Mitigating Compliance Risk: How Company Secretaries Safeguard Corporate Governance in Nigeria

Most businesses tend to think of compliance backward.[1] A business can stage its operations and take off without looking into the rudiments of functioning within a designated industry.[2] This manner of approach often leaves companies prone to compliance risks. Instances of the common compliance risks in corporate governance include but not limited to legal penalties, courtroom battles, financial and material loss, and forfeiture. To mitigate these risks, effective corporate governance is essential and needs to be ensured by those piloting the affairs of the company.[3]

The corporate secretary is one of the company's officers that is crucial to the company's long-term performance in corporate governance and compliance.[4] Corporate governance refers to the system of rules, policies, and processes that guide and control an organization.[5] Given its elaborate scope, the secretaries act as gatekeepers in the corporate governance process and the various strategies they deploy to mitigate compliance risks. This article examines how the secretaries in the performance of their designated duties can mitigate risks associated with corporate governance.

Who is a Company Secretary?

The identification of a secretary is closely knit to the qualifications and roles of the Secretary.[6] According to the Black's Law Dictionary, “Secretaries in reference to a corporation or association refers to an officer charged with the direction and management of that part of the business of the company, which is concerned with keeping the records, official correspondence, giving and receiving policies, countersigning documents.”[7]

Historically, the erstwhile position of the company secretary was ministerial and administrative, and not concerned with the management of the company.[8] Given this outlook, organizations regarded the company secretary as a mere servant of the company.[9] The 19th Century decision of Lord Esher, M.R. in the 1887, case of Barnett Hoares & Co. v. South London Tramways Co. solidifies this position.[10] However, after Panorama's case[11] , the company secretary was considered an officer of the company. Since then, statutes, regulations and the articles of association of the company has largely regulated the position of the company secretary.[12]

Specifically, in Nigeria, the Companies and Allied Matters Act states the qualifications and duties of company secretaries. It also provides the exception in the case of a small company.[13]

The Role of Company Secretaries in Corporate Governance:

Company secretaries are crucial for ensuring that an organization adheres to good governance practices.[14] On January 10, 2024, the Central Bank of Nigeria (CBN) dissolved the boards and management of Union Bank, Keystone Bank, and Polaris Bank for failing to comply with regulatory requirements and corporate governance standards.[15] This is part of a broader trend of corporate failures in Nigeria, including the revocation of bank licenses due to poor governance and a sharp decline in upstream petroleum investment, from $22.2 billion in 2014 to $6 billion in 2021, linked to indigenous companies’ disregard for corporate governance principles.[16] Similarly, poor governance structures have caused the demise of countless startups.[17]

These examples highlight the critical need for a well-structured corporate governance framework in both private and public sectors overseen by a company secretary. It is imperative to assign experts with a thorough grasp of corporate governance laws codes and best practices to reduce the risks associated with bad governance given the dire effects it can have on an organization’s stability and reputation. In Nigeria, only legal practitioners and specific professionals can serve as company secretaries of public companies, as they possess the requisite skill, technical knowledge, and expertise to properly guide the company’s board.[18]

 The company secretary is primarily responsible for the following in preserving corporate governance:

1.     Compliance Management:

 Ensuring adherence to laws regulations and codes that direct the organization’s operations is one of the Company Secretary’s main responsibilities. Many businesses have failed as a result of inadequate adherence to corporate governance principles and regulatory requirements. In carrying out the responsibilities of a compliance manager, the Company Secretary monitors the organization’s compliance with corporate governance guidelines and promptly updates the board on any modifications to policies or procedures. The secretary also makes sure the board carries out and conforms with all governance mandates.

2.     Board Advisory:

The Company Secretary plays a crucial advisory role, guiding the board on key decisions that impact the management of the organization. The secretary makes sure the board’s actions and decisions comply with legal frameworks protecting the business and its stakeholders even in situations where certain decisions may seem commercially viable but are not legally sound. Furthermore, the secretary acts as a trusted advisor in the process of choosing board members, guaranteeing that the makeup of the board complies with corporate governance best practices and averting possible regulatory penalties. In order to help management carry out their duties to the company, this advisory role also includes creating and preparing organizational policies. The Secretary makes sure organizational policies are written in compliance with all applicable laws rules and governance codes.

3.     Ensuring Transparency in Disclosure and Reporting:

Ensuring the accurate and timely disclosure of financial and operational data to stakeholders and regulators is another responsibility of the company secretary. This duty includes making sure that financial reports adhere to the applicable regulations and the Financial Reporting Council of Nigeria’s financial reporting standards. The Secretary ensures the disclosure of material information to shareholders, investors and regulators in accordance with legal and regulatory requirements mitigating inadequate disclosure and transparency failures.

4.     Creating and Maintaining Frameworks for Risk Management:

The secretary, in collaboration with the board and management, crafts the organization’s risk management frameworks. This role is crucial in order to address inadequate risk management practices. The company secretary makes sure that possible financial, operational and legal risks are discovered and mitigated

5.     Keeping and maintaining statutory books, registers, and record:

This stands as one of the vital roles of a secretary. This role is reiterated in Section 335 (1-2) of the Companies and Allied Matters Act 2020, which states that the company secretary is responsible for keeping appropriate registers and other records that the company is required to keep under the Act. In order to avoid penalties for noncompliance, it is the company secretary’s responsibility to maintain the company’s statutory books and make sure that all statutory filings are made on time and in accordance with current laws. This increases confidence in the organization’s practices among investors and shareholders.

Conclusion:

The long-term survival of any organization depends on its ability to manage compliance risk in today's complex and evolving business environment. Company secretaries play a critical role in safeguarding corporate governance by ensuring legal compliance, encouraging transparency, and implementing risk management frameworks. As corporations face increased regulatory scrutiny, the function of the company secretary will only become more important.

As corporate and commercial practitioners, La Peritum Law Practice is dedicated to assisting organizations build a solid corporate governance structure for themselves to achieve maximum benefits. Please get in touch with us at enquiries@laperitum.com or click here.

[1]Naill Coburn, “6 Key Reasons Why Compliance Matters: Key Risks Facing Organisations” Thomson Routers, 24 May 2024. <6 reasons why compliance matters: key risks facing organisations - (thomsonreuters.com)> accessed 20th September, 2024.

[2]Ibid

[3] Ibid

[4]Ibid

[5]Frederick Lipman and Keith Lipman, Corporate Governance Best Practices: Strategies for Public, Private and Not-for-profit Organisations (John Wiley & Son, Inc, 2006).

[6]"Being a Company Secretary" Chartered Governance Institute, UK & Ireland) <Being a Secretary> accessed, 17 September 2024.

[7]'Black's Law Dictionary' <www.thelawdictionary.org> accessed 18 September, 2024.

[8] Securities and Exchange Commission (SEC CODE), National Insurance Commission Codes (NAICOM CODES), Pension Commission Codes (PENCOM CODE) and the Central Bank of Nigeria Codes (CBN CODES).

[9]Monstead & Garside, "The Role of the Company Secretary in corporate governance in Nigeria: Case study: First Bank Plc. (2014) <http://delekeorha.wordptess.com > accessed 19 September 2024.

[10](1887)18 Q.B.D. 15.

[11]Filiz A. "The Corporate Secretary within the corporate governance framework" (2013) A dissertation of the University of St. Gallen School of Management, Economics, Law, Social Science and International Affairs to obtain the title of Doctor of Oeconomiae, Approved on the application of Prof. Dr. Martin Hill & Prof. Dr. Roland Miller. Dissent on 4145.Difo-Druck GMBH Bamber. Pg. 2.

[12]Kune Alna, Adejugbe Bolanle, "An Appraisal of the Role of the Company Secretary in Corporate Governance in Nigeria", (2020) Journal of Corporate Governance, Vol. 12(1) 2496.

[13]See Companies and Allied Matters Act, 2020, s. 330 - 335.

[14]International Finance Corporation: Corporate Governance Manual (2nd edn, Hanoi, 2010).

[15] Tech Hive Advisory, “Central Bank Dissolves Boards of Union, Polaris, and Keystone Banks in Compliance Crackdown” https://www.techhiveadvisory.africa/insights/central-bank-dissolves-boards-of-union-polaris-and-keystone-banks-in-compliance-crackdown  Accessed September 27, 2024.

[16] This Day News,’ Osezua: Bad Corporate Governance Plunged Oil Industry Investments to $6bn’ https://www.thisdaylive.com/index.php/2024/04/30/osezua-bad-corporate-governance-plunged-oil-industry-investments-to-6bn/ Accessed September 27, 2024

[17] Punch newspapers, ‘ How poor corporate governance hurts Nigerian startups’ https://punchng.com/how-poor-corporate-governance-hurts-nigerian-startups/ Accessed September 27, 2024.

[18] Ibid