Lesson 3: The Role Of The Company secretary And The Board Flashcards
Company Secretary
Explain what the Company’s Act and UK Corporate Governance Code say with regard to the Company Secretary.
CA 2006 Section 271 states that all PUBLIC COMPANIES in the UK MUST HAVE a Company Secretary
Provision 16 of the UK Corporate Governance code states that all Directors should have ACCESS to the advice of the Company Secretary
The UK Corporate Governance Code also states that the APPOINTMENT and REMOVAL of the Company Secretary is a matter for the whole Board
Company Secretary
Explain the primary role of the Company Secretary.
There are four key aspects to the CoSec role:
1) Governance
2) Advise Board + Senior Management
3) Statutory + regulatory compliance
4) Communication
Explain the governance aspects of the Company Secretary role
The Company secretary is responsible for ensuring proper governance is followed
This includes items such as Board composition
the provision of training for Directors,
preparing schedule of matters reserved for the board,
supporting meetings,
ensuring appropriate insurance,
succession planning, etc.
Explain the statutory and regulatory responsibilities of the Company Secretary
The Company Secretary should ensure that Directors are aware of their responsibilities, e.g. Directors Duties (section 171-177 of CA 2006)
as well as requirements with respect to share dealing and insider information
Explain the Company Secretary’s responsibilities with respect to advising the Board and senior management
The Company Secretary should advise the board and senior management on good practice supporting the annual board evaluation process and induction as well as ongoing training of Directors. The CoSec should advise directors with respect to statutory duties and commitments to corporate responsibility and corporate governance
Explain the Company secretary’s responsibilities with respect to communication.
The Company Secretary is responsible for communicating all board decisions to management, regulators and other stakeholders
The Company Secretary is the primary point of contact with non executive directors
And is responsible for ensuring board communication with shareholders
As well as supporting the preparation of the annual report
Explain the statement- ‘the company secretary is the conscience of the Company’
The role of the company secretary is EVOLVING In the past it was considered more of an ADMINISTRATIVE ROLE
However with the evolution of corporate governance over the past thirty years there is an INCREASED APPRECIATION for the role of the company secretary.
The company secretary is IDEALLY PLACED to ALIGN the interests of DIFFERENT PARTIES in the board room and to FACILITATE dialogue to enable EFFECTIVE DECISION MAKING
The company secretary is considered the CONSCIENCE of the company because they can advise the board on the RIGHT THING to do in the long term interest of the company.
UNIQUELY POSITIONED
The company secretary has the
- INDEPENDENCE
- In depth KNOWLEDGE of company
- Strong GOVERNANCE and ethical understanding
- Good RELATIONSHIPS with board
What are the required qualifications of a company secretary as outlined in the Company’s Act 2006
Per the CA 2006, the company secretary should be an ACCOUNTANT, a LAWYER or a CHARTERED GOVERNANCE PROFESSIONAL or a person who appears to have the requisite knowledge and experience to discharge the functions of the secretary
What is the required skill set for a company secretary
A Company Secretary requires the following skills:
- INTERPERSONAL skills (empathy and relationship management skills, be respectful, diplomatic, active listener, respect confidence, disagree constructively and strength of personality)
- PRACTICAL skills (establish rapport, remain calm)
- BUSINESS and COMMERCIAL ACUMEN
Boards have a right to expect the company secretary to give independent, impartial advice and support to all directors, both individually and collectively
The Company Secretary to be APPOINTED and DISMISSED by the board
The Company Secretary should have a REPORTING LINE to the board as the CoSec is responsible to the board.
Decisions on REMUNERATION and benefits should be taken by the board or remuneration committee.
The EVALUATION of the CoSec should be part of the annual board evaluation.
If the CoSec role is combined is another role, CARE SHOULD BE TAKEN to see that the governance role is not compromised
Explain the liability of the Company Secretary
The Company Secretary may be liable with directors to DEFAULT FINES and other PENALTIES for officers under the Company’s Act 2006
Company Secretary may also be liable under the INSOLVENCY ACT of 1896 for damages awarded by a court in the course of unwinding a company if there is MISFEANCE or BREACH OF TRUST
In-house vs. Outsourced Company Secretary
The benefits of outsourcing the role are
1) ensure all statutory and regulatory requirements are met by a SPECIALIZED FIRM
2) REDUCE COST of employing a specially qualified person -particularly in a start up
Benefits of in house CoSec
1) has KNOWLEDGE** and understanding of the **company and its HISTORY
2) AVAILABLE at all times
3) can provide a wide range of ADDITIONAL SERVICES
4) can truly act as the CONSCIENCE of the company
5- can provide ADDITIONAL SUPPORT to chair (eg meeting preparation)
Discuss the statement, building trust through governance
In 2013 CGI worked with the HENLEY BUSINESS SCHOOL to explore HOW COMPANY SECRETARY CAN BUILD TRUST THROUGH GOVERNANCE. They’re findings were:
The CoSec role is much more than just administrative
The CoSec is IDEALLY PLACED to ALIGN INTERESTS of different PARTIES around the BOARDROOM table
The skills and attributes of the CoSec are closest to those of the chair: humanity, humility, high intelligence, understanding of agendas, negotiation and resilience.
The role of the CoSec is changing. It is INCREASINGLY OUTWARD FOCUSED - incorporating investor engagement and corporate communication.
ICSA qualified company secretary’s deliver more well rounded governance
What is the function of the Board per the UK Corporate Governance Code
The board PROMOTES the LONG TERM sustainable SUCCESS of the company, GENERATING VALUE for shareholders and CONTRIBUTING to the wider SOCIETY
Explain the role of the Board
To ESTABLISH the PURPOSE , VALUES and STRATEGY of the company
To ACT with INTEGRITY and lead by example
ENSURE the necessary RESOURCES are in place for the company to meet its objectives
Establish an EFFECTIVE CONTROL FRAMEWORK
Ensure EFFECTIVE ENGAGEMENT with shareholders and other stakeholders
Ensure WORKFORCE POLICIES are CONSISTENT with the COMPANY’S VALUES and support the company’s ongoing term success
What matters are reserved for the board?
1) approve STRATEGY
2) approve annual OPERATING CAPITAL
3) Change corporate or capital Structure
4) approval of ANNUAL REPORT
5) declare a DIVIDEND
6) approve significant changes to ACCOUNTING POLICY
7) approve MAJOR CONTRACTS and INVESTMENT
8) approve RISK APPETITE
9) approve formal COMMUNICATION with SHAREHOLDERS
10) approve CHANGE to STRUCTURE, SIZE, COMPOSITION of BOARD
11) [appoint / remove EXTERNAL AUDITOR with shareholder approval]
12) determine REMUNERATION POLICY for directors, CoSec and senior management
13) approve DELEGATION of AUTHORITY
14) undertake ANNUAL SELF ASSESSMENT
15) review overall GOVERNANCE ARRANGEMENTS
16) approve POLICIES (key policies include: share dealing, anti bribery, whistleblowing, corporate social responsibility
What does UK Corp give code say about the Board composition
The Board should include an APPROPRIATE NUMBER of executive and non executive directors and NO ONE INDIVIDUAL or group should DOMINATE DECISION MAKING
AT LEAST HALF of the board excluding the chair should be INEDs
Explain reporting requirements on Board composition
The CA 2006 requires the names of the directors to be disclosed in the Directors report.
The UK Corporate Governance Code requires the Annual Report to
- Identify INEDs
- Set of the number of board meetings attended by each
- set out the responsibilities of the Chair, CEO, SID, Board and Board level committees
- set out the contributions of newly elected directors and their importance to the company’s long term sustainable success
Outline the responsibilities of the chair as per Corporate governance code
RESPONSIBILITY OF CHAIR
LICE J
- To +LEAD+ the board
- responsible for the overall +EFFECTIVENESS+ of the board
- to demonstrate GOOD +JUDGMENT+
- promote a +CULTURE+ of openness and debate
- ensure directors receive ACCURATE , TIMELY and CLEAR +INFORMATION+
What is the role of the chair
Set the BOARD AGENDA with a focus on STRATEGY, PERFORMANCE, VALUE CREATION, CULTURE, STAKEHOLDERS and ACCOUNTABILITY (SPV)
+Encourage board members to engage+ in committee meetings
+Foster relationships+ based on trust and mutual respect
Develop a +productive+ working relationship with the CEO
Provide guidance and +mentoring+ to new directors
Independence of the chair
Per the Corp Governance Code, the chair should be independent upon appointment
This implies thereafter the chair is not independent.
Some argue that time commitments and fees automatically compromise their independence
What is the role of CEO
To PROPOSE STRATEGY to board
To SET an EXAMPLE for company employees
To SUPPORT the CHAIR
Make certain the board is aware of VIEWS of EMPLOYEES
Ensure board knows the EXECUTIVE DIRECTOR VIEWS on business issues
Corporate governance code - there should be separation of the chair and the CEO role
Per UK corporate governance code the roles of chair and CEO should not be exercised by the same individual
There should be a clear DIVISION of RESPONSIBILITIES between the board and executive leadership
Explain the role of executive directors
All directors on a unitary board have the same duties
Directors duties are outlined in section 171-177 of the Company’s act 2006.
Explain the directors duties per the CA 2006 section 171-177
The directors duties are derived from the articles of association and agreed by shareholders and directors
The company’s act 2006 sets out 7 directors duties in section 171-177
171 ACT WITHIN their POWERS in accordance with the COMPANY CONSTITUTION (and use those powers for proper purpose)
172 PROMOTE the SUCCESS of the COMPANY
173 exercise INDEPENDENT JUDGEMENT
174 exercise REASONABLE CARE, SKILL and DILIGENCE
175 avoid CONFLICTS of INTEREST
176 not accept benefits from THIRD PARTIES
177 DECLARE any INTERESTS in proposed TRANSACTIONS or ARRANGEMENTS
Explain the role of the NEDs
The role of the NEDs is to
Provide CONSTRUCTIVE CHALLENGE,
STRATEGIC GUIDANCE
SPECIALIST ADVICE
HOLD MANAGEMENT to ACCOUNT
SCRUTINIZE PERFORMANCE of MANAGEMENT and individual executive directors vs agreed performance objectives
Have a prime role in APPOINTING and REMOVING EXECUTIVE DIRECTORS
Discuss the independence of the NEDs
Should not have been an employee of the company within last 5 years
Should not have had a marterial business relationship with the company in the last 3 years
Should not receive any additional remuneration from the company apart from directors fee
Should not have any close family ties with the company
Should not serve on the board more than 9 years
Effectiveness of NEDs
Per the Code, NEDS should have SUFFICIENT TIME to meet their board responsibilities
EFFECTIVENESS can be UNDERMINED if
They have a LACK of KNOWLEDGE of the company’s business
INSUFFICIENT TIME spent on the company
DEFECTS in DECISION MAKING PROCESS
There is INEFFECTIVE Challenge of Recommendations
On appointment NED
should undergo induction,
seek clarification from management where info is lacking.
Take opportunities to meet shareholders, key customers, members of workforce
Explain the role of the senior independent non executive director
The SID acts as a SOUNDING BOARD for the chair
And an INTERMEDIARY for other directors and shareholders
Takes the LEAD on the ANNUAL ASSESSMENT of the CHAIR performance
Should WORK with the chair and other directors and /or shareholders to RESOLVE SIGNIFICANT ISSUES in times of stress
Outline possible civil actions which can be taken against a director
The following may bring action against a director
1) insolvency practitioner
2) shareholder can make a derivative action against a director in relation to negligence, default, breach of duty or breach of trust
3) fraudulent or wrongful trading
D&O insurance
Directors and Officers insurance should be arranged by the Company secretary.
The core purpose is to provide
Financial protection to directors against the consequences of actual or alleged ‘wrongful acts’
Breach of trust
Breach of duty
Neglect
Error
Misleading statement
Wrongful trading
D&O insurance pays the defense cost and financial losses.
