Role of the company secretary in governance

Question 1

Which are the 2 requirements under the CA2006 regarding Cosecs?

In the absence of a cosec, who takes on the responsibilities?

What does Provision 16 UK CG Code say?

What guidance did the ICSA publish?

Answer 1

• S.271 CA2006 = all public companies must have a company secretary
• S.270 CA2006 = unless there is an express requirement in the articles, private limited companies do not need to appoint one
• s.270 CA2006 = directors must take on cosec responsibility where one is not employed
May appoint a cosec to reduce the administrative and CG burdens

• Prov. 16 = all directors should have access to the advice of a Cosec, who is responsible for advising the board on all governance matters

• ICSA issued a guidance note in 2013 = ‘The corporate governance role of the company secretary’ = sets out the specific duties and responsibilities of the Cosec for governance

Question 2

What are the 4 categories of the main duties of a cosec?

Answer 2

• Governance;
• Statutory and regulatory compliance;
• Advising the board and senior management; and
• Being the board’s communicator

Question 3

GOVERNANCE.
What are the 6 headings under the ICSA’s guidance note ‘The corporate governance role of the company secretary’?

Name an example of each.

Answer 3

1. Board Composition and Procedures = Establishing a formal schedule of matters reserved for decisions by the board
2. Board Information, Development, and Relationships = Plan and organise director induction programmes
3. Accountability = Risk management and internal control = Assist the board in an annual review of the effectiveness of the company’s risk management and internal control systems
4. Remuneration = Ensure RC is familiar with the 2018 Code principles and provisions on remuneration
5. Relationship with Shareholders = Ensure the board keeps in touch with shareholder opinion on a continuing basis (Principle D and Provision 3)
6. Disclosure and Reporting = Ensure necessary CG disclosures and the workings of the board and its committees are included in the annual report.
   = All companies with a premium listing must report how they have applied the 2018 Code (under Listing Rules)

Question 4

GOVERNANCE
Name 3 examples of duties and responsibilities of the cosec under Board Composition and Procedures other than ‘Establishing a formal schedule of matters reserved for decisions by the board’.

Answer 4

1. Establish a formal division of responsibilities between the chair and CEO or other layers of management
2. Schedule board meetings, prepare agendas, and ensure good and timely information flows
3. Record board decisions clearly and accurately

Question 5

STATUTORY AND REGULATORUY COMPLIANCE.
What does the cosec have full responsibility for? (3)

Answer 5

1. for Companies Act compliance and where the company is listed, for compliance with:
2. the FCA’s LPDTRs
3. market abuse provisions of the FSMA 2000

Question 6

STATUTORY AND REGULATORUY COMPLIANCE.
What are the 6 headings under the ICSA’s guidance note ‘The corporate governance role of the company secretary’?

Name an example of each.

Answer 6

1. Directors’ Duties = Implement procedures to help directors discharge their statutory duties as codified under s. 171 to 177 of the CA2006
2. Share Dealing = Implement procedures to comply with MAR (listed co’s only)
3. Protection of Inside Information = maintain ‘inside lists’ as required by MAR
4. Verification of Published Information = Implement a ‘verification and approval’ process to review and confirm accuracy of company statements
5. Responsible Release of Market Information = Implement procedures to make required LPDTRs announcements
6. Compliance and Continuing Obligations Under LPDTRs = Implement procedures for compliance with LPDTRs

Question 7

ADVISING THE BOARD AND SENIOR MANAGEMENT.
What 7 areas can advising the board and senior management be broken down into?

Name an example of each.

Answer 7

1. Good Board Practices = Annual board evaluation of the whole board, committees, chairman, and individual directors takes place
2. Transparency and Disclosure = information disclosed by the company should be balanced between the positive and negative
3. Effective Control Environment = An AC of independent members with the appropriate skills and experience = Should be a clear term of reference for the committee
4. Relationships with Shareholders and Other Stakeholders = Engagement with shareholders evidenced through a well-run AGM
5. Corporate Responsibility = Carrying out activities responsibly = establish win-win partnerships that benefit the organisation and society
6. Conducting Business Ethically = board approving a set of values that have been generated by employees (display them around the office)
7. Board’s Commitment to Corporate Governance = Ensure board discusses CG issues on a regular basis = agenda items and board minute

Question 8

THE BOARD’S COMMUNICATOR.
Regarding best practice, name 6 things that the cosec should be responsible for.

Answer 8

1. Communicating board decisions to the relevant management team
2. Facilitating good information flows
3. Being primary point of contact for and providing a source of information and advice for NEDs
4. Ensuring board keeps in contact with shareholder opinion and that shareholders are briefed on the reasons behind the board’s decisions
5. Managing the disclosure of the board’s decision’s to regulators and other stakeholders
6. Ensuring that relevant disclosures on CG and directors’ remuneration are made in the company’s annual report and accounts

Question 9

Why is the cosec sometimes referred to as the ‘conscience of the company’?

What should they do?

What must the cosec be to be the ‘conscience of the company’?

Answer 9

= advice the board what the right thing to do is in the long-term interests of the organisation

•Cosec should speak out against bad governance and unethical or illegal practices

Cosec must be independent-minded and not under the influence of either senior management, the chair, or another individual director

Question 10

What were 3 key findings of the 2014 ICSA ‘The Company Secretary: Building trust through governance’ report?

Answer 10

1. Many company secretaries found that their role was misunderstood and that many of their duties were considered administrative in nature
2. Maximising effectiveness requires that the cosec’s direct reporting line should be to the chair
3. Head of legal and cosec should be separate roles = conflict of interest if combined as roles can be incompatible

Question 11

What are the 2 requirements on who can be a cosec under s.273 CA2006?

Answer 11

1. A person who appears to the directors to have the requisite knowledge and experience
2. Have one or more of the following qualifications:

a. Have been a secretary of a public company for at least the last 3 out of 5 years before appointment

b. Is a member of 1 of the 7 recognised professional bodies including ICAEW and CGI UK&I

Question 12

What did the 2014 ICSA ‘The Company Secretary: Building trust through governance’ report uncover about cosecs’ careers?

What are the 5 key challenges facing cosecs identified in the report?

How can a cosec overcome these?

Answer 12

Many company secretaries come into their role from diverse backgrounds, often as a second or third career = Have a diverse set of skills and experience that they can bring to the role

1. Being considered traitors by the executive team
2. Supporting chairs exercising poor performance
3. Acting as the third person in a CEO-chair relationship
4. Becoming main contact for impossible problems
5. Maintaining independence from board members

To overcome these Cosecs need commercial and business acumen and interpersonal skills.

Question 13

Name 5 interpersonal skills a company secretary should have and explain why each one is important to the company secretary in fulfilling their responsibilities.

Answer 13

1. Active listening – look interested in what they are being told = help cosec build relationships and obtain the information they need
2. Personal and social awareness – read board member’s body language to help interpret what is said and meant at board meetings = enables cosec to write the minutes. Also be personally aware of how their behaviours may effect board’s decision making.
3. Independent mindset – see both sides of the arguments = to remain impartial
4. Empathy and relationship management – carefully build relationships to remain independent and be the conscience of the company
5. Strength of personality – be strong to stand up to the strong personalities = sometimes board don’t want cosec’s advice but must have strength to be persistent in a respectful way.

Question 14

How can a person, specifically a cosec, be commercially aware?

What 3 things should a cosec do?

Answer 14

To be commercially aware, an individual must understand the business they are in, and make good practical decisions as a result.
In the case of the company secretary, this means being able to advise the board on this basis so that they can make the decision.

1. Understand how the company makes money and creates value
2. Understand what the company needs, now and in the future, so that it continues to make money and create value
3. Keep up to date with the industry

Question 15

Why does a cosec’s position need to be one of seniority?

Why should they attend meetings of the executive team? (3)

Answer 15

= to carry out their duties and responsibilities effectively = maybe be a member of the executive team, but debated whether this compromises their independence

•They should attend meetings of the executive team:
1. enable them to advise the executives on governance issues

2. advise on how the board might react to a particular proposal and what questions they should be prepared to answer
3. helps cosec get an understanding of the executive’s positioning and reasons for suggesting the proposal which may help if the proposal needs to be ‘sold’ to the chair.

Question 16

Who should decide the cosec’s remuneration?

Why?

Answer 16

the board or the remuneration committee

• Protects the independence of the position of the cosec

Question 17

What are the 2 ways a cosec’s annual evaluation can be done to maintain the independence of the role following the evaluation?

What is the method developed in King III?

What are the 3 sections?

Answer 17

1. The evaluation is carried out as part of the annual board evaluation = external evaluator carries out both evaluations
2. The RC can request management to carry out an independent 360-degree evaluation of the cosec = results fed directly back to the committee

King III developed a company secretaries’ evaluation questionnaire template which requires in:
• Section 1 = cosec assess themselves

• Section 2 = directors grade cosecs’s performance

• Section 3 = board confirm all necessary formalities relating to cosec role are in place

Question 18

What are the 2 main challenges to the independence of a cosec?

What are 3 others?

Answer 18

1. Dual Roles - there may be conflict between the responsibilities of the other role with those of the company secretary.
2. Reporting Lines, especially when the company secretary reports to a member of management
3. Remuneration = decisions of cosec’s remuneration and benefits of the cosec should be taken by the board of RC. If reporting to executive, they will be responsible for cosecs’ evaluation and therefore may influence remuneration
4. Evaluation = being evaluated by whole board
5. Trust and confidence
6. Seniority -

Question 19

What are the 3 reasons why dual roles may compromise a cosec’s independence / Is it appropriate for the company’s in-house lawyer to carry out corporate governance responsibilities?

Answer 19

1. will often have to take sides = may be complying with the law and in the interests of management but not acting in the best long-term interests of the company = inconsistent with the cosec’s governance role = requires impartiality
2. May prevent cosec from speaking out against bad governance or unethical practices, or proposals that are not in the long-term interests of the company, especially if to do so was costly or against the wishes of the CEO
3. The cosec should be conscience of the company = may require the board to consider more than just complying with the laws and regulations

Question 20

What are the 2 reasons why reporting lines may compromise a cosec’s independence?

Answer 20

1. because the cosec would be expected to report to a member of management as well as the chair.
2. cosec should hold a position of seniority to carry out their duties and responsibilities effectively. = shouldn’t have a boss = having one may undermine their seniority and compromise their independence = may not want to speak out against their boss

Question 21

How can an organisation maintain the independence of the company secretary?

Which Provision from the UK CG Code supports this?

Why? (3)

Answer 21

best practice = cosec should be appointed and dismissed by the board as a whole.

Provision 16 = both appointment and removal should be a matter for the board as a whole

1. Designed to ensure that the cosec’s initial appointment and continuing tenure is not dependent on the decision of a single director or group of directors
2. Help reinforce the cosec’s position as an impartial advisor to the whole board
3. If cosec could be appointed /removed by an individual, this impartiality could be compromised as they inevitably feel under pressure to demonstrate greater loyalty to that person

Question 22

Which Acts may a cosec face liability under? (2)

What does s.1157 CA2006 say about relief?

Are cosecs held liable for directors’ breached?

Can a cosec be held personally liable for their actions?

Answer 22

1. CA2006 = Cosec = officer of the company = May be liable to default fines and other penalties for officers under CA2006
2. IA1986 = May be held liable to contribute during winding up if there has been a misfeasance or breach of trust in relation to the company

• Can apply to the court for relief in respect of any liability under s.1157 CA2006

• Cosec not normally held liable with directors for any breach of trust or malfeasance committed by them

Unusual, but cosec fined under the Health and Safety at Work Act in the on-going case involving Hillsborough Disaster (1989).

Question 23

What are the 3 reasons for a company to outsource a cosec?

Answer 23

1. To ensure all of the statutory and regulatory requirements are met by a specialised firm
2. To reduce costs of employing a person with a specific qualification (Smaller companies = may be more cost-effective or efficient to outsource the role to a professional firm)
3. To fulfil a requirement to file company documents online, which requires a PIN for security reason

Question 24

What are the 4 reasons for a company not to outsource a cosec?

Answer 24

1. An in-house cosec 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
2. An in-house cosec is available at all times to discuss CG issues = A professional services firm may be much slower in providing assistance or responding to questions
3. An in-house cosec can truly act as the ‘conscience of the company’ and has no conflict = do not do other work such as providing accountancy services
4. An in-house cosec can be relied upon to maintain confidentiality = In-house cosecs can be held liable for any breaches in confidentiality, whereas this may be problematic in cases of an outsourced service.