SECRETARIAL STANDARDS - A TOOL FOR GOOD CORPORATE GOVERNANCE

SECRETARIAL STANDARDS - A TOOL FOR GOOD CORPORATE GOVERNANCE
 
 

The rules of Secretarial Standards are aimed at bringing in uniformity in practices followed across companies and strengthening Corporate Governance.

 
INTRODUCTION

 
As we all know that The Institute of Chartered Accountants of India (ICAI) has listed out numerous accounting principles and rules which are to be followed by the auditor fraternity while auditing the organizations they are appointed to audit for. ICAI has also introduced the Accounting Standards, most popularly called as ‘AS’ which are supplementary to the accounting rules and norms.  Likewise, The Institute of Company Secretaries of India (ICSI) has also long back introduced some set of rules and norms, which are supplementary to the Companies Act, 1956, called as ‘Secretarial Standards’ and popularly termed as ‘SS’.

ICSI has been the first professional body in the world to start the process of setting Secretarial Standards for integration, harmonization and standardization of corporate secretarial practices. International Federation of Company Secretaries (IFCS), formed with the efforts of ICSI, decided to form an International Secretarial Standards Board which will formulate international secretarial standards to spread good corporate governance discipline across national borders.

The Act having given due recognition to the Secretarial Standards, has initially, mandated two Standards namely the Standard on Meetings of the Board of Directors (SS-1) and Standard on General Meetings (SS-2). The Act provides that every company shall observe both the secretarial standards and any non-compliance would attract penal provisions. Around nine lakh active companies in India will have to comply with these Secretarial Standards to be fully compliant under the Companies Act. These standards would help doing business with ease and improving governance.
 
 

SECRETARIAL STANDARDS ISSUED BY SSB

The secretarial standards consist of a set of principles which the companies are expected to adopt and adhere to in discharging their corporate responsibility, leading to better corporate governance. For compliance of the provisions the Act, it is the responsibility of the Board of Directors and they are professionally assisted by Company Secretaries to ensure proper, timely and adequate compliance. The Institute of Company Secretaries of India (ICSI) over a period of time while regulating the profession of Company Secretary noticed about the divergent secretarial practices and felt the need for integration, harmonization and standardization of divergent secretarial practices and constituted the Secretarial Standards Board (SSB) in 2000. It is a unique and positive step and for the first time in the history of corporate sector globally ICSI constituted such a Board. The SSB consists of experienced company secretaries representing companies and also company secretary in practice, besides representative from regulators, other professional bodies and various chambers.
 
 

SECRETARIAL STANDARD ON BOARD MEETING (SS-1)

The Secretarial Standard on Board Meetings adherence to which is mandatory now contains detailed practices and procedures mainly with regard to the following:

• Who may convene the meeting
• Time, place and mode of holding such meeting
• Meeting notice and agenda
• Frequency of meetings
• Meetings of Board Committees and independent directors
• Quorum
• Attendance at meetings
• Directors’ participation in a meeting through electronic mode
• Chairman of board or committee meetings
• Procedure for passing board resolutions at board meetings, or, by circulation
• Minutes of board meetings and minute books

SECRETARIAL STANDARD ON GENERAL MEETING (SS-2)

A uniform practice is followed by companies mainly with regard to the following being adherence to the Secretarial Standards:

• The meeting is duly authorized and convened,
• Notice is given in time and sent in an authorized manner,
• Agenda contains the requisite particulars,
• Frequency of meetings
• Quorum
• Presence of directors and auditors,
• Chairman of the meeting and his responsibilities,
• Proxies,
• Voting by a show of hands, postal ballot, poll and electronic voting,
• Scrutineer’s role and responsibilities,
• Rescinding of, or, modification to resolutions,
• Distribution of gifts,
• Adjournment of meetings, and
• Minutes.

NEED FOR HAVING SECRETARIAL STANDARDS

A question on the introduction of Secretarial Standards is that why it is introduced after long years. It, definitely means the steady change in the mindset for the recognition of the company secretarial work. The new law states that all listed companies and unlisted companies with a paid up share capital of atleast five crore rupees need to have a whole time company secretary. Secretarial audit is now mandatory for bigger companies. Many of the forms statutorily required to be filed by companies may continue to be certified by a company secretary in practice.

Also, there has been increasing awareness among Indian and Overseas investors favoring investing in companies not only with the right business prospects but also where the top management values transparency and recognizes the need to follow applicable laws, regulations and healthy practices. The secretarial functions have assumed significance in this context also.
In view of the ever growing need to strengthen corporate governance as discussed, there is an urgency to ensure proper systems and procedures are followed. The report on Corporate Governance is now a compulsory part of annual reports of listed companies. In the above background, there is a clear need to introduce Secretarial Standards.
 
 

BENEFITS OF SECRETARIAL STANDARDS

The adoption of the Secretarial Standards by the corporate sector will have a substantial impact on the quality of secretarial practices being followed by companies, making them comparable with the best practices in the world.

• It results in improvement in the quality of secretarial practices being followed by companies
• It increases the corporate governance and lead to more clarity in proceedings at a Board Meeting, especially for private companies.
• It reduces the litigation. Many litigation cases result from disputes arising due to Board Meeting notices not being sent, the agenda being introduced without sufficient notice, etc.
• It increases the confidence of investors such as Private Equity players and foreign investors who want to invest in Private Limited companies. Many Private Equity players have already welcomed this move.

IMPACT ON INDIA INC.

The Secretarial Standards are applicable to the Board of Directors meetings & General Meetings of all companies (private cos, unlisted public cos. and listed public cos.) incorporated under the company law. Therefore, a company where husband & wife are directors and shareholders or a listed company with a paid capital of Rs.500 crores, all companies are under obligation to ensure compliance of Secretarial Standards.

SS have laid down strict rules for compliance of procedures for conducting board meeting & general meeting and such compliance will assist in strengthening the corporate governance practices and will also help in curbing corporate misdoings.
 
 

IMPACT ON COMPANY SECRETARIES

Enormous responsibility is bestowed on the company secretaries (both, in practice and employment). Company Secretary in employment has to ensure the compliance of Secretarial Standards as it is one of the prescribed statutory functions under Sec. 205 of the Companies Act, 2013 (relating to ‘Functions of company secretary’). Company Secretary in practice has to ensure compliance of the Secretarial Standards for its clients. Company Secretary in practice, who has been appointed as Secretarial Auditor, is under an obligation to report in the Secretarial Audit Report about the compliance of Secretarial Standards by the company.

However, the Secretarial Auditor is not under obligation to report such compliance in the Secretarial Audit Report for the year ended March 31, 2015 as Secretarial Standards are effective from July 1, 2015. The Company Secretaries have to ensure continuous education and develop skills in interpreting and implementing the Companies Act – at the time of consulting and even at the time of conducting secretarial audit.
 

CONCLUSION

Secretarial Standards will create enormous confidence in minds of investors particularly fund managers and overseas investors as these investors are very much concerned about good governance practices and sound procedures.  This will lead to more flow of capital into India, new projects, more modernization and expansion. At the same time, there would be greater transparency and accountability by the Board of Directors. With sound and reliable corporate procedures in the area of decision making, these standards would boost the confidence of investors and would help the corporate world in achieving the Prime Minister’s initiative — ‘Make in India’ and ‘ease of doing business’ by providing benchmark on good governance. Many companies were voluntarily adopting secretarial standards and disclose in their annual reports with regard to compliance.