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Guardians of governance

01 September 2014

Guardians of governance - read more about the importance of the company secretary

The role of the company secretary is being refocused, recalibrated and it is gaining greater prominence

At a roundtable hosted by Governance + Compliance magazine in July, seven of the UK’s foremost governance professionals met to discuss the pivotal role of the company secretary. The meeting followed the publication of ICSA’s report The Company Secretary: Building trust through governance, which found that company secretaries ‘make a significant contribution to board performance’, supporting ICSA’s wish to reinstate the legal requirement for all large private companies to have company secretaries. The topics that were discussed at the roundtable included governance, messaging, tone, teaching, acting as the ‘radar’ of a company and being the ‘bridge’ between the company and stakeholders.

Governance
Chairing the discussion was Sharon Constançon, chief executive of Genius Methods – a consultancy specialising in board evaluations – and non-executive director (NED) of Buckinghamshire Building Society. Sharon has evaluated organisations where there has been a weak company secretary: ‘You’d be amazed at the damage that causes to a board,’ she observed. ‘The boards are effectively dysfunctional as a result of not having a powerful company secretary. If you are unaware of the company secretary, a very good job is being done. It’s a role where the individual cannot be egotistical and doesn’t need personal kudos in the same way a CEO might. It’s where you do notice what the company secretary’s doing that you might have a shortfall in that position.’

Peter Swabey, Policy and Research Director at ICSA agreed that the company secretarial role is crucial – especially as part of a triumvirate with the chairman and chief executive. ‘Management and ownership of the board, obviously, sits with the chairman; management of the company sits with the chief executive; however, management of governance and ethical issues; making sure the board knows what’s going on and managing the relationships within the board, are part of the company secretary’s role. In terms of ensuring an effective governance framework, ensuring the board and committee structure is managed and respected, ensuring directors have the information and support they need to perform their functions effectively – those are all areas in which the company secretary’s role is absolutely critical.’

‘These days, with the increasing emphasis on governance among shareholders, the role of the company secretary is crucial and at the forefront of these issues,’ added Lawrence Dickinson, Company Secretary at Barclays Bank.

However, Charlie Helps, senior adviser at law firm DAC Beachcroft and former trust secretary at University Hospitals Bristol NHS Foundation Trust, argued that governance is the responsibility of the entire board. ‘For me, one of the key challenges is rectifying the concept that governance is merely a process and one that can be owned by a single director or the company secretary,’ he said. ‘In my experience, which has been in both the private and public sector, that’s been one of the biggest challenges. Boards can be inclined to appoint somebody called a “director of governance”, which I think is a cardinal sin because every director is equally responsible for governing the organisation – it cannot be performed by one specialist alone.’

‘Governance is what boards do, but boards don’t always think about the difference between governance and management,’ explained David Jackson, Company Secretary at BP. ‘The trouble is that governance has got a tinge of compliance to it – mainly because of governance codes and similar things – but actually, governance is the entire activity of the board and the responsibility of the chairman. I see part of the company secretary’s role as understanding what the role of the board really is, and how the chairman then wants to direct the board in carrying out that role. Governance involves strategy. It’s therefore about helping the chairman drive the board forward with the chief executive to carry out all its tasks. It is also essential that the company secretary is seen as apolitical. If you appear to be taking sides it can be very dangerous – the role of the company secretary is to serve in the interests of the company.’

‘It’s a careful balancing act, as the company secretary, because you’re treading a sometimes blurry line between board and executive matters and you’ve got to juggle relationships with the chairman and chief executive all the time,’ said Alison Horrocks, Company Secretary at Inmarsat plc. ‘Overall, it doesn’t matter who my chair or CEO are, my responsibility is always to act in the best interests of the business.’

Being the bridge
On acting as the information bridge between executive and non-executive board members, between meetings and on difficult subjects, Peter noted that the company secretary is the ideal candidate to advise senior management with no board experience on how best to present to the board. Jeremy Small, Group Company Secretary of AXA UK, agreed: ‘I think that’s a fundamental part of being part of the executive team, but being separate from it – being able to give feedback to executives about a paper they have prepared and how well or how badly it will be received by the board.’

‘It’s important the company secretary is available for the non-executives to call between meetings to “take the temperature” of what’s happening in the company when they don’t want to trouble the chairman,’ observed Lawrence. ‘We have a board comprised of people from different countries and cultures, and non-UK directors can sometimes find it difficult to gauge the reactions of the board to specific issues as a result.’

Alison said that the makeup of a board with NEDs based in different countries, where the remuneration and audit committee chairman are based in the UK, require a regular communication flow to ensure all NEDs feel connected and able to fully contribute during board meetings. Regular updates are also important to help overseas directors understand the cultural and regulatory differences of how a UK board and its committees operate.

Changes in personnel also call on the skills of a company secretary. ‘Our last two chairmen both came from outside the company – clearly the chairman has a massive impact on the board and the dynamics around it,’ said Lawrence. ‘If someone from the outside is coming in to take over as chairman, the company secretary’s role becomes even more important to work with them and help them learn about the company and the character of the board. It is crucial for the company secretary to work closely with the new chairman in these early days, supporting and advising them as they get to grips with their role, the company itself and the key individuals they are working with, particularly if they have not been a chairman before.

‘We [Barclays] also appointed a new chief executive at the same time as a new chairman and that created a different challenge and a very different dynamic around the board table. These situations elevate the role of the company secretary – you have a few different roles: the “corporate memory” of past decisions; geting new directors up to speed about the business; and a sounding board for current directors.’

Jeremy agreed. ‘We’ve [AXA] recently had a change of chairman,’ he said. ‘He was an existing NED, but it was surprisingly unsettling [for the board and the boardroom culture] because even though he was a known quantity, he’s was acting in a very different capacity. The board’s behaviour was so calibrated towards the previous chairman that it has been quite an interesting exercise helping to shift everyone’s expectations and then managing them.’

In terms of teaching and influencing an inexperienced board to get to the level they should be, Sharon and Charlie suggested that a board evaluation and development programme was one way to do it. Alison added: ‘It starts when directors come in – a lot depends on the induction programmes and how you assess if they’ve got a good initial understanding of the business, its issues and opportunities, then follow up with them to assess what they need on an ongoing basis.’

Lawrence said it is a ‘key part of the job’ to get new directors contributing effectively as quickly as possible, but that ‘there’s a role for the company secretary to liaise regularly with them, being their sounding board and a source of advice, because it can be difficult for new directors coming into the boardroom to make an initial contribution or to understand the dynamics.’
Peter observed: ‘For a lot of things that happen behind the scenes – or even take place outside the boardroom – you’ll find that it’s the “invisible” company secretary who actually oils the wheels.’

Company radar
Company secretaries are vital in a crisis. Stakeholders of large companies today include the media – public criticism is no longer something a board can ignore, or wait for it to abate – which means that board directors have to keep pace with public opinion, whether that’s by using social media, an organisation’s press office, or applying a legal or ethical test to boardroom decisions, remuneration policy, and so on. This trend, Lawrence said, is something company secretaries will see more of over the next five years.

External reputation management is not the only thing company secretaries have had to get involved in – internal relationship management is important too. ‘It’s important the company secretary is seen as somebody with ethics and high integrity,’ Jeremy said. ‘Over the past few years, how often have you discussed company culture around the board table? The issue has been discussed far more over the last two to three years than we did in the previous eight or nine years; there is a role here for a company secretary to make sure that these issues are elevated.’

David Thompson, Senior Associate at Branko Limited, FCA Regulatory Consultants, also explained that in a regulated environment it is extremely important that the ethical culture the board wants to see in the business is actually happening ‘on the ground’. As company secretaries have wide-ranging contacts in the business, they become a very valuable facilitator in ensuring the correct tone is understood.

The company secretary cannot do all this on their own, Peter explained. ‘It’s key for NEDs to get out and about in the business and see what’s actually happening on the ground – finding out whether the message from the top has filtered down and been implemented – because culture is one of those things that’s so hard to change.’

It is especially important for the NEDs to do so, Sharon said, because NEDs often ‘sense potential areas of concern’ even if they have not been explicitly informed: ‘That’s why you have NEDs – they’ve got business experience, and they can sense when you might “hit an iceberg” because of business issue X, even with the risk of pushback from the board for flagging it,’ she explained. ‘I think there’s a very strong role for the company secretary to be the receiver of that kind of information rather than, for example, the chairman who might have too much noise or political agenda attached to the information being received. Being the company ‘radar’, being the eyes and ears of the chairman in the organisation, or from outside the organisation, is one of the things I see as a key role. Management is so busy doing things that somebody needs to have a look at the horizon to spot any icebergs.’

David Jackson sums it up: ‘The role of the company secretary has been through an interesting period over the last 10 to 15 years – it’s going to become more front and centre because the board is going to do more, and there’s a greater level of engagement. If a company faces a crisis the chairman now has to be able to deal with the challenge immediately. It’s a shift in emphasis to accountability, which has always been there, but it’s refocusing, recalibrating and getting greater prominence.’

Santhie Goundar is a freelance journalist, editor and business writer

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