In smaller companies, both private and listed, it has been common for the Finance Director to wear two hats and also act as Company Secretary. This can be for cost reasons or because the company secretarial role is seen as minor add-on and does not warrant a separate function.
At this time of heightened focus on corporate governance and the effectiveness of Boards, this cannot be the ideal situation and there are inherent risks in this approach.
The role of the company secretary has changed dramatically over the last 10 years to be less administrative and more strategic but in 2010 it is making a huge leap forward as a result of the intense focus on the effectiveness of Boards, following the recent failures in the banking sector and various corporate scandals.
The well qualified and experienced Company Secretary who is accustomed to sitting with the directors at the Board room table can play a vital part in ensuring good governance. They act as the “fly on the wall” in Board meetings and can see quite clearly who is contributing, how the Board behaves and whether the Board has all the right skills it needs in the non-executive directors. This can be key information for a Chairman.
The Company Secretary is no longer viewed as purely an administrator. Yes, of course, the Company Secretary is still responsible for making sure that statutory and regulatory compliance obligations are met, but today’s Company Secretary should also:
- act as a key adviser to the Chairman, being prepared to challenge him when appropriate
- support the non-executive directors and identify training and development needs
- take an independent stance eg when facilitating Board evaluation
- ensure compliance with legal regulation, corporate governance codes and guidance
Finance Directors who take on both roles face a conflict of interest or risks for their companies in a number of areas.
For instance, it cannot be appropriate for a Finance Director to be supporting the non-executive element of the Board in his company secretarial role whilst also having his or her executive function monitored by them as members of the Audit Committee, ensuring that the financial information presented to them by him is accurate and that the audit has been carried out properly.
The roles required at the Board meeting of accurate and sensitive minute taking and guiding the Chairman through the agenda and the meeting itself, cannot be carried out effectively whilst also participating in the discussions as director, presenting the Financial report to the rest of the Board and dealing with the challenging questioning arising from the report.
We regularly work with Finance Director clients who grumble about the minute taking role which they are burdened with. This becomes overwhelming for listed companies which also have a number of committees required to meet regularly. Sometimes Finance Directors ask a personal assistant to take the minutes but there are two risks with this approach – the personal assistant may not have enough knowledge of the organisation to be able to accurately record the discussions and decisions made and secondly it is often not appropriate for a personal assistant to be present during confidential high level discussions at the Board table.
Company Secretaries have legal and corporate governance training and knowledge and this is not always the case for Finance Directors also carrying out the company secretarial role. At Board meetings, legal and governance issues often arise during the discussions and it is then that the Company Secretary can contribute, recommend taking external advice or postponing a decision so that the legal issues can be taken into account first, thereby reducing the risk to the company.
Company Secretaries also belong to their own networks, keeping up to date with governance best practice and working out solutions with their peers in other companies and outsourced company secretarial service providers. They are supported by their own professional body, the Institute of Chartered Secretaries & Administrators (ICSA) who play a key role in the corporate governance debate.
Companies preparing to list will be faced with needing to implement and maintain many new systems and procedures to comply with Listing Rules and corporate governance codes and the Company Secretary can relieve the Finance Director’s burden at this especially busy time and following the flotation, ensuring that all governance areas have been covered off and there are no unexpected surprises.
Latest corporate governance developments in the UK include a new “Corporate Governance Code” about to be published in June, taking into account recommendations of the Walker Review into the banking sector. In addition, the Higgs Guidance of 2003 set out for the first time what was expected of non-executive directors and chairmen and now this guidance is to be refreshed by the ICSA as well as potentially expanded to include guidance on a number of other issues relating to board effectiveness. A new Stewardship Code is also proposed encouraging engagement by key shareholders in the company with the Board.
The mountain of new corporate governance regulation and guidance means that Finance Directors and companies need dedicated resource and support or to outsource the company secretarial role to experienced company secretarial professionals in order to ensure that their boards remain compliant and operate as effectively as possible.
Madeleine Cordes is Business Development Director at Capita Registrars. For information about Capita's Company Secretarial Services, please visit their website – www.capitacosec.com
This article first appeared in Director of Finance online.