From Company Secretary to Governance Professional
Various corporate failures of late have been well-documented, with most of the issues having resulted from widespread breakdowns in governance. In the aftermath, the focus has been on directors and the clear omissions in governance.
The failure of boards and professional advisors, such as external auditors, has taken centre stage because of the clearer need to restore trust in the system of governance. Consequently, the changing world order for companies is clear on what shareholders and other stakeholders expect from boards, and it is this need that has led to the rise of the importance of the Company Secretary (Co-Sec). Out of the ashes has risen a new professional, tasked with responsibility for being the governance watchdog. This is not an insignificant task as it demands that the historical stereotype of the Co-Sec be set aside to embrace the new, multi-faceted role of the modern Co-Sec:
Although this epitomises the perception of the traditional role, it is the manner and approach to minutes that has evolved in a new governance era. Despite the evolving complexity associated with the function, the importance of minute taking and ensuring proper recording of meetings remains critical.
A lack of understanding of the business will lead to a lack of understanding of the nuances of discussion that will result in an inadequate record of the meeting, which could potentially have disastrous consequences. Regardless of the number of people around the table, the key elements of a discussion are likely to be lost with the passage of time, so the ability to capture the core elements of the discussion can prove invaluable if a challenge from a regulator, shareholder or the board itself arises later.
Statutory requirements place the Co-Sec in the position of compliance officer in relation to board issues. This is particularly the case in a listed entity, where the Co-Sec is responsible for secretarial compliance and for ensuring that there is compliance with the requirements of the relevant exchange. This is an onerous and highly critical task as any failings in this regard could have serious reputational consequences for the organisation. As a result, the Co-Sec is required to be an expert in both corporate and securities legislation and regulation.
The Co-Sec as advisor is emerging as a key area of expertise. A truly valuable Co-Sec will act as advisor to the board in general and to each individual director, including the chairman, on all matters related to governance. This includes being the voice of reason and governance conscience so as to ensure the board operates effectively while governance practices are upheld. In order to perform this role, it is necessary for the Co-Sec to adopt a pragmatic approach to governance issues, given the company’s context and matters being discussed.
There are multiple definitions of governance and many contributors within the corporate governance framework of an organisation. Notwithstanding the numerous other vital roles, such as the CFO and risk and internal audit lead, the Co-Sec needs to take the lead on issues relating to governance. This includes ensuring the adequacy of the governance framework, including that for board committees.
This role of governance leader encompasses the important function of ensuring that a proper board education program is in place. Together with the chair, the Co-Sec must ensure that new directors are properly inducted into the organisation and that there is an adequate and meaningful ongoing professional education program for all board members.
By maintaining independence and a level of objectivity, the Co-Sec is uniquely positioned to objectively consider and assess whether the functioning of the board, and the issues placed before it, align with the agreed strategy of the organisation. In addition, the Co-Sec has an obligation to speak up on any issues relating to governance.
The Co-Sec is in a unique position to facilitate information flows to the board from management. Ensuring the adequacy of information provided to the board requires the Co-Sec to coach management to meet the board’s expectations on information and behave appropriately within a board setting. This can have a positive impact on the content and conduct of board meetings, thereby creating more effective outcomes for the business as a whole.
Although larger listed entities have dedicated investor relations executives responsible for communicating with institutional shareholders, the Co-Sec still plays a pivotal role in ensuring proper communication and education, especially in relation to Annual General Meetings. The Co-Sec is responsible for other stakeholder relationships, including with key regulators, which is becoming more frequent and sophisticated with the advent of integrated reporting.
In the new world, the importance of the role played by the Co-Sec in assisting with the compilation and production of annual reports to shareholders and stakeholders extends beyond compliance. Together with the CEO and CFO, the Co-Sec plays a role in ensuring that documents presented to the public are objective and transparent, incorporate all relevant issues, and most importantly, are accessible to shareholders.
In an age of ever-increasing regulation and demands on boards, the importance of the governance role to be played by the Co-Sec is abundantly clear. A dynamic governance system is essential to provide inherent checks and balances and to ensure the sustainability of an organisation. The Co-Sec can no longer perform the tasks of a mere administrator, in the same way that governance can no longer be considered an extracurricular activity to be box-ticked for annual disclosure requirements.
Today, varied expertise is required from a Co-Sec, which is inextricably linked with a set of core competencies required for success. The Co-Sec today must be a networker, intellectually honest, a business analyst and a good communicator, as well as possess boardroom presence. Of paramount importance is an understanding that the resources used by the company and the relationships with its stakeholders are interdependent and interconnected.
That said, the perception of the role of Co-Sec has not kept pace with expectations, resulting in a potential lack of suitably qualified candidates. Johnson is making headway on this important issue and has assisted numerous ASX100 companies to upgrade their Co-Sec roles to ensure they are match fit for this new era of corporate governance.