Chapter 3+6: Role of CoSec+Role of board

Question 1

What does s271 and s273 of the CA2006 say about the company secretary?

Answer 1

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

s273 states that the company secretary must be a qualified Accountant, Lawyer or Chartered Governance Professional or be a person who appears to them to have the requisite knowledge and experience to discharge the functions of the secretary.

Question 2

What are the 4 key roles of the Company Secretary and provide duties under each?

Answer 2

*Governance
(board composition, board info, board procedures, accountability, insurance, remuneration, shareholders, disclosures and reporting, induction programmes, director development)

*Statutory and reg compliance in support of directors
(directors duties, share dealing, inside info)

*Advising the board and senior management
(Good board practice, stat duties, CSR)

*Communication
(Regulators, PPOC, bridge, NED’s, preparation of annual report)

Question 3

Describe what is meant by the Company Secretary as the ‘Conscience of the company’

Answer 3

Advising the board on the right thing to do in the long-term interests of the company

Based on:
* Independence
* In depth knowledge of company
* Strong governance and ethical understanding
* Good relationship with the board

Question 4

What measures can be implemented to protect the independence of the company secretary?

Answer 4

• Reporting lines
  – 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.
• Remuneration
  – decisions on the remuneration and benefits of the company secretary should be taken by the board or by the remuneration committee.
• Evaluation
  – carried out as part of the annual board evaluation
• Governance and Independence
• Impartial advice
• Provision 16
• CGI emphasises need for impartial advice
• Seniority
• Treated as a role with sufficient seniority
• Dual roles
• CoSec role carved out from any other role, promotes good governance
• Appointment and removal
• Matter for the whole board
• Trust and confidence
• Maintain trust from board and SM

Question 5

List 3 good reasons why a company should not outsource the role of the Company Secretary?

Answer 5

• 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.
• An in-house company secretary is available at all times
• 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.
• 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.
• 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 6

List 6 matters reserved for the board

Answer 6

• Strategy and Management
• Structure and Capital
• Financial Reporting and controls
• Contracts
• Internal controls
• Communication
• Board Membership
• Remuneration
• Delegation of Authority
• Policies

Question 7

List 5 roles of the Chair

Answer 7

• Setting a board agenda primarily focused on strategy, performance, value creation, culture, stakeholders and accountability, and ensuring that issues relevant to these areas are reserved for board decision;
• shaping the culture in the boardroom;
• encouraging all board members to engage in board and committee meetings by drawing on their skills, experience and knowledge;
• fostering relationships based on trust, mutual respect and open communication – both in and outside the boardroom – between non-executive directors and the executive team;
• developing a productive working relationship with the chief executive, providing support and advice, while respecting executive responsibility;
• providing guidance and mentoring to new directors as appropriate;
• leading the annual board evaluation, with support from the senior independent director as appropriate, and acting on the results

Question 8

Why is it advisable for the roles of the Chair and CEO to be separated

Answer 8

• Principle G of the UKCG Code states, ‘There should be a clear division of responsibilities between the leadership of the board and the executive leadership of the company’s business’.
• Provision 9, states ‘The roles of chair and chief executive should not be exercised by the same individual’ and ‘A chief executive should not become chair of the same company.’
• When an individual holds the positions of both chair and CEO, they are likely to be able to exercise a dominant influence on the board
• They are effectively allowed to ‘mark their own homework’, set their own targets and influence board appointments, thus reinforcing their own position.
• Over time, they may become less and less likely to listen to advice from board colleagues and the board may eventually cease to function as an effective body.

Question 9

What is the key role of a NED?

Answer 9

• Provide constructive challenge, strategic guidance, offer specialist advice and hold management to account
• Scrutinise and hold to account the performance of management and individual executive directors against agreed performance objectives
• Have a prime role in appointing and removing executive directors

Question 10

What is the role of the SID?

Answer 10

• Act as a sounding board for the chair and an intermediary for other directors and shareholders
• Take the lead in the non-executive directors’ annual assessment of the performance of the chair
• Might also take responsibility for an orderly succession process for the chair, working closely with the nomination committee
• Should also be available to shareholders if they have concerns that contact through the normal channels of chair, chief executive or other executive directors has failed to resolve or for which such contact is inappropriate
• Work with the chair and directors, and/or shareholders, to resolve significant issues when the board or company is undergoing a period of stress

Question 11

Skills and attributes of required to fulfil CoSec role

Answer 11

CIGI BCPL

• Concept of the ‘conscience of the company’
• Business ethics - law and regulation
• Speak out against illegal/ unethical behaviour
• Independence
  Independent of management
  Rep company and board as a whole
• Governance Role
  More than admin - COC
• Interpersonal and communication skills
  Communication and relationship management skills

Facilitate effective dialogue

Interpersonal skills and emotional intelligence to resolve disputes

• Business and commercial acumen
  Commercially aware and understand business (governance, risk)
• Confidence, resilience, integrity
  Operate effectively difficult circumstances
• Practical skills
  Building rapport, remaining calm, clear advice
• Legal skills
  Sufficient legal skills
  Sufficient knowledge of applicable law and regulation

Question 12

Relevant part of Code and guidance for NED effectiveness?

Answer 12

Principle H
FRC Guidance on Board Effectiveness

Question 13

How can the effectiveness of a director be undermined

Answer 13

• a lack of knowledge about the company’s business;

*insufficient time spent with the company;

• defects in the decision-making process; and
• ineffective challenge.

Question 14

Suggestions of how directors can remain effective

Answer 14

• Devote time to understand culture
• Sufficient time to discharge duties
• Develop and refresh knowledge
• Receive high quality info
• seek clarification
• meet with shareholders, key customers, workforce

Question 15

Role of CoSec in ethical culture

Answer 15

• suggest corporate culture are on the board’s agenda;
• suggest culture indicators are selected based on the expectations of the organisation’s key stakeholders;
• developing a dashboard for the culture indicators that should be reviewed from time to time by the board;
• organising site visits so that members of the board can get out and about and meet employees to assess for themselves the culture embedded within the organisation;
• assisting in developing the reporting to stakeholders on the organisation’s culture

Question 16

Role of CoSec in Financial Reporting

Answer 16

• Ensuring that the board complies with the legal, regulatory, standards This will relate to the content and timing of disclosures.
• Interpreting in non-financial terms the financial performance and disclosures for the board, shareholders and other stakeholders. (draft the disclosures within the narrative reporting c11)
• Ensure notes to the financial statements clearly and transparently explain the figures in the financial statement.

Check that the narrative reporting section of the annual report and accounts is consistent with the financial statements and notes to them.

• Advising the board on the implications and potential reputational risk of the financial performance and disclosures.
  This will include the potential reaction of shareholders, shareholder representative groups and other stakeholder groups to the financial performance and disclosures.
• Providing advice and oversight, on behalf of the board, for the preparation of financial reporting documentation, annual and half yearly reports.

The company secretary should ensure that the information disclosed is:
– transparent;
– balanced between the positive and the negative information, properly reporting everything of relevance and
not ‘window dressing’ bad news;
– presented in a fashion that non-financial people can understand – this will include a narrative explanation beneath tables of figures as well as explanation in the narrative reporting portions of the documentation.

• Overseeing the distribution/circulation of the documentation/ disclosures.

Question 17

Role of the CoSec in relation to the audit committee

Answer 17

The company secretary would typically be involved in:

• advising the board on whether it was appropriate to have an audit committee;
• developing the terms of reference for the audit committee to comply with FRC requirements and international best practice;
• advising the board on the appropriate composition for the committee;
• ensuring that board members with the appropriate skills and experience are included in the company’s board
  succession planning;
• conducting an induction for new members of the audit committee;
• developing an annual calendar of activities for the committee based on the terms of reference to ensure that the committee covers all of its responsibilities;
• ensuring that the committee has sufficient resources to carry out its role. This may include advising the board on
  when it is appropriate to set up internal audit and risk functions.
• Developing the board and board committee annual budget.
• assist in understanding of current and emerging issues especially from shareholders, regulators and other stakeholders that the company secretary may interact with;
• assisting the committee in sourcing advice of experts on issues under the committee’s responsibility. This may be in liaison with the internal audit function;
• organising development for committee members in areas the committee is responsible for, such as, audit, risk and financial oversight;
• organising the annual evaluation of the performance of the committee and its chair;
• drafting /reviewing, in liaison with internal audit and the chair of the audit committee, the audit committee report to be included in the annual report;
• acting as secretary to the committee providing governance and procedural advice and logistical support to the
  committee, its chair and other members.

Question 18

Role of CoSec in external audit

Answer 18

• The appointment and remuneration of the external auditor. In liaison with the CFO/ finance department carry out tender

Feed into the board meeting leading up to the AGM. The board recommends appointment of the auditors to the shareholders at the AGM

• Review auditor’s performance assessment of independence of the auditor and advising the board or audit committee, if one exists on the amount and types of non-audit work that are acceptable.
• Liaising on behalf of the board with the external and internal audit function, if one exists, during the audit process.
• Ensuring that the external auditor attends the AGM and is briefed about any questions that may be asked of them at that meeting.
• Advising the board, or audit committee if one exists on any auditor rotation requirements.
• Action plan for the board for any recommendations in the internal control and risk management processes set out in the auditor’s ‘management letter’. The cosec would ensure that the management letter actions were on the agenda of the board until all items had been resolved.

Question 19

Role of CoSec in stakeholder engagment

Answer 19

The business case for stakeholder engagement is:
* Markets perceive them as less hostile to local values and ways of operating

• Create value and wealth.
• Gain and retain loyal customers while avoiding boycotts or other undesirable consumer actions.
• Create the perception that the company is a desirable place to work and increase ability to recruit and retain talented staff members.
• Identify ways to increase efficiency and reduce costs in their operations.

Assist the board
* Identifying which stakeholders have legitimate expectations and interests

• Mapping the power and interest of stakeholders or stakeholder groups, so that they can develop a strategy for engaging with them.
• Identifying, discussing and prioritising the key risks associated with changing societal expectations.

Question 20

What needs to be reported in the annual report on board composition?

Answer 20

Names of directors

Provision 10 - NED’s who are independent

Provision 14 - Number of meetings and committees and individual attendance by directors

Provision 14 - Responsibilities of chair, chief executive, SID, board and committees

Question 21

What is the composition of the board?

Answer 21

Chair

Chief Executive Officer

Executive Directors

Non-Executive Directors

Senior Independent Director