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Role of Company Secretary in Corporate Governance

Ashish M. Shaji

| Updated: May 04, 2021 | Category: Compliances

Role of Company Secretary in Corporate Governance

Corporate governance means system of rules, practices, and processes through which a company is controlled. It mainly involves balancing interests of a company’s stakeholders like shareholders, management, customers, financiers, government, and the community as well. Company secretaries around the world have been given the responsibility for good corporate governance practices to be followed by companies. In this article, we shall discuss the role of company secretary in corporate governance.

The concept of Corporate Governance

Different institutions define corporate governance differently. The organization for the economic co-operation and development define corporate governance as a set of relationship between company’s management, its shareholders and other stakeholders. It also provides the framework through which objectives of companies are set, and the means of achieving those objectives are determined.

In order to stay competitive, corporations should innovate and adapt their corporate governance practices so that they may meet new demands and attain new opportunities. Likewise, government also need to shape an effective regulatory framework that gives enough flexibility to permit markets to function effectively and respond to shareholders’ expectations and other stakeholders.

It’s up to governments as well as market participants to decide how these principles should be applied to develop their frameworks for corporate governance. The concept of corporate governance has come of age and is here to stay.

What is the role of company secretary in good corporate governance?

A Company Secretary (CS) has a critical role to play in company’s administration. He is not just liable to the company but also to its creditors, employees, shareholders, society, and government. He is one of those principal officers of the company who ensures strict compliance with the provisions of the Companies Act. 

He has a high administrative position in the company and should ensure that decisions of the board are implemented effectively. CS is responsible for efficient administration of the company and should supervise, control and coordinate the functioning of the departments of the organization.

Role of Company Secretary and mandatory legal provisions

The role of CS includes advising the Company’s Board of Directors of the Company on good corporate governance practices and compliances with the rules and regulations. The CS is a unique interface between the board as well as Company’s management and acts as a vital link between the board and the business.

Under law, CS has a critical role to play in organizing and implementing board’s decisions, its committees, general body meetings. Now with increased focus on corporate governance, the expectations of the stakeholders[1] from the CS is increasing, and this is what has led to the rise of the importance of the role of CS.

CS as KMP- Duties related to legal compliance

It is worth mentioning here that the position of CS as the KMP (Key Managerial Personnel) comes next to that of the CEO or the MD and underlines the importance of the position of CS in the company. The Companies Act recognizes the position of CS as an officer of the company in its administration as well as legal compliance.

To ensure legal provisions of the Act, the legislature has given CS an important role in the company. Apart from this, with a view to ensure strict compliance with the provisions of the Act, Section 203 provides that every company belonging to such classes of companies should have the following whole time KMP-

  • Managing director of CEO or manager and in their absence a whole time director;
  •  CS;
  • Chief Financial officer.

 It further stipulates that every whole time KMP should be appointed by a resolution of the board of directors of the company having the term and conditions of their appointment. Therefore from the above it can be gauged how important a role CS plays.

Section 205 stipulates the functions of CS in a company. These functions are vital to ensure good corporate governance. The function provides that the CS shall:

CS as KMP- Duties related to legal compliance
  • Report to the Board regarding the compliance with the provisions of the Act and the rules made thereunder and laws applicable to the company;
  • Ensure that the company complies with the secretarial standards applicable as issued by the ICSI and approved by the Central Government;
  • Discharge other duties as prescribed.

Need for a committee to investigate corporate mismanagement and frauds

It is reported that about 2.50 lakh companies have been identified for de-registration under the Companies Act as part of the measures against curbing menace of companies engaged in illegal activities, and out of it, about 2.2 lakh companies were struck off as they were not carrying on any business activity.  

There have been cases where the companies’ management, despite having respectable independent and representative directors from the banks, have indulged in financial frauds for the benefit of promoters/management in control, and there has been no clear policy by the central government as to how these loopholes in the system can be plugged and how the money that has been looted can be brought back to the economy.

Conclusion

Unless some serious steps are taken, the matter can go from bad to worse, and the public credibility in the company management may be lost, therefore, as an in-house whole time conscience keeper, Role of Company Secretary is a major one, and if needed, his service conditions should be strengthened to give him independence.

Read our article: Appointment of Key Managerial Personnel under Companies Act, 2013

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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