Forgotten and overlooked: The company secretary to corporate governance
The company secretary not only wrongly advised that a Board resolution is required, but also failed to make the consequential regulatory filings.
In evaluating the adherence of companies to sound corporate governance, attention is often centred on the roles, conducts and attitudes of the directors. The roles of a company secretary in corporate governance are often overlooked. Whilst it is undeniable that directors are the most important subject of corporate governance, the company secretary also occupies an indispensable position in the management of a company.
Indeed, there has been a shift from an era where the company secretary is only seen as a notetaker at company’s meetings and an administrative servant of the Board. In this age and time, the company secretary is a strategic advisor on important matters that affect the governance of a company. In recent times, the compliance requirements of running a company have dramatically increased. Companies are now required to comply with different statutory and regulatory standards and these have made the utility of the company secretary pivotal to successful corporate governance.
Undoubtedly – as recent experience shows, the company secretary is indeed strategic to the day-to-day running and management of a Company not only in terms of ensuring compliance with relevant statutory filing and disclosure requirements but also in relation to entrenching sound corporate practices and effective board processes.
As a matter of sound corporate governance practices, the company secretary plays an important role in supporting the effectiveness of the Board by assisting the Board and management to develop good corporate practices and culture within the company. In addition, the company secretary is responsible for amongst other functions: providing the board of directors with detailed guidance on the proper discharge of their duties; assisting the Chairman in the co-ordination of the activities of the Board and plan other strategic issues; notifying Board members of upcoming meetings of the Board and other committee’s meetings; being a steady source of guidance and advice to the Board on matters of ethics, conflict of interest and ensuring free information flow within the Board and its committees and between senior management and the Non-executive Directors. In its nominal capacity, the company secretary is expected to advise and effectively liaise with the Board members and key company’s officials on compliance with statutory requirements.
Let us consider a case study to drive home the fundamental role of a company secretary to the company. As required by law, Company A is only permitted to increase its share capital by way of a shareholder resolution passed at the annual general meeting. Company A intending to do this instructed its company secretary to implement the process. The company secretary not only wrongly advised that a Board resolution is required, but also failed to make the consequential regulatory filings. As a result of this failure, no certificate of increase evidencing the new share capital was ever issued. Whilst Company A’s corporate records still reflected its initial share capital, Company A proceeded to allot shares to new shareholders and even updated its financial statements with the new share capital on the erroneous assumption that the new share capital is now effective in law. Many years after, the Company A discovered the error through the diligence and proactivity of another company secretary.
As things stand now, the company is required to undertake the process afresh, even though it had speciously purportedly created proprietary interests by allotment and paid dividends on the allotted shares. Company A is effectively compelled to undertake this gruelling process as a result of company secretary’s incompetence and negligence. Company A’s current situation could have been entirely avoided only if the company secretary had been competent and diligent.
As the case study above shows, companies often struggle with their corporate compliance system compounded by an indolent, lacklustre and unprofessional company secretary- the consequence of which is the exposure of the company to payment of huge fines and penalties. Undoubtedly, this situation necessitates the need to engage a versatile company secretary – either as an employee of the company or an external professional services firm – possessing the requisite qualifications and professional experience.
In selecting a company secretary, much importance must be attached to the professional qualifications, proactivity and experience of the individual. In the case of professional services firm, a key consideration should be the professional track record and years of experience in providing similar company secretarial services to other companies in Nigeria. Rather sadly, the general trend for most private companies is appointment by reference to long-term friendship and affiliation. Whilst this may be so in the case of emerging private companies still in its early years of operation, the stark commercial realities of the 21st century market calls for a fundamentally global shift in this regard with respect to well established private companies.
Treating the role of the company secretary as unimportant and un-integral may spell doom for the company in terms of operational and administrative costs. Any company desirous of long term and sustainable corporate success must treat the appointment of company secretary as a matter of top priority and as integral to the overall success of the company. Although companies are often than not aware of the negative effect of having an unprofessional company secretary, they often sometimes fail to see the self-created enemy – absence of a professional company secretary.