Company Secretary-A Step Up To Managing Director?

Introduction

According to Section 2(1) (c) of the Company Secretaries Act, 1980, company secretaries are the people who are member of the Institute of Company Secretaries of India[1].

A Company Secretary is appointed by a company which is either a private or public organisation. Based on a recent notification[2]it is mandatory for all private companies having share capital of 10 Crore or more and all the listed entities to appoint a company secretary.  The importance of the company secretary’s role has increased over the years and now generally includes administering the affairs of the company and managing the business of the board. The corporate collapses of the late 1990s and early 2000s resulted in an increased shareholder focus on corporate governance and transparency[3]. As a result, the company secretary’s role in governing and monitoring the organisation has been emphasised.

As the responsibilities of the board have increased, the volume of work and necessary skills to support the board have enhanced the role of the company secretary. The company secretary is now often considered to be the chief governance specialist within an organisation, increasingly relied upon to provide advice and implement good governance practices. It is a more proactive role than in previous times.

Company secretaries have legal responsibilities in addition to their work in support of the board, which will vary according to the specific needs of the organisation.The company secretary cannot be the same person as company director although in the absence of company secretary the director assumes his responsibilities. To keep intact the management of the organisation along with meeting the statutory and regulatory framework, he has to act like a backbone of the company.

In this research paper we will study about the roles and responsibilities of a Company Secretary and his importance while decision making along with a question of his position same as that of the managing director.

Research question

1. Whether a Company Secretary can be appointed as a managing director in the same company?

Qualifications of a Company Secretary

According to Section 2 (24) of Companies Act, 2013, a Company Secretary must hold specific requirements laid down by the Indian Government from time to time. Furthermore, the qualifications specified by the Companies (Secretary’s Qualifications) Rules 1975 for the appointment of a CS[4].

1. The company having paid-up capital of Rs. 50 lakhs requires the Company Secretary to be the member of Institute of Company Secretary of India (ICSI).
2. The other types of company requires the Secretary to hold one or more of the given qualifications:
3. Has a membership of the Institute of Company Secretaries of India,
4. Has a law degree from any reputed university,
5. Has a membership of the Institute of Cost and Works Accountants of India,
6. Has a postgraduate degree in Commerce granted by any reputed university,

Has a diploma in Company Law from any Indian Law Institute.

Accountability of Company Secretary

Historically, the company secretary has reported to the Chief Financial Officer or Chief Executive Officer. Given that the board technically appoints the company secretary and that the role is heavily focused on board performance, it is also appropriate that they report to the chair of the board. Therefore the company secretary should be accountable to the board through the chair on all governance matters.

Tasks of a Company Secretary

According to Section 205 of the Companies Act, 2013 the company secretary has the following functions to discharge:

1. To report to the board about the compliance status of the corporate law and governance rules.
2. To provide the directors and executives with assistance and advice that they need to discharge their duties, responsibilities and powers.
3. To take approvals from the Board, the government authorities and such related personnel as mentioned in the provisions of the Act.
4. To arrange and facilitate the Board, general and committee conferences and take notes of the minutes of these meetings[5].
5. To advise and assist the board with such corporate governance laws and secretarial standards in yielding the best results and practises.

Board of Directors

Obligation to constitute a Board of Directors:-

The Board of Directors of a company is central to its decision making and governance process. Its liability to ensure compliance with the law underpins the corporate governance structure in a company, the aspirations of the promoters and the rights of stakeholders, all of which get articulated through the actions of the Board. There should be an obligation on the part of a Company to constitute and maintain a Board of Directors as per the provisions of the law andto disclose particulars of the Directors so appointed in the public domain through statutory filing of information.

Such obligation should extend to the accuracy of the information and it’s being updated regularly as well as on occurrence of specific events such as appointment, resignation, removal or any change in prescribed particulars of Directors.

Presently, as per the provisions of Schedule XIII to the Companies Act, it is necessary to obtain the approval of the Central Government for appointing a person who is not resident in India, i.e. a person who has not been staying in India for a continuous period of not less than 12 months immediately preceding the date of his appointment as a managerial person.
In today’s competitive environment, it may be necessary for a company to appoint a person as Managing Director or Whole-time Director or Manager who is “best suited for the job”[6]. The Company should, therefore, have an option to choose such a person not only from within India, but from other countries as well. In the light of the above, it is recommended that requirement of obtaining the Central Government’s approval under the Companies Act for such non-resident managerial persons should be done away with. Such a person would continue to be subject to passport/visa, RBI and other Government requirements.

Board Meetings

According to Section 173 of the Companies Act, 2013 it is mandatory to hold a meeting at frequent intervals for the smooth and effective working for both public and private companies and whether it is a case of small company or one person company.

The highest authority in an organisation is that of the board of directors which are responsible for taking the important decisions of the company along with managing its affairs and therefore to discuss some valid points for the day to day functioning and major decisions it is important to organise such meetings.

Duties of a Company Secretary for facilitating a Board Meeting

The burden of organising a meeting whether a general or an annual board meeting lies on the Company Secretary. He has to prepare certain things for the process and keep records of the formal address in minutes and remember the important follow ups for later discussions.

Implications for Company Secretary and its Team

The expectations that are placed on boards by the public, politicians and regulators are perhaps greater than ever before, as are the different considerations that they need to factor into their decision-making. The governance arrangements they have relied on may no longer be entirely fit for purpose, as lines of accountability both within and outside the organisation become tangled or blurred[7].

It is the job of the secretariat to provide the board with the advice and support it needs to cope with all of this. It will be challenging for them, just as it will be challenging for the board itself. Boards may become even more reliant on the secretariat as they struggle to cope with the volume and complexity of the issues they have to deal with.

Company secretaries will still be called on by boards to provide expert advice on regulation, strategy, practice and procedure, and to ensure the effectiveness of the organisation’s governance and compliance processes. As regulation and compliance in particular becomes more complex and intrusive this advice will be needed more than ever, as will the technology and other tools the secretariat rely on to stay on top of the job.

While the balance of how the secretariat spends its time may shift, and the specific topics it has to get to grips with will evolve, it is not expected that the essential functions and responsibilities of the company secretariat will change in the future. It is a case of more of the same, and to an even higher standard than before.

Analysis

After an in-depth study about the roles and responsibilities of Company Secretary and what position it holds in the Companies Act, 2013 currently, one thing is clear that the part played by him is of utmost importance for the governance of the company and its organisational success. The performance of his duties have been regarded equal to that of the Board of Directors and executives since he has the advisory powers concerning them. The Company Secretary was usually considered an insignificant personality until the emergence of corporate governance. Although now he is the Key Managerial Personnel, one amongst the highest authority in the company. He has the tasks of managing the company by complying with the corporate laws and rules, the failure of which can result in legal consequences dealt by him individually along with a fine on the company. He is a person responsible for maintaining the image of the company to the external environment and the interpersonal relations with other companies. Combining all of this his parameters should be expanded to ensure efficient and proper governance.

The research question could now be answered properly after knowing all the aspects of the Company Secretary’s job and value. The answer will be that a company secretary can be a managing director although in companies which need to appoint a whole time secretary also has the mandate to appoint two directors, a managing and an independent director. In such a case the roles of both the company secretary and managing director are of governance but the ambit of their duties are varied and have a large scope therefore it is impossible for the other to manage two separate positions in the capacity of the same person. But in the absence of the director the company secretary can step in as the interim director. The secretary is a pivotal point in the company and the members work with efficiency and effectively through his directions.

Therefore though the functions of both the offices are similar yet two individuals are required to enforce them due to large scale of operations and clearing the ambiguity between the hierarchies of the two. A managing director can be a company secretary but a company secretary cannot be a managing director.

Conclusion

A Company Secretary is imperative for the growth and development of a company and is the link between inside and outside of the organisation. Therefore there must be some changes or alterations in the scope and role of his duties in order to enhance the governance of the company and for better outcomes in future. To carry out a wide variety of tasks on which the success of a company is dependent it is important that a Company Secretary is an organised, disciplined, highly qualified, knowledgeable and an expert in the concerned business for the upliftment of the company, to increase the profits of its investors, benefit the shareholders and a leader in the industry.

Also the Board’s responsibilities inherently demand the exercise of judgment. Therefore the Board necessarily has to be vested with a reasonable level of discretion. While corporate governance may comprise of both legal and behavioural norms, no written set of rules or laws can contemplate every situation that a director or the board collectively may find itself in. Besides, existence of written norms in itself cannot prevent a director from abusing his position while going through the motions of proper deliberation prescribed by written norms. Therefore behavioural norms that include informed and deliberative decision making, division of authority, monitoring of management and even handed performance of duties owed to the company as well as the shareholders are equally important.

Lastly both the roles are important at their respective places and are equally vital for the smooth functioning of the organisation. No one can take the job of the other and provide better outcomes thus, the territories should remain untouched yet survive together in harmony.

References:

[1]The Company Secretaries Act, 1980.

[2]Rule 8 A, Companies Appointment & Remuneration of Managerial Personnel Rules, 2014.

[3] R.P. Austin, “Role of the Company Secretary”, LexisNexis INDIA (July. 29, 2020 at 10:40 P.M.) http://aicd.companydirectors.com.au/resources/all-sectors/roles-duties-and-responsibilities/role-of-the-company-secretary?no_redirect=true.

[4] ICSI, The Journal for Governance of Professionals, 49 CS 1, 1-132 (2019).

[5] S. Venkatasubramanian, & R. Arya, A Study of Company Secretary under Companies Act, 2013, 119 IJPAM 1861, 1861-1870 (2018).

[6]Ministry of Corporate Affairs, Management and Board Governance, MCA GOVERNMNET OF INDIA,(July. 10, 2020. At 10:30 P.M.) http://www.mca.gov.in/MinistryV2/management+and+board+governance.html.

[7] Chris Hodge, “The Company Secretary of the Future”, EQUS GROUP (July. 29, 2020 at 10:30 P.M.) https://www.eqs.com/en-gb/compliance-knowledge/blog/the-company-secretariat-of-the-future/.