Chapter 3a - The Company Secretary as the conscience of the company Flashcards
Why is the company secretary referred to as the conscience of the company?
The company secretary is often referred to as the ‘conscience of the company’.
Why? Because in fulfilling the role as the governance professional, the company secretary is often called on to advise the board what the right thing is to do in the long-term interest of the organisation.
This often goes beyond the law and regulations required and so takes the company secretary into the realm of what is known as business ethics.
Company secretary should speak out against bad governance and unethical or illegal practices.
In order to be the ‘conscience of the company’ the company secretary must be in independent – minded and also not be under the influence of with either the senior management, the chair or another individual director.
Qualifications and skills of a company secretary
Section 273 of CA26 requires directors of public companies to enlist the services of a secretary, who should:
Be a person who appears to them to have the necessary knowledge and experience to discharge the functions of the secretary.
Have one or more of the following qualifications:
o Have been a secretary of a public company for at least 3 years of the 5 years immediately preceding his or her appointment;
o Is a member of one of the following seven professional bodies:
- The institute of Chartered Accounts in England and Wales
- The institute of Chartered Accounts in Scotland
- The Association 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
What are the key challenges faced by company secretaries?
Key challenges faced by company secretaries:
- Being considered traitors by the executive team
- Supporting chair exhibiting poor performance
- Acting as the 3rd person in a CEO - chair relationship
- Becoming a pivotal contact for unsurmountable problems
- 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 may be considered most important.
What interpersonal skills are considered important for a company secretary?
Interpersonal skills considered important for the position of the company secretary are:
- Empathy and relationship management
- Active listening
- Bringing issues to the surface, especially those relating to reputational risk
- Respecting confidences
- Independent mindset
- Effective team working
- Being able to summarise common concerns and interests
- Disagreeing constructively
What Practical skills does a company secretary need to to manage relationships and tensions?
Practical skills to manage relationships and tensions
- Listen actively: demonstrate attention and interest by nodding or using facial expressions.
- Establish Report: encourage speakers to reveal
their concerns of interest: Use open ended questions that begin with words like: who, what, why and how. - Be aware of body language: watch out for signs of tension
- Focus on constructive ideas: Build on and contribute constructive alternatives. Avoiding using the work ‘but’ too often
- Stay Calm: be polite and avoid using heightened language or tone of voice that adds to the or provokes anger.
- Know when to close a confrontational exchange: ‘I suggest that we continue this discussion later’.
- Suggest steps to resolve solutions
Why does a company secretary need Commercial and business acumen?
Commercial and business acumen
A company secretary must have this skill.
Governance is more than compliance; it is how an organisation structures itself to perform effectively and efficiently in the long term.
To be more commercially aware, an individual must understand the business they are in and make good practical decisions as a result.
As a company secretary you must be able to advise the board on this basis so that they make the decisions.
For a company secretary to be commercially aware they must make sure..
- You understand how your company makes money and creates value
- You must understand what your company needs, now in in the future, so that it continues to make money and create value
- You must have a thorough understanding of your organisation’s competitive advantage
- You should keep up to date with your industry
Q1. Why is it important for company secretary to have interpersonal skills and commercial and business acumen?
Many company secretaries face the following key challenges:
- Being considered as traitors by the executive team
- Supporting chairs exhibiting poor performance
- Being the 3rd person in a CEO-Chair relationship
- Becoming a pivotal contact for overwhelming problems and
- Maintaining independence from other executives and board members
To overcome these challenges company secretaries, in addition to their technical skills, need commercial and business acumen and interpersonal skills which many consider to be most important.
Q2. Name five interpersonal skills a company secretary should have and explain why each one is important to the company secretary in fulfilling their responsibilities?
- Empathy and relationship management – this is important for company secretaries to be able to build relationships to enable them to remain independent and to carry out their roles as conscience of the company and the governance advisor
- Respectful, diplomatic and effective communication – to build relationships, especially with senior people within an organisation, the company secretary will need to be respectful ad diplomatic, The communications with these senior people will have to be brief and clear as they many not have the time for a long winded explanation.
- Active listening – the company secretary should look interested in what they are being told. This is part of being respectful. It will also help the company secretary to build relationships ad obtain the information they need to do their job.
- Disagreeing constructively – often the company secretary may have to inform the chair or the CEO that they cannot do what they want to do. Being able to do this in a constructive way, and offering alternatives is better than just saying no.
- Being able to summarise common concerns and interests – the company secretary may have to summarise a decision within a board meeting so that it is clear to all board members what decision they have taken. They may also have to highlight the concerns of management or external stakeholders during a board meeting to ensure that the board has all the information to make an effective decision.
Explain why the reporting lines of a Company Secretary are important and how those reporting lines should be managed if the Company Secretary is also the company’s in-house legal adviser.
- The reporting lines of a Company Secretary are important because of the need to maintain the independence and integrity of the Company Secretary’s role.(1) This is emphasised in the ICSA guidance note on “Appointment of the company secretary”.
- In particular, in relation to their governance and statutory role, the Company Secretary should report to the Chair of the Board of directors.(1) This is recommended in the ICSA best practice guidance note “The duties and reporting lines of the company secretary.
- The Company Secretary’s role as an independent advisor to the Board, could be compromised if they report to an executive director or senior manager in relation to their role as Company Secretary.
- If the Company Secretary is also acting as the company’s in-house legal adviser, then they can report to an executive director or senior manager in relation to that role.
- But in order not to compromise their role as Company Secretary, they should still have a separate reporting line to the Chair of the Board in relation to their role and duties as Company Secretary.
List 6 matters reserved for the board (10 marks)
- Delegation of Authority
- Board Membership
- Financial Reporting and controls
- Internal controls
- Strategy and management
- Policies
List 6 matters reserved for the board (10 marks) - explain all of the following:
- Delegation of Authority
- Board Membership
- Financial Reporting and controls
- Internal controls
- Strategy and management
- Policies
- Delegation of Authority
– Approval of the delegated levels of authority, including chief executives authority limits
– Board committees and TOR,
– Corporate governance and its arrangements.
– Division of responsibilities,
– formal review of performance that of its committees and board.
- Board Membership
– Changes to the structure, size and composition of the board, following recommendations from the nomination committee.
– Adequate succession planning for the board and senior management as to maintain the appropriate skills and experience within the company.
– Appointment and removal of the external auditor to be put shareholders for approval in general meetings following recommendation
- Financial Reporting and controls
– Approving the annual report and accounts
– Declaring an interim dividend and recommending a final dividend
– Approval of any significant changes in accounting policies or practices
- Internal controls
– Approving the risk appetite of the company
- Strategy and management
– Responsibility for overall leadership of company
– Approval of overall strategy and strategic objectives
– Compliance with legal and regulatory requirements
– Management/operational performance review
– Extension of the group’s activities into new business or geographic areas
- Policies
Approval of policies which includes:
- share dealings,
- code of conduct,
- bribery prevention policy,
- whistle blowing,
- health and safety,
- CRS ,
- communication policy.
Q7. List 5 roles of the Chair (5 marks)
- 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;
- 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
FRC Guidelines on Board Effectiveness 2018
Q8. Why is it advisable for the roles of the Chair and CEO to be separated (4 marks)
- 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.
What is the key role of a NED? (3 marks)
- 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
