Role of the CS in Governance Flashcards
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.
- Board Composition and Procedures = Establishing a formal schedule of matters reserved for decisions by the board
- Board Information, Development, and Relationships = Plan and organise director induction programmes
- 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
- Remuneration = Ensure RC is familiar with the 2018 Code principles and provisions on remuneration
- Relationship with
Shareholders = Ensure the board keeps in touch with shareholder opinion on a continuing basis (Principle D and Provision 3) - 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)
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’.
- Establish a formal division of responsibilities between the chair and CEO or other layers of management
- Schedule board meetings, prepare agendas, and ensure good and timely information flows
- Record board decisions clearly and accurately
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.
- Directors’ Duties = Implement procedures to help directors discharge their statutory duties as codified under s. 171 to 177 of the CA2006
- Share Dealing = Implement procedures to comply with MAR (listed co’s only)
- Protection of Inside Information = maintain ‘inside lists’ as required by MAR
- Verification of Published Information = Implement a ‘verification and approval’ process to review and confirm accuracy of company statements
- Responsible Release of Market Information = Implement procedures to make required LPDTRs announcements
- Compliance and Continuing Obligations Under LPDTRs = Implement procedures for compliance with LPDTRs
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.
- Good Board Practices = Annual board evaluation of the whole board, committees, chairman, and individual directors takes place
- Transparency and Disclosure = information disclosed by the company should be balanced between the positive and negative
- Effective Control Environment = An AC of independent members with the appropriate skills and experience = Should be a clear term of reference for the committee
- Relationships with Shareholders and Other Stakeholders = Engagement with shareholders evidenced through a well-run AGM
- Corporate Responsibility = Carrying out activities responsibly = establish win-win partnerships that benefit the organisation and society
- Conducting Business Ethically = board approving a set of values that have been generated by employees (display them around the office)
- Board’s Commitment to Corporate Governance = Ensure board discusses CG issues on a regular basis = agenda items and board minute
THE BOARD’S COMMUNICATOR.
Regarding best practice, name 6 things that the cosec should be responsible for.
- Communicating board decisions to the relevant management team
- Facilitating good information flows
- Being primary point of contact for and providing a source of information and advice for NEDs
- Ensuring board keeps in contact with shareholder opinion and that shareholders are briefed on the reasons behind the board’s decisions
- Managing the disclosure of the board’s decision’s to regulators and other stakeholders
- Ensuring that relevant disclosures on CG and directors’ remuneration are made in the company’s annual report and accounts
Why is the cosec sometimes referred to as the ‘conscience of the company’?
What should they do?
What 3 things is it based on?
What must the cosec be to be the ‘conscience of the company’?
= 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
- Independence
- In depth knowledge of company
- Strong governance and ethical understanding
Cosec must be independent-minded and not under the influence of either senior management, the chair, or another individual director
What did the 2014 ICSA ‘The Company Secretary: Building trust through governance’ recommend about cosec dual role?
What are the 5 key challenges facing cosecs identified in the report?
How can a cosec overcome these?
Head of legal and cosec should be separate roles = conflict of interest if combined as roles can be incompatible
- Being considered traitors by the executive team
- Supporting chairs exercising poor performance
- Acting as the third person in a CEO-chair relationship
- Becoming main contact for impossible problems
- Maintaining independence from board members
To overcome these Cosecs need commercial and business acumen and interpersonal skills.
Name 5 interpersonal skills a company secretary should have and explain why each one is important to the company secretary in fulfilling their responsibilities.
- Active listening – look interested in what they are being told = help cosec build relationships and obtain the information they need
- 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.
- Independent mindset – see both sides of the arguments = to remain impartial
- Empathy and relationship management – carefully build relationships to remain independent and be the conscience of the company
- 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.
How can a person, specifically a cosec, be commercially aware?
What 3 things should a cosec do?
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.
- Understand how the company makes money and creates value
- Understand what the company needs, now and in the future, so that it continues to make money and create value
- Keep up to date with the industry
What does the CGI Guidance note “‘Appointment of the company secretary”, 2014 states that boards have a right to expect from the company secretary?
What are the 2 main challenges to the independence of a cosec?
= ‘Boards have a right to expect the company secretary to give independent, impartial advice and support to all the directors, both individually and collectively as a board.’
- Dual Roles - there may be conflict between the responsibilities of the other role with those of the company secretary.
- Reporting Lines, especially when the company secretary reports to a member of management
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?
- 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
- 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
- The cosec should be conscience of the company = may require the board to consider more than just complying with the laws and regulations
What are the 2 reasons why reporting lines may compromise a cosec’s independence?
Who should the cosec report to regarding governance matters according to paragraph 80 FRC Guidance on Board Effectiveness AND CGI Guidance Note ‘The Duties and Reporting Lines of the Company Secretary?
- because the cosec would be expected to report to a member of management as well as the chair.
- 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
FRC Guidance on Board Effectiveness (para 80) = recommends cosec should report to the chair on all governance matters but may also report to CEO or other ED in relation to their other executive management responsibilities
How can an organisation maintain the independence of the company secretary? (3)
Why? (3)
- Provision 16 = both appointment and removal should be a matter for the board as a whole
- Evaluation = carried out as part of annual board evaluation (by external evaluator)
- Provision 33 AND CGI Guidance Note ‘The Duties and Reporting Lines of the Company Secretary = remuneration set by board or RC
- 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
- Help reinforce the cosec’s position as an impartial advisor to the whole board
- 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
What are the 3 reasons for a company to outsource a cosec?
- To ensure all of the statutory and regulatory requirements are met by a specialised firm
- 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)
- To fulfil a requirement to file company documents online, which requires a PIN for security reason
What are the 4 reasons for a company not to outsource a cosec?
- 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
- 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
- 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
- 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.
