Chapter 3b - Company Secretary's Position in the organisation Flashcards
What is the company secretary’s Position in the organisation?
Company secretary reports directly to the chair, some may report into the CEO or another senior executive. It all depends on the company.
Remuneration for the company secretary
This is taken by the board or by the remuneration committee. This is to protect the independence of the company secretary.
Ways to conduct a company secretary Evaluation
It is important for the company secretary to have an annual evaluation. In deciding on how it is done an organisation should consider how it will maintain the independence of the role following the evaluation.
Two ways that a board could consider when conducting the evaluation of the company secretary:
- The company secretary’s evaluation is carried out as part of the annual board evaluation. The external valuator engaged to carry out the evaluation of the board, board committees and individual directors can be requested to also carry out the evaluation of the company secretary.
- 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.
Any recommendation form the evaluation should be reviewed and monitored by the board to ensure they are implanted and that the company secretary received any training or additional support required to carry out their role more effectively.
Why is it important for a company secretary to be independent?
According to ICAS guidance notes..
‘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’.
For best practice the company secretary should be appointed and dismissed by the board as whole.
What are the two main challenges to independence of a company secretary?
The two main challenges to the independence of the company secretary are caused by :
- Reporting lines (discussed above)
- Dual roles.
How does reporting lines compromise a company secretary independence?
Reporting lines
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 interests of the company. Although they may be complying with letter of the law and in the interests of management, they may not be acting in the best long-term interest 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.
The company secretary in their governance role should also consider the reputational impact of the board’s decision ie. Tax avoidance.
Q1. Why does a company secretary’s position need to be seniority?
In order for the 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 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 the 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 ad 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 executives 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 the mediator or arbitrator between the CEO and the Chair.
Q2. 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 is meant by Liability of the company secretary?
As an office of the company, the company secretary may be liable, with the directors, to default fines and other penalties for offers under the companies Act 2006.
A company secretary can under s 1157 CA 2006 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 the team.
What are the reasons to outsource a company secretary?
Reasons to outsource
- To ensure that all of the statutory and regulatory requirements are met by a specialised firm.
- To reduce costs of employing a person with a specific qualification, especially in a start up company.
- To fulfil a requirement that filings be carried out by a professional firm.
What are the reason not to outsource a company secretary?
Reasons not to outsource:
- An in-house company secretary acquires an in-depth knowledge and understanding of the company ad its history and also develop 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 qualified in-house company secretary offers a wide range of services and is able to take on other responsibilities in a start-up or small company.
- An in-house company secretary may provide support that is difficult for an external firm to provide for example assisting the chairmen to prepare for meetings.
- An inhouse 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
- An in house company secretary can be relied upon to maintain confidentiality.
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.
Q1. What are the major challenges to independence of the company secretary?
The two main challenge to the independence of the company secretary:
- Reporting lines – especially when the company secretary reports to a member of management and
- dual roles – there may be conflict between the responsibilities of the other role with those of the company secretary.
Q2. Is it appropriate for the companies 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 account, care should be taken o 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 may comply with the letter of the law and in the interests of management, they may not e 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 interest of the company. Especially if to do so was costly or against 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.
Q3. Explain why companies may not want 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 always available to discuss corporate governance issues. A law firm may be much slower in providing assistance or responding to questions.
- 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 i.e. assisting the chair 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.
- An in house company secretary can be relied upon to maintain confidentiality.
