Secretaries as governance champions?

Updated: Saturday January 18, 2014 MYT 7:20:02 AM

Secretaries as governance champions?

BY ERROL OH

We need to know more about their role as gatekeepers.

IT’S great that the Malaysian Code for Institutional Investors is now at the public consultation stage. On Wednesday, the Securities Commission (SC) and the Minority Shareholder Watchdog Group (MSWG) issued a joint consultation paper to seek feedback on the code.This means another item can soon be crossed off the to-do list that sprang from the SC’s Corporate Governance Blueprint 2011. Actually, with some push, it can be two items.

Of the Blueprint’s 35 recommendations, two came from the chapter on the role ofinstitutional investors.

Recommendation No. 8 is that a code for institutional investors should be formulated. That’s almost done. Given that the consultation period for the code ends on Feb 28, the final version is likely to be published no later than a month or two later.

Recommendation No. 9 urges institutional investors to come together to form an umbrella body. The drafting of the code is a precursor to that.

The project’s steering committee comprised representatives from the MSWG, leading government-linked investment funds, Private Pension Administrator, Malaysian Association of Asset Managers and Malaysian Takaful Association. These organisations will probably make up the core of the umbrella body.

Here’s what the code has to say about this matter: “An umbrella body for institutional investors is expected to be formed as a platform to discuss stewardship matters. In the initial stages, the MSWG will undertake the monitoring of the take-up and application of the code.”

(In the context of the code, stewardship refers to investor stewardship from the perspective of a long-term institutional investor, in particular asset owners such as pension funds.)

Hopefully, there’s as much progress with the rest of the outstanding recommendations from the blueprint.

Among the other groups who get some attention in the blueprint are the company secretaries. They fall in the category of gatekeepers, that is, professionals whose independence, integrity and professionalism are critical in ensuring that board decisions are in the best interest of the company.

These gatekeepers can influence corporate governance standards and improve corporate governance culture. Other gatekeepers include internal and external auditors, corporate advisers, lawyers, rating agencies and valuers.

The blueprint points out that a company secretary is an officer of the company and is therefore accountable to the board.

It adds that company secretaries are best placed to guide boards on proper corporate governance practices given their knowledge and familiarity with the records and charters of the board, the processes and procedures in accordance with the company’s memorandum and articles of association, and legal and regulatory requirements.

The qualification, duties and responsibilities of a company secretary are set out in the Companies Act 1965. But there’s a need to go beyond these provisions in order to enhance the role of company secretaries in Malaysia’s corporate governance landscape.

It’s explained in the blueprint that company secretaries today are doing more than the traditional passive job of preparing the minutes of meetings; they now have a more proactive and strategic role.

Boards increasingly turn to company secretaries for advice on procedural and regulatory requirements. Company secretaries also have a part in the induction of new directors, and in assisting the chairman in determining the annual board plan and the administration of other strategic issues.

“There is increasing recognition of the need to elevate the position and function of company secretaries to allow them to take on a stronger role in promoting governance within companies. For this purpose the code should articulate the role of company secretaries in corporate governance,” says the Blueprint.

“In the light of the increasing complexity of businesses and the regulatory environment, it is recommended that the relevant professional bodies look into qualification requirements needed to raise the skills and professional standards of company secretaries of listed companies.”

Indeed, this is Recommendation No. 30 of the blueprint, and it’s proposed that this be effected through the new Malaysian Code on Corporate Governance and be driven by the professional bodies.

As such, the Malaysian Code on Corporate Governance 2012 advises a listed company’s board to ensure it is “supported by a suitably qualified and competent company secretary”.

Says the code: “The board regularly consults the company secretary on procedural and regulatory requirements. The company secretary also plays an important role in supporting the board by ensuring adherence to board policies and procedures. Therefore, the board should appoint a suitably qualified and competent company secretary who can support the board in carrying out its roles and responsibilities.”

However, the code doesn’t offer a definition for “a suitably qualified and competent company secretary”. The Companies Act 1965 specifies that a person can’t be a company secretary unless he is a member of certain professional bodies (representing company secretaries, accountants and lawyers) or is licensed by theCompanies Commission of Malaysia.

Among these bodies is The Malaysian Association of the Institute of Chartered Secretaries and Administrators (Maicsa). It’s one of nine international divisions of London-based Institute of Chartered Secretaries and Administrators (ICSA).

The ICSA is widely recognised as one of the leading professional bodies for company secretaries. It’s interesting that the ICSA describes itself as “the membership and qualifying body for Chartered Secretaries and other professionals working in governance and compliance roles”.

Maicsa mirrors that with its own vision: “To be the premier professional body in promoting good governance and best practices in organisations.”

But it’s counterpart in Australia has gone much further. Last September, 81% of members at a general meeting of Chartered Secretaries Australia agreed to a proposal to rebrand the organisation as the Governance Institute of Australia. The idea is “to more accurately reflect its role as the only professional association in Australia with a sole focus on the practice of governance in all organisations”.

Says CEO Tim Sheehy: “We recognised at the outset that we needed to better align our goals and message to more accurately reflect the evolution of who we have become, what our members do and who we represent. It was not just about changing the name or logo, but of reflecting the impact on our members from governance responsibilities now cascading through organisations.”

A recent print advertisement for the Governance Institute declares that governance has a new champion. “Now, with our name change, we declare our absolute focus on governance performance,” says the institute.

That’s a bold statement to make, but it definitely raises awareness of the link between company secretaries and corporate governance. That will help efforts to improve corporate governance in Australia.

Malaysia could do with a similar boost. Perhaps Maicsa doesn’t need to think of a new name at this point, but if more people realise that company secretaries are among the gatekeepers of corporate governance, there will be stronger impetus for the profession to carve out a bigger role. That should be a good thing for corporate governance in Malaysia.

Executive editor Errol Oh thinks it’s ridiculous that some professionals don’t even know (or care) that they’re supposed to be gatekeepers.