Company secretaries: Custodians of corporate governance

environments are changing. Coupled by the global enthusiasm in corporate governance, it has now become difficult to pin down the roles of corporate secretaries. The parameters of the profession are consistently changing.
Traditionally, this profession has not been exactly easy to describe. It is one of those professions only known to those who are familiar with boards and how they function. The majority of Zimbabweans knew more about this profession after independence.
This is collaborated by the fact that in pre-independent Zimbabwe, most companies were white owned, while black businesses were mostly family owned and a only few professionals such as lawyers were in partnerships.
The sensitivity and confidentiality of business of the day, could not allow blacks in those days to eavesdrop on board proceedings.
It is therefore not by accident, that the majority of professionals trained by the Institute of Chartered Secretaries and Administrators in pre-independent Zimbabwe, and during the 1980s were more within the more common accounting, banking, human resources, nursing and teaching etc fields.
Even those that knew about company secretaries, many preferred to focus on the responsibilities and duties in meetings and compliance activities.
Corporate governance evolution has changed all that. The Institute of Chartered Secretaries and Administrators International, says that the responsibility for developing and implementing processes to promote and sustain good corporate governance has fallen largely within the remit of the company secretary.
Secretaries are uniquely positioned in providing advice to boards, at the same time ensuring that companies are in compliance with legal and regulatory frameworks, corporate citizenship, and social responsibility.
This is over and above the traditional roles of managing shareholder and board meetings, minutes and records.
For instance, board effectiveness is an important factor in the development of sound corporate governance. Secretaries, in their “fly on the wall” positions during board meetings, can easily evaluate performances and effectiveness of board members, through the quality of deliberations. Thus decision making processes of companies are in full view of company secretaries.
Over and above the traditional role in meetings, legal and regulatory compliance, the most effective company secretary is described as one who is regarded by the Board as its trusted advisor.
One who keeps check of relevant governance developments and ensures that the board is appropriately briefed.
The professional is also effective when he/she wins the confidence of and acts as a confidential sounding board to the chairman and other directors on issues of concern, provides, where appropriate, a discreet but challenging voice in relation to board deliberations and decision making, drawing in particular on his or her professional experience and historical knowledge of the company.
Effectively and globally, company secretaries are the primary custodians of corporate governance in companies. Through advisory, secretaries are tasked with steering companies in the right direction.
This is the dilemma that is facing the profession.
Which way is the right direction? How do you advise a chairperson of a family business, that he should relinquish the chief executive’s post or vice-versa in ensuring sound governance, for instance? Secretaries work closely with chairpersons and they report to chief executives. How should the secretary help steer the company in the right direction when for instance, the chairperson and CEO fight, such as in the breaking news about the Japanese optical company, Olympus?
In yet another corporate scandal, reports say that Olympus has been finding it difficult for some time now, to justify a payment made to a previously unheard of financial advisory firm amounting to almost 700 million dollars.
This was in relation to an acquisition during the year 2008, as well as other similarly mysterious payments in Japan.
Up until the British former CEO of Olympus Michael Woodford was dismissed early in this month, these transactions had not been disclosed. Suddenly dust erupted, with Woodford alleging he was fired because he had challenged fellow executives about these transactions, which had been concluded during his predecessor’s tenure.
The predecessor (Mr Kikukawa), who is now the chairman, in turn accuses Woodford of trying to marshal a board coup.
These boardroom struggles, sometimes sound childish, but the cost is alarming. Very little is mentioned about the role of company secretaries in such corporate sagas, remembering that secretaries are in full view of such scandals.
Is it a question of secretaries not taking their positions as governance advisors, preferring instead to settle for the less controversial role of managing meetings and compliance or are they simply sidelined?
Earlier this month, the President of the Institute of Chartered Secretaries and Administrators in Zimbabwe, Mrs Avilla Goba, reminded Chartered Secretaries, during their annual conference in Victoria Falls, that they should step in and make a difference as solution providers in Zimbabwe.
“As Chartered Secretaries, we must not be part of the problem”.
Referring to the economy of Zimbabwe, Mrs Goba explained that the corporate or business landscape had changed. The largely dispersed types of corporations have been replaced by family business units.
How can secretaries help to come up with suitable corporate governance systems?
The current and ongoing indigenisation and empowerment processes are calling for more advisory services by company secretaries. However, not all of the solutions will be found in the Combined Code, the Companies Act, King 3 and other mainstream literature.
Secretaries will have to be more creative. This will require company secretaries developing more and regular platforms, including social networks, to discuss, as well as to acquire and share knowledge and wisdom as to how others are handling governance problems. This will help provide governance solutions to the new look business landscape in Zimbabwe.
On one such platform, a company secretary shared her experiences in minute taking, that she worked for “family” boards and has had some bad experiences in trying to give advice regarding statutory compliance issues. She stood her ground and found ways of convincing the family board.
Another secretary shares that where there is a group of industry professionals, most of whom are NEDs with huge demands on their time, intervention by the minute taker during the discussions is unwelcome.
On occasion input from the company secretary is requested but some directors and chairpersons are not keen on anyone outside the board trying to “run the show”. Therefore, it is difficult for the secretary to try and keep things on course. When professionals share challenges and experiences, company secretaries as custodians of corporate governance, will be able to provide solutions to boards.
Can this custodianship be a dual role with other organisational functions such as finance?
It has been a common practice in both private and public companies, including state owned enterprises, for the secretarial role to be assigned to the finance director.
Companies have different reasons for this. This may include cutting down on remuneration costs. This may also be that the role of a secretary is trivialised as an add-on administrative job, which the finance director can provide alongside with finance.
This set up is now being challenged. In light of the many corporate scandals and as well as discourse on good corporate governance, conflict of interests and risks of this dual responsibility are becoming more evident, such as;
l A finance director cannot fully support non-executive directors (NEDs) in company secretarial role, whilst also having his or her executive function monitored by NEDs as members of the audit committee, ensuring that the financial information presented to them by the finance director is accurate, and that the audit has been carried out properly.
l During meetings, sensitive and accurate minute taking is an integral function of company secretarial, as well the guidance of the chairman through the agenda and the meeting itself.
The finance director cannot effectively provide this service, whilst also participating in the discussions as director, presenting financial information to the rest of the board and responding to challenging questioning.
l Finance directors are best at number crunching; the minute taking role for many is a burden. This can be overwhelming, with the many committees meeting regularly.
l As a result, many financial directors ask personal assistants to take minutes. Risks to are that the personal assistants may not always have enough knowledge of the organisations to be able to accurately record discussions and decisions made.
l Secondly it is often not appropriate for a personal assistant to be present during confidential high level discussions at the board table. The myriad of new legal and corporate governance regulations as well as boardroom battles are now demanding that company secretarial role be a stand-alone. Some companies are even outsourcing this service to experienced secretarial professionals in order to ensure that boards remain compliant and operate as effectively as possible.
It is along this thinking that the Institute of Chartered Secretaries and Administrators (Southern Africa), is now mooting for a listing requirement that precludes financial directors from being company secretaries, for companies listed on the Johannesburg Stock Exchange.
This is in line with corporate governance developments in the for instance the UK as per recommendations of the Walker Review into the banking sector.
The gifts, talents, abilities, power and unique positions bestowed on corporate secretaries are for a time such as this, to be stewards of sound corporate governance.
It may be required for company secretaries, to be held accountable for corporate scandals, just as directors. How well secretaries manage this position is a determinant of good governance.