26 June 2018 by Julian Baddeley, Rhona Sim
Maintaining independence is core to the role of the company secretary
Although the role of the company secretary varies significantly according to the peculiarities of each organisation, there is one thing that all company secretaries share. This is being positioned at the centre of an often complex web of overlapping and sometimes conflicting priorities.
How then to remain independent, objective, even dispassionate, perhaps, in such circumstances. Being pulled in many different directions simultaneously is becoming the primary occupational hazard of the company secretary, one which speaks to the increasing breadth of their responsibilities and the frequent urgency of the timescales they operate to.
There are some within the profession who take issue with the slight blandness of the nomenclature of ‘company secretary’, seeing it as a little opaque and perhaps not sufficiently lofty to encapsulate all the responsibilities the job entails. Be that as it may, it is interesting to note the word ‘secretary’ is originally derived from the Latin ‘secernere’, meaning ‘to distinguish’ and ‘to set apart’. Its etymology clearly links to the idea of independence, with its own associations with freedom from outside control and of not being directly subject to the authority of another.
So it is fair to say the notion of independence has been hard-wired into the role of the ‘secretary’ from the start. The modern company secretary must assert their independence by standing apart from competing demands and personal agendas, and working to be the servant of their organisation’s best interests.
The most successful company secretaries achieve this by having strong values and an unshakeable moral compass, allowing them to retain their independence in a positive rather than an overly rigid way; to flex according to the demands of the competing interests they need to coordinate and manage, but never to bow down before them.
There are several strands of independence the company secretary must bring together and managing these requires not just technical skills, developed over years of experiential learning, but also exceptional judgement, tact and diplomacy.
“The notion of independence has been hard-wired into the role of the ‘secretary’ from the start”
Exercising this judgement involves the capacity to encompass the bigger picture and the finer details in equal measure, varying the focus as the situation dictates. It means being able to give due consideration to an organisation’s heritage, while always being ready to innovate and move forward when the challenges of the present and future demand it.
The company secretary should be – and be very visibly seen to be – independent in the exercise of their professional judgement, able to act objectively and according to the best interests of the organisation as they adjudge them to be. This involves building a reputation not just for integrity but for deep and comprehensive professional knowledge, too, and it is vital the company secretary should constantly update their understanding of the legal and regulatory framework their organisation operates within.
Independence is a multifaceted quality. While maintaining excellent working relationships with both the chair and the chief executive are key elements to the role, the position requires a degree of impartiality towards both. It is always necessary to resist the temptation to overpersonalise the nature of any loyalty owed to the board, which is best not conceived of or referred to as ‘my board’.
This is important because the composition of boards can change frequently. Under the revised UK Corporate Governance Code, the tenure of the non-executive director (NED) is likely to be firmly limited to nine years, and it already tends in practice to be much shorter than this. UK Board Index 2017, a recent survey by Spencer Stuart of the UK’s 150 largest companies, found the average tenure of an NED is now only four years, with chairmen serving an average of four and a half years.
For CEOs and CFOs, average tenure is around five years. In many boardrooms, the company secretary is likely to be the longest-serving person present. They will, in every case, play a pivotal role in ensuring good board succession planning is in place and be central to this.
So, to be effective, the company secretary is required to maintain an appropriate emotional distance from the directorate and it is imperative they are able to transcend any factionalism that may arise on the board. They must maintain their stance as a trusted and impartial advisor on all matters within their remit, because this is foundational to the mutually respectful relationships with both board and executive that the best organisations are built on.
Yet this is not to underestimate the importance of an empathetic approach. We are not robots, and our roles and everything we know about an organisation often lead us to care deeply about it and the people we work with and for.
“it is vital the company secretary should constantly update their understanding”
Company secretaries are often part of highly contested and emotionally charged boardroom environments. They are present as decisions are being made which can and will impact peoples’ lives – as shareholders, employees, customers, suppliers, and so on – in countless ways. Commercial risks must be taken, and the possible negative outcomes of decisions must be faced up to and reckoned with.
In the most difficult of circumstances, there are times when the continued existence of the company may even be in question. Jobs may be at stake, pension funds threatened and shareholder value on the line. In all of the fire and the fury such situations can generate, ensuring you have a network of peers or confidants to rely on is hugely important. This is not about breaching confidentiality, but about being able to test approaches, provide a sounding board or simply to provide some ‘headspace’ away from the matters at hand to collect your thoughts.
Being independent is about being able to be relied upon to consistently give the objective advice or truthful opinion at the right time. Empathy is important and does not compromise independence; the company secretary needs to ensure their approach does not manifest itself as emotional coldness or a lack of capacity to identify with the human dilemmas of their boardroom colleagues.
In the listed company environment, the proposed UK Corporate Governance Code, issued by the FRC earlier this year, retains a provision for the appointment of the company secretary to be a matter for the board as a whole, which acts as an important precondition of their independence. It also continues to hold that ‘all directors should have access to the advice of the company secretary, who is responsible for advising the board on all governance matters’. This has become pivotal to the role, and its significance is shown through the fact that NEDs so rarely exercise their rights granted under the existing code to access independent legal advice.
For the company secretary, maintaining an independent stance allows them to properly support the independence of the NEDs who, including the chairman, make up the majority of the board. The company secretary stands as a trusted advisor on governance matters to all board members, and should always do whatever necessary to ensure that the independent status of the NEDS is guarded to provide ‘constructive challenge’ and to ‘hold management to account’.
In some listed companies, additional challenges to independence need to be considered where the roles of the company secretary and general counsel are combined. Apart from the obvious one of the pressures involved in a wider remit and often significantly greater workload, conflicts of interest can arise between the roles which may impede the independent exercise of company secretarial duties.
“Company secretaries are often part of emotionally charged boardroom environments”
This is especially the case during contentious scenarios, when the board may look for independent advice aside from that offered by the general counsel (such as with anti-trust), which is tricky when the roles are joint.
As one participant to the research behind ICSA’s 2014 report ‘The Company Secretary: Building Trust through Governance’ described it, as a general counsel, you are likely to be closely involved with the running of the organisation and may act as the chief executive’s right-hand man; while as company secretary, you are required to occupy that same position for the chairman. Although the balancing act required to successfully manage both roles can be achieved under normal conditions of business, any period of turbulence may stir up all sorts of dilemmas which render the independence of both roles problematic, though far from impossible to achieve.
Whereas the principles outlined above hold true in the majority of cases, it is impossible to be too prescriptive about how each individual company secretary should maintain their independence.
Every role brings with it the need for the company secretary to situate themselves in relation to the organisation’s history, its matrix of board and executive functions and relationships, the external regulatory environment and so on; the list of factors to be considered is virtually endless.
In each case, the circumstances will align in unique ways, then develop over time and according to circumstances such that the company secretary can never choose to adopt a fixed and immutable position. Instead, they will benefit from a periodic reconsideration of their role and how they are functioning within it from many different perspectives, including their independence. The importance of making space for this kind of critical reflection is difficult to overestimate.
For a company secretary to establish and retain their independence requires a very particular mix of aptitudes and attributes. From maintaining a helicopter view of the totality of an organisation’s governance requirements, to the diplomatic management of relationships with the board and executive, to developing deep technical knowledge, the successful company secretary needs a combination of wisdom, initiative and strong influencing skills in equal measure.
Sometimes standing as the calm eye in the midst of an organisational hurricane, it is a role with many challenges, whose successful performance is foundational to the wider success of any organisation. Being independent in character and judgement are both inextricable elements of any good company secretary’s unwritten job description.
It comes as no surprise then, that organisations are increasingly recognising the contributions that company secretaries are able to make as NEDs either on internal or external boards. As veterans of the boardroom (and often battle-scarred ones at that), experienced company secretaries are able to transition seamlessly into these roles and continue to develop their competencies in new directions. As always, with independence at their core.