Past exam questions - role of the company secretary Flashcards
NOVEMBER 2022 - MY ANSWER
Poole Finance Limited (Poole) is a large private company which provides financial advice to
individuals and companies in the UK. The company operates from one office building.
The Board of Poole has six directors. The non-executive directors are the Chair, Bob Spiller, and
two other independent non-executive directors. The executive directors are the Chief Executive
Officer (CEO), David More, and two other executive directors. The Company Secretary of Poole is
Kate Otis. Kate also acts as the in-house lawyer for Poole, reporting to Bob for her role as
Company Secretary and to David for her role as in-house lawyer.
There have recently been disagreements between Bob and David about the company’s
management and future strategy. These disagreements have resulted in arguments in front of
other Board members and a failure by the Board to agree the company’s strategy for the next
financial year at the last Board meeting a few weeks ago.
Last week, Bob complained to Kate about David’s behaviour and said that he thought that David was disorganised and lacked strategic vision. Then, this week, David spoke to Kate to complain about Bob’s behaviour at the last Board meeting, which he thought was rude and aggressive. David also said that he thought that Bob was taking up too much of Kate’s time on governance issues and that she needed to spend more time on her in-house lawyer role.
Kate has been asked to help the management team of Poole to prepare an updated disaster
recovery plan. Since the plan was last reviewed three years ago, the threat of cyber-attacks has
increased and the company has become much more reliant on its online systems and technology,
with all customer records being held online. The other key change since the last review is that all of
Poole’s staff now work from home for at least two days a week, rather than just working at the
company’s office building.
(a) Analyse how Kate should use her role as Company Secretary, and what skills she should
demonstrate, to help to resolve or reduce the disagreements that have arisen between Bob
and David.
(15 marks)
a) Analyse how Kate should use her role as Company Secretary, and what skills she should
demonstrate, to help to resolve or reduce the disagreements that have arisen between Bob
and David.
As Poole Finance Ltd is a large private company, the Wates code for large private companies are applicable.
The Wates principals provide that “an effective board should establish and maintain corporate governance practices that provide clear lines of accountability and responsibility to
support effective decision-making. “
“The chair and the company secretary should periodically review the governance processes to confirm that they remain fit for purpose and consider any initiatives which could strengthen the governance of the company.”
Responsibility of the company secretary is to the board as a whole and they must be independent of any duals roles of other responsibilities that are aligned to them. In addition to dual roles, issues which can hamper independence are their remuneration, appointment and removal from post and evaluation of performance.
Kate should use her role to support the board assisting in particular the relationship between Bob and David.
To assist David with being disorganised and lacking strategic vision, she could spend time and ensure that he fully understands his role as a member of the board and arrange some professional development around setting strategic development. She could also meet with him ahead of the board meetings to ensure that he has all the relevant papers and pre-reads and he has had time to digest and challenge or offer an explanation ahead of the meeting.
To assist Bob with the accusation of being rude and aggressive, she could attempt to act as a mediator to assist resoling this issue. If this was unsuitable, one of the other 2 independent non executive director could assist or they could recruit an senior independent director.
In respect to David’s view that governance issues for the board are taking up too much time, Kae should explain the role of the company secretary in that Governance, advising the board and senior executives, ensuring compliance with statutory regulations and being the board’s communicator is the company secretary’s role.
It is unlikely that Kate would be able to spend the required time completing the work of the DRP alone therefore should suggest that a committee of experts and specialists from the company is set up to undertake the work. Although it doesn’t advise, as the company is in the financial sector, it is lliekly that here may already be a risk committee who could take on this work. Kate could support the risk committee which would ensure she can over see the work but not produce the report. This would significantly free up her time.
In terms of skills, Kate should have good interpersonal skills (such as negotiation skills between the board who are in disagreement), practical skills (prioritising workload, listening skills, concise summarising etc) and good commercial and business acumen skills.
JUNE 2022 - MY ANSWER
Willow Garden Centres Limited (Willow) is a large private company which operates ten garden
centres in England.
The Board of Willow has recently decided to adopt the Wates Corporate Governance Principles for
Large Private Companies (Wates Principles).
The Board has been discussing how to improve Willow’s approach to corporate social
responsibility (CSR).
During the Board discussions, two of the executive directors expressed concerns about increasing the focus on CSR issues. But the majority of the Board were in favour of improving the company’s approach to CSR, including improving the company’s engagement with its stakeholders and improving the disclosures in the annual report.
As a first step, the Board has set up a staff focus group on CSR matters. The Company Secretary, Molly Wong, is the Chair of the focus group and has been asked to report back on the group’s findings and recommendations at the next Board meeting.
At the first meeting of the focus group, the main issues raised by the staff members were:
* the company should disclose more about its environmental impact;
* there is no ability for staff to provide comments on CSR matters, which are not covered in the
annual staff survey; and
* Willow does not have any Key Performance Indicators (KPIs) in relation to non-financial performance.
Willow has recently been the subject of adverse social media criticism about one of the suppliers for the products that it sells, because the supplier has been accused of using child labour. The Board is concerned about the reputational impact of this criticism. The Board is also concerned about Willow’s financial position. Willow’s profitability has deteriorated over the last year and the Board thinks that the company’s future sales may be impacted by a competitor business, which has announced that it is going to open two new garden centres near to two of the Willow garden centres.
The Board has decided to review the company’s risk register in light of these concerns,
taking into account the Wates Principles and best practice. Willow’s risk register was last reviewed
by the Board six months ago and it does not currently include reputational risk.
(a) Explain, with reference to the four main categories of the role of a Company Secretary, how
Molly can assist the focus group and the Board on corporate social responsibility issues.
(12 marks)
Explain, with reference to the four main categories of the role of a Company Secretary, how
Molly can assist the focus group and the Board on corporate social responsibility issues.
(12 marks)
The 4 main categories of the role of a Company Secretary are:
Governance
Advising the board and senior management
Ensuring compliance with Statutory Regulations and laws
Acting as the boards communicator
GOVERNANCE & STAT REGULATIONS / LAWS
Molly should explain to the board that their duties under directors duties and powers which are set out in s171-177 but in particular s172 “the duty of a director to promote the success of the company for the benefit of its members as a whole. “ means that CSR responsibilities do play a role in the governance of the company.
This duty applies to all directors, regardless of whether the company is public or private, a
parent or a subsidiary, large or small and is listed in the Wates code which the company has voluntary agreed to undertake.
Molly should advise the directors who were not in agreement to focus on CSR the need to understand that this is part of their directors duties and failing that would be in breach of those duties if the wider impact of the companies actions did not consider the wider stakeholders including the likely consequences of any decision in the long term to the company’s employees; suppliers, customers and others, the environment and shareholders.
Part (e) of s172 also advises directors that they should consider the desirability of the company maintaining a reputation for high standards of business conduct and the impact of not improving CSR initiatives and reporting would have on this. Again, Molly should advise the board of this in order to comply with the CA2006 and would assist with the negative Social Media comments in relation to their reputation and criticism.
ADVISING THE BOARD AND MANAGEMENT
Molly should seek to ensure the board fully understand the benefits of engaging in CSR activities and reporting. The Wates Principals advise that boards should have a clear understanding of the views of shareholders including those with a minority interest. Directors should act with integrity and lead by
example, setting the tone from the top, building positive relationships with all stakeholders, particularly the workforce.
Molly should seek to ensure the board understands the drivers for CSR and how these can assist the long term sustainability and financial performance of a company. As well as promoting the long term sustainability of the company, a good reputational and CSR management program may also mean that the company attracts and retains more employees, attracts capital / investors more easily.
Molly could also use benchmarking indexes such as BITC sustainable index to demonstrate where they sit in relation to other companies in their sector.
ACTING AS COMMUNICTAOR TO THE BOARD
Molly should ensure that she acts as a bridge or information flow between the employees and the board and report back to the board her findings from the focus group and her recommendations.
She should ensure that actions agreed following this are distributed and regular updates and reports from the exec team are communicated to the board via agenda items in meetings.
She should set out any KPI’s in relation to CSR and help form a policy and procedures in this area.
She should make the board aware of the advantages and disadvantages of linking reward or bonus initiatives to CSR initiatives for future consideration.
NOVEMBER 2021 - MY ANSWER
Topnotch Advertising plc (Topnotch), is an advertising agency with its shares listed on the Main
Market of the London Stock Exchange. The Board of Topnotch has six directors: a nonexecutive Chair, three non-executive directors, a Chief Executive and a Finance Director.
The current Chief Executive of Topnotch, Sanjay Kumar, was appointed two months ago from
another advertising company. The previous Chief Executive left the company five months ago
following disagreements with the Chair, David Harlow, about the company’s long-term strategy,
the Chair’s approach to shareholder engagement and which of the senior management plans
needed Board approval before they could be implemented.
David has recently informed the Senior Independent Director, Julie Dylan, that he has been
approached by another listed company to become chair of its remuneration committee. Julie is
worried that David does not have time to take on the role at the other company because, as well
as being Chair of Topnotch, he is already a director of another listed company and is a trustee
of a number of charities.
David has told the Company Secretary of Topnotch, Matteo Renzi, that he thinks that one of the
reasons why there were disputes between him and the former Chief Executive is that the
Chair’s role, and the division of responsibilities between the Chair and the Chief Executive, has
not been made clear. He wants this to be clarified now that Sanjay has joined Topnotch as its
new Chief Executive.
David is also concerned that the relationship between the Board and senior management of the
company is poor. In particular, he thinks that the Finance Director is unhappy about the
departure of the former Chief Executive and does not have a good relationship with the nonexecutive director who chairs the audit committee.
(b) Analyse the role that Matteo, as the Company Secretary of Topnotch, should play in
improving the relationship between members of the Board, and between the Board and
the senior management team, and the skills that he needs to use to ensure that they are
working together effectively.
(12 marks)
Improving the relationship between members of the Board
As a publicly listed company, topnotch should refer to guidance provided by the UKCG Code and in particular, the FRC 2018 Guidance on board effectiveness.
Its important that the board work together and improve their relationship as this will set the tone from the top. The guidance on this states “Boards need to think deeply about the way in which they carry out their role. The behaviours that they display, individually as directors and collectively as the board, set the tone from the top.”
As chair of the board, David has a responsibility to set clear expectations of the tone and style of the meeting and ensure that all directors are aware of their responsibilities in connection to the board.
Assisting the chair in establishing the policies and processes the board needs in order to function properly is a core part of the company secretary’s role. Therefore, to assist in improving relationships between the board, Matteo should ensure that all board members have received a full, formal and tailored induction, have a terms of reference for their role, understand their roles and responsibilities and assist in the creation of a schedule of matters reserved for the board.
With Matteo’s assistance, by having these policies and procedures in place, the company will be complying with principal L of the UK CG Code which states….the board, supported by the company secretary, should ensure that it has the policies, processes, information, time and resources it needs in order to function effectively and efficiently.
To be able to do this effective, Matteo needs to have good interpersonal skills such as negotiation, tack, good listening skills etc.
As there has been recent changes to the board, a skills matrix evaluation should be undertaken to analyse the current skills of the board and if there are changes (or gaps should there be changes) required in the near future. This work should be undertaken by the nomination committee with support from Matteo.To be able to do this effective, Matteo needs to have good commercial and business acumen skills.
Improving the relationship between members of the Board and the snr management team
By creating, sharing and communicating with the senior management team the policies and procedures listed above, this will also assist in the relationship between the board and the snr mgt team.
Sanjay should ensure the board knows the views of the senior management on business issues in
order to improve the standard of discussion in the boardroom and, prior to a final decision on an issue, explain in a balanced way any divergence of view. As Matteo should be attending the Exec. committee meetings, he can assist with this by prepositioning the exec. team on the boards expectation or providing challenge so that they are able to set out the communications and board papers clearly.
JUNE 2021 - MY ANSWER
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.
(5 marks)
Dual roles and reporting lines are both a factor in ensuring a company secretary remains independent.
The continued independence of the co sec is important to all on the board as all directors should have access to the advice of the company secretary, who is responsible for advising the board on all governance matters
For the purpose of the board, the company secretary should report to the chair. They may report to a member of the executive committee on their dual roles (e.g. in house legal adviser) but it not in their governance duties to the board.
Provision 80 of FRC guidance to board effectiveness states This does not preclude the company secretary also reporting to the chief executive, or other executive director, in relation to their other executive management responsibilities.
Although not impossible, the co. secretary when performing dual roles, would always need to put the long term interest of the company ahead of any other role they perform. This may create conflict between their dual role .
To ensure independence both the appointment and removal of the company secretary should be a matter for the whole board.
Remuneration of their co secretary role should be undertaken by the remuneration committee and their evaluation of the role should also be included in the board evaluation.
JUNE 2021 - MY ANSWER
Hardeep Shah has recently been appointed as the new Company Secretary of Tyndale Finance
plc (Tyndale). Tyndale is a company that provides financial advisory services and its shares are
listed on the Main Market of the London Stock Exchange. The Board of Tyndale consists of three
executive directors, a non-executive Chair and four other independent non-executive directors
(NEDs). Hardeep has had initial meetings with Tyndale’s Chair, Amy Harrison, to understand what
her priorities are.
One of the points Amy raised with Hardeep is that she thinks that one of the NEDs, Ralph Morris,
who has been a director for two years, is not taking the role seriously. Ralph is a qualified
accountant and a member of the Audit Committee but he missed both a Board meeting and one of
the recent Audit Committee meetings at short notice without a good reason. At the last Board
meeting, he did not seem to have read the Board papers in advance and did not contribute during
the meeting. Amy pointed out that Ralph had a lot of other commitments, including as a director of
four other companies. The annual Board evaluation is due to be conducted shortly and Amy said
she is worried about whether the problems with Ralph’s performance will have to be disclosed in
the annual report. Amy asked Hardeep to talk to Ralph to raise these concerns.
Another point Amy raised was that the last Company Secretary did not communicate with the
NEDs well enough, and that this had resulted in the NEDs directly contacting the directors for
information. Amy also told Hardeep that she was not happy with how the last Company Secretary
dealt with the Board agendas and Board papers. The Board agendas were set at the last minute
and there was no schedule of items to be dealt with across the calendar year. The Board papers,
which are distributed to the directors by email, were often not sent out until a few days before the
meeting and the papers prepared by the executive team were in a mixture of different formats and
were too long.
(b) Taking into account the purpose of a disaster recovery plan, discuss the key elements that
should be included in Poole’s updated disaster recovery plan and the Board’s responsibility
for the plan.
NOVEMBER 2020 - MY ANSWER
Ocean Builders Limited (Ocean) is a house building company. It has a Board of five directors.
Three directors are executive, including Mike Ford, the CEO, and the Finance Director. The other
two directors are non-executive: Jenny Hancock, the Chair of the Board, and David Conte.
Mike has informed Jenny that he has just secured a proposal from Gravity Suppliers Limited
(Gravity) to enter into a large and long-term supply agreement with Ocean for the supply of building
materials, which Mike thinks will be on good terms for Ocean. It will be the first time that Ocean has
contracted with Gravity. Mike wants the supply agreement to be discussed at the next Board
meeting of Ocean. He has mentioned to Jenny that David is also one of the non-executive
directors of Gravity.
Jenny currently uses her Executive Assistant to help her organise the Ocean Board meetings and
write up the minutes. The Executive Assistant does not have any legal or governance
qualifications, regards herself as working solely for Jenny and does not communicate with other
Board members except to organise the meetings. Jenny does not have anyone else to assist her
on Board or governance issues. She is considering whether to recruit a qualified Company
Secretary for Ocean. One of the options she has considered, in order to save costs, is to appoint a
person who has an accounting qualification, as the Company Secretary would also join Ocean’s
finance team to assist the Finance Director.
(b) Explain how a Company Secretary could assist Jenny on Board and governance issues, with
reference to the four main categories of roles that a Company Secretary could perform for
Ocean, in contrast to the Executive Assistant’s role.
The 4 main categories of a co sec role are:
1. Governance
2. Advising the board and snr mgt
3. Supporting the board on compliance and stat. regulations
4. Board communicator
Although the EA may be fulfilling some parts of the governance role of a co sec such as organising the board meeting and minutes taking, a co. secretary has a much fuller part to play in the governance for the board.
This may include meeting with the chair to advise on agenda setting, performing induction training for new directors on their duties and roles, establishing board policies and procedures such as TOR and attending, supporting and advising board committees.
The Co. Sec needs to be confident in being able to challenge and advise board members in respect to the UK CG Code and stat regulation. This will require in depth specialist knowledge of the CA2006, reporting requirements, Insolvency Act etc. They should have suitable commercial and business acumen to be able to do so. with great interpersonal skills such as negotiation skills.
While an accountant may be familiar and have expertise in this area, they would need to be 2 separate distinct roles which at times may often result in conflict. Reporting lines for the roles would also need to be separate.
Remuneration, appointment and removal of the co sec role would be a matter for the whole board rather than just for Jenny so although she might be able to find a candidate to do another support role such as finance or an EA, this may not be the best candidate with the best experience for the co. sec. role.
A co. secs role is often seen as a bridge flow of information between the board and members of the senior management team. Again, an EA may not have the seniority or gravitas to perform this part of the role - advising executive committee duties and actions following meetings. A co. sec would ne able to display authority in their position to be able to do so and answer any questions relating to specific stat.& compliance knowledge.
NOVEMBER 2020 - MY ANSWER
Ocean Builders Limited (Ocean) is a house building company. It has a Board of five directors.
Three directors are executive, including Mike Ford, the CEO, and the Finance Director. The other
two directors are non-executive: Jenny Hancock, the Chair of the Board, and David Conte.
Mike has informed Jenny that he has just secured a proposal from Gravity Suppliers Limited
(Gravity) to enter into a large and long-term supply agreement with Ocean for the supply of building
materials, which Mike thinks will be on good terms for Ocean. It will be the first time that Ocean has
contracted with Gravity. Mike wants the supply agreement to be discussed at the next Board
meeting of Ocean. He has mentioned to Jenny that David is also one of the non-executive
directors of Gravity.
Jenny currently uses her Executive Assistant to help her organise the Ocean Board meetings and
write up the minutes. The Executive Assistant does not have any legal or governance
qualifications, regards herself as working solely for Jenny and does not communicate with other
Board members except to organise the meetings. Jenny does not have anyone else to assist her
on Board or governance issues.
She is considering whether to recruit a qualified Company Secretary for Ocean. One of the options she has considered, in order to save costs, is to appoint a person who has an accounting qualification, as the Company Secretary would also join Ocean’s finance team to assist the Finance Director.
c) Discuss whether it would be possible for Ocean to appoint a Company Secretary who also
works in the Ocean finance team and what issues this would raise. (8 MARKS)
Although it would be possible to appoint a Co Sec who works in the finance team, this would raise the following issues which would need to be overcome.
Ocean is a private ltd company so is not formally required to have a co sec however if there is not one provided the duties would fall to the other officers of the company, in this case the directors. As there is an identified requirement for the functions to take place and they are not being performed, it would be correct to appoint a co. sec in this instance.
Reporting lines
The co secretary is required to report to the board and provide support to the board on governance. They should report to the chair in respect of their co. sec appointment rather than a specific member of the exec committee or another director on the board.
In this scenario, they would report to the chair, Jenny rather than say the finance director as their independence and integrity of the co. sec role may be compromised.
They may report to a director on the board if this duty has been delegated to the director to the board.
Appointment and removal from the board
Jenny would not be solely responsible for their appointment and approval. This would be a matter for the board as a whole.
Remuneration
Their remuneration for the role of co. sec should be undertaken by a remuneration committee and should not be a matter for the exec. committee. However, the finance director may wish to input on the remuneration and due to their finance duties separately and this should be taken into account.
Evaluation
The evaluation of their role as co sec should be taken as part of the overall board evaluation. This would be separate to the performance review and evaluation of their finance role.
Dual roles
Care would need to be undertaken that both roles are kept separate and that the appointee understood as and when there may be a conflict of interest. For example, advise should be given to the board as a co. sec on the long term sustainability of the company whereas a member of the finance team may be able to only advise on the financial benefits of a decision.
Further information on the role of company secretaries should be obtained via the ICSA guidance notes / studies.
NOVEMBER 2019 - MY ANSWER
The Company Secretary is often described as being the “conscience of the company”. In their
governance role they are often called upon to advise the Board on questions which go beyond
what the law and regulations require and which are matters of business ethics.
(a) Discuss the skills and attributes that a Company Secretary should have in order to fulfil that
description.
(12 marks)
NOVEMBER 2019 - MY ANSWER
The Company Secretary is often described as being the “conscience of the company”. In their
governance role they are often called upon to advise the Board on questions which go beyond
what the law and regulations require and which are matters of business ethics.
(b) Assess what risks a Company Secretary could face to his or her independence when
performing their governance role and how those risks can be reduced.
(13 marks)
NOVEMBER 2022 - MARKERS ANSWER
Poole Finance Limited (Poole) is a large private company which provides financial advice to
individuals and companies in the UK. The company operates from one office building.
The Board of Poole has six directors. The non-executive directors are the Chair, Bob Spiller, and
two other independent non-executive directors. The executive directors are the Chief Executive
Officer (CEO), David More, and two other executive directors. The Company Secretary of Poole is
Kate Otis. Kate also acts as the in-house lawyer for Poole, reporting to Bob for her role as
Company Secretary and to David for her role as in-house lawyer.
There have recently been disagreements between Bob and David about the company’s
management and future strategy. These disagreements have resulted in arguments in front of
other Board members and a failure by the Board to agree the company’s strategy for the next
financial year at the last Board meeting a few weeks ago.
Last week, Bob complained to Kate about David’s behaviour and said that he thought that David was disorganised and lacked strategic vision. Then, this week, David spoke to Kate to complain about Bob’s behaviour at the last Board meeting, which he thought was rude and aggressive. David also said that he thought that Bob was taking up too much of Kate’s time on governance issues and that she needed to spend more time on her in-house lawyer role.
Kate has been asked to help the management team of Poole to prepare an updated disaster
recovery plan. Since the plan was last reviewed three years ago, the threat of cyber-attacks has
increased and the company has become much more reliant on its online systems and technology,
with all customer records being held online. The other key change since the last review is that all of
Poole’s staff now work from home for at least two days a week, rather than just working at the
company’s office building.
(a) Analyse how Kate should use her role as Company Secretary, and what skills she should
demonstrate, to help to resolve or reduce the disagreements that have arisen between Bob
and David.
(15 marks)
Answers should demonstrate a good understanding of the role of a Company Secretary, including their independence and their role in assisting the Board with advice, relationships and communication.
Answers should refer to the key the skills that
a Company Secretary should use in their role as an independent governance professional in order to deal with the disagreements that have arisen between the Chair and the CEO of Poole.
Answers could include the following content:
The Company Secretary plays a key role in the governance of the company. One of a Company Secretary’s key governance roles relates to Board communication. It is this aspect of the role that Kate needs to focus on in order to resolve the disagreements that have arisen between Bob, the Chair, and David, the CEO, of Poole.
Independence
A key feature of a Company Secretary’s role in governance is that they should be independent. This means that they should be independent of management and independent of the influence of one or more directors. Their role is to act for, and advise, the Board as a whole in an impartial way. Kate should therefore regard herself as representing the company, and the Board as a whole, and not any individual factions or interests within it.
Although Kate reports to Bob, the Chair, in her role as Company Secretary, that does not mean that she must consider only the Chair’s views of the disagreements (which could also be referred to as conflicts) that have arisen with David, and his critical views of David, but instead she should act independently to try to resolve the disagreements and should not take sides.
Equally, the fact that she reports to the CEO as the inhouse lawyer for Poole does not mean that Kate is prevented from dealing with the disagreements between Bob and David, or that she should take David’s side in the disagreement. The issue is one that she is dealing with in her capacity as the Company Secretary, not in her capacity as the inhouse lawyer.
Kate should not therefore take sides between the Chair and the CEO. Her role as the independent governance professional is to try to reduce conflict and to make the Board more effective.
It is because of her role as an independent governance professional, that Kate should be able to facilitate dialogue and act as a bridge to try to reduce any disagreements or conflict between the Chair and the CEO.
Dual Role
It is acceptable for Kate to have the dual roles of Company Secretary and in-house lawyer, but she needs to ensure that this does not compromise her ability to act as an independent adviser to the Board on governance matters. Although David has complained that she needs to be allowed to spend more time on her role as an in-house lawyer, her reporting line as the Company Secretary is to the Chair, Bob, and so it is not for David to interfere with that role.
If Kate feels that she does not have enough time to perform both roles effectively then
she should raise this with Bob.
Board communication and effectiveness
A Company Secretary is regarded as the Board’s communicator and has a key role in facilitating information flows at Board level and improving the effectiveness of the Board through communication.
A Company Secretary should be a primary point of contact between Board members. Their role as the Board’s communicator is central to this. The Company Secretary should be the main point of contact with the non-executive directors of the Company, and in this scenario she could contact the non-executive directors to take soundings about the disagreements that have arisen and to work to
find a way forward.
For example, she could take views from the directors individually as to how the strategy for the next year can be agreed, and could convene and facilitate a special meeting of the Board in order to reach agreement on it.
A Company Secretary has an important role in advising the Board and management of
the company on a range of issues. Part of this role should include ensuring that there are clearly defined roles at Board level and that the delegated authorities from the Board to its committees and from the Board to senior management are clear.
Kate should therefore ensure that the division of responsibilities between the Chair and
the CEO are clear as this can be a source of disagreement between them. There should be a formal record of that division of responsibilities if one is not already in place.
One of a Company Secretary’s roles is to suggest steps to resolve situations and to act
as a mediator when there are disagreements on the Board. This will be a key aspect of
Kate’s role in helping to resolve the Board situation at Poole.
Board evaluation
Kate should also consider encouraging the Chair to instigate an evaluation of the Board, its committees and individual directors in light of the disagreements that have arisen.
This could be an internal evaluation run by her. But using an external evaluator for the evaluation could be more effective. An external evaluator may help to diffuse the disagreements and allow them to be discussed and debated, because directors could speak more freely to a third-party evaluator not connected with the company. An external evaluator is also more likely to be prepared to make what could be unpopular suggestions to the Chair and the Board about the improvements that are needed. The Board may also be more prepared to accept an external evaluator’s suggestions for
improvements in the way in which the Board is run.
As Company Secretary, Kate would need to ensure that an action plan is drawn up to
implement any recommendations from a Board evaluation.
Relationship management skills
A Company Secretary needs to have a good working relationship with all Board
members and senior management. Interpersonal skills and emotional intelligence will
be a vital skill for Kate when helping to resolve the disagreements that have arisen.
She needs to be able to take into account the views of all relevant parties, which in this
case would include all Board members, and plan a way forward.
Communication skills
As the Company Secretary, Kate should be able to use her communication skills to
facilitate effective dialogue between members of the Board. A Company Secretary
should be an active listener, establishing a rapport with all of their key contacts and be
able to use their communication skills to defuse and resolve disagreements and deal
with difficult situations.
Confidence and resilience
A Company Secretary needs to have sufficient confidence and resilience to operate
effectively in what can sometimes be difficult circumstances. A calm and authoritative
approach to governance issues and difficult situations is vital for a Company Secretary.
In order to help to resolve disagreements of this sort, between the Chair and CEO, Kate
will need to show a high level of confidence in dealing with what is a very difficult
situation.
Integrity
Kate will need to demonstrate integrity in her behaviour, ensuring that she remains
independent and does not take sides. She needs to put the company’s interests above
her personal interests and the interests of individual members of the Board. She needs
to stay neutral and calm given the disagreements that have arisen, and try to facilitate
solutions.
Gaining trust
In order to be effective in relationship management, Kate must be able to inspire the
confidence and respect of the Chair, CEO and other members of the Board.
Kate needs to gain the trust of individual Board members in her role, and this is
particularly important in this scenario of disagreements between the Chair and the
CEO. She will need to have built up a rapport with the Chair, CEO and other Board
members. She must also ensure that she maintains individual confidentiality where
possible, and act with tact and discretion.
JUNE 2022 - MAKERS ANSWER
Willow Garden Centres Limited (Willow) is a large private company which operates ten garden
centres in England.
The Board of Willow has recently decided to adopt the Wates Corporate Governance Principles for
Large Private Companies (Wates Principles).
The Board has been discussing how to improve Willow’s approach to corporate social
responsibility (CSR).
During the Board discussions, two of the executive directors expressed concerns about increasing the focus on CSR issues. But the majority of the Board were in favour of improving the company’s approach to CSR, including improving the company’s engagement with its stakeholders and improving the disclosures in the annual report.
As a first step, the Board has set up a staff focus group on CSR matters. The Company Secretary, Molly Wong, is the Chair of the focus group and has been asked to report back on the group’s findings and recommendations at the next Board meeting.
At the first meeting of the focus group, the main issues raised by the staff members were:
* the company should disclose more about its environmental impact;
* there is no ability for staff to provide comments on CSR matters, which are not covered in the
annual staff survey; and
* Willow does not have any Key Performance Indicators (KPIs) in relation to non-financial performance.
Willow has recently been the subject of adverse social media criticism about one of the suppliers for the products that it sells, because the supplier has been accused of using child labour. The Board is concerned about the reputational impact of this criticism. The Board is also concerned about Willow’s financial position. Willow’s profitability has deteriorated over the last year and the Board thinks that the company’s future sales may be impacted by a competitor business, which has announced that it is going to open two new garden centres near to two of the Willow garden centres.
The Board has decided to review the company’s risk register in light of these concerns,
taking into account the Wates Principles and best practice. Willow’s risk register was last reviewed
by the Board six months ago and it does not currently include reputational risk.
(a) Explain, with reference to the four main categories of the role of a Company Secretary, how
Molly can assist the focus group and the Board on corporate social responsibility issues.
(12 marks)
Answers should demonstrate a clear understanding of the four main roles of a Company Secretary, summarise the key features of those roles and apply them to show ow the Company Secretary of Willow could assist the focus group and the Board on corporate social responsibility issues.
Answers could include the following content:
[Marking note: Flexibility should be shown in the marking about how the four categories of the Company Secretary role are described, and which aspects of the CSR review fall within which category, provided that the answers show a clear understanding of the main aspects of the Company Secretary role and apply them to CSR issues and to the facts in the scenario.]
The four main categories for the role of a Company Secretary are governance; statutory and regulatory compliance; advising the Board and senior management; and communication. Each of these areas is relevant to the corporate social responsibility (CSR) initiative. Each of the four aspects of the Company Secretary’s role will enable Molly to assist the focus group as chair, make recommendations to the Board and assist the Board in taking steps to improve Willow’s approach to CSR matters.
Governance
A Company Secretary has a key role to play in the governance of the company. This refers to the Company Secretary’s role in ensuring that the Board and its committees are constituted properly and that its processes and decision making operate effectively and in accordance with good governance practice.
We are told that the Willow Board has recently adopted the Wates Corporate Governance Principles (Wates Principles). Molly should take this into account in her work with the focus group and when reporting back to the Board.
Principle 6 of the Wates Principles focuses on stakeholder relations and engagement. The guidance to this principle notes that large private companies should consider how a company’s activities may impact on current and future stakeholders, including impact on the environment, and that the Board needs to ensure that there is effective dialogue with stakeholders.
A Company Secretary has an important role to place in stakeholder engagement. Molly should be able to advise and assist the Board on the business case for stakeholder engagement, how to identify and prioritise stakeholders and what methods of engagement could be used.
In this case, for example, it appears that Willow needs to improve its dialogue with employees on CSR matters, as this is one of the complaints raised by the focus group. Molly should consider how views from staff on CSR matters can be fed back to the Board and management on a regular and proactive basis. This may go further than just including questions in the annual staff survey and could for example include a facility for suggestions and an ongoing staff CSR focus group.
Statutory and regulatory compliance
A Company Secretary has an important role to play in ensuring that the company complies with law and regulation. In particular, this covers the requirements of the Companies Act 2006, such as
compliance with directors’ duties, and compliance with Willow’s reporting requirements.
As regards directors’ duties, the Company Secretary should explain to the Board how the focus on CSR matters can help the directors to fulfil their duty under section 172 of the Companies Act to promote the success of the company for the benefit of its members as a whole, and in doing so to take into account the range of CSR factors listed in that section. This will be particularly important given the concerns raised by two of the directors about whether it is right to increase the emphasis on CSR matters.
Molly should also advise the Board on the non-financial reporting requirements that Willow must comply with in its annual report, which includes reporting on CSR matters.
For example, this would include the requirements to disclose carbon emissions and the requirements to disclose how the company has engaged with its suppliers and customers.
In addition to the statutory and regulatory reporting requirements, Molly should explain to the focus group and the Board what the current best practice is for non-financial reporting in the annual report. In particular, the staff have expressed concern about the extent of the reporting on environmental matters, and Molly could advise them on what the current best practice is for reporting which goes beyond the regulatory requirements, for example as regards Willow’s approach to plastics and waste.
Advising the Board and senior management
A Company Secretary has an important role in advising the Board and management of the company on a wide range of issues, including engagement with stakeholders, corporate social responsibility and business ethics: The Company Secretary should be able to advise the Board on the importance of CSR
to Willow. Molly can explain how a focus on CSR can assist in employee recruitment and retention and gaining a competitive advantage. Again, this may help to overcome the concerns of the two executive directors about the focus on CSR. It has been noted by the staff that Willow’s KPIs do not cover CSR matters. The Board should therefore be asked to consider setting non-financial targets in relation to any CSR initiatives that are agreed and then measuring the company’s progress against those targets. Molly can assist the Board, by providing guidance and suggestions on the type of metrics that could be chosen for the new KPIs. The metrics that are chosen are likely to need to be qualitative measurements rather than just quantifiable ones. Molly should refer to best practice guidance to help to advise the Board and audit committee on developing new KPIs.
Communication
A Company Secretary has an important role in ensuring good communication between Board members and between the Board and management.
Molly will need to use her communication skills when chairing the focus group meetings. She will need to use her written and oral communication skills when summarising the group’s recommendations for the Board. She should ensure that there is a clear summary of the recommendations from the focus group which is made available to the Board and be able to answer any questions about it at the Board
meeting.
Molly should also use her communication skills to help to facilitate good relations between members of the Board. As two of the executive directors are not sure about the benefits of the new focus on CSR, she could seek to have a separate meeting with them to brief them on the benefits of CSR and current best practice and offer to answer any queries that they have before the Board meeting.
Molly should also ensure that the recommendations to the Board include suggestions on how the Board and management should communicate its new CSR policies and expectations to the staff as a whole.
NOVEMBER 2021 - MARKERS ANSWER
Topnotch Advertising plc (Topnotch), is an advertising agency with its shares listed on the Main
Market of the London Stock Exchange. The Board of Topnotch has six directors: a nonexecutive Chair, three non-executive directors, a Chief Executive and a Finance Director.
The current Chief Executive of Topnotch, Sanjay Kumar, was appointed two months ago from
another advertising company. The previous Chief Executive left the company five months ago
following disagreements with the Chair, David Harlow, about the company’s long-term strategy,
the Chair’s approach to shareholder engagement and which of the senior management plans
needed Board approval before they could be implemented.
David has recently informed the Senior Independent Director, Julie Dylan, that he has been
approached by another listed company to become chair of its remuneration committee. Julie is
worried that David does not have time to take on the role at the other company because, as well
as being Chair of Topnotch, he is already a director of another listed company and is a trustee
of a number of charities.
David has told the Company Secretary of Topnotch, Matteo Renzi, that he thinks that one of the
reasons why there were disputes between him and the former Chief Executive is that the
Chair’s role, and the division of responsibilities between the Chair and the Chief Executive, has
not been made clear. He wants this to be clarified now that Sanjay has joined Topnotch as its
new Chief Executive.
David is also concerned that the relationship between the Board and senior management of the
company is poor. In particular, he thinks that the Finance Director is unhappy about the
departure of the former Chief Executive and does not have a good relationship with the nonexecutive director who chairs the audit committee.
(b) Analyse the role that Matteo, as the Company Secretary of Topnotch, should play in
improving the relationship between members of the Board, and between the Board and
the senior management team, and the skills that he needs to use to ensure that they are
working together effectively.
(12 marks)
Answers should demonstrate a good understanding of the role of the Company Secretary in
Board and senior management relationships and should illustrate the skills that a Company
Secretary should use in their role as an independent governance professional in order to
improve those relationships, taking into account the facts in this scenario.
Answers could include the following content
Governance role of the Company Secretary
The Company Secretary plays a key role in the governance of the Company. The UK Code (Provision 16) states that all directors should have access to the advice of the Company Secretary, who is responsible for advising the Board on governance matters.
Two of the main elements of a Company Secretary’s governance role are advising the Board and senior management and being the Board’s communicator. It is these aspects of the role that Matteo needs to focus on in order to resolve the communication and relationship difficulties that have arisen at Topnotch.
Board advice and relationships
A Company Secretary has an important role in advising the Board and management of the company on a range of issues. When performing that role, a Company Secretary should aim to develop effective relationships with Board members, providing them with their main source of information and advice.
Part of this role should include ensuring that there are clearly defined roles at Board level and that the delegated authorities from the Board to its committees and from the Board to senior management are clear. Matteo should therefore ensure that the division of responsibilities and the delegations, which caused problems between the Chair and the former Chief Executive, are made clearer. This will help all Board members and not just the Chair and Chief Executive.
Matteo should also ensure, in compliance with the UK Code provisions, that there is an evaluation of the Board, its committees and individual directors each year. The next Board evaluation should cover the issues that arose with the former Chief Executive and any difficulties relating to the relationships on the Board (such as the one between the Finance Director and the audit committee chair) and the Company Secretary should ensure, alongside the Chair, that an action plan is drawn up to implement any recommendations from the evaluation.
Board information and communication
A Company Secretary has a key role in facilitating information flows at Board level and between the Board and senior management.
A Company Secretary should be a primary point of contact between Board members and between the Board and senior management. Their role as the Board’s communicator is central to this. That role includes ensuring that Board decisions are properly communicated to relevant members of the management team.
The Company Secretary should be the main point of contact with the non-executive directors of the Company. This enables those non-executives to receive information and advice without having to liaise directly with the Executive Directors or senior managements. Matteo should therefore, for example, be a main source of advice and information for the chair of the audit committee, without that chair always having to ask the Finance Director for information, and Matteo can act as a useful link between those two directors, facilitating their work and their relationship.
Interpersonal skills
A key interpersonal skill for a Company Secretary is empathy and relationship management. A Company Secretary can help to diffuse tensions, such as those which are apparent in the Topnotch Board, by using those skills.
In order to be effective in relationship management, Matteo must be able to inspire the confidence and respect of the Board and senior managers. He needs to be an active listener who is able to summarise concerns, plan a way forward, disagree constructively when necessary and appreciate the views of all parties.
He needs to be able to work with all directors, stay neutral and calm when there are disagreements and try to facilitate solutions. One of his roles is to suggest steps to resolve situations and to act as a mediator when there are conflicts on the board.
Independence
A key feature of a Company Secretary’s role in governance is that they should be independent. They should not be under the influence of the Chair or another director, or of senior management. Instead, their role is to act for, and advise, the whole of the Board in an impartial way.
By being that independent figure, Matteo can facilitate dialogue and provide a bridge between
Board members and between Board members and senior management.
In this case, it is not a question for example of Matteo taking the Finance Director’s side over the audit committee chair or vice versa. His role as the independent governance professional is to try to improve their relationship, reduce conflict and try to facilitate their communication in order to make the Board more effective.
JUNE 2021 - MARKERS ANSWER
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.
(5 marks)
Award up to 5 marks from the following:
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”. (1)
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.”(1)
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. (1)
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. (1)
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. (1)
Reward other valid responses.
NOVEMBER 2020 - MY ANSWER
Ocean Builders Limited (Ocean) is a house building company. It has a Board of five directors.
Three directors are executive, including Mike Ford, the CEO, and the Finance Director. The other
two directors are non-executive: Jenny Hancock, the Chair of the Board, and David Conte.
Mike has informed Jenny that he has just secured a proposal from Gravity Suppliers Limited
(Gravity) to enter into a large and long-term supply agreement with Ocean for the supply of building
materials, which Mike thinks will be on good terms for Ocean. It will be the first time that Ocean has
contracted with Gravity. Mike wants the supply agreement to be discussed at the next Board
meeting of Ocean. He has mentioned to Jenny that David is also one of the non-executive
directors of Gravity.
Jenny currently uses her Executive Assistant to help her organise the Ocean Board meetings and
write up the minutes. The Executive Assistant does not have any legal or governance
qualifications, regards herself as working solely for Jenny and does not communicate with other
Board members except to organise the meetings. Jenny does not have anyone else to assist her
on Board or governance issues. She is considering whether to recruit a qualified Company
Secretary for Ocean. One of the options she has considered, in order to save costs, is to appoint a
person who has an accounting qualification, as the Company Secretary would also join Ocean’s
finance team to assist the Finance Director.
(b) Explain how a Company Secretary could assist Jenny on Board and governance issues, with
reference to the four main categories of roles that a Company Secretary could perform for
Ocean, in contrast to the Executive Assistant’s role.
Answers should demonstrate a clear understanding of the four main roles of a Company Secretary and be able to summarise the key features of those roles and how a Company Secretary could assist the Chair of Ocean on board and governance issues in contrast to the current limited role of the Executive Assistant.
Answers could include the following content
The four main categories for the role of a Company Secretary are:
Governance
A Company Secretary has a key role to play in the governance of the company. This refers to the Company Secretary’s role in ensuring that the Board (and its committees) is constituted properly and that its processes and decision making are operated effectively and in accordance with good governance practice.
This is a much wider remit than simply organising Board meetings and writing up the minutes which the Executive Assistant currently does. It includes for example, Board procedures and Board information, financial reporting, risk management and executive director remuneration
Statutory and regulatory compliance
Currently, the Chair of Ocean does not have anyone with a legal or governance qualification assisting her and therefore has no one she can rely on to ensure that Ocean complies with company law and regulation.
A Company Secretary will have a role to play in ensuring that the company complies with law and regulation. In particular, this covers the requirements of the Companies Act 2006, such as filing information at Companies House, compliance with director duties, complying with the company’s constitution and complying with other restrictions in the Act about how the company operates.
Advising the Board and senior management
A Company Secretary has an important role in advising the Board and management of the company on a range of issues including:
* Board induction, training and evaluation.
* Risk management and internal control procedures.
* Relationships with stakeholders such as suppliers and customers.
* Corporate social responsibility
* Business ethics
This shows how much wider the governance role of a Company Secretary is than just helping to organise Board meetings, which is the only support that the Chair currently gets. It is also a role
which involves acting for and assisting the whole Board, even if reporting to the Chair, in contrast to the Executive Assistant who only regards herself as working for the Chair.
Communication
A Company Secretary has a central role in facilitating information flows at Board level. A Company Secretary is a primary point of contact between Board members and between the Board and management. Again, this is not a function which is currently being carried out. The Executive Assistant works for the Chair, does not regard herself as acting for the rest of the Board and does not communicate with the other Board members except to organise Board meetings.
Answers should demonstrate an understanding of the problem with appointing a person who
does not have the skills and capacity to perform the full Company Secretary role and the threats
to a Company Secretary’s independence if they are performing a dual role, taking into account
the facts in the Ocean scenario.
Answers could include the following content
There is no requirement for a private company to have a Company Secretary, or for the
Company Secretary of a private company to have particular qualifications. There is also no
regulatory restriction on a Company Secretary performing a Company Secretarial role alongside
another internal role for the company.
Therefore, it would be possible for a person with an accounting qualification to become Company
Secretary and to combine that with an internal finance role.
However, two key concerns arise as a result of this proposal:
Skills and capacity
There would be key questions to be asked about their skills and experience if they just have an
accounting qualification and do not have any governance qualification. In particular, whether
their knowledge of governance and of company law and regulation is sufficient to perform the
role effectively.
The other question is whether, if the person is also performing an internal finance role, they
would have time to properly perform the full role of a Company Secretary, and in particular
whether they would have sufficient time to effectively perform a full corporate governance role.
Dual role and reporting lines
If a Company Secretary has another internal role then their governance role, and in particular
their role as an independent advisor to the Board, which involves acting with impartiality and
independence, could be compromised.
In particular, in this case, the Company Secretary would be reporting to the Finance Director in
their finance role, and this could give rise to concerns about whether they would be able (or
willing) to act impartially in relation to matters which might require action which is against the
wishes of the Finance Director.
The Company Secretary needs to be accountable to the whole Board in relation to that role and
so should have a separate reporting line to the Chair in relation to that role.
A Company Secretary needs to be able to work with and for all members of the Board, including
in particular the Chair and non-executive directors, and again this could be compromised if their
day job requires a close working relationship with just one of the executive directors.
