C1/3 Flashcards
Introduction/Effective board practices
Define Shareholder, Member, Share and Debentures.
Member- A subscriber to the Memorandum of Association and any other person who agrees to be a Member and is entered in the register of Members.
Shareholders- A member holding shares of a Company with a share capital.
Share- A unit of ownership of the Company, representing a share fraction of the share capital and usually conferring rights to participate in distributions. There may be several kinds of shares each carrying different rights. Shares are issued at a fixed nominal value, although the company may actually receive a larger amount, the excess representing share premium. Members may not be required to subscribe the full amount immediately; in which case the shares are partly paid- await calls which require them to pay further amounts until the shares are fully paid.
Debentures- A written acknowledgement of the debt owed by a Company, often- but not necessarily secured. It is common practice for a debenture to be created by a trust deed by which company property is mortgaged to trustees for the debenture holders, as security for the payment of interest and capital.
Define a PLC, Listed Company and Quoted Company.
PLC- A company that meets specified requirements as to its minimum share capital and which is registered as a public company- only public companies can offer shares and debentures to the public.
Listed Company- A company whose shares are listed by the FCA on the Official list of the UK and admitted for trading on the LSE or NEX listed markets.
Quoted Company- A Company whose equity share capital has been included in the Official List in accordance with Part 6 of the Financial Services and Markets Act 2000, or is officially listed in an EEA state, or is admitted to dealing on either the NYSE or Nasdaq- AIM company is NOT a quoted Company.
Role and Duties of a Company Secretary?
Company Secretary: An officer of the company, statutory duties such as to sign off on Confirmation statements and accompanying documents- usually charged with a range of duties relating to the Company’s statutory books and records.
- All Public companies must appoint a company secretary
- Private companies may choose to appoint a company secretary (S270 and 271 Companies Act).
- Partnerships and corporate bodies (including LLP) may be appointed as Company Secretary.
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Advising the board
- Board procedures and protocols
- Legal, statutory & regulatory compliance
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Acting as the board’s communicator
- Shareholder communications (including electronically)
- Listed companies’ cycle of communications, changes in board composition and material changes in the company
- Annual Report & Accounts
- Board decisions
- Circulars, notice of meetings
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Ensuring compliance
- Maintain checklists for procedures, timetables, reference materials, specialist software packages
- 3 main areas: (1) board (Advising), (2) company (Compliance) and (3) members (shareholders) (Communication/Governance matters)
- Co-ordinate and attend company and director meetings
- AGM arrangements
- Minutes of meetings
- Carry out board instructions
- Ensure comply with Articles
- If listed company, ensure compliance with Listing Regime and City Code on Takeovers and Mergers
- Ensure compliance with CA2006 and other legislation
- Maintaining statutory books, records & registers and inspection of documents
- Filing statutory returns and documents
- Co-ordinate Annual Report & Accounts publication and distribution
- Implement directors’ & employees’ share schemes
- Safe custody and use of common seal (if applicable)
- Administration of subsidiary companies
- Focal point for shareholder communication, and registration of share ownership
What are the qualifications of a Company Secretary, and who is prohibited?
A Company Secretary of a private company does not need to be a professional nor have experience.
S273 CA2006 provides that a plc Company Secretary must satisfy the following criteria:
- The directors must be satisfied that they have the requisite knowledge and experience to discharge their functions.
- They must be:
- Barrister, advocate or solicitor, call or admitted in the UK
- Member of specified professional bodies: ICSA; and six accountancy bodies
- Have been a Plc Secretary for three out of five years prior to appointment
- Is a person who, by virtue of their holding or having held any other position or them being a member of any other body, appears to the directors to be capable of discharging these functions.
- The auditor and employee of the audit may not be appointed as company secretary CA2006 s1214.
Process for Appointment/Removal of a Company Secretary
Appointment:
Public companies must have company secretary (CA2006, s271) Qualifications required (s273)
- Appointment and removal should be matter for board (UK Corporate Governance Code)
- Company Secretary may also resign from office at any time
- If listed company, notify a ‘regulatory information service’ / also subject to Market Abuse Regime
- Follow Provisions in Articles of Association
- Notification to Companies House
- First secretary - form IN01
- Subsequent appointments - form AP03 (file within 14 days), AP04 Corporate Appointments.
- No need to supply residential address - can supply service address only
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Resignation or removal - form TM02 (file within 14 days)
- Being removed as a company secretary would not necessarily also terminate their employment.
- If the company has Directors and Officer Liability Insurance, the insurance company should be notified. Banks notified if authorised signatory.
- Finally, the secretary should give as part of their induction all the rules approved for example Market Abuse Regulations, Disclosure Transparency Rules, Listing Rules etc.
Relationship with the Chair
Relationship with Chair
The Company Secretary supports the chair and helping the Board and its committees to function efficiently. The Governance code recommends the Company Secretary reports to the Chair on all governance matters. That doesn’t mean the Company Secretary may not also report to the CEO, CFO or General Counsel.
- Often the Company Secretary will have regular meetings with the chair eg 1) to agree the agenda; 2) agree the papers. The CoSec may also sit next to the chair in meetings as well as providing a chair’s brief prior to the meeting.
- Ensuring Board procedures are complied with
- Advising the Board on all governance matters
- Supporting the Board to establish policies, processes, information, time and resources to function effectively and efficiently
- Quality information to the board and its committees
- Induction and training of board as well as CIPD
- Ensuring directors has access to external expert advice, if necessary
CoSec must act with integrity and independence.
Dissemination of information and decisions, before, during and after the meeting.
- Before the meeting:
- Standards item on the agenda like reports on Finance, health and safety, business development, risk management etc. Add additional topics to the agenda if necessary-communicate with CEO and Chair.
- Armed with the agenda, the Company Secretary will chase these papers in good time.
- NOTE: some of the papers for Board may need to also go through a Committee approval process.
- Send invites out to other attendees.
- Prepare board packs.
- During the meeting:
- Ensure quorum
- Note those present
- Take notes / minutes. Meetings for companies with external regulators will often have more detailed minutes explaining the rationale behind decisions, challenges and discussions.
- Record the voting.
- You may be asked to advice on matters of governance.
- Call in those other attendees when appropriate.
- Clear the room of papers.
Regulatory Information Service (RIS)- An information provider approved by the FSA to disseminate information to the market.
- After the meeting:
- Companies with publicly traded securities only – if the board has made a decision with regard to a notifiable event, such as the payment of dividend on the company’s shares, yearly or half-yearly accounts have been approved, or issue of shares or debentures or postponement of payment of dividend then an announcement via the regulatory information service must be made as soon as possible.
- Circulate actions as soon as possible.
- Ask for reports for next meeting.
- Prepare minutes – the timing will change company to company from 48 hours to out with the papers.
- If a director makes a comment in the wording of minutes, the alteration should be agreed in the next set of minutes, other than obvious mistakes or minor errors.
Communication between Shareholders and other Stakeholders.
Communication between Shareholders and other Stakeholders:
- CA2006 sets out detailed communication provisions to be used by companies when communicating with their members and vice versa (1143-8 and Schedules 4 & 5).
- Corporate director is a corporate entity appointed as a director.
- Delivery of documents and information to a company, Hard copy documents may be sent to a company by hand/post to the registered office address, or an addressed specified for purpose. Electronic documents may be sent if the company has agreed or deemed to have agreed- DVD or USB must comply with hard copy requirements.
- Delivery of documents and information by a company, Electronic documents may be sent if the recipient has agreed or deemed to have agreed. Hard copy documents may be sent to a company by hand/post to the registered office address, or an addressed specified for purpose. Or to the Directors address as is in the Register, or a Members address as is in the Register. Website communication by a company is valid where the recipient has given consent or deemed to have been given consent and is made available on the website- notification given to the recipient- can retain a copy.
- All members are entitled to a copy of the notice, papers and annual report and accounts. There are rules about them being legible, delivered to the correct address on time.
Liabilities for a Company Secretary?
Liabilities
- CS is Liable, with directors, for CA2006 breaches - directors ultimately liable, but often rely on company secretary
- Company secretary to advise the board on compliance with laws
- Some legislation doesn’t create individual director/officer liability, but can fine companies (Corporate Manslaughter and Homicide Act 2007)
- Individuals can otherwise be held liable - eg criminal offence for late filing of accounts (directors), if audit wrongdoing found by HMRC, various FSMA offences
Offences and penalties - company secretary liable where they are in default or permit the default. A qualified Company Secretary should know the penalties for default and there will be no excuse. The penalty depends on the offence:
- Company failing to keep account records: on indictment two years imprisonment or a fine or both
- Company with share capital, failing to file confirmation statements: the statutory maximum
- Default in complying with S288: fine. The statutory maximum.
In England and Wales, the statutory maximum means: the prescribed sum under the Magistrates Courts Act. In Scotland the prescribed sum under S289B Criminal Procedure (Scotland) Act 1975 £5k.
CS does not carry any management responsibility under legislation- derives its authority from the employment contract whereas directors derive their authority under the CA and associated legislation.
Board Structure/Composition under the Code?
- The governance code, while not prescribing the composition of the board, does make a number of recommendations for listed companies including:
- board to compromise both executive and NEDs (Governance Code principle G);
- at least half the boards in the FTSE350 should be independent NEDs, excluding the chair (Governance Code provision 11). Companies outside the FTSE350 should have at least two NEDs; and
- a majority of board committee members should be independent NEDs (Governance Code provision 17)
Why should board evaluations be carried out, how often, and what should they cover?
Board Evaluation
- An effective board is key to long term success
- Not a statutory requirement, but good practice.
- Governance Code recommends that all listed company boards should undertake an annual, formal and rigorous evaluation of its performance and that of its committees and individual directors (Governance Code provision 21).
- The Code further recommends that for FTSE350 companies this review should be conducted by an external facilitator at least once every 3 years (Prov 23)
- Details of the evaluation should be included in the next annual report together with an overview of any issues found and steps taken to address them (Governance Code provision 23).
- Other types of organisations including charities, professional bodies, mutual bodies, regulatory bodies and pension trustee boards also voluntarily undertake board evaluation reviews.
- The evaluation will examine one or more of the three major roles performed by the board being direction through setting strategy, control through monitoring the executives’ progress in delivering the strategy and support though its advisory role.
- The evaluation will cover a variety of factors, some of which may be company or industry specific, and will cover the following four main areas:
- Board Structure
- Board and Company governance
- Board monitoring
- Board processes and interactions
Advantages of an internal board evaluation?
Advantages of an external board evaluation?
Director Education and Guidance- checklist for director induction- listed Company
- Role of a director, director duties/obligations, Liability insurance, protocol/procedures for board meetings and general meetings- related roles and responsibilities- restrictions on outside interests.
- Rules, regulation and guidance, UKCG, FRC guidance on comply/explain, UKLA’s Listing overview, DTR overview.
- Operation of the Board: composition Matters reserved for the board, delegated authorities, Committees- policy on directors’ re-election by shareholders, contact details of key executives., meetings, minutes from the last 12 months and dates f or future board and board committee meetings/dinners- financial reporting deadlines. Training in relation to using board portal, chairs expectations of the board- summary of ethics/corporate culture. Procedures director evaluation processes, board training and development programme, special procedures- accounts sign off, treatment and disclosure of inside/info- bid and or/defence handbook.
- Business background – business model, previous annual report and accounts, major events, company’s history/structure/joint ventures/subsidiaries- major elements of the Company’s business including key stakeholders.
- Running of the business- key individuals/Policies/Procedures, professional advisors to the board, company’s risk management system, significant reports/financial items, insurances in place, any significant litigation.
- Third party relations- UK Stewardship Code, Investor relations, Stakeholder relations, key customers/suppliers, other Company advisors.
- Practical issues: layout of buildings, org charts etc.
- Ensure they have all the information, training and continued board training and engagement they need- This can be formal, informal and by of workshops
- Induction should be the start of a continuing programme of education and updates (CPD)- helps them keep their knowledge-up to date.
Matters Reserved to the board?
Matters reserved to the board:
UKCG Code Provision 14- The responsibility of the Chair, Chief Executive, Senior Independent Director, Board and Committees should be clear, set out in writing, agreed by the board and made publicly available. Guidance note 28- assist the board in planning- formal schedule of matters.
- Authority Limits- robust financial controls as Directors have a fiduciary duty to the shareholders. A combination of monetary limits, length of contract, type of contract.
- code of conduct- number of codes of conducts applicable to different levels/grades of employees.
- tenure policy for NEDs- NEDs serving for longer than 9 years are not NEDs for the purposes of UKCG. Fully consistent with Principle K- regularly refresh the board.
- expense policy- evidence required/payment cycle for expense claims. Not just apply to Directors but be applied Company wide.
- independence standards for independent NEDs- no statutory criteria for what constitutes independence, Code Provision 10- Independence can be impaired. Is or has been an employee of the Company within the last 5 years, has or has had a material business relationship with the company, directly or as a partner. Additional Remuneration, Close family ties, cross-directorships/significant links with other directors, represents a significant shareholder, has served for more than 9 years.
- committee terms of reference- clear written terms of reference setting out the composition, duties, delegated responsibility, budgetary constraints and reporting requirements. General content of a committee to include- membership, secretary, quorum, frequency/notice/minutes of meetings, AGM, duties, reporting responsibilities.
- share dealing policy- Under MAR there is no obligation on listed companies to have a share dealing code as the responsibilities fall largely on the Persons Discharging Managerial Responsibilities- ICSA Model Code was drawn up.
- whistle-blowing policy- Code provision 6 means for the workforce to raise concerns in confidence- if they wish anonymously. FCA regulated companies have additional steps which are required by companies.
- risk management policy- Risk Identification, Assess the Impact, Risk Mitigation strategy developed, Implemented, Reviewed.
