Independence of the Company Secretary

Corporate Governance refers to the manner in which the power of a corporation is exercised in the stewardship of the corporation’s total portfolio of assets and resources with the objective of maintaining and increasing shareholder value and satisfaction of other stakeholders in the context of its corporate mission. It is concerned with creating a balance between economic and social goals and between individual and communal goals while encouraging efficient use of resources, accountability in the use of power and stewardship and as far as possible to align the interests of individuals, corporations and society

The Company Secretary is expected to be conversant with these new and increasing regulations to be able to advise the Board of directors. In the recent rise of the dramatic series of corporate meltdowns, major global economies have not been spared. Corruption is clearly happening worldwide, and it involves not only the government institutions but also the private institutions and civil society. The need therefore to have an elaborate corporate governance structure especially in public organizations is now more of essence than ever. Many board of directors look up to the Company Secretary for guidance in the adoption of these governance structures in their organizations and more so on how the adoption of good governance can mitigate fraud and other malpractices.

Good Corporate Governance seeks to promote:

a)    Efficient, effective and sustainable corporations that contribute to the welfare of society by creating wealth, employment and solutions to emerging challenges.

b)     Responsive and accountable corporations

c)    Legitimate corporations that are managed with integrity, probity and transparency

d)    Recognition and protection of stakeholder rights

e)    An inclusive approach based on democratic ideals, legitimate representation and participation

Duties of the company secretary

1.    Facilitating the smooth operation of the company’s formal decision making and reporting machinery; organizing board and board committee meetings

2.    Ensuring that the company complies with its Memorandum and Articles of Association; drafting and incorporating amendments in accordance with correct procedures

3.    Ensuring that an Annual General Meeting is held in accordance with the requirements, preparing and issuing notices of meetings, and distributing proxy forms; preparing directors for any shareholder questions and helping them create briefing materials;

4.    Monitoring and ensuring compliance with the Stock Exchange requirements as well as supervising the implementation of the model code and/or the company code for dealing in the company’s securities

5.    Maintaining the following statutory registers, members, directors, shareholders, interests in voting shares, debenture holders

6.    Filing information with the Registrar of Companies to report certain changes regarding the company or to comply with requirements for periodic filing; annual returns

7.    Co-ordinating the publication and distribution of the company’s annual report and accounts and interim statements.

8.    Maintaining the Company’s register of members; dealing with transfers and other matters affecting shareholding; dealing with queries and requests from shareholders.

9.    Monitoring movements on the register of members to identify any apparent ‘stake-building’ in the company’s shares; making appropriate enquiries of members as to the beneficial ownership of holdings.

10. Implementing properly authorized changes in the structure of the company’s share and loan capital; devising, implementing and administering directors’ and employees’ share participation schemes

11. Participating as a key member of the company team established to implement corporate acquisitions, disposals and mergers; protecting the company’s interests by ensuring the effectiveness of all documentation

12. Continually reviewing developments in corporate governance; facilitating the proper induction of directors into their role; advising and assisting the directors with respect to their duties and responsibilities

13. Acting as a channel of communication and information for non-executive directors.

14. Ensuring the safe custody and proper use of any company seals

15. Communicating with the shareholders

16. Establishing and administering the registered office; attending to the receipt, co-ordination and distribution of official correspondence received by the company, sent to its registered office

17. Monitoring and laying in place procedures which allow for compliance with relevant regulatory and legal requirements, in particular under the Companies Acts, including legal requirements on retention of documents; retaining the minimum set of records required for commercial reasons

Legal Framework

Certified Secretaries Act

Guidelines on Professional Ethics and Conduct for Certified Public Secretaries of Kenya

Among the important principles of good corporate governance is the independence of the company secretary of an organisation.

THE COMPANY SECRETARY

The company secretary should assist and guide the directors in their pursuit of the company's aims but should also act with integrity and independence to protect the interests of the company, and through its shareholders, its employees and other stakeholders. Company secretaries are both employees and officers of companies as well as being gatekeepers tasked with giving independent advice on regulatory and corporate governance matters.

One of the theories of good corporate governance is that a company secretary is a fearless adviser to the board. He or she owes the board an unqualified allegiance and is required to serve it faithfully. In reality, this theory loses substance because company secretaries are usually hired and fired, not by the board, but by the CEO. This is especially so where they are given additional functions such as that of general counsel or legal manager. In a skills sense, this type of "add-on" responsibility is a logical addition, but it requires the company secretary to report to line management on a variety of day-to-day matters and be involved in operational activities. In many cases, this dual reporting role can hinder a company secretary's efforts to provide the board with fearless advice.

Making the case for the independence of a company secretary for good corporate governance

Company secretaries ideally should provide an interface between the board and management. They can be the ‘voice of the board’ within the business as well as being the key liaison between nonexecutive directors and management. When the theory of good corporate governance is discussed, much is said about the roles of who does what, the need for a demarcation between the chairman and the CEO, and achieving the right mix of independent directors. However, in practice, good corporate governance relies heavily on the advice the board is given.

For very large corporations with ample staff and resources, there is a strong argument that good corporate governance can best be achieved by making company secretaries independent of line management. This idea would be impracticable for small and medium sized companies but it has considerable merit for large listed companies. In these enterprises, it is arguably wrong for the company secretary to have secondary functions which require him or her to report to line management.

People with such additional responsibilities are involved in making decisions about nuts and bolts matters and may then find themselves - with their company secretary's hat on - advising the board about whether those decisions were appropriate.

Even if the company secretary is a lawyer, a dual role should be avoided. A company secretary who is a lawyer needs to be "Chinese walled" so that he or she is functionally separate from the company's transactional operating lawyers. If this separation is not made, his or her ability to provide the board with truly independent and fearless advice is potentially compromised.

Quarantining company secretaries in this way will not guarantee the fearlessness and independence of their advice but it will increase the chances of such advice being given. A company secretary will still require considerable courage to tell the board that a management decision was wrong or inappropriate but if he or she is isolated from line management everyone will at least understand that fearless advice is what is required.

This suggestion may be viewed unfavourably by many dual-role company secretaries, especially those who measure success by the size of their department or the number of functions they acquire. But there is a strong argument that making company secretaries part of line management undermines their ability to serve their boards faithfully. It is difficult to see how a major corporation can achieve exemplary levels of corporate governance while its company secretary wears two hats.

INDEPENDENCE OF THE COMPANY SECRETARY

1.    The degree of trust the board invests in the company secretary.

The directors and CEOs are relying more on company secretaries to advise them of the regulatory requirements, compliance issues and corporate governance matters. Company secretaries should communicate with their colleagues about good corporate governance standards and practices as well as the importance of ensuring compliance within the company. A company secretary is more than an administrator

2.    Professional dilemma between ethics and administrative role.

Practitioners working as in-house company secretaries will tend to be closer to company management. They may find themselves in the unenviable position of having to choose between their professional integrity and their loyalty to their employer. This dilemma is less acute where a company secretary is acting as an outsourced company secretary. As an external, one cannot be unduly influenced by any one client. The professional services could be terminated, but one cannot be forced to compromise. So objective judgements and professionalism will not be altered. This ensures independence ethos of professionalism. There should be no conflict in exercising honesty and integrity vis-à-vis the company or the shareholders or the stakeholders. The intangible values and a company’s reputation are worth a lot of money and if you truthfully embrace corporate governance, it contains all the norms: integrity, honesty, good management, and fairness.

3.    Significant legal liabilities of a company secretary

Apart from the moral argument for maintaining good ethical practices, there is of course the delicate question of the liabilities practitioners face for breaches of their professional standards. Existing framework for the disclosure of price-sensitive information and imposes personal liability on officers of listed companies, including company secretaries as liable as other board members.

4.    The company secretary role as an inhouse gatekeeper.

Independence simply means that they are carrying out their duties as they are supposed to be discharged. The director has fiduciary duties; company secretaries have their own duties. I believe the company secretary should report to the chairman and to the board. A gatekeeper could be persons who are specifically tasked to ensure that companies abide by all relevant legal and ethical expectations. These gatekeepers are usually outsiders such as lawyers or auditors but company secretaries combine a position as an officer of the company with an independent gatekeeper role – they are both insiders and outsiders – and this is why their reporting line is so important

5.    A company secretary as an employee.

A company secretary may be required to have day to-day knowledge of his/ her company’s business. The special value added by company secretaries comes from their intimate knowledge of the company’s operations and circumstances is how they differentiate from being just an external adviser. The company secretary should however be unbiased and seen as a neutral body between directors and management. This is critical to earn the credibility and trust from the board and management. There should be no conflict between company secretaries’ loyalties since the companies that employ them and the profession requires them to embrace good corporate governance.

6.    Reaching a balance on independence.

A balance needs to be struck in terms of how independent the company secretary should be. If company secretaries are too independent they risk losing their ability to bridge the gap between the executive and non-executive elements of the organisation. Conversely, if they are entirely integrated into the management of the company they risk losing their ability to provide the board with independent advice. While balancing their roles as in-house gatekeepers will not always be easy, company secretaries are increasingly aware that their unique position in the corporate structure is the foundation of the real value they can bring