It is early days but the new secretarial standard that became mandatory for all companies from July 1 this year under the Companies Act 2013 seems set to be a game-changer. Already, company secretaries and independent directors are noticing perceptible improvement in the functioning of the boards of companies, which many see as leading to better corporate governance.
But will it help prevent another Satyam-like scam? That’s a tricky question that finds no answer. So what has changed? “The role of company secretaries, the audit committees and the independent directors has become more onerous as people are now aware that they could be held responsible,” says Anil Razdan, ex-power secretary, who serves as independent director in a few companies.
Unlike globally accepted accounting standards, there are as yet no binding secretarial standards, claim leading company secretary practitioners. The result is there are differences in secretarial standards among different countries and within India until recently it differed even from firm to firm. This was due to varied interpretation of rules and practices, says Pavan Kumar Vijay, ex-president of the Institute of Company Secretaries of India (ICSI). “Globally, there are no set secretarial standards unlike the accounting standards. In India, the need was felt as in the law there can be several interpretations,” says Pavan.
The need to have a transparent and harmonised secretarial standard led to the Secretarial Standard Board being set up in 2000. The new standards, based on global best practices and the guidance notes formulated by the board, today leave little or no room for interpretations by the companies or board of directors.
For one, the new set of rules has finalised the powers of the board chairman—the right to adjourn the meeting with majority support and the chairman’s right to have a casting vote in a decision. To rule out any manipulation, every board meeting now has to have serial numbers so that no meeting is inserted or market sensitive resolution changed.
Pavan does admit to some opposition to the new secretarial standards. Expectations are that compliance with the new standards would reduce grievances between the majority and minority shareholders with improvement in the quality of information flow to the board of directors and to all stakeholders.
“The standards are more concerned with the process of compliance, not the law. But it has the support of the law,” says S. Sudhakar, chartered accountant and company secretary of a leading Indian conglomerate.
Many claim that the clarity on the procedures and practices has completely relieved pressure before the board meeting. Geetika Anand, company secretary and compliance officer with the Aditya Birla group, stresses that the new standard makes a very effective tool for corporate governance by harmonising practices across companies. “Any new law, especially the ones requiring additional compliance, is perceived to be harsh. However, the advantages of such changes can only be understood by the board of directors and compliance officers over a period of time,” she says.
Less than three months may be too short a time to expect major changes. But already the level of compliance is better though the workload of the company secretary has temporarily increased due to the pressure to abide by the set timeline. Robustness of the new standard can be gauged from the fact that the International Federation of Company Secretaries is looking to adopt it for framing a standard formula.
