A - Chapter 3 - Role of Company Secretary in Governance

Question 1

How did the Cadbury report describe the role of the company secretary?

Answer 1

The Cadbury Report stated that ‘the company secretary has a key role to play ensuring that board procedures are both followed and regularly reviewed’.

Subsequent versions of the UK Corporate Governance Code and the additional guidance published to support it have gone into more detail as to what the role entails.

Question 2

In what guidance or legislation would you find out information around the requirements for a company secretary?

Answer 2

1. CA2006 s 270 and 271
2. The Wates principles for large private companies
3. Provision 16 of the UK Corporate Governance Code 2018
4. The FRC Guidance on Board Effectiveness 2018
5. ICSA / CGI guidance note issued in 2013.

Question 3

What are the requirements for having a company secretary under CA2006?

Answer 3

CA2006 s271 states that all public companies in the UK must have a company secretary.

s270 provides that since April 2008, unless there is an express requirement in the company’s articles of association, private limited companies are no longer required to appoint a company secretary.

In the absence of a company secretary, s270 states that directors must take on the responsibilities and duties of a company secretary.

For this reason, many private companies continue to employ a company secretary in order to reduce the administrative and corporate governance burdens which that would otherwise be placed on their directors.

Question 4

What do the Wates Principles for large private companies say on the requirements for having a company secretary?

Answer 4

The Wates principles for large private companies suggests in its guidance that the chair and the company secretary should ‘periodically review the governance processes to confirm that they remain fit for purpose and consider any initiatives which could strengthen the governance of the company’.

If there is no company secretary, then a company may have alternative arrangements.

Question 5

What does the UK Corporate Governance Code 2018 say on the requirements for having a company secretary?

Answer 5

Provision 16 (which applies to all companies with a premium listing) states:

“all directors should have access to the advice of the company secretary, who is responsible for advising the board on all governance matters, Both the appointment and removal of the company secretary should be a matter for the whole board.”

The FRC Guidance on Board Effectiveness (also issued in 2018) provides further information on what this means in practice.

Question 6

The duties of the company secretary can be broken down into four main categories. What are they?

Answer 6

1. Governance
2. Statutory and regulatory compliance
3. Advising the board and senior management
4. Being the board’s communicator

Question 7

ICSA’s guidance note ‘The corporate governance role of the company secretary’ sets out duties under Governance. These are broken down into 6 areas. What are they?

Answer 7

1. Board composition and procedures
2. Board information, development and relationships
3. Accountability
4. Remuneration
5. Relationship with shareholders
6. Disclosure and reporting

Question 8

ICSA’s guidance note ‘The corporate governance role of the company secretary’ sets out areas of actions required to discharge governance responsibilities under Statutory and Regulatory Compliance. These are broken down into 6 areas. What are they?

Answer 8

1. Directors Duties
2. Share Dealing
3. Protection of inside information
4. Verification of published information
5. Responsible release of market information
6. Compliance with continuing obligations under he LPDTR’s

Question 9

ICSA’s guidance note ‘The corporate governance role of the company secretary’ sets out examples of how a company secretary can advise a board and senior management on how organisation can meet its governance requirements. These are broken down into 7 areas. What are they?

Answer 9

1. Good board practices
2. Transparency and disclosure
3. Effective control environment
4. Relationship with shareholders and other stakeholders
5. Corporate Responsibility
6. Conducting business ethically
7. Board’s commitment to corporate governance

Question 10

ICSA’s guidance note ‘The corporate governance role of the company secretary’ sets out examples of how a company secretary can be the board’s communicator. What best practice examples would fall into this area?

Answer 10

1. Communicating all board decisions to the relevant member of the management team.
2. Managing the disclosure of the board’s decision’s to regulators and other stakeholders.
3. Liaising between the board members and senior management on logistics for board and board committee meetings, training sessions, board retreats, board evaluation sessions and other board events.
4. Facilitating good information flows between the board, individual board members, the committees and senior management that foster effective working relationships between them.
5. Being the primary point of contact between the non-executives and the company, providing a source of information and advice.
6. Ensuring that the board keeps in contact with shareholder opinion and that shareholders are briefed on the reasons behind the board’s adoption of certain governance practices and decision making.
7. Ensuring that relevant disclosures on corporate governance and directors’ remuneration are made in the company’s annual report and accounts and that the annual report and accounts is made available electronically on the company’s website.

Question 11

Why is a company secretary sometimes called the ‘conscience of the company?’

Answer 11

In fulfilling the role as governance professional, the company secretary is often called on to advise the board what the right thing is to do in the long-term interests of the organisation. This often goes beyond what the law and regulations require and so takes the company secretary into the realm of what is known as business ethics.

As the governance professional the company secretary should also speak out against bad governance and unethical or illegal practices, such as if the company secretary discovers that a proposal from management requires the company to pay a bribe to a government official.

In order to be the ‘conscience of the company’, the company secretary must be independent-minded and also not be under the influence of either senior management, the chair or another individual director.

Question 12

What qualifications are required to perform the role of a company secretary in a public company?

Answer 12

Section 273 of CA2006 requires directors of public companies to enlist the services of a secretary, who should:

• Be a person who appears to them to have the requisite knowledge and experience to discharge the functions of the secretary.
• Have one or more of the following qualifications:

– have been a secretary of a public company for at least three years of the five years immediately preceding his or her appointment;

– is a member of one of the following seven professional bodies:,
– the Institute of Chartered Accountants in England and Wales;
– the Institute of Chartered Accountants of Scotland;
– the Association of Chartered Certified Accountants;
– the Institute of Chartered Accountants in Ireland;
– the Institute of Chartered Secretaries and Administrators;
– the Chartered Institute of Management Accountants;
– the Chartered Institute of Public Finance and Accountancy; and
– is a qualified barrister or solicitor.

Question 13

In addition to technical skills, what other skills are important to perform the role effectively?

Answer 13

Interpersonal skills (such as diplomacy, effective communicator, personal and social awareness, integrity) & commercial and business acumen (understanding of how your company makes money and creates value, understanding your company’s competitive advantage, keeping up to date with industry developments)

Question 14

Why should a company secretary attend executive team meetings?

Answer 14

1. To enable them to advise the executive on governance issues arising out of any proposals as they are being formulated. They can also advise on how the board might react to a particular proposal and
   what questions the executive should be prepared to answer when the proposal is considered by the board.
2. Attending executive meetings also helps the company secretary get an understanding of the executive’s positioning and reasons for suggesting the proposal which may help the company secretary if the proposal needs to be ‘sold’ to the chair.
3. Remember that the company secretary can often fill the role of mediator or arbitrator between the CEO and the chair.

Question 15

Who should a company secretary report to and give reasons to why?

Answer 15

The reporting lines for the company secretary differ between organisations. Some company secretaries report direct to the chair, others to the CEO or another senior executive.

ICSA: The Governance Institute sets out in its July 2013 guidance note ‘The duties and reporting lines of the company secretary’ sets out 5 best practices in this area in large companies.

1. The company secretary is responsible to the board and should be accountable to the board through the chair on all matters relating to corporate governance and their duties as an officer of the company (core duties).
2. As the person elected by the directors to act as their leader, the chair is the person to whom the company secretary should report with respect to responsibilities which concern the whole board.
3. If, in addition to the core duties mentioned above, the company secretary has other executive or administrative duties, he should report to the chief executive or such other director to whom responsibility for that matter has been delegated by the board.
4. The company secretary should not report to a director (except the chair) on any matter unless responsibility for that matter has been delegated to that director by the board.
5. A director who is authorised unilaterally to fix the company secretary’s remuneration and benefits could gain undue influence. It is therefore recommended (particularly where the company secretary reports to the chairman on all matters) that decisions on remuneration and benefits should be taken (or at least noted) by the board as a whole or the relevant committee thereof.

Question 16

Who should decide a company secretary’s remuneration and why?

Answer 16

The board or the remuneration committee. This is to protect the independence of the position of the company secretary.

Question 17

What are two ways in which the board could consider the evaluating the company secretary role?

Answer 17

1. The company secretary’s evaluation is carried out as part of the annual board evaluation. The external evaluator engaged to carry out the evaluation of the board, board committees and individual directors can be requested to also carry out an evaluation of the company secretary.
2. The remuneration committee can request management to carry out an independent 360-degree evaluation of the company secretary, the results of which are fed directly back to the committee.

Question 18

Who is appointment for appointment and dismissal of a company secretary?

Answer 18

The board as a whole.

Question 19

What difficulties do dual role bring to a company secretary role?

Answer 19

If the company secretary role is combined with another role such as that of the in-house lawyer or accountant, care should be taken to see that the governance role is not compromised.

A general counsel who is also given the role of the company secretary will often have to take sides in fulfilling their legal role to represent the particular interests of the company and although they may be complying with the letter of the law and in the interests of management, they may
not be acting in the best long-term interests of the company.

This would be inconsistent with the company secretary’s governance role which requires impartiality when advising on governance issues. It may also prevent a company secretary from speaking out against bad governance or unethical practices, or proposals that are not in the long-term interests of the company, especially if to do so was costly or against the wishes of the CEO.

The company secretary in their governance role should also be considering the reputational impact of the board’s decision. This again may require the board to consider more than just complying with the laws and regulations. An example of this is the recent tax avoidance cases by multinational companies, such as Starbucks, Apple, Google and Amazon. Their accounting policies and practices comply with the law but are not considered ‘morally’ correct by the media and certain members of the general public.

Question 20

Can a company secretary be liable for fines and other penalties for officers?

Answer 20

As an officer of the company, the company secretary may be liable, with the directors, to default fines and other penalties for officers under the Companies Act 2006.

Company secretaries may also be held liable, under the Insolvency Act 1986, for damages awarded by the court in the course of a winding-up of a company if there has been a misfeasance or breach of trust in relation to the company.

A company secretary can, under s. 1157 CA2006 apply to the court for relief in respect of any liability.

The secretary will not normally be held liable with directors for any breach of trust or malfeasance committed by them.

Question 21

What would be considered benefits of outsourcing the company secretary role?

Answer 21

1. To ensure that all of the statutory and regulatory requirements are met by a specialised firm. These requirements are changing regularly in some countries as new laws and regulations are introduced.
2. To reduce costs of employing a person with a specific qualification, especially in a company start-up.
3. To fulfil a requirement to file company documents online, which requires a PIN for security reasons. There may also be a requirement that filings be carried out by a professional firm. For smaller companies, it may be more cost-effective or efficient to outsource the role to a professional firm.

Question 22

What would be the disadvantages of outsourcing (or the benefits of having the position in house?)

Answer 22

1. An in-house company secretary acquires an in-depth knowledge and understanding of the company and its history and also develops relationships with the board and management that an external firm lacks.
2. An in-house company secretary is available at all times to discuss corporate governance issues. A professional services firm may be much slower in providing assistance or responding to questions.
3. A qualified in-house company secretary offers a wide range of services and is able to take on other responsibilities in a start-up or smaller company. For example, ICSA educates people in strategy, risk management, law, and accountancy.
4. An in-house company secretary may provide support that is difficult for an external firm to provide; for example, assisting the chairman to prepare for meetings.
5. An in-house company secretary can truly act as the ‘conscience of the company’ and has no conflict, in that they do not do other work for the company such as providing legal or accountancy services.

Question 23

If the role is outsourced, who maintains responsibility?

Answer 23

Where the role of the company secretary is outsourced, the directors maintain responsibility for the duties that should be carried out by the company secretary if one were employed in-house. Therefore, there needs to be oversight of the third party fulfilling the role.