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Company Secretary in Good Corporate Governance

Info: 5368 words (21 pages) Essay
Published: 6th Aug 2019

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Jurisdiction / Tag(s): US LawUK LawInternational LawIndian law

Corporations, whether by family firms or state enterprises, work within boundaries set by law, by regulations, by those who own and fund them and by the expectations of those they serve. The nature of these boundaries varies from country to country and undergoes crucial changes through time. That is why there can be no single generally applicable corporate governance model. The concept of corporate governance is complex but the principles on which it is based are straight-forward. These principles- such as transparency, accountability, integrity, fairness and responsibility- are universal in their application. The way they are put into practice has to be determined by those on whom lies the responsibility for implementing them.

Corporate governance is concerned with holding the balance between economic and social goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interest of individuals, corporations and society. The incentive to corporations and to those who own and manage them to adopt internationally accepted standards is that these standards will help them to achieve their corporate aims and to attract investment. Their incentive for their adoption by states is that these standards will strengthen the economy and discourage fraud and mismanagement.

The real genesis of corporate governance lies in the business scams and failures in India and abroad. The junk bond fiasco in U.S.A and the failure of Maxwell, BCCI and Polypeck in U.K resulted in various committees being set up on corporate governance. After 20 years of such incidences there were similar corporate collapses such as Worldcom, Xerox, Enron etc, which led to the setting up of various committees and implementing the suggestions made in their reports. The guiding principle behind all of these was that “transparency and ethics should govern the corporate world.” [1]

It is felt that the objective of corporate governance i.e. the overall objective of wealth generation and competitiveness for the benefit of all can best be achieved through the twin components of:

An “inclusive” approach to directors’ duties which requires directors to have regard to all the relationships on which the company depends and to the long, as well as the short-term implications of their actions, with a view to achieving company success for the benefit of shareholders as a whole; and

Wider public accountability: this is to be achieved principally through improved company reporting, which for public and very large private companies will require the publication of a board operating and financial review which explains the company’s performance, strategy and relationships. [2]

In order to achieve best corporate governance standards, all individuals associated with the functioning of a corporation has his/her own role to play in it, through the effective disbursement of their duties. Since this concept of corporate governance assumes such relevance in today’s corporate set-up, I have chosen it as my area of research for this paper. But however, since it covers a vast ocean of database for analysis, I have elected to restrict my study to the role of a Company Secretary, who assumes the post of a statutory officer in a company, in good corporate governance. Therefore, in this project I will deal in detail with the concept of corporate governance, thereby highlighting its relevance in the present day scenario. I will then be dealing in detail with the concept of Company Secretary- broadly outlining his role and responsibilities in a company, and his role in ensuring that good corporate governance standards are adopted and followed by the company. I will then be reaching a conclusion on the basis of this study.



To understand the concept of corporate governance

To understand the role of the Company Secretary in the functioning of an organisation

To analyse the role of a Company Secretary in good corporate governance


What is meant by corporate governance?

What is the relevance of a company secretary in an organisation?

What is the role of a Company Secretary in good corporate governance?






In this project, I have employed a deductive methodology approach, since I have formed a particular conclusion from the study of the topic- the role of a Company Secretary in good corporate governance.



The Organization for Economic Co-operation and Development (OECD) defines corporate governance as involving a “set of relationship between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined. Good corporate governance should provide proper incentives for the board and management to pursue objectives that are in the interests of the company and shareholders and should facilitate effective monitoring, thereby encouraging firms to use resources more efficiently”

According to the World Bank, Corporate governance is:

Blend of law, regulation and appropriate voluntary private sector practices

Which enable the corporation to attract financial and human capital, perform efficiently, and

Perpetuate itself by generating long term economic value for its share holders,

While respecting the interests of stakeholders and society as a whole.

A complex definition has also been provided by the Advisory Board of the National Association of Corporate Directors (NACD), New York: “Corporate governance ensures that long term strategic objectives and plans are established and that the proper management structure (organization, systems and people) is in place to achieve those objectives, while at the same time making sure that the structure functions to maintain the corporation’s integrity, reputation and responsibility to its various constituencies.” Best practices of corporate governance will broadly include- a definition of practices that define good governance; a code of best practices covering the constitution of the Board, its various committees, defining their goals and responsibilities, exploring preferred internal systems and disclosure requirements. [3]

When Corporate Governance first started becoming a buzzword in the early 1990’s, it was popularly understood as “the system by which companies were to be directed and controlled”. Many countries, through their corporate networks and regulatory regimes began to respond to the need to develop good governance processes by developing Codes of Best Practices on Corporate Governance for the guidance of their corporate sectors. Very soon, the impact of globalization forced the various issues pertaining to corporate governance to take an international flavor, and as of today there are many worldwide and regional bodies which are actively promoting corporate governance globally, regionally and in individual countries.

To remain competitive in a changing world, corporations must innovate and adapt their corporate governance practices so that they can meet new demands and grasp new opportunities. Similarly, governments have an important responsibility for shaping an effective regulatory framework that provides for sufficient flexibility to allow markets to function effectively and to respond to expectations of shareholders and other stakeholders. It is up to governments and market participants to decide how to apply these principles in developing their own frameworks for corporate governance, taking into account the costs and benefits of regulation. The concept of good Corporate Governance practices has really come of age and almost certainly, to stay.

Sir Adrian Cadbury, considered to be the father of modern corporate governance, noticed with dissatisfaction that decision making and the focus of all the activities in a company revolves around the CEO and has stated, “my argument is that the company should revolve around the board, which under the guidance of the chairman should establish priorities and values and see that the executives put them into practice. [4] ”

Two important factors of Corporate Governance are transparency and accountability:


Controlling poor governance is possible only through the co-operation and sustained efforts of a wide spectrum of stakeholders of the relevant system. Such stakeholders would include the obvious stakeholders, for example the shareholders, directors, employees, suppliers and investors, as well as the “not so obvious” stakeholders, e.g. the state, civil society and the community. To respond to the increasingly vexed problem of poor governance, many initiatives have been established over the past several years. Among them are Codes of Conduct, Codes of Ethics, Rules and Regulations, Laws and other similar instruments. In all these endeavors and efforts, the underlying governing principle has often been the promotion of transparency within the system. Transparency involves the dissemination of information and data in as complete a manner as possible, so as to provide, furnish and transmit information and data in a timely manner in an understandable and knowledgeable form to the stakeholders, about a relevant system. Transparency ensures that those who are in charge of systems, disclose the selected, specified information about such system and its workings at the given times in a pre-determined manner. Through the dissemination of such information, it is believed that those who have an interest in the particular system would be able to obtain an understanding and knowledge which is at least close to, if not equal to, that of those who are involved within the system.


One of the major challenges of a governance system is of accountability within the system. One of the significant methods by which the corporate community has responded to this challenge is through the establishment, dissemination and implementation of good corporate governance procedures. This has been done by developing and implementing Codes of Best Practices and the required rules, regulations and laws. Today there is a growing feeling among the corporate community that even with extensive good governance practices that have been promulgated, accountability within a corporate community has not been enhanced proportionately.


In India, the responsibility to ensure Corporate Governance in listed companies has been vested with The Companies Act, 1956 and the SEBI [5] . For the non-listed companies, in which public shareholding is not there, the norms are made comparatively easier and are prescribed in the Companies Act. Whereas, for the listed companies, all the Companies Act norms are applicable, and the SEBI imposes, through its Investor Protection Guidelines and other statutory prescriptions, further norms for corporate governance and disclosure. It is also generally accepted that the norms shall be applied differently to private and closely held companies and to companies in which public is interested.

SEBI too, in its attempt to bring more and more compliance to basic principles of Corporate Governance, has issued guidelines of various kinds defining permissible behavior norms for listed companies. Although they have not been able to compile any such “principles” or “Indexes”, their attempts have brought some sense of responsibility to boards. SEBI’s Kumar Mangalam Birla Committee on Corporate Governance brought in substantial change in Corporate Governance Norms through change in the listing agreements of Stock Exchanges. Even this called for a lot of mandatory and recommendatory guidelines.

Sir Cadbury on the Indian SEBI guidelines once said, “What is essential in corporate governance is that not only do you have to make guidelines, but you also have to make sure that they get implemented. The real test, in that sense, is yet to come. SEBI has set out the guidelines very well. They have divided them into those that are mandatory and those that are not. …… I think there is certainly willingness in India to implement corporate governance. So I am confident that the SEBI code will be effective. [6] ”

Role of Chief Executive Officers (CEO’s).

As far as the powers of directors are concerned there have been some radical changes in the judicial perception. The present accepted legal position is that all the powers of management of the affairs of a company are vested in the Board. It is the working organ of the company and in that domain of power there can be no interference not even by shareholders. The over all control upon the powers of directors are only those which are envisaged by the Companies Act and the company’s Memorandum and Articles. The shareholders may exercise some control upon certain powers by passing resolutions in general meetings but such resolutions must be consistent with the Act. Regarding the powers of the board, the law, in terms of the Companies Act provides that the managerial powers are exercisable in three phases. One – powers exercisable in accordance with the articles – Two- A set of powers which can be exercisable only at Board Meetings and finally another set of powers exercisable with the consent of the shareholders in general meetings. Thus our law also vests practically all the powers with the board with certain limitation that wherever necessary the shareholders approval should be obtained.

Whatever may be the role and responsibility of individual directors, the Board of Directors, as a collective body has to follow best corporate practices with the view to have good corporate governance. In corporate governance, the concept of division of responsibilities between the management and the board is envisaged and good corporate practice would ensure that both work towards a common goal of protecting the interest of the stakeholders and the company. Towards this end, it is essential that the Board should have a clear view of its role in relationship to management. The Board’s duty is to focus on guidance and strategic oversight while it is management’s duty to run company’s business with the goal of increasing the shareholders’ value without detrimental to the interest of other stake holders. The CEOs and management need to work with the Board to establish the right kind of process and communication to ensure that the company is running effectively and in accordance with the Board’s basic fiduciary responsibilities. The ultimate responsibility for directing the company, however, lies with the Board.

The general Board’s responsibilities could cover a number of areas such as approving a corporate philosophy and mission, selecting monitoring, advising, evaluating, compensating CEOs and senior executives and ensuring orderly and proper management succession, reviewing and approving management’s strategic and business plans, financial objectives plans and actions, monitoring corporate performance against the strategic business plans including overseeing operative results on a regular basis to evaluate whether the business is being properly managed, ensuring ethical behaviour and compliance with laws and regulations, auditing and accounting principles and assessing its own effectiveness in fulfilling the Board’s responsibilities.

Now comes the liability of the directors. There are two types of directors liability. One relating to statutory compliance and the other is in relation to their fiduciary obligations. The extent of liability of a director would depend on the nature of his directorship. No doubt, full time directors being officers in default have to be fully liable while part time directors may not be so liable. But as far as fiduciary duties/obligations are concerned, any breach by any director would visit them with liability.

The existing Act and other Acts lay down various requirements on the part of the company and most these provisions provide for penal action against the directors in view the positions they hold. The directors, and other persons who would be roped in such circumstances, have been defined as “officers in default” under the Act. These officers include the following:

Managing Director and Whole time Director

Manager and Company Secretary

Any person charged by the board with responsibility of complying with that provision and that person has given his consent.

The directors on an initiation of prosecution against him, needs to defend his case. The concerned person or officer would have to prove that he was not in charge or control of the day to day business of the company and that the offence was committed without his consent or knowledge under the ambit.


There is some popular misapprehension about the concept of a “secretary”. The word derives from the Latin “secretaries”, meaning a confidential officer, connected in turn with “secretum”, which means secret. The New Shorter Oxford English Dictionary succinctly captures the ambiguity of the concept. The primary meaning of the word is given as “a person entrusted with private or secret matters”. The secondary meaning is “a person whose duty or occupation it is to conduct the correspondence or organise the affairs of another”. Then three instances are given, of a person employed to assist with correspondence, record-keeping and making appointments etc; an official appointed by an organisation to conduct correspondence, keep records and organise the affairs of the body; and a civil servant employed as the principal assistant to a government minister. That is, the personal secretary, the company secretary and the secretary of state, who are linked together by the confidential nature of their duties.

There is a wide range of functions and responsibilities within these definitions. Indeed, it is difficult and, to a degree, dangerous to generalise about the functions of a company secretary, given the infinite varieties of corporate sizes, corporate businesses and corporate management structures. The great Professor Al Conard of Michigan was fond of warning his students not to assume that the legal rules most appropriate to regulate the affairs of the corner grocery were necessarily the right rules to regulate the producer of Boeing 747s. [7]

The position of the Company Secretary has undergone a lot of change over the last 100 years. In 1887, it was said that “a secretary is a mere servant; his position is that he is to do what he is told, and no person can assume that he has any authority to represent anything at all; nor can anyone assume that statement made by him are necessarily to be accepted as trustworthy without further inquiry.” Again in 1902 his duties were described as “of a limited and of a somewhat humble character.” Accordingly it has in the past been held that a company is not liable for the acts of its secretary in fraudulently making representations to induce persons to take shares in the company, or in issuing a forged share certificate. The secretary is however, the proper official to issue share certificates, and so the company is estopped or barred from denying the truth of genuine share certificates issued by him without the authority of the company. He may also, with a director, validly execute a deed on behalf of the company whether or not that company has a common seal. [8]

The changed position of the Company Secretary was taken into account in Panorama Developments (Guildford) Ltd v. Fidelis Furnishing Fabrics Ltd. [9] where it was said that a company secretary is a much more important person now than he was in 1887. He is the chief administrative officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts but in the role which he plays in the day-to-day business of the company. He is no longer a mere clerk. He regularly makes representations on behalf of the company and enters into contracts on its behalf which come within the day-to-day running of its business. So much so that he may be regarded as having authority to do such things on behalf of the company. He is certainly entitled to sign contracts connected with the administrative side of a company’s affairs, such as employing staff and ordering cars. All such matters come within the implied or apparent authority of a company secretary.

In England, a full-time secretary has been held to be a “clerk or servant” so as to be entitled to preferential payment of his salary on a winding up but a part-time secretary is not. The secretary is an officer of the company. In some instances therefore he is in the same position as a director so that a provision in the articles or in any contract for relieving him from liability is void. Again the Court can relieve him from liability in certain cases. A secretary has been held to have no lien over the books of the company coming into his possession in the course of his duties. [10]

In Singapore, The Company Secretary has wide ranging responsibilities as a senior corporate officer, serving as the focal point for communication with the board of directors, senior management and the company’ stakeholders. This is in addition to the Company Secretary playing a key role in the administration of important corporate matters. Often, the Company Secretary is the confidant and counsellor to the Board of Directors, Chief Executive Officer and members of senior management. The role of the Company Secretary is as follows:

Advisor to the Board of Directors: To advise and assists the members of the board with respect to their duties and responsibilities as directors and compliance with their obligations under the Companies Act, Stock Exchange requirements and issues on corporate governance. In addition, he is also to act as a channel of communication and information to executive and non-executive directors.

Controller of Management functions: To ensure that the board’s decisions are properly implemented and communicated by assisting in the implementation of corporate strategies and policies.

Corporate Governance and compliance officer: To ensure proper compliance with all relevant statutory and regulatory requirements.

Corporate Communications: To communicate with the stakeholders of the company as appropriate so as to ensure that due regards are paid to their interests. [11]

Company Secretary in India:

Section 2(45) of the Companies Act, 1956 defines a ‘secretary’ as follows: “’Secretary’ means a company-secretary within the meaning of clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 and includes any other individual possessing the prescribed qualifications and appointed to perform the duties which may be performed by a secretary under this Act and any other ministerial or administrative duties.” The Company Secretaries Act, 1980 defines a company secretary as “a person who is the member of the Institute of the Company Secretaries of India.” [12]

From the definition of a company secretary, as noted above, the following points emerge:

Only individuals can be appointed as secretary of a company. Thus, a firm or a body corporate cannot be appointed as a company secretary.

He should possess the prescribed qualifications as may be applicable to different circumstances of appointment of a company secretary.

The Company Secretary performs the functions performed by a secretary under the Companies Act including any other ministerial or administrative duties. [13]

Section 383A of the Companies Act, 1956 as amended by the Companies (Amendment) Act, 2000 provides for the statutory requirement for certain companies to have a Company Secretary. Sub-section (1) of Section 383A provides that every company having a paid-up share capital of such sum as may be prescribed shall have a whole time secretary and where the Board of directors of any such company comprises of only 2 directors, neither of them shall be the secretary of the company. The Government has, in exercise of its powers under this section and section 2(45), framed Companies (Appointment and Qualifications of Secretary) Rules, 1988. These rules, inter alia provide that every company having a paid-up share capital of not less than Rs. 2 crores must have a whole time secretary who should be a member of the Institute of Company Secretaries of India. Further, the rules provide that when a company with a lesser paid-up share capital raises the same to Rs. 2 crores or more (w.e.f. 11/6/2002), the company shall within a period of one year from the date of such increase appoint a person as a whole-time secretary who should be a member of the Institute as aforesaid. [14]

Rights of a Company Secretary:

Rights are given to the secretary by the Companies Act, Board of directors and the general body of shareholders. He also derives some rights out of his service agreement with the company. A secretary has the following rights:

He has the right to control and supervise the working of his department.

As a principal officer of the company, he has the right to sign a document or proceeding requiring authentication by the company.

He has a right to be indemnified by the company for any loss suffered by him while discharging his duties.

As an employee of the company, he has the right to receive remuneration. In the event of winding-up of the company, he has the right to be treated as a preferential creditor for his salary subject to a maximum of Rs. 1000.

But a company secretary has no right to borrow money in the name of the company or to make allotment of shares or register transfer of shares without the express authority or consent of the Board of directors. He has no authority to convene a meeting of the company unless directed by the Board or to remove a name from the register of members, or to take policy decisions. [15]

Role of a Company Secretary:

The Company Secretary plays an important role in company administration and plays a three-fold role as a statutory officer, as a coordinator and as an administrator. He is liable not only to the company, but also to its shareholders, creditors, employees, consumers, society and the Government. As one of the principal officers of the company, he is responsible for strict compliance with the various provisions of the Companies Act. He also holds a high administrative position in the company and it is his duty to ensure that the policies and decisions of the Board are effectively implemented. As a general administrative officer, the Company Secretary is responsible for efficient administration of the company and has to supervise, control and coordinate the functioning of different departments of the organization. He is in such a position that he can have an overall view of different aspects of company administration and can develop a strong and efficient organizational structure. [16]

As the principal officer of the company, the Company Secretary is a vital link between the Company, the Board of Directors, shareholders and governmental and regulatory agencies. He is a business manager and an important adjunct in corporate management hierarchy. He acts as a confidante of the Board of Directors, takes part in the formulation of long-term and short-term corporate policies, maintains statutory books and records and ensures compliances with legal and procedural requirements under various enactments for effective corporate governance. His duty involves advising the Board of Directors on the ramifications of the proposals under the consideration of the Board. As a corporate development planner he identifies expansion opportunities, arranges collaborations, amalgamation, mergers, acquisitions, takeovers, divestment, setting up of subsidiaries and joint ventures within and outside India. He looks after the entire secretarial functions which include preparing agenda, convening, conducting and minuting meetings of Board of Directors, Shareholders, Annual General Meetings, Inter-departmental meetings and meetings with foreign delegations, Financial Institutions, regulatory authorities, etc [17]

Having dealt in detail with the concept of company secretary, in my next chapter I will seek to explain his role in good governance of the company.


The Cadbury Report stated that the company secretary “has a key role to play in ensuring that board procedures are both followed and regularly reviewed.” It pointed out that the chairman of the Board looked to the company secretary for guidance on what his responsibilities are under the rules and regulations to which he is subject, and on how those responsibilities should be discharged. [18] From our study of the functions of a company secretary in the previous chapter, his role in ensuring good corporate governance can be elucidated under the following points:

Ensuring the smooth

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