Chapter 3 - Test yourself Q&A's - The role of the company secretary in governance Flashcards
Why might a private company appoint a company secretary?
Although there is no requirement for private companies to employ a company secretary, in practice, many still choose to do so.
The important task that would normally fall to a company secretary, including shareholder administration and communication, corporate governance and statutory compliance, must still be done.
In the absence of a company secretary, s270 of the CA 2006 states that directors must take on this responsibility. This is why many private companies continue to employ a company secretary: in order to reduce the administrative and corporate governance burdens which would otherwise be placed on their directors.
Why is the company secretary often referred to as a bridge for information, communications advice and arbitration?
The company secretary is often referred to as a ‘bridge’ for information, communications, advice and arbitration because they play an important role as the board’s communicator. This will differ from company to company, However, best practice is that the company secretary should be the person responsible for:
- Communicating all board decisions to the relevant members of the management team. Although CEO’s often intend to do this, evidence shows that due to their other work commitments, CEO’s are not very good at doing this in a timely manner.
- Managing the disclosure of the board’s decision’s to regulators and other stakeholders. This is because they understand the requirements as far as content to be disclosed and the importance and timely balanced disclosure.
- Facilitating good information flows, between the board, individual board members, the committees meetings, training sessions, board retreats, board evaluation sessions and other board events.
- Being the primary point of contact between the non-executives and the company, as a source of information and advice. Without this, management could be distracted by requests from non-executive directors, some of which may be for the same information Also, non executive directors could receive conflicting information and or advice depending on whom they speak to. The company secretary can collate the information and or advice in a format which is more appropriate for the non-executive directors.
- Ensuring that the board keeps in contact with shareholder opinion and that shareholders are briefed on the reasons behind the board’s adoptions of certain governance practices and decision making.
- Ensuring that relevant disclosures on corporate governance and director’s remuneration are made in the companies annual report and accounts and that the annual report and accounts is made available electronically on the company’s website.
Why is the company secretary often referred to as a bridge for information, communications advice and arbitration?
The company secretary is often referred to as a ‘bridge’ for information, communications, advice and arbitration because they play an important role as the board’s communicator. This will differ from company to company, However, best practice is that the company secretary should be the person responsible for:
- Communicating all board decisions to the relevant members of the management team. Although CEO’s often intend to do this, evidence shows that due to their other work commitments, CEO’s are not very good at doing this in a timely manner.
- Managing the disclosure of the board’s decision’s to regulators and other stakeholders. This is because they understand the requirements as far as content to be disclosed and the importance and timely balanced disclosure.
- Facilitating good information flows, between the board, individual board members, the committees meetings, training sessions, board retreats, board evaluation sessions and other board events.
- Being the primary point of contact between the non-executives and the company, as a source of information and advice. Without this, management could be distracted by requests from non-executive directors, some of which may be for the same information Also, non executive directors could receive conflicting information and or advice depending on whom they speak to. The company secretary can collate the information and or advice in a format which is more appropriate for the non-executive directors.
- Ensuring that the board keeps in contact with shareholder opinion and that shareholders are briefed on the reasons behind the board’s adoptions of certain governance practices and decision making.
- Ensuring that relevant disclosures on corporate governance and director’s remuneration are made in the companies annual report and accounts and that the annual report and accounts is made available electronically on the company’s website.
Why is it important for a company secretary to have interpersonal skills and commercial and business acumen?
Many company secretaries face the following key challenges:
Being considered traitors by the executive team
Supporting chairs exhibiting poor performance
Acting as a third person in a CEO - chair relationship
Becoming the pivotal contact for unsurmountable problems and
Maintaining independence from other executives and board members
To overcome these challenges, company secretaries, in addition to their technical skills, needed commercial and business acumen and interpersonal skills, which many considered the most important.
In 2012, a study by the All Party Parliamentary Corporate Governance Group criticised many company secretaries for not being ‘commercially minded’ or aware, They saw this as being an important feature of the job, especially as they advise the board on governance issues. To be commercially aware, an individual must understand the business they are in, and make good practical decisions as a result. In the case of the company secretary, this means being able to advise the board on this basis so that they can make the decisions.
“The Company Secretary: Building trust through governance” highlighted the importance that the majority of company secretaries acknowledged that ‘commercial awareness and abilities are critical to ensuring their understanding of what is right for the organisation, what information means and to whom relevant questions need to be passed”
List some interpersonal skills that a company secretary should have.
Empathy and relationship management
Respectful, diplomatic and effective communicator
Active listener
Being confident and able to bring issues o the surface, especially those relating to reputational risk
Personal and social awareness
Being able to summarise common concerns and interests
Generating alternative solutions
Respecting confidences
Independent mindset
Strength of personality
Appreciating the views of all parties
Effective team working
Disagreeing constructively
Emphasising commercially minded approaches
Integrity
Why does a company secretary’s position need to be one of seniority?
In order for a company secretary to carry out their duties and responsibilities effectively, they need to hold a position of seniority within the organisation. It is debated whether of not they should be a member of the executive team. Some think this compromises their independence. Whether or not they are a member of the executive team they should attend meetings of the executive team. This will enable them to advise executives 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. 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. Remember that the company secretary can often fill the role of mediator or arbitrator between the CEO and the chair.
How can an organisation maintain the independence of the company secretary?
‘Appointment of the company secretary’ states that
“Boards have a right to expect the company secretary to give independent. impartial advice and support to all the directors, both individually and collectively as a board.”
It is for this reason that best practice is that company secretaries should be appointed and dismissed by the board as a whole.
What are the main challenges to the independence of the company secretary?
The two main challenges to the independence of the company secretary are:
- Reporting lines - especially when the company secretary reports to a member of management
- Dual roles - there may be conflict between the responsibilities of the other role with those of the company secretary.
Is is appropriate for the company’s in-house lawyer to carry out corporate governance responsibilities?
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, in fulfilling their legal role will often have to take sides 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 boards’ decision. This again may require the board to consider more than just complying with the laws and regulations.
Explain why companies may not wish to outsource the role of the company secretary?
- 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 to discuss corporate governance issues A law firm may be much slower in providing assistance or repsoinding to questions.
