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Divided loyalties

10 April 2017 by Claire McSwiggan

Divided loyalties - read more

The future of corporate secretaries may be at risk, says Claire McSwiggan

In 2015 the UK banned corporate directors. Although it was expected that all new directors would be natural persons by October 2016, the implementation has been delayed. With the ban on the horizon, it raises a question about the future of the corporate secretary.

A company secretary is defined by ICSA as a strategic position of considerable influence at the heart of governance operations within an organisation. Aside from the duties conferred to the company secretary by law or articles of a company, the role is usually advisory, to act as the conscience of the chairman of the board and is vital to the efficiency and effectiveness of the board and to the smooth running of the company.

Both the appointment and removal of the company secretary is normally a matter for the board and there should, in best practice, be a reporting line to the chairman.

In Guernsey, the 2015 Ordinance to the Companies (Guernsey) Law 2008, as amended (the Law), determines that where the duties of the company secretary are not detailed in the articles of incorporation, the Law will apply, placing increased emphasis on the importance of the role and duties undertaken.

“Comparisons can be made to the rationale to abolish corporate directors”

However, the duties in the Law are mainly of an administrative nature. The Law requires the company secretary to ensure the board of directors is aware of any obligations imposed by the articles and rules of any relevant stock exchange, which reinforces the advisory role that a company secretary provides.

It can be argued that a corporate secretary may not be suitable to fulfil the role and comparisons can be made to the rationale to abolish corporate directors, for example, enforcing individual accountability. Corporate secretaries are duty bound to their employer and may therefore not always act in the best interests of the company or be able to exercise independent judgement. Corporate secretaries also need to take into account the commerciality of their employer.

The role of the company secretary in a corporate provider scenario is often merged with general administration work. You may therefore risk paying for a company secretary who is neither qualified nor experienced and whose main role is administration. Although these services can tick the box in terms of providing board minutes and arranging meetings, there is the potential to miss out on the guidance, advice and value that a qualified company secretary can add, unless you specially receive services from qualified company secretaries through your corporate services provider.

Individuals appointed as the company secretary are more often than not qualified (ACIS/FCIS) or highly experienced for the role, whereas administrators may be students or part-qualified. Individual company secretaries are personally accountable and responsible and they are arguably able to have a more effective, uninterrupted direct line into the chairman.

On the other hand, the strengths and advantages brought by the corporate secretary can include a team of knowledge and experience, with a readily available supply of cover at a significantly cheaper cost than hiring a permanent employee. However, your point of contact can change without notice, losing the continuity of knowledge of your company’s business.

“Can corporate secretaries truly have direct lines of honesty to chairmen, when they reports to managers within their own firms?”

Corporate providers may confuse the reporting line into the chairman. It may be unclear that the chairman is the corporate secretary’s point of contact. The corporate secretary may believe that this is, in fact, his or her boss, or the boss’s boss. Can corporate secretaries truly have direct lines of honesty to chairmen, when they reports to managers within their own firms? It could be argued that there is a conflict of interest which prevents a corporate secretary from being the true conscience of the board.

With fast-changing regulations, increasing responsibility of the company secretary, who is expected to be the conscience of the board, and increased demand for the protection of shareholders in public or listed companies, it would seem that although a corporate secretary may bring the knowledge of an entire team, the individual, named company secretary may be considered preferential.

Such an individual is able to fulfil the role as described by ICSA without conflict, and it may only be a matter of time before a ban is imposed on the use of corporate secretaries to safeguard the role and accompanying responsibilities within public or listed companies.

Claire McSwiggan ACIS is a Company Secretary based in Guernsey

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