Friday, July 19, 2024

Where is the voice of the company Secretary/Legal Advisor

Mr Editor, the parastatals sector and state owned companies have of late been making newspaper headlines, unfortunately, for all the wrong reasons.

The issues have brought to the fore, the question of corporate governance in Public Enterprises.
If what we read in the newspapers is true, what we see is a total absence of corporate governance in this sector or some parts thereof. We have heard of issues were Board members of parastatals double up as company ‘employees’ in that the directors will provide services to the company and draw salaries and not allowance (sitting allowance as and when they sit as the Board or members of Board subcommittees to conduct company business).

In some instances the director cum employee of the company will be charged with the responsibility to recruit people to the office in which he or she is ‘employed’. Such director would even sit in the interview panel. This completely negates the oversight role of the Board. We have heard of instances where directors, after firing the CEO, volunteer to be CEOs!

This further compromises Board and Management relationships. Other instances are of directors failing to disclose their interests where companies in which they have interests provide services to companies in which they are directors. I must hasten to state here that, it is not taboo for companies in which directors have interest to provide services to the company in which they are directors.

What is wrong is where such interest is not declared so that the company (through the Board) can determine whether in the given circumstances it would be prudent to allow such transaction.
In other cases Mr Editor, we hear of Boards ignoring all written rules and exercising powers they do not have or exceeding their powers. In yet other instances, we hear of Managements of some public enterprises withholding critical information from the Board or deliberately misleading the Board.

This robs the Board of information that would enable it to make informed decisions and to provide effective strategic guidance. Mr Editor, in all these, I ask myself, where is the voice of the Company Secretary/ Legal Advisor? In all the scenarios described above, there is hardly any mention of the role played by the legal advisor/ Company Secretary. Does it mean that the Company Secretary/Legal advisor did not find anything wrong with these developments or were they overlooked? I find this quite odd.

Compare the situation obtaining in the public enterprises with events in the private sector. The Nchido case comes to mind. I cite this case quite alive to the fact that there is an appeal in some aspects of the case. I cite it here not to apportion blame but to demonstrate the fact that in the private sector the role played by the legal advisor/Company Secretary will be scrutinised.

The Company Secretary advises the Board not only on compliance issues but also on corporate governance. The body of principles falling under the rubric of corporate governance is not provided for by statute. There are internationally accepted principles of corporate governance.

The Company Secretary is supposed to advice on corporate governance best practice. He is the corporate governance gate keeper of the Board and the Organisation. The Company Secretary or Board Secretary has a solid line reporting function to the Board and the CEO. He is appointed by the Board.

What is alleged to have happened in some parastatals and state owned companies is a shocking and flagrant violation of provisions of statutes which established them and the Companies Act which clearly states that directors must disclose their interests and that directors must act with care and skill.

They have fiduciary duties towards the company. They must at all times put the interests of the company first. As a Board the Directors are primarily concerned with strategic direction, Risk management, governance, Business Plan and Overall Performance of the company. Directors must not descend into operations of the company. When they do so they flout their role as directors. They even compromise their objectivity in matters of the company.

Mr Editor, what concerns me is that in all parastatals and state owned companies where there was smoke, there was no mention of the Company Secretary or Board Secretary. The question that necessarily presents itself is why is this so? At this juncture, allow me to hazard an answer.

There is a structural defect or shall we call it gap, in the manner in which parastatals and state owned companies Management are organised. Normally at the helm would be the CEO followed by the Deputy Chief Executive Officer. The other executive management would be Director or Head of this or that Department.

Legal advisors are normally pegged in junior management (I must hasten to state that the author is a member of the Executive Management of the Organisation he works for).

This means the legal adviser does not sit in meetings of the executive of the parastatals. When issues are discussed and decisions made he is not readily available to advise Management particularly in their relationship with the Board. By the way, one of the unwritten functions of the Company Secretary is to promote smooth working relationship between the Board and Management.
He must command the trust and confidence of both the Board and Management. It is a very difficult yet crucial balance to strike. Management of which, he is a member, must not feel that the company Secretary is allied to the Board against it. Equally important, the Board must not feel that the Company Secretary connives with Management and withholds important information from them or that he could mislead them to safe management.

From the foregoing, you will agree with me that the Company Secretary cannot just be an errant boy for Management. He must occupy a distinct office which recognises his central role in the organisation. Surely, such onerous functions cannot be performed by a junior member of staff.
In some companies they have split the functions of the legal office. The in house attorney (who is in junior management) doubles up as Board Secretary. In this capacity, he advises the Board. The Company would then outsource company secretarial functions. The so called Company Secretaries would normally be a firm of auditors. In this set up their office becomes largely ceremonial in that they do not attend regular Board and Committee meetings.

Theirs is just to keep company information and records and to keep records of Annual General meetings which, they attend. The function of advising and management of Board matters is left to the Board Secretary who as, explained earlier, is a junior staff. This arrangement compromises the efficiency of the legal advisor and or Company Secretary.

The role of the Company Secretary in Botswana can be contrasted to its counter parts in South Africa. There, the office of Company Secretary is a very senior office. The Company Secretary advises both the company and the Board. He is a member of the Executive Management. He has solid reporting lines to the CEO and the Board. The CEO, Management and the Board depend on him for advice. He orientates both the CEO and Directors on their duties and functions. He manages relations between the Board and Management.

In conclusion, it is my considered view that parastatals and state owned companies need to revisit their corporate governance structures. They must establish legal and or Company Secretary Offices which are placed at the appropriate level within the Management hierarchy which would enable them to effectively advice both the Board and Management.

The liabilities of directors and the Company Secretary prescribed in the Companies Act are very steep in deed yet his office in most parastatals and state owned companies does not reflect the onerous functions and severe consequences that could be visited on him.

It is my firm believe that if the role of the Company Secretary/Legal advisor could be enhanced and given appropriate authority this will contribute to improvement of corporate governance in parastatals and state owned companies.

Kabelo Kenneth Lebotse is General Corporate Counsel & Company Secretary at PEEPA.

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