There are a number of options for smaller listed companies when they are considering how to resource the company secretarial function. In reality there is not a lot of difference between the smaller listed plc and the AIM company secretarial responsibilities, with many AIM companies deciding to comply as far as possible with the new UK Corporate Governance Code. Of course there are additional rules for companies on the main market. In regard to AIM companies, the nominated advisor (NOMAD) takes a larger role in ensuring compliance with these.
In the smaller listed plc the company secretary is likely, even if they are not a board director, to be responsible for other functions, such as insurance or property. The focus given to corporate governance and risk will necessarily be watered down, but may well be appropriate for the size and development stage of the company.
With increasing regulation over the years and in the wake of a number of corporate scandals, companies need to ensure they have got the area of corporate governance covered in the best way to suit their company and circumstances. Of course it will be a challenge to fulfil the function with limited resources, but this is achievable with well-developed networks of support.
Because many AIM companies have aspirations to move to the FTSE index they are keen to implement good corporate governance. As such they comply as far as possible with the UK Corporate Governance Code for main market companies. There is a very high level of compliance with the Code amongst AIM companies, and overseas listed companies with standard listings, even though there is no legal imperative for them to do this.
These companies therefore welcome input from experienced Chartered Secretaries with larger listed company experience. In order to benefit from that knowledge as they grow, these companies will often employ a dedicated company secretary. Larger company best practice policies and procedures can then be adapted to suit the smaller size, culture and operations of the company and nature of the board.
For AIM companies, the NOMAD takes the role of ensuring continuing obligations and rules are adhered to as required under the regulatory structure. However, NOMADs do not typically employ company secretaries, and the compliance arrangements will depend on what arrangements companies have put in place for ongoing company secretarial support. Once a transaction is being contemplated, NOMADs are not always best placed to draft the shareholder circulars, which require legal input, but will be valuable in a reviewing role.
The arrangements between the NOMAD and the company secretary need to be clearly defined. For example, it must be clear who will prepare and publish all stock exchange announcements, including directors’ dealings and substantial holders’ movements. Where there is a lack of understanding of roles and responsibilities breaches in compliance can inadvertently occur. I have experienced a situation in which the NOMAD and the company secretary’s roles were in conflict – each keen to retain responsibility for announcements – and this led to unnecessary duplication of work.
AIM and smaller listed companies often rely very heavily on their legal advisors for ongoing support. This can be a problem if a UK law firm is not retained or regularly in contact with the company following flotation. This can often be a problem with an overseas company listing on AIM where the principal law firm relationship typically rests with the local law firm in the company’s domicile. Overseas AIM and smaller listed companies need to keep abreast of changes in UK regulation via a UK company secretarial services provider, or UK law firm, to ensure full and timely compliance.
Real life examples
Here are some real life examples taken from company secretaries working within smaller listed and AIM companies, which give a flavour of the challenges faced in carrying out the role, and show the different ways in which these problems have been approached.
'Our finance director covers the company secretarial role. This works well, except that the subsidiary compliance gets put on the back burner. The finance director therefore has a regular review carried out by a service provider, so that she can make sure all filings have been made and that the registers are up to date. She regularly arranges external training and development for the directors because she feels that they will listen more closely to an independent expert, rather than another executive director.'
'Following flotation, the existing company secretary knew there would be lots more work to do, but was not sure exactly how much and was reluctant to recruit a permanent member of staff, whether full or part time, while the company was still in a state of flux. Instead, he outsourced all aspects of the role, apart from attendance at board and committee meetings.
'Capita, to whom the role is outsourced, adopt a team approach, which means that the company secretary has a number of contacts familiar with his company when he calls for assistance. This team approach also suits the fact that the work ebbs and flows depending on the time of year, with the year-end period being intense and requiring full-time support, and the workload being lighter at other times of year, requiring less support.'
'The company was originally on the main market, but moved to AIM as there was pressure from certain shareholders to face less regulation. The financial controller originally performed a combined role, but was not really interested in the company secretarial element, and readily admitted that he did not have the expertise, legal knowledge or time required to be effective.
'An assistant company secretary was recruited, who took a full role and had board exposure, attending all meetings from the beginning. This model worked well, with the assistant company secretary building a good relationship with the NOMAD and other advisors. She was heavily involved in all aspects of the company’s business, and therefore acted as a central point of knowledge and expertise for the board. She was able to apply this in carrying out large elements of company transactions, using external advisors selectively where specific expertise was required.'
'With limited resources, the company has dedicated company secretarial staff but outsources projects, especially at busy times of year, for example preparation of the dormant accounts for the subsidiaries, and amendment of subsidiary constitutions under the new Companies Act.'
'The finance director and financial controller had previously carried out the company secretarial role. However, the operations of the company required them both to travel extensively and this was becoming difficult. They therefore decided to recruit a dedicated company secretary on a part-time basis,
working three days a week. This person was a senior company secretary with large company experience who was able to bring this experience to bear at board meetings and help the company develop its corporate governance framework as it grew.'
FTSE Small Cap company
'The company was previously on AIM, and the finance director carried out the company secretarial function in combination with this
role. When the company decided it wanted to move up to the FTSE, the board took the decision to recruit a full-time company secretary with large listed company experience in order to implement policies and procedures in preparation for flotation, and for ongoing compliance with the listing rules, continuing obligations and the UK Corporate Governance Code.'
'The finance director carried out the role for the first few years following flotation, and this worked well. However, when the trading division restructured, this meant that she was minuting eight different board and committee meetings each month. No sooner would she come out of one meeting, she would be into the preparations for the next. It had become overwhelming, and was starting to affect her finance director role. A new director, who represented a major shareholder, was appointed to the board. He advised the board that he would like to see a dedicated company secretary appointed, whether employed by the company or outsourced. The board was initially concerned about having an unknown person in the boardroom, but once continuity of service had been established, with the same company secretary supporting the board at each meeting, the board soon overcame these concerns.'
'An assistant company secretary acts as the principal point of contact in the office and deals with routine administration and interface with the executive directors. The company secretary board support role is provided on a part-time basis and fully outsourced to an
independent service provider.'
FTSE overseas investment fund
'The majority of company secretarial functions were outsourced amongst various parties: the broker, a public relations firm and a company secretarial service provider based offshore, with some functions being retained by the investment manager. The company had a standard listing but had committed in its prospectus at the time of flotation to comply with the majority of the UK Corporate Governance Code.
'The company secretary did not attend board meetings, which meant that advice could not be provided at the board table to ensure good governance was maintained. The London law firm did not have an ongoing relationship with the board.
'It soon became apparent that there were overlaps and gaps in the company secretarial services, and it was not clear who had prime responsibility for stock exchange announcements, UKLA filings and operating the company’s share dealing code. A review of the service was carried out to streamline processes and clearly define roles and responsibilities. The London law firm was also engaged with the company on an ongoing basis. This then provided assurance to the board that ‘everything was covered and taken care of'.'
Madeleine Cordes is the Business Development Consultant at Capita Company Secretarial Services.
This article originally appeared in Chartered Secretary – focus – a supplement to the ICSA magazine (Summer 2010).