Predicament of the company secretary – Fight or Flight

While several boards still see the company secretary as a “glorified minute taker”, there can be no argument that the duties and responsibilities of company secretaries have grown exponentially during the past decade or two.  In South Africa this is, amongst other factors, as a result of the impetus given to the position by the various King reports on corporate governance issued since 1994, leading to a statutory provision included in the South African Companies Act making the appointment of a company secretary mandatory for certain companies.  In addition, the latest report issued by the King Committee, referred to as the King IV Report on Corporate Governance for South Africa, 2016 (King IV), in line with its predecessors, recommend that the governing bodies of all entities should appoint a company secretary (also referred to as a ‘governance professional’ in the event of the entity not being a company or required by law to appoint a company secretary). 

King IV recommends as follows:

“The governing body should ensure that it has access to professional and independent guidance on corporate governance and its legal duties, and also that it has support to coordinate the functioning of the governing body and its committees.”

Other recommendations in King IV relating to the company secretary or governance professional highlight the need for the position to be appropriately and adequately resourced and positioned so as to facilitate a professional, experienced and independent service being provided to the governing body and the organisation as a whole.  

Few people are aware that, in terms of the Companies Act of 2008, the company secretary has specific statutory duties and that failure in these duties could result in both criminal and civil action against the company secretary.  Some of these duties highlight the “guidance and advisory” role to be played by the company secretary as also noted in King IV.  For one, the company secretary is required by law to provide the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers. 

Today’s experienced and professional company secretary (or governance professional) is not only aware of the extensive duties and responsibilities that accompany the position, but also appreciates the reliance that members of a governing body, who wish to exercise effective and ethical leadership, place on the guidance to be provided by the company secretary in an ever-growing and complex regulatory and business environment.  In addition, such a company secretary often takes great care to act in absolute good faith and to ensure that the best interests of the organisation are always served.  A governing body that collectively supports and empowers the company secretary to achieve this goal is the dream of every professional company secretary.  In such an environment of trust and respect, the company secretary can be a value adding contributor to the leadership structure. 

However, what if that dream turns into a nightmare with members of a governing body and/or executive management being driven by anything but the best interests of the organisation, often well disguised in lip service, window dressing and tick-box mentalities and demeanours.  It has always been understood and appreciated that the company secretary is not part of the final decision-making in any organisation and thus must rely on the leadership of the organisation, and in particular the members of the governing body and executive management, to embrace and accept the guidance and advice provided by the company secretary in a constructive and ethical manner and in the best interest of the organisation. 

In most instances this destructive behaviour is not true of all members of the governing body, but the reality is that the governing body is only as strong as its weakest link.  While, on the one hand, the company secretary is providing guidance and advice from a governance and compliance perspective and the governing body is seemingly behaving appropriately and in line with the said guidance and advice in meetings, dynamics and activities outside of meetings, on the other hand, reveal the true agenda and objective of some of the members.  Deliberations and decisions are often carefully and skilfully orchestrated in a manner that gives effect to the clandestine agenda.  This is a recipe for a disaster of enormous proportions, as has been recently experienced in both the public and private sectors in South Africa. 

What does the company secretary do when it becomes evident, or there is a strong suspicion, that one or more of the members of the governing body are driving an agenda contrary to what is in the best interest of the organisation?  The expectation of the company secretary is to act in the best interest of the organisation.  At the same time, the company secretary must assist and support the governing body and each individual member to the best of his/her abilities.  When tension in the board room starts to increase, either as the result of internal conflict or external noise surrounding the organisation, members who are serious about their fiduciary and/or statutory duties to the organisation often turn to the company secretary for guidance. 

Unlike other professional service providers, such as auditors, the company secretary does not have a regulatory body and a statutory duty to report incidences of possible irregularities (or even suspicions of irregularities and unethical behaviour) to such regulatory body.  Also, having to consider the interests of the organisation and well-meaning members of the governing body, the company secretary does not have the luxury of “jumping ship” when the situation and environment becomes challenging for these reasons.  At the same time, however, the company secretary must consider his/her own reputation, which is the most valuable asset of any ethical and professional individual.  A complex situation, to say the least.  One in which the company secretary must continuously assess which of “fight or flight” is the most appropriate approach under the circumstances, having weighed up all relevant factors and dynamics.  One thing is for sure, there is little, if any, “black and white” in these situations, calling for a serious measure of emotional intelligence, tenacity and strong inter-personal and communication skills on the side of the company secretary.   To the extent possible, fighting for what is right and just and ethical is what a professional company secretary must do. 

Unfortunately, the day may come where flight becomes the only option…

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