GOVERNANCE PROFESSIONAL

[Mr. M. GOVINDARAJAN]

INTRODUCTION

The Company in all sectors have high level responsibilities including governance structures and mechanisms, corporate conduct within an organization’s regulatory environment, board, shareholder and trustee meetings, compliance with legal, regulatory and listing requirements, the training and induction of non-executives and trustees, contact with regulatory and external bodies, reports and circulars to shareholders/trustees, management of employee benefits such as pensions and employee share schemes, insurance administration and organization, the negotiation of contracts, risk management, property administration and organization and the interpretation of financial accounts. Adopting governance is increasing in today’s corporate world.   The role of Company Secretary is a vital part in governance aspects.

GOVERNANCE

The word ‘governance’ derives from Greek verb which means to steer. It then passed to Latin and then to many languages in the world.

The World Bank defines ‘governance’ as the manner in which the power is exercised in the management of a country’s economic and social resources for development. According to the Governance Analytical Framework the term ‘governance’ refers to the processes of interaction and decision making among the actors involved in a collective problem, that lead to a creation, reinforcement or reproduction of social norms and institutions.

The Chartered Secretary Australia (‘CSA’ for short) defines the term ‘governance’ as the method by which an organization is run or governed, over and above its basic legal obligations.   The Governance has the following four key components:

• Transparency - being clear and unambiguous about the organization’s structure, operations and performance, both externally and internally, and maintaining a genuine dialogue with and providing insight to, legitimate stakeholders and the market generally;
• Corporate Accountability – ensuing that there is clarity of decision making within the organization with processes in place to ensure that the right people have the right authority for the organization to make effective decisions, with appropriate consequences for failures to follow these procedures;
• Stewardship - developing and maintaining an enterprise-wise recognition that the organization is managed for the benefit of its shareholders, taking reasonable account of the interests of other legitimate stakeholders;
• Integrity - developing and maintaining a culture committed to ethical behavior and compliance with the law.

Thus good governance encompasses not only the system by which organizations are controlled, but the mechanisms by which organizations and those who comprise them are held to account. Governance, therefore, is vital in making right decisions.

‘Fair Governance’ implies that mechanisms function in a way that allows the executives to respect the rights and interests of the stakeholders in a spirit of democracy.

TYPES OF GOVERNANCE

The following are the various types of Governance-

• Global Governance;
• Regulatory governance;
• Corporate governance;
• Project Governance;
• Information technology governance;
• Participatory Governance;
• Non profit Governance.

‘Global Governance’, is generally defined as the complex of formal and informal institutions, mechanisms, relationships and processes between and among states, markets, citizens and organizations, both inter- and non-governmental, through which collective interests on the global plane are articulated, right and obligations are established, and differences are mediated.

Regulatory Governance captures the tendency of policy regimes to deal with complexity with delegated system of rules. It is likely to appear in arenas and nations which are more complex, more global, more contested and more liberally democratic. The term builds upon and extends the terms of the regulatory state on the one hand and governance on the other. While the term regulatory state marginalize non-state actors (NGOs and Business) in the domestic and global level, the term governance marginalize regulation as a constitutive instrument of governance. The term regulatory governance therefore allows us to understand governance beyond the state and governance via regulation.

Corporate Governance consists of the set of processes, customs, policies, laws and institutions affecting the way people direct administer or control a corporation. Corporate governance also includes the relationships among the many players involved (the stakeholders) and the corporate goals. The principal players include the shareholders, management, and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large.

The term ‘Project Governance’ is used in industry describing the processes that need to exist for a successful project.

The Information Technology Governance primarily deals with connections between business focus and IT management. The goal of clear governance is to assure the investment in IT generate business value and mitigate the risks that are associated with IT projects.

The Participatory Governance focuses on deepening democratic engagement through the participation of citizens in the processes of governance with the state. The idea is that citizens should play more direct roles in public decision-making or at least engage more deeply with political issues. Government officials should also be responsive to this kind of engagement. In practice, participatory governance can supplement the roles of citizens as voters or as watchdogs through more direct forms of involvement.

Non Profit Governance focuses primarily on the fiduciary responsibility that a board of trustees (sometimes called directors—the terms are interchangeable) has with respect to the exercise of authority over the explicit public trust that is understood to exist between the mission of an organization and those whom the organization serves.

ORDER OF GOVERNANCE

Governance is becoming an increasingly complex issue.  Therefore the concept of ‘order of governance’ came in. There are three types of orders of Governance as detailed below which correlate to the different levels at which governance is used:

• First order;
• Second order; and
• Meta Governance.

The first order governance is the level at which problems are identified and solutions enacted. This is done through interaction between the governing organization and its citizenswho help identify what the problem is, who is experiencing it and what an appropriate solution may be. There can be differing opinions in an organization as to what constitutes a problem and there is, to some extent, a degree of subjectivity in coming up with an "ordered problem definition". The interaction with those being governed helps in this respect as it legitimizes the definition. Once a problem is identified, a solution usually comes in the form of laws and/or regulations passed by the governing body.

Second-order governance is the level at which the "institutional arrangements" are provided "within which first order governing takes place". Institutional arrangements can take many forms in both the public (a regulatory agency) and private (the financial market) sectors. What is important is that a framework is provided that enables first-order governance to take place. Again, there is a distinct "two-way role" at this level with both "those being governed and those governing" having input into the process to provide an effective and legitimate institutional setting. This approach enables a more comprehensive analysis of governing interactions, as actors can often "be influenced by institutions (and the way) these help or hinder them" in the pursuit of their goals.                               

Meta Governance is otherwise called as ‘governing of governing’.  It represents the established ethical principles, or 'norms', that shape and steer the entire governing process. It is important to note that there are no clearly defined settings within which meta governing takes place, or particular persons who are responsible for it. While some believe meta governing to be the role of the state which is assumed to want to steer actors in a particular direction, it can "potentially be exercised by any resourceful actor" who wishes to influence the governing process. Examples of this include the publishing of codes of conduct at the highest level of international government, and media focus on specific issues at the socio-cultural level. Despite their different sources, both seek to establish values in such a way that they become accepted 'norms'. The fact that 'norms' can be established at any level and can then be used to shape the governance process as whole, means metagovernance is part of the both the input and the output of the governing system.    

GOVERNANCE HIERARCHY

Ensuing good governance depends as much on effective implementation as it does on organizational commitment.   The Chartered Secretary Australia (CSA) considers effective implementation of good governance applies on three levels:

• Framework – understand the boundary;
• Structure – unique to each organization;
• Tools – required for implementation and monitoring.

The greatest threats to good governance come from corruption, violence and poverty all of which undermine transparency, security, participation and fundamental freedom.

GOVERNANCE PROMOTION BY UN ORGANIZATIONS

The United Nations promotes good governance through many avenues. The UN Development Programme (UNDP), for example, actively support national processes of democratic transition.  In the process, it focuses on providing policy advice and technical support and strengthening the capacity of institutions and individuals. It engages in advocacy and communications, supports public information campaigns, and promotes and brokers dialogue. It also facilitates “knowledge networking” and the sharing of good practices.

The International Monetary Fund promotes good governance through its programmes of lending and technical assistance.  Its approach to combating corruption emphasizes prevention, through measures that strengthen governance. The IMF encourages member countries to improve accountability by enhancing transparency in policies, in line with internationally recognized standards and codes. In its work with poor countries, the IMF emphasizes adequate systems for tracking public expenditures relating to poverty reduction. In its regular consultations with its members, the IMF also provides policy advice on governance-related issues.

The United Nations Democracy Fund (UNDEF), established in 2005, supports projects that strengthen the voice of civil society, promote human rights, and encourage the participation of all groups in democratic processes. The bulk of its funds go to local civil society organizations, both in the transition and consolidation phases of democratization. In these ways, it complements the UN's work with governments to strengthen democratic governance worldwide.

The United Nations Public Administration Network (UNPAN) was created to set up an internet-based network to link regional and national public administration institutions. It facilitates the exchange of information and experience, as well as training in the area of public sector policy and management. Its long-term goal is to build the capacity of these regional and national institutions, with the aim of improving public administration overall.

Through such measures as these, the promotion of good governance now runs like a thread through all UN system activities.

GOVERNANCE CULTURE

It has been widely recognized that simply adopting a formal corporate governance charter does not in itself guarantee effective corporate governance. Whilst best practice holds that a formal written charter is an important step to establishing corporate governance, it is only when corporate governance principles are embedded into work practices and the very culture ofthe organization that good governance will take root.Accordingly, the establishment of a governance culture is critical to the organization’s establishment of effective corporate governance. Establishing a “new” culture is all about behavior change and leadership behavior of the board and senior management is a critical first step. As leaders within the organization everything these leaders do and say must bespeak best practice corporate governance.Governance Culture emphasizes the cultural aspect of establishing effective corporate governance within the organization.

ROLE OF GOVERNANCE PROFESSIONAL

The governance professional's role is to enforce a compliance framework to safeguard the integrity of the organization and to promote high standards of ethical behavior. He/ She has a significant role in assisting the board of the organization to achieve its vision and strategy.  The governance professional can hold different titles, depending on the organization. He may be called Company Secretary, or Legal Counsel, or Chief Financial Officer. He may be called Chief Governance Officer or Chief Risk Officer. The title will vary depending on the circumstances of each entity.   In particular, the person has a significant impact on the level and quality of the organization’s corporate governance and governance culture and often has a pivotal role in assisting the board to achieve the entity's vision and strategy. The activities of the governance professional encompass legal and regulatory duties and obligations and additional responsibilities assigned by the employer.   However, in essence, the functions of a Governance Professional-

• Leads and advises on best practice in governance, risk management and compliance;
• Champions the compliance framework to safeguard organizational integrity;
• Promotes and acts as a ‘sounding board’ on standards of ethical and corporate behavior;
• Balance the interests of the Board or governing body, management and other stakeholders.

The range of responsibilities and duties of a Governance Professional can include-

• providing advice to the directors and officers in relation to directors' duties and other aspects of the Companies Act, the constitution, stock exchange and other regulatory requirements (both within Southern Africa and in other jurisdictions if appropriate), and any other statutory requirements;
• advising the board on corporate governance principles and implementation of programmes and risk management frameworks;
• carrying out the instructions of the board, implementation of corporate strategy and giving effect to the board's decisions;
• ensuring corporate accountability by communicating with the company's stakeholders and the public at large;
• minutes' and meetings' preparation (the annual general meeting and other general meetings, directors' meetings and committee meetings and all meeting minutes);
• director recruitment and induction;
• facilitating professional development programmes for the board;
• directors' fees and entitlements;
• board committee administration;
• ensuring effective information flows within the board and to and from its committees and between non-executive directors and management;
• acting as a conduit between members (especially major and institutional investors in listed companies) and non-executive directors;
• communication with external advisers (legal, accounting etc) and corporate representatives;
• directors' handbook/manual;
• directors' and officers' (D&O) insurance;
• board evaluations;
• development, implementation, communication and maintenance of governance, risk and compliance policies, processes and procedures;
• monitoring compliance with standing delegations from the board to management and reporting any breaches;
• superannuation;
• human resources, employee benefits and employee incentive plans;
• insurance;
• share registries;
• intellectual property asset management, such as patents, trademarks, business names and domain names;
• legal, including powers of attorney;
• accounting and finance;
• taxation;
• dividend reinvestment plans;
• trade practices;
• environmental issues;
• occupational health and safety and employment law in general;
• anti-money laundering legislative requirements;
• privacy legislation;
• general administration;
• property management;
• investments monitoring;
• document retention and management;
• maintenance of corporate structure, including subsidiaries and associated administration

CORPORATE ORGANIZATION

Corporate organizations often use the word ‘governance’ to describe both-

• The manner in which boards or their like direct a corporation;
• The laws, customs and rules applying to that direction.

CORPORATE GOVERNANCE

Corporate governance is “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations.” It encompasses the mechanisms by which companies, and those in control, are held to account. Effective corporate governance structures encourage companies to create value, through entrepreneurialism, innovation, development and exploration, and provide accountability and control systems commensurate with the risks involved.

According to BusinessDictionary.com, corporate governance is “…the framework of rules and practices by which a board of directors ensures accountability, fairness, and transparency in the firm's relationship with its all stakeholders.” The framework includes distribution of rights, responsibilities and rewards, and procedures for reconciling conflicting interests, proper supervision, control and information flow. Stakeholders may include shareholders, board of directors, management, employees, customers and the community.

Specific job duties may vary by position type, however typical corporate governance job functions include maintaining and updating the governance framework, monitoring compliance with requirements in framework, coordinating governance committee and board member meetings, monitoring certain business processes, establishing and maintaining a record of operational procedures manuals, and analyzing monthly reports. Another key component typically includes facilitating the flow of information. This position needs to provide key information to managers, board members and committees. Liaising with board members and fulfilling their requests for information also may play a large role.

In addition to education and previous work experience, there are a number of personal attributes employers may seek. These include the ability to maintain confidentiality, being a detail-oriented, organized, critical thinker, and strong analytical skills. Furthermore, this position is required to work with a variety of people from executives to board members to external parties. As such, it is important to have strong communication and interpersonal skills, as well as the ability to forge and maintain relationships.

Boards (and other governing bodies) must now demonstrate that they have taken steps to ensure that they have effective oversight and control of how the corporation’s objectives are set and achieved, how risk is assessed, managed and monitored and how performance is measured, monitored and improved.

A formal corporate governance system is the universal mechanism demanded by the community (and legislators) to demonstrate this. The ASX Corporate Governance Council’s Principles of Good Governance and Best Practice Recommendations, the Corporations Act (2001) and the Australian Standards prescribe this system as demonstrating best practice corporate governance. 

Independent review/audit of effectiveness of governance/compliance measures in place can assist in minimizing the risk of reputation and financial impact of breaches, c.f. Leighton Holdings penalties for breaches of continuous disclosure requirements.    

It is believedthat good corporate governance results from

• The independence of judgment of the company’s Board of directors;
• The presence of sound processes to ensure the Board’s business judgment is well supported and issues and risks are timely surfaced and dealt with; and
• An appropriate balance between shareholder rights and the proper exercise of the Board’s duties and responsibilities;

This specific means to achieve these goals must be tailored to the company’s specific requirements.

ROLE OF COMPANY SECRETARY

 The Company Secretary plays a crucial role in the governance of any organization, the board’s discharge of its leadership in this vital area and in the discharge of individual director’s duties. The contemporary Company Secretary is much more than a “note taker” at board meetings or a mere servant of the board but is “the chief administrative officerof the company”. The board and particularly the Chairman of the board relies, or ought to rely, on the Company Secretary to advise them in respect of current best practice corporate governance requirements and practices, directors’ duties under the law, board reporting and disclosure obligations, listing rule requirements and  proper meetings’ procedure. The specialized role of the modern Company Secretary has emerged as the Chief Governance Professional within the organization.

THE COMPANY SECRETARY AS THE CORPORATE PROFESSIONAL

 The need for corporations to have the qualifications and skills of governance professional has been widely recognized:

   ‘Benchmarking Governance Practice in Australia’, the 3rd benchmarking study conducted by Chartered Secretaries Australia (CSA) in 2005, indicated that the specialized role of Company Secretary had evolved into the Chief Governance Officer, according to the CSA press release issued on 28 March 2006:

“...directors are using them (Company Secretaries) as a resource to ensure all their boxes are ticked. In 97 per cent of organizations, Company Secretaries have primary responsibility for the increasingly complex and important area of corporate governance. No longer just an administrative role, the Company Secretary provides essential, high-level strategic advice; and companies are clearly willing to pay for it”, CSA Chief Executive Mr. Tim Sheehy said.

According to the CSA press release issued on 6 April, 2004 the 2nd benchmarking study conducted in 2003:

“The dynamics of the boardroom are changing…Directors are realizing that they need a diversity of specialist skills and are looking…to advisers to provide this expertise.”

• The landmark Disney Case in the United States (Delaware Chancellery Court) highlights the need for a professional governance advisor to the board and the evidentiary significance of professionally prepared minutes of board and committee meetings.
• The professional Company Secretary needs to have the confidence of the Board as its governance advisor independent of management. In fact, the independence, and perceived independence, of the Company Secretary speaks strongly to all stakeholders of the Board’s commitment to best practice corporate governance.  

A Company Secretary is a senior position in a private sector company or public sector organization, normally in the form of a managerial position or above. In large American and Canadian publicly listed corporations, a company secretary is typically named a Corporate Secretary or Secretary.

The Company Secretary is responsible for the efficient administration of a company, particularly with regard to ensuring compliance with statutory and regulatory requirements and for ensuring that decisions of the Board of Directors are implemented. Despite the name, the role is not a clerical or secretarial one in the usual sense. The company secretary ensures that an organization complies with relevant legislation and regulation, and keeps board members informed of their legal responsibilities. Company secretaries are the company’s named representative on legal documents, and it is their responsibility to ensure that the company and its directors operate within the law. It is also their responsibility to register and communicate with shareholders, to ensure that dividends are paid and to maintain company records, such as lists of directors and shareholders, and annual accounts.

   In many countries, private companies have traditionally been required by law to appoint one person as a company secretary, and this person will also usually be a senior board member.

          The roles and responsibilities of a Company Secretary include, but not limited to the following-

• Manage all board and committee meeting logistics, attend and record minutes of all board and committee meetings; facilitate board communications;
• Advise the Board on its roles and responsibilities;
• Facilitate the orientation of new Directors and assist in Director training and development;
• Maintain key corporate documents and records;
• Responsible for corporate disclosure and compliance with state corporation laws, stock exchange listing standards and SEC reporting and compliance;
• Oversee Stockholder Relations including stock issuance and transfer operations; stockholder correspondence; prepare and distribute proxy statement;
• Manage process pertaining to the annual shareholder meeting;
• Subsidiary management and governance;
• Monitor corporate governance developments and assist the Board in tailoring governance practices to meet the Board's needs and investor expectations;         
• Serve as a focal point for investor communication and engagement on corporate governance issues.    

Benefits to the Board

 Astute boards realize the benefits of support from a professional Company Secretary-

• Obtain the highest professional governance skills and experience to advise the Board and Chairman; 
• Improved governance within the corporation, separates the governance professional from other executive management;
• Frees other executives to concentrate on operational issues; 
• Governance commitment by the board and the company demonstrated to shareholders and the market. There are significant potential investor relations benefits. Presents the company in the best light by having “top drawer” Company Secretary’s qualifications and experience for reporting in annual report; and
• Substantially enhances the board’s potential to be the “real” driver of effective governance within the corporation.

RISK MANAGEMENT AND GOVERNANCE PROFESSIONAL

Commensurate with the responsibilities of the Board for the entity’s Risk Management has been the rise of the Governance Professional’s role in Risk Management. In the “Benchmarking Governance Practice in Australia” study by Chartered Secretaries Australia (CSA), the survey found a significant rise in the involvement in the entity’s risk management oversight of the Company Secretary, “… due to a growing recognition that risk management is a crucial part of corporate governance, the number of Company Secretaries providing support for the risk committee has risen sharply from 18 per cent in 2003 to almost half (44 per cent) in 2005.” 

• In fact, according to CSA Chief Executive, Mr. Tim Sheehy, “in order to focus on the job of governance and risk, they (Company Secretaries) have been shedding other roles.” 
• Peter Wetzig has considerable experience and skills in developing Australian Standards-compliant Risk Management protocols and methodologies to ensure the Board discharges its duties in this vital area of governance and that the Board views and priorities for RiskManagement are appreciated and embraced by management.

CONCLUSION

Consistent with its mission as a positive force for corporate governance excellence, the Society encourages each of its members, and in turn their companies, to be aware of and participate in debates and discussions of various governance practices that are from time to time propounded or legislated; and it continually provides its members with up-to-date information on governance developments. Members are urged to be students, and sometimes missionaries, of good governance. Indeed, the Society believes that its member Corporate Secretaries are in a unique position to provide value to their Chairmen and Boards of Directors by being their company's Chief Governance Officer, in fact, if not also in title. The Society encourages its members to assess periodically their company's own governance practices and their Board's effectiveness in light of those company-specific circumstances; giving due consideration to the points-of-view of the company's long-term shareholders and of governance authorities. But while improving external governance ratings may be an expedient consideration so as to remove distracting issues from the table, the Society believes that this is no substitute for thoughtful, sound consideration of what constitutes substantive good governance at a company. The Society stands for governance excellence in fact not just in appearance. The Company Secretary is the pillar in governance matter in the past, in the present and in future also.

References:

1. www.en.wikipedia.org
2. www.icsa.co.za
3. www.csaust.com
4. www.governanceculture.com.au
5. www.un.org