SHOULD THE COMPANY SECRETARY/GENERAL COUNSEL ALSO SERVE AS AN EXECUTIVE DIRECTOR ON THE BOARD?



The question of whether the Company Secretary/General Counsel (“CS/GC’’) should wear two hats of being a Company Secretary and an Executive Director is not a trick question. In attempting to answer the question, lots of interesting arguments have been put forward by lawyers and non-lawyers, depending on which side of the divide.


The role of the CS/GC has continued to evolve globally and Nigeria is no exception, especially with the rapid spread of industrialization, globalization, technology, corporate governance, and more recently the promotion of Environmental, Social, and Governance (“ESG”) performance of companies. It is undoubtedly a role that is increasingly being recognized as high-ranking and sophisticated.


Typically, the CS/GC plays a significant and multiple role in the organization while also supporting the Board in the discharge of its oversight responsibilities. These various roles require an in-depth knowledge of the organization’s business (as a business partner), understanding its strategy, culture, and goals and at all times demonstrating a commitment to its success.


Similarly, the Company Secretary is often described as a gatekeeper and as such he/she is regarded as the chief coordinator and manager of information to and from the Board. If you like – the focal point for communication. He/she acts as a link between the Board and the business because of his/her key role in the administration of critical company matters.


In general, the role of an Executive Director on the other hand is to oversee operations, improve performance, develop and direct organizational strategy.


Therefore, to answer the question, certain factors would be taken into account such as reporting lines, the complexity of roles, size of business, sector, organizational structure, and level of regulation among others.


When the CS/GC doubles as an Executive Director on the Board, he/she will have two reporting lines. As CS, he/she reports to the Chairman/Board, as GC and Executive Director, reporting line is to the Chief Executive Officer (“CEO”). As an ED, he/she also has a responsibility to the Board.


Whereas an individual can perform both roles of CS/GC and Executive Director as seen in small and medium-sized businesses for purposes of cost savings, it may not be ideal for an individual to undertake both roles, especially in large corporations.


With the complexities and competing demands of the duties of the CS/GC and separate reporting lines, it could be a herculean task and almost a mission impossible for a single individual to perform both roles at an optimal level. Furthermore, in this era of promoting good corporate governance practice, it is not advisable.


The CS/GC is expected to always perform his/her duties professionally with adequate independence which involves the oversight of board decisions affecting senior management employees. Managing separate reporting lines may create sensitive situations leading to conflict of interests for the individual. The ability to exercise good judgment may be impaired in certain situations when providing advice to management and the Board.


At Board meetings, the CS/GC who is also an ED may face several situations where he/she will have to recuse himself/herself from every decision in which he/she is involved as a lawyer/ advisor. He/she would be distracted from playing the role of CS/GC at the time he/she would be required to report on his/her activities as an ED outside the CS/GC’s activities.


For good corporate governance and for purposes of checks and balances both offices should be separated.


The CS, being a statutory office recognized under the Companies Act (in the case of Nigeria, the Companies and Allied Matters Act, 2020) represents and protects the interest of the company and is not subject to the whims and caprices of the CEO while the interests of the shareholders/stakeholder are represented by the Board of Directors. Because the CS/GC as an ED will report to the CEO, his independence may be compromised and his forthrightness may also dwindle.


In addition, the CS/GC is recognized as a key participant in the Boardroom as his/her views are often sought after by the Chairman and the “go-to” person by the Directors. He/she is free to comment at Board meetings and is a part of the Board culture. This being the case, Directors are also free to engage the CS/GC on issues/questions they may have.


Although there appear to be no laws and/or regulations preventing a CS/GC from being appointed to the Board, my conclusion is that the CS/GC should not be an executive member of the Board to preserve his/her independence to perform his/her functions without inhibitions.


Conversely, in the search for persons to join the Board as Directors, serving or retired Company Secretaries/General Counsels are eligible and should be considered based on their experiences, diverse skills, and talents. They will make good Board members as their antecedents cannot be ignored in terms of what they will bring to the table.


Based on the emerging trends, the CS/GC role has gained enormous credibility and influence in shaping governance practices that it has the potential to continue to expand. It is therefore my humble view that the roles should be separated.

 

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