Corporate Governance - Role of the CoSec / BoD

Question 1

What Requirements exist for a Company Secretary (in the UK) and who may fulfil these?

Answer 1

1. All public companies must have a company secretary (s.271, CA ‘06).
2. Provision 16, UK Corporate Governance Code:
   - All directors should have access to company secretary’s advice;
   - Company secretary responsible advising on all governance matters;
   - Appointment and removal of a company secretary is a matter for the whole board.
3. Company secretary must either (i) have been secretary of public company for >=3 years in past 5 years, (ii) member of accountancy profession, CGI-qualified, solicitor or barrister, or (iii) be person who appears to board to have the requisite knowledge and experience (s.273, CA ‘06).

Question 2

What are the Key Role Deliverables of a Company Secretary?

Answer 2

1. Governance
2. Statutory and regulatory compliance
3. Advising board and senior management
4. Communication

Question 3

What are the Company Secretary’s Principal Governance-related Responsibilities?

Answer 3

1. Management board quorum and procedures (reservation of board matters; meeting support; arranging D&O insurance; supporting succesion planning and committee constitution).
2. Board information, development and relationships (new director induction; professional development support; arranging shareholder meetings; acting as primary NED contact; supporting board evaluations).
3. Accountability (supporting risk reviews and internal controls; ensuring a whistleblowing policy exists; supporting audit committee).
4. Remuneration (supporting remuneration committee; compliance with prevailing remuenration legislation and rules).
5. Disclosure and reporting.

Question 4

What are the Company Secretary’s Principal Statutory and Regulatory Compliance-related Responsibilities?

Answer 4

1. Directors’ duties (CA ‘06 adherence; share-dealing; inside information).

Question 5

What are the Company Secretary’s Principal Responsibilities in respect of Advising the Board and Senior Management?

Answer 5

1. Ensuring good board practice (constitutional / procedural propriety; board evaluation; on–going training).
2. Advising on statutory duties and responsibilities.
3. Corporate governance and responsibility commitments.

Question 6

What are the Company Secretary’s Principal Communication-related Responsibilities?

Answer 6

1. Communication of board decisions to senior management, regulators and other stakeholders.
2. Liaising with directors for board-related events.
3. Primary NED contact.
4. Facilitating board dialogue with shareholders.
5. Supporting AR&A preparation.

Question 7

Why might a Company Secretary be described as the ‘Conscience of the Company’?

Answer 7

1. Responsibility for advising board on the right thing to do in company’s long-term interests. Predicated upon:
   - Independence;
   - In-depth company knowledge;
   - Strong governance and ethical understanding; and
   - Good board relationship.
2. Accordingly, company secretary should (i) be responsible to board and accountable via chair, (ii) have remuneration determined by Remuneration Committee and (iii) have evaluation performed as part of annual board evaluation (CGI Guidance Note 2013).
3. May be held liable to penalties under CA ‘06 and for malfeasance under IA ‘86, in common with directors.

Question 8

What were seven Key Findings of the CGI: Building Trust through Governance Report?

Answer 8

1. Company secretary’s role is much more than just administrative.
2. Ideally place to align interests of different parties around boardroom table.
3. Required role attributes: humility, humanity, high intelligence, understanding of agendas, negotiation and resilience.
4. Role is changing and increasingly outward-focused (re. corporate communication and investor engagement).
5. CGI-qualified company secretaries deliver a more rounded governance and board member service.
6. Board members are often unaware of the ways a company secretary supports organisational decision-making.
7. Conflict of interest in consolidating company secretary with legal leadership roles.

Question 9

Provide two Reasons why the Role of a Company Secretary may be outsourced.

Answer 9

1. Assurance that all statutory and regulatory requirements are satisfied, via a specialised firm.
2. Minimisation of employment costs.

Question 10

Provide five Reasons why the Role of a Company Secretary may not be outsourced.

Answer 10

1. In-house company secretaries acquire in-depth knowledge and understanding, developing board and management relationships that an external firm would lack.
2. In-house company secretaries area available at all times.
3. Qualified in-house company secretaries can provide a wide of additional services, being particularly relevant for smaller organisations.
4. In-house company secretaries can provide support that is frequently difficult for external providers to offer (e.g. chair support for meeting preparation).
5. In-house company secretaries are better placed to act as the company’s conscience, free of conflicts (conceivably arising from working for other firms).

Question 11

What is the Role and Function of the Board?

Answer 11

1. Promote company’s long-term sustainable success, generating shareholder value and contributing to wider society (Principle A, Code).
2. Establish company’s purpose, values and strategy, aligning these to its culture (Principle B, Code).
3. Ensure company’s has necessary resources to fulfil objectives and benchmark performance (Principle C, Code).
4. Establish framework of prudent and effective controls (Principle C, Code).
5. Ensure effective engagement and participation from shareholders and stakeholders (Principle D, Code).
6. Ensure workforce policies/practices agree with company values and its long-term sustainable success (Principle E, Code).

Question 12

Which ten Matters should be reserved for the Board?

Answer 12

1. Strategy and management (approval of strategy, objectives, operating capital and expenditure budgets).
2. Structure and capital (changes to capital or corporate structure).
3. Financial reporting and controls (approving AR&A, dividend declarations, approving significance accounting policy or practice changes).
4. Approval of material contracts or investments.
5. Approving company’s risk appetite.
6. Communications (approving listing particulars and formal shareholder communications).
7. Board membership (changes to board composition, succession planning, appointment of auditors).
8. Remuneration.
9. Delegation of authority (delegation of authority levels, establishment of board committees).
10. Corporate governance (annual performance evaluations, review of group-wide corporate governance arrangements).
11. Policy approval (shareholding, ABC, whistleblowing, CSR, charitable support).

Question 13

Outline the Key Board Compositional Requirements.

Answer 13

1. Principal officers comprise: Chair, CEO, EDs, NEDs and senior independent director.
2. Board shold comprise appropriate combination of EDs and NEDs, including independent NEDS, to prevent domination of board decision-making (Principle G, Code).
3. Excluding Chair, at least half of the board should be independent NEDs (Provision 11, Code).
4. NEDs determined by board to be independent should be explained in AR&A (Provision 10, Code).
5. Number of and attendance at board and committee meetings should be disclosed in A&RA (Provision 14, Code).
6. Shareholder resolution to elet director should include specific reasons why their contributions are important to company’s long-term sustainable success (Provision 18, Code).

Question 14

Outline the Role Requirements of the Chair.

Answer 14

1. Chair leads the board and is responsible for overall effectiveness in directing the company (Principle F, Code).
2. Chair must be independent upon appointment (Provision 9, Code).
3. Chair must demonstrate objective judgement and promote culture of openess and debate, ensuring constructive board relations and effective NED contributions (Principle F, Code).
4. Therefore, Chair should (FRC Guidelines on Board Effective 2018):
   - Set board agenda (with emphasis on strategy, performance, culture and accountability.
   - Encouraging board/committee meeting participation.
   - Foster relations and shape culture.
   - Develop productive CEO working relationship.
   - Guide/mentor new directors.

Question 15

What is the Role of the CEO?

Answer 15

FRC Guidance on Board Effectiveness:
1. Proposing strategy to board and delivering upon agreed strategy.
2. Being an example to the company’s workforce and communicating board expectations concerning culture, values and behaviours.
3. Supporting the Chair by ensuring appropriate governance standards permeate all parts of the organisation.
4. Making the board aware of appropriate and relevant employee views.
5. Making the board aware of ED views on business issues to improve discussion standards and explaining any divergence of views.

Question 16

What are Separation Requirements relevant to the roles of the Chair and CEO?

Answer 16

1. Must be clear division between responsibility for board leadership and executive leadership of the company’s business (Principle G, Code).
2. The roles of Chair and CEO should not be exercised by the same individual and the CEO should not become Chair of the same company (Proviison 9, Code).
3. Particular care should be paid to potential overlaps between the responsibilities of the CEO and the Chair (FRC Guidance on Board Effectiveness).

Question 17

What are the Role Requirements applicable to NEDs?

Answer 17

1. Provide constructive challenge, strategic guidance, specialist advice and hold management to account (Principle H, Code), including the performance of management and directors against agreed objectives (Provision 13, Code).
2. Prime responsibility for appointing and removing EDs (Provision 13, Code).
3. Via Nomination Committee, spearhead board appointment, succession planning and diversity initiatives (Principle J / Provision 17, Code).
4. Via Audit Committee, satisfy themselves that the integrity of financial information and risk systems and controls are robust and defensible (Principles M-N, Code).
5. Via Remuneration Committee, determine appropriate Chair, ED and senior management compensation (Principle Q / Provision 13, Code).

Question 18

What are the Independence Requirements applicable to NEDs?

Answer 18

To ensure independent, a NED cannot (Provision 10, Code):
1. Have been an employee of company group in past 5 years.
2. Have had a direct/indirect material business relationship with the company.
3. Receive(d) additional company remuneration beyond director fee or participate in share option, performance-related remuneration schemes or be part of the company pension scheme.
4. Have close family ties with the company’s directors, advisers or employees.
5. Hold cross-directorships or have significant links with other directors via involvement in other companies or bodies.
6. Represent a significant shareholder.
7. Serve on the board for more than 9 years from first election.

Question 19

What are four Effectiveness Challenges that may be encountered by NEDs?

Answer 19

1. NEDs should have sufficient time to meet board responsibilities and provide constructive challenge, strategic guidance, specialist advice and effective management scrutiny (Principle K, Code).
2. Effectiveness often undermined by:
   - Lack of knowledge about company business.
   - Insufficient time spent with company.
   - Defects in decision-making process.
   - Ineffective challenge.

Question 20

What are the key Effectiveness Requirements of NEDs?

Answer 20

FRC Guidance on Board Effectiveness:
1. Devote sufficient time to comprehensive, formal and tailored induction to their company.
2. Retain sufficient time to effectively discharge responsibilities.
3. Devote sufficient time to refresh their knowledge and skills so as to positively contribute to the board.
4. Insist upon timely receipt of high quality information to enable thorough consideration of issues before and during board meetings.
5. Clarify with management where information is inadequate or lacks clarity.
6. Meet with shareholders, key customers and workforce members to develop a good understanding of the business and significant stakeholders.

Question 21

What is the Role of the Senior Independent Director?

Answer 21

1. Act as sounding board for Chair, and intermediary for other directors and shareholders (Provision 12, Code).
2. Lead NED annual assessment of Chair’s performance (Provision 12, Code).
3. May ensure orderly succession process for Chair, alongside Nomination Committee (FRC Guidance on Board Effectiveness).
4. Availability to shareholders to receive concerns that normal Chair-, CEO- or ED-level contact has failed to resolve concerns (or if such contact is inappropriate)(FRC GBE).
5. Works with Chair, board and/or shareholders to resolve significant issues, if the board performance is stressed (FRC GBE).