The Potential Liability of the Company Secretary Presented by Annamarie van der Merwe 27 October 2015

Transcription

1 The Potential Liability of the Company Secretary Presented by Annamarie van der Merwe 27 October 2015

2 The good

3 Where does the company secretary come from? A secretary is a mere servant to do what he is told to do. Newlands v National Employment Accident Association, 1885

4 And then A company secretary is a much more important person nowadays than he was... He is an officer of the company with extensive duties and responsibilities. This appears not only in the modern Companies Acts, but also by the role which he plays in the day-to-day business of companies. He is no longer a mere clerk. He regularly... enters into contracts on [the company's] behalf which come within the day-to-day running of the company's business. So much so that he may be regarded as held out 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, and so forth. All such matters now come within the ostensible authority of a company's secretary. Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd, 1971

5 And now. The breadth and importance of the role of the Company Secretary has increased markedly over the past five years. It is a unique role as the Company Secretary is often neither part of line management nor a member of the Board itself. There are endeavours to move the profession beyond that of being the administrative servant of the board to one which encompasses the broader role of board advisor. Rt Hon Alun Michael MP, UK, May 2012 Corporate Affairs Minister Sachin Pilot today said he would support Company Secretaries in their efforts to gain a bigger say in corporate governance. He said the Government would move amendments in Parliament for a new nomenclature for company secretaries governance professionals should the Institute of Company Secretaries of India push for an amendment. He was speaking at the 41st annual convention of the institute here today. Chennai, Nov. 7, 2013

6 Evolving role also a local trend 1994: King I Report Recommended the mandatory appointment of a company secretary for public companies with share capital. 1999: The Companies Amendment Act No 37 of 1999 Gives effect to the King I recommendation and includes various provisions regarding the appointment, removal and duties of the company secretary. The company secretary is required to be appointed by the board as a whole, which should satisfy itself that the appointee has the requisite attributes, experience and qualification to properly discharge his/her duties. 2002: King II Report - The company secretary should provide a central source of guidance and advice to the board, and within the company, on matters of ethics and good governance.

7 Evolving role a local trend (continue) 2010: King III Report The company secretary has a pivotal role to play in the corporate governance of a company 2011: The Companies Act No 71 of 2008 The mandatory appointment of a company secretary by a public company and state owned company is confirmed in section 86. Must be a person with the requisite knowledge of, or experience in, relevant laws. Section 88(1) confirms that the company secretary is accountable to the company s board. 2012: The JSE Listings Requirements The board to annually consider and satisfy itself of the competence, qualifications and experience of the company secretary and to include a statement in the integrated report on the process followed to determine, as well as information that demonstrates actual competence, qualifications and experience.

8 Thus, today we have important statutory duties.. Duties of company secretary Companies Act, s88: (a) providing the directors of the company collectively and individually with guidance as to their duties, responsibilities and powers; (b) making the directors aware of any law relevant to or affecting the company; (c) reporting to the company s board any failure on the part of the company or a director to comply with the Memorandum of Incorporation or rules of the company or this Act; (d) ensuring that minutes of all shareholders meetings, board meetings and the meetings of any committees of the directors, or of the company s audit committee, are properly recorded in accordance with this Act; (e) certifying in the company s annual financial statements whether

9 Specific statutory duties (continue) Duties of company secretary s88: (e) certifying in the company s annual financial statements whether the company has filed required returns and notices in terms of this Act, and whether all such returns and notices appear to be true, correct and up to date; (f) ensuring that a copy of the company s annual financial statements is sent, in accordance with this Act, to every person who is entitled to it; and (g) carrying out the functions of a person designated in terms of section 33 (3).

10 If we are regarded as prescribed officers, then these statutory duties also need to be noted s76: Standard of directors conduct (includes alternate, prescribed officer and board committee member) - Must not use position or information to gain advantage (also for others) or knowingly cause harm to the company - Must communicate to board any information unless immaterial to the company or generally available to public or bound not to disclose by legal or ethical obligation of confidentiality - Must exercise powers and perform functions in good faith and for proper purpose in best interest of the company with degree of care, skill and diligence that may reasonably be expected from individual carrying out same functions and having general knowledge, skill and experience of that director

11 And the business judgement rule may then also apply to us as prescribed officers.. s76: Standard of directors conduct (continue) - ss(4): Director will have satisfied these obligations if: he has taken reasonably diligent steps to become informed about the subject matter of the judgement; AND does not have a personal financial interest in the subject matter of the decision and no reasonable basis to know of related person s interest; OR disclosed the interest in terms of s75; AND had a rational basis for believing, and did believe, that the decision was in the best interest of the company.

12 The bad..

13 This could result in potential liability. s77: Liability of directors and officers - Similar definition of director as in s76 - Liable in accordance with principles of common law relating to breach of fiduciary duty for any loss, damages or costs sustained by the company as result of breach of duties contemplated in s75 and s76 (3)(a) or (b) ( good faith and in best interest of company ); or - in accordance with principles of common law relating to delict for any loss, damages or costs sustained by the company as result of breach of duty contemplated in s76(3)(c) ( care, skill and diligence ), any provision of the Act or the provisions of the MoI.

14 Not to forget the potential for civil liability.. s218(2), Companies Act of 2008: Any person who contravenes any provision of this Act is liable to any other person for any loss suffered by that person as a result of that contravention.

15 With real exposure and risk, what do we do.?? Know your stuff and remain an eternal student Understand your role and your limitations Watch your back and don t expect loyalty Be meticulous in recording your advices Build and continuously work on relationships When in doubt obtain legal advice Do NOT compromise on your integrity your reputation is your biggest asset Above all, remain professional and humble!!!!

16 Core competencies for making best use of this opportunity are. Professional integrity earns trust and respect through demonstration of professional standards Governance promotes best practice and enables efficient working of the organisation Personal effectiveness applies knowledge, skill and experience to maximise performance Business acumen improves results by focusing on the organisation s objectives, customers and marketplace Performance management delivers objectives through effective development and use of all available resources Innovation and change encourages innovation to increase capability, deliver efficiencies and add value ICSA, Chartered Secretaries

17 Conclusion There can be no doubt that the role of the company secretary has greatly evolved over the centuries. From being seen as a mere servant, the company secretary of today faces nearly the same extent of duties and responsibilities as directors. While acting as the company s chief administrative officer, the company secretary also plays a pivotal role in the proper governance of the company and has a broad range of corporate governance and compliance duties. To do all of this, today s company secretary must have excellent communication skills, a thorough knowledge of the company s business and applicable regulations, strength of character, integrity and above all, a professional approach.

18 No argument here! Andrew Kakabadse, Professor of Governance and Leadership at Henley, supports this view: "While the NED has been the focus of much attention in the post-financial crisis period, it is now time for the company secretary role to come to the fore. Company secretaries are the only ones with access to all relevant information, know the culture of an organisation inside out, and are attuned to the reality of what is happening on the board and in the organisation. They have only one agenda what is best for the company and the board."

19 And the ugly..

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21 Thank you! Annamarie van der Merwe Managing Director ithemba Governance & Statutory Solutions