant shareholders, such as relatives and key managers.

SA: Société Anonyme, or corporation

SARL: Société à Responsabilité Limitée, or limited liability company

SGI: Sociétés de Gestion d’Intermédiation, broker / custodian members of the BRVM and the DC/BR.

Shareholder agreement: An agreement between shareholders on the administration of the company, it typical-ly covers rights of first refusal and other restrictions on share transfers, approval of related-party transactions,and director nominations.

SOE: State-owned enterprise

Squeeze-out right: The squeeze-out right (sometimes called a “freeze-out”) is the right of a majority shareholder ina company to compel the minority shareholders to sell their shares to him. The sell-out right is the mirror image ofthe squeeze-out right: a minority shareholder may compel the majority shareholder to purchase his shares.

SYSCOA: Système Comptable Ouest Africain, or the West African Accounting Standards.

Tag-along rights: The right of investors to sell their shares in a change of control on the same terms as the con-trolling shareholder.

UEMOA: Etats Membres de l’Union Economique et Monétaire de l’Afrique de l’Ouest, or West African Monetaryand Economic Union.

Withdrawal rights: Withdrawal rights (also referred to as the “oppressed minority,” “appraisal” or “buy-out”remedy) give shareholders the right to have the company buy their shares upon the occurrence of certain fun-damental changes in the company.

Senegal Terms/Acronyms

To learn more about corporate governance, please visit the IFC/World Bank's corporate governance resourceWeb page at: http://rru.worldbank.org/Themes/CorporateGovernance/

Contact us at [email protected]

This report is one in a series of corporate governance country assessments carried out underthe Reports on the Observance of Standards and Codes (ROSC) program. The corporate gover-nance ROSC assessments examine the legal and regulatory framework, enforcement activities,and private sector business practices and compliance, and benchmark the practices and compli-ance of listed firms against the OECD Principles of Corporate Governance.

The assessments:

n use a consistent methodology for assessing national corporate governance practices

n provide a benchmark by which countries can evaluate themselves and gauge progress in corporate governance reforms

n strengthen the ownership of reform in the assessed countries by promoting productive interaction among issuers, investors, regulators and public decision makers

n provide the basis for a policy dialogue which will result in the implementation of policy recommendations

To see the complete list of published ROSCs, please visithttp://www.worldbank.org/ifa/rosc_cg.html

Date post:	26-Sep-2020
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