26 August 2019 by Harry Matthews
An extract from the runner-up for the Tom Morrison Essay Prize
Tom Morrison Essay Prize
The competition, which was launched in 2016 in memory of Tom Morrison FCIS, an active member and past president of ICSA and a highly regarded and influential member of the share registration industry, encourages new thinking and recognises original approaches to governance. Now in its fourth year, this year’s competition sought essay submissions that demonstrated an original perspective on the following topic:
In 2012, a director of a FTSE 250 company was infamously quoted as saying “Other than form-filling and complying with rules of little substance, I don’t think there is much [of a] role for a company secretary. This is a glorified clerical position”. The company secretarial role is often misunderstood in this way, in part due a broad remit that can render it abstruse. Company secretarial duties can comprise inter alia induction training for new directors, communications between a company’s board and management, drafting of the annual report, share scheme management, writing minutes of meetings and shareholder relations. The role has recently evolved to encompass even more expansive duties, as company secretaries are now often expected to oversee development and implementation of robust internal corporate governance frameworks.
In a survey of board members and company secretaries, 80% agreed that the role had expanded somewhat or significantly since they had joined their organisations. Meanwhile, greater emphasis has been placed on company secretaries’ soft skills, which should enable the board as a whole to act more effectively through, for example, the company secretary’s use of diplomacy, negotiation and empathy to facilitate intra-board communications and strong working relationships.
There is significant literature highlighting how the scope and nature of the company secretarial role is evolving but a dearth in compelling theories as to why the role is evolving. Whilst the emerging expansion of governance responsibilities within the role has previously been linked to the 2008 financial crisis, there is literature noting this expansion beginning years earlier. The financial crisis may have renewed public and regulatory focus on corporate governance, and had a catalytic effect on the expansion of company secretarial governance responsibilities, however it is highly plausible that improved technology was what helped pave the way to this evolution.
A white paper on the evolving role of the company secretary highlights that “if the company secretary can divest themselves of some of their administrative tasks, they increase their ability to spend time on the more strategic issues”. Throughout this essay, it will be contended that the technological automation and simplification of administrative tasks has freed up time for company secretaries to focus on “areas of their job commensurate with their expertise and experience; areas where they can really add value”, therefore enhancing the remit and responsibilities of the role. This is supported by a survey involving 158 company secretaries and other legal professionals, wherein it was argued that “tech assists with lower level matters, enabling…focus on higher risk or higher value work.”
This essay will highlight the benefits, opportunities, risks and threats of technologies to the company secretarial role in the context of their impact on governance. Discussion will include the impact of developments in automation, artificial intelligence (AI), telecommunication technologies including virtual reality, blockchains, cloud computing and big data. In conclusion, it will argue that despite the challenges and risks, technology offers an opportunity for company secretaries to efficiently dispatch regulatory and administrative obligations, freeing time to develop their senior, value-adding responsibilities as facilitators of strong corporate governance and board effectiveness.
Sally is a trainee company secretary starting out in her career. After the retirement of prominent directors, she is tasked with producing four hundred resignation letters, and board resolutions appointing new replacement directors. Realising that producing each document individually would take several months, she develops an automated process, using the =importXML formula in a Google Docs spreadsheet to automatically pull company data from the UK company registrars website. She then copies the data into a Microsoft Excel spreadsheet and uses the Mailmerge function to transfer the data directly into template resignation letters and board resolutions created in Microsoft Word. With the documents completed, she uses her company’s Adobe Pro software to distribute to and get the documents electronically signed by all relevant parties. With the aid of technology, she is able to complete this major administrative task significantly faster than originally estimated and without additional expense to her company, enabling her to allocate time to drafting her company’s annual report.
Automation is already having a revolutionary effect on the company secretarial role by simplifying manual processes that were once laborious. Dedicated company secretarial software such as GEMS and Blueprint OneWorld can act as repositories for company information, generating boiler-plate legal documents such as regulatory disclosure forms and meeting minutes. Other software such as VirtualBoardroom and Diligent Boards help automate the collation and dissemination of boardroom papers, reducing the administration required to prepare meetings. In future, the impact of such systems will only increase as new software is developed to simplify existing processes.
The combined effect of such systems is a reduction in the administrative burden on company secretaries. It can be argued that administrative compliance requirements could increase, as the government implement additional regulations in response to the additional firm resources freed by technology, however this is speculative. Conversely, technology will only be adopted where it renders existing processes more efficient and a reduction in administrative burden, at least with regard to existing processes, can therefore be predicted with near certainty.
Challenges posed by automation include the risk of faulty software that can produce errors or inconsistent results. If a company secretary must draft a share certificate for a thousand shares, the accidental addition of a single zero can increase the holding tenfold. Accuracy in such cases is essential and negligence can cause legal exposure with problematic ramifications. Where automated solutions are used to draft company secretarial legal documents, it must be incumbent on the company secretary to check the accuracy of such documents. Company secretaries should therefore be comfortable with the use and oversight of automated systems. Robust internal control systems should be implemented and followed to monitor automated system outputs. It will further become crucial to develop relationships with IT and Risk IT functions to leverage such systems and ensure appropriate oversight is in place.
A reduction of available roles can be expected as workloads are reduced. Whilst this may pose a challenge to aspiring company secretaries looking to secure positions, it poses no risks to the profession as a whole, as many senior responsibilities such as non-executive director inductions cannot be automated.
In 2014 an AI named Vital was appointed to the board of venture capital fund Deep Knowledge Ventures, as a “member with observer status”. Managing partner Dmitry Kaminskiy opined “the fund would have gone under without Vital because it would have invested in overhyped projects”. There are benefits to a completely dispassionate board member, and since Vital’s initial appointment, several companies have followed suit in appointing an AI to their boards and leadership teams. In future, AI directors could be taught to forward shareholder interests, eliminating agency conflicts, and promote a new style of governance whereby the separation between corporate ownership and control is eliminated.
This trend poses substantive governance implications, as new legislative frameworks will need to be developed to mandate how human directors and AI interact on the board. It is probable that AIs, at least in the short term, will be unable to fully grasp the social, cultural and ethical values of an organisation. Appropriate checks and balances will be important in ensuring AIs do not become “shadow directors”, dominating boardroom discourse with emotionless calculations that ignore such values. The company secretary is well placed to develop governance frameworks around the use of “executive AI” in board decision-making to mitigate such risks, commensurate with their informal role as the “conscience of the company.”