19 July 2016 by Alexandra Jones
David Venus talks about the fundamental principles of governance, the evolution of the role of the company secretary and why he would like to see more alternative ways of doing business
It has always been about governance and, indeed, company law is all about governance – ever since the Joint Stock Acts. But governance is a fairly new term, so when I started out as a company secretary 40 years ago it was not a word in common use. Back then the role was about compliance.
Although there is obviously still a focus on compliance, it has changed to become more about governance, which is strategic and led by the board.
Governance is not just about doing the right thing. By stressing this too much, people can feel they are being preached to. At its heart, it is about the management of risk. The risk, for example, of not having the right board members, of having a dysfunctional board, of not meeting legislation or best practice – all those areas which were previously not seen as key elements of the role.
When I began my career, if there was a job and it was not clear who to give it to, it would go to the company secretary. That still happens, but when I first started I was dealing with pensions and insurance – we were tasked with all sorts of things, even HR and PR. The position is usually more specialised now in larger companies – and there is an insurance manager rather than the company secretary.
However, the company secretary often remains the first port of call for one-off tasks that do not fit naturally into the brief of other colleagues. I love the variety and challenge that gives us; it demonstrates the strength of our training and qualification.
To some extent it has not changed; the role of the board has always been to direct the business. However, the purpose of the board was once solely to maximise profit and to run the business for the benefit of the shareholders. That has evolved and now there are many more stakeholders and, quite rightly, the board is viewed as owing duties to not only the shareholders but also to employees, the public and wider society.
I have been company secretary in all sorts of companies, from pop groups to manufacturing companies, and surprisingly the discipline is very similar. They all have board meetings and they need to comply with company law, best practice and regulation.
Public sector boards, however, do tend to be more politicised. The government of the day will have things to say about how each body is run, and that can make it a bit more difficult – but both sectors can learn from each other.
The public sector can be more thoughtful and reflective. Private sector businesses are running at 100mph and there can be little time for meaningful reflection. In public bodies there is more eagerness and time to sit and think about the longer term, and how decisions you make could affect other areas. That is not to say this does not happen in business, but in public bodies there is more of an appetite for it.
Yes, there are. Any good corporate governance strategy must have at its centre transparency and fairness. Without those two you are not fulfilling the basic requirements of corporate governance.
These fundamental principles do not differ globally, but the actualities do. For example, in countries that do not have a mature, transparent culture of business, there may be companies that continue to make political or nepotistic appointments to the board. Yet these companies can then apply the best corporate governance principles while ignoring that perhaps these individuals should not be on the board in the first place.
That is an extreme example, but there are a lot of nuances around it.
A good culture is absolutely central and it comes from the top in any organisation. You need a proper culture of corporate governance at the very top – without that you will almost certainly have a dysfunctional organisation.
It is the balance between the rights and duties of directors and shareholders. The UK and many other economies are still struggling with this. Business is too often in the thrall of powerful executives who actually are just the hired hands. They should be more responsible to shareholders and shareholders need to take more responsibility to oversee their actions.
We all know that there are some CEOs earning disgracefully large salaries in relation to the average earnings, annual profits and/or shareholder returns in their businesses. Executive remuneration and shareholder engagement are big challenges – remuneration committees are also a focus.
Absolutely essential. Some of these ratios show a huge and, to my mind unacceptable, imbalance – it is up to institutions and others to highlight the disparities. A lot of CEOs and executive teams are not sufficiently accountable. Some CEOs act almost as oligarchs. It is society’s fault that we have not dealt with this problem.
It is sometimes human nature to take advantage if it is possible but it is up to society and government, and shareholders in particular, to have the appetite to tackle it. Linked with this is the fact that we still think too much in the short term and not in the longer term.
It is working better. I always think of Churchill’s words here, to the effect of – democracy is a pretty lousy form of government but it is the best one we have. I think that applies to business. For all its flaws and blemishes, the way we do things is probably the best, though not ideal, and it is better than anything else available. The other model of course is prescriptive legislation and we need to avoid that if we can.
It has helped hugely with communication and the application of governance principles and procedures – but it has created some unforeseen risks. With every opportunity there is a risk and as we know cyber crime is a huge risk. Leakage of corporate secrets is a big issue, probably the biggest that is facing business today.
It is alarming that a lot of organisations do not seem prepared to handle it either. The FT–ICSA Boardroom Bellwether frequently finds that it has not been discussed at board level.
There is likely to be worse to come on cyber crime. I am surprised that there has not been leakage into the public domain of board minutes, for example. I suspect that some companies have lax data protection procedures. I do not know to what extent companies are prepared.
I bet board minutes are sitting on computers in company offices, unencrypted or easily accessible to prying eyes – they would be very easy to get hold of if they are not sufficiently protected.
Broadly, yes. There is too much emphasis on short-term gain and share price. Certainly when I started out in business there were companies that really did not think about the share price day-to-day. Many public companies now seem market led. It is a question of balance really. Obviously you have got to take account of stakeholders and other interested bodies, but sometimes companies do not take the longer-term view.
Every company must have a social media policy. On social media, everyone has a view and often these platforms are used to hold companies to account. Companies have been slow to grasp the threat of social media.
Thomas Cook certainly was – that is a prime example and should be held up as something to avoid. Companies are beginning to learn that lesson. I have noticed since then that one or two things have come up – TalkTalk for example – where the chief executive was quick to take responsibility for making a mistake. That hugely diffuses a situation.
There has been some adjustment recently, but fundamentally the decisions are still too short term. There is no room for companies to grow organically like there used to be. They grow by acquisition, not by slow year-on-year incremental growth.
I always give the example of Sir Arnold Weinstock who was the CEO of GEC 30 years ago. When he had built up a huge cash mountain by prudent management, the City was constantly telling him to him spend it. He said no – not until he had an investment he judged appropriate to spend it on. He faced many years of criticism. When he retired, GEC immediately spent the money on an ill-advised acquisition of Marconi and went bust. Poor Sir Arnold went to his grave knowing that all the money he had accumulated on behalf of shareholders had gone.
That is just one example of the pressure on chief executives for the next deal. Some of that has gone away and there has been a broader recognition since the financial crisis that it is wrong, but it is still there.
They need to use the power they have better. They probably have the powers but have been reluctant to use them appropriately. We have seen that with the FCA and the FSA in the past, and particularly in relation to the banks. We have just had this report saying that certain individuals are to blame – and the report is six or seven years in the making.
This would not happen in the US, where a report was out within a year of the causes of the financial collapse in 2008. Something is wrong somewhere. You can either go with the cock-up theory or the conspiracy – I think it is probably more of the former, but the public do wonder.
Where we are in 10 years will be dictated by events. You can bet your bottom dollar if we have another financial scandal like the one we have just had, we will see prescription by legislation. I hope that the measures that have been taken now will prevent that, and we will continue to have voluntary comply or explain. It is very much down to commerce and business and the conduct of individuals and boards.
In 50 years I would like to see more alternative ways of doing business, more co-operative enterprises. So we do not just have the traditional shareholder model, we have more of the shareholder/employee model, like John Lewis. It will be good for society to have that more of a mix.
There will inevitably be more prescription in legislation, as human nature is to forget a crisis after 10 years, and then have another one. History does tend to repeat itself, and government has probably used up most of its tools now for self-regulation.
We have a bright future but we also have a lot of challenges. There is no doubt that we are well respected, certainly by government, regulators and fellow professionals, but we do need to broaden our appeal to students and employers. There is no doubt about that. The Governance Institute rebrand will really help with that.
To inspire young people, we need to be more evangelical. By nature, company secretaries like to keep in the background. We need to get out there and give ourselves more publicity. But we are slowly becoming braver with our opinions. We live in an age where you have to shout to be heard. I remember somebody once saying that we do not have to advertise because people will come to us, just because we are the ICSA. Those days are completely gone, so we need to be braver.
We must also remember the breadth of our qualification. Chartered secretaries receive solid business training that sees our members working in business, local and central government, charities, academies, hospital trusts and other organisations. This is a huge selling point for our profession.
I have had a wonderful career, I would not have changed it for anything and I wholeheartedly recommend our profession to anyone wishing to span the worlds of accountancy, law and business. Younger students increasingly use the collaborative degree route to membership and we are working with universities to increase courses available.
A lot of accountants and lawyers recognise the added value our qualification and take advantage of our fast track route to membership. People do discover the role by chance or later in their career, and we would like that to be earlier and by design, but the mature choice many members take does explain the enthusiasm and passion we have for our profession.