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The role of the Company Secretary

D AV I D J A C K S O N

Introduction

It is the question that you always slightly dread being asked at a dinner party: ‘What do you do?’ You say that you are a Company Secretary. The questioner normally nods, says something like ‘how interesting’ and moves the conversation on. The slightly more inquisitive may add, ‘and what does that mean?’ You say something inadequate about being involved with working with the board of a company and being a lawyer in business and, generally, working in the field of corporate governance. Having asked the second question, the inquirer never has the courage of the good non-executive director to ask the ‘third question’ and therefore promptly changes the subject.

In today’s world, the role of the Company Secretary has no one meaning and covers a multitude of tasks and responsibilities. That said, the role lies at the heart of the governance systems of quoted companies and is receiving ever greater focus.

No matter what other responsibilities the Company Secretary has, his task is to serve and advise his board. This core role alone is becoming more challenging as the work of the board and its committees expands to meet the demands of developing corporate governance systems. I shall examine the evolution of the role of the Company Secretary of a quoted company together with the evolution of the work of the board. I shall pose two questions:

Has the Company Secretary moved his or her focus to address issues concerned with the executive management of the company, in a compliance capacity, or is he focusing on the governance systems of the board which can affect board performance?

What will Company Secretaries be doing in five years’ time?

All this against the background of current governance policy in the UK and the developments associated with the Companies Act 2006, which notably allows private companies to dispense with the office of Company Secretary. As the office is to be preserved in quoted companies, the legislators must have clear expectations of the role that the holder of that office should play!

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David Jackson

The background

How has the office of Company Secretary developed over recent time?

A major step forward occurred with the 1948 Companies Act when, for the first time, the Company Secretary was defined as an officer of the company and made legally liable for complying with the terms of the Act. The first recognition by the Courts of the increasing importance of the role came in a Court of Appeal decision in 1971 when Lord Justice Salmon described the Company Secretary as ‘the Chief Administrative Officer of the company’.

Development of the role is also evidenced by the establishment of the Institute of Chartered Secretaries and Administrators (ICSA). The initial object of the Institute was the development of the profession of Company Secretary and the creation of high standards for that profession. As the position of the Company Secretary became established in law, and as membership of the ICSA increased, the aim of the ICSA has expanded to support the reputation of Chartered Secretaries as practitioners of good governance.

Lord Shepherd, as Chairman of Grand Metropolitan, was asked in the 1990s to give his view of the role of the Company Secretary. He gave this response:

The Secretary should contribute to the general management of the company given his ‘bird’s eye view’.

The Secretary should be the confidante and adviser to the Directors, a sounding board for the Chairman and indeed for the other Directors.

The Secretary should be able to monitor the effects of change and to communicate in a simple and user-friendly manner.

The Secretary should ensure that the board sticks by its values and that the values of the Board should be communicated within the wider company as a whole.

The Secretary should be able to deal with and assess people.

Finally the Secretary should ensure that the obligations of the company to both shareholders and stakeholders are met.

This, to my mind, is consistent with the idea of the Company Secretary being the Chief Administrative Officer: the trusted adviser and the ‘conscience of the company’.

The twenty-first-century Company Secretary can be required to do all of the above. He may also be the General Counsel, charged with looking after a broad range of legal issues and supervising the legal department. He may be responsible for pensions, human resources, property, regulation and compliance. The variety of tasks that the modern Company Secretary can be asked to fulfil often depends upon the nature of the business of the company, the distribution of other roles among the executive team and the character, personality and skills of the Company Secretary himself.

Lord Shepherd’s description of the role marks the Company Secretary out as the board’s man but with an ability to contribute to general management. It

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The role of the Company Secretary

is the case that, with few exceptions, the Company Secretary has become part of the executive team that manages the company. This may occur through him performing executive functions, giving legal advice or acting as secretary to the executive committee.

These executive functions of the Company Secretary are not new. When Lord Salmon in 1971 saw the Company Secretary as ‘the Chief Administrative Officer of the company’, there was an expectation that this figure would carry out executive or management functions together with his statutory role.

Before the advent of the combined roles of General Counsel and Company Secretary, the Company Secretary was at the centre of the administration of the company. Many had trained to become a Company Secretary as a separate profession. They would have been encouraged to have a broad experience of business and would have been the link between the board and those administrative functions outside the finance function. The role lay at the very heart of the organisation, with all the power and influence that was associated with such a position. Governance was not seen as a separate and distinct function.

In 1986 I joined Matthew Hall plc as its first full-time in-house legal adviser, working with the Chief Executive and Finance Director on mergers and acquisitions and the control of some broader litigation within the group of companies. The Company Secretary was all powerful. He jealously guarded his relationship with the Chairman and the board. The board had two non-executive directors, former executive directors of the company, and I believe one other ‘independent’ director. The company’s share price was carefully monitored and relations with the institutional investors normally took place through a series of brokers’ lunches. The annual general meeting was an important day in the company. It was held in the company’s offices, indeed in the boardroom. The board table was removed and probably around forty chairs were set out. The board and advisers attended together with, if we were lucky or unlucky, about twenty shareholders.

The AGM was over in approximately fifteen minutes, again twenty if we were unlucky. The shareholders departed and the board and advisers retired to the executive dining room for a rather good lunch. In those days, a show of hands was certainly the best way of dealing with the votes on the resolutions, and counting the poll votes would certainly have been seen as an unnecessary expense.

The AGM was run by the Company Secretary. The Chairman was nonexecutive and separate from the CEO. So separate that when the Chairman decided that the company would prosper better as part of another group it was basically his decision to move the company on.

The company operated through four subsidiary companies each with its own Company Secretary, and each fairly autonomous. The role of the Company Secretary as the Chief Administrative Officer was totally appropriate as that required by the board and the broader organisation.

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The advent of corporate governance

So what has changed? Since the 1980s the pivotal role of the Company Secretary has been diluted and replaced by the General Counsel/Secretary who derives authority not from the Chairman but from the Chief Executive. Over the past thirty years, companies have changed, as have their needs. A broad range of tasks that could be carried out by the Company Secretary, or those reporting to him, have now become specialisations in their own right. The nature of the unitary board has also changed. The board was previously executive-based and non-executive directors were not selected for their independence. They were frequently recruited from the ranks of advisers to the company or may have been retired executives. This was a time when non-executive directors were famously described by ‘Tiny’ Rowland as having less use than ‘baubles on a Christmas tree’.

Separately there have been, since Cadbury, a number of influences which have altered the dynamics in companies. The authority of Company Secretary has been reinforced through the various codes of corporate governance. It was the report of the Cadbury Committee that recommended that the Company Secretary should only be dismissed with the agreement of the full board of directors. It was the Higgs Report that established the Company Secretary’s central role of advising the board on corporate governance.

Higgs also recommended that the Company Secretary:

should support the Chairman in assessing the information required by the board, and

act as secretary to the board and its committees to ensure good communications.

In no particular order, the major changes have been:

an increase in law and regulation

a trend towards larger boards with a majority of non-executive directors who are independent

the dilution of the Company Secretary’s role as a number of his functional responsibilities moved elsewhere, and the development of the doubleheader role of General Counsel and Company Secretary.

But first and foremost has been an increased focus on the role of the board in governing, as distinct from managing, the company. The various scandals which led to the Cadbury Committee and its report were the stimulus for a clear definition of governance and the need for checks and balances on boards, especially in the area of financial control.

To try and draw some preliminary conclusions: the role of the Company Secretary in the twenty-first-century and its influence have clearly evolved. From being the Chief Administrative Officer of the company, his power and influence have been diluted. Where he has the additional role of General Counsel, quite

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