Beyond statutory compliance: Company secretary takes the lead in raising governance standards in listed companies

September 16, 2020

The company secretary has evolved from little more than a clerk in the 19th century to become a vital corporate officer by the 21st. Today, responsibilities and challenges have increased substantially as demands for better corporate governance have grown. The modern company secretary is no longer a “mere servant” as often implied in earlier job descriptions and early legal text, but a governance professional who can add value to a company’s long-term growth and performance.

The evolution of the company secretary’s role

A formal role for the company secretary appeared in the late 19th century as directors needed someone to organise meetings and keep the records required by the Companies Acts, including minutes of meetings of the board and its committees.

For more than 100 years, the company secretary has been a legal requirement, first by the UK Companies’ Act of 1908 calling for all companies to have such position. Hong Kong’s subsequent 1911 Companies’ Ordinance also required companies to appoint a company secretary, an officer of the company along with the directors responsible for ensuring that the requirements of the Companies’ Ordinance were fulfilled.

The duties of the company secretary are not defined specifically within company law. Although secretarial duties account for an important part of the company secretary’s role, in modern era, the company secretary is far more than just a secretary or compliance role. Instead, it has evolved into a governance professional who plays a vital role in raising governance standards of a company.

As David Jackson, Company Secretary of BC plc, described, “In today’s world, the role of the corporate 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 companies and is receiving ever great focus.”

Raising governance standards

The modern company secretary is expected to provide professional guidance to the board, board’s committees, individual directors, management, shareholders, and other stakeholders on the governance aspects of strategic decisions.

It typically would act as a bridge for information, communication, advice, and arbitration between the board and management and between the organization and its shareholders and stakeholders. In addition, the company secretary creates and manages effective working relationship between these different players in the corporate governance system. The company secretary keeps a close eye of all legislative, regulatory and corporate governance developments not only for the compliance’s perspective but also from the point of view that it might affects the company’s operations and the board in making decisions.

This level of responsibility calls for a thorough knowledge of the business environment in which the organization operates as well as of the laws, rules, and regulations that govern its activities. This allows the company secretary to be in a unique position to create the right culture for good corporate governance and to guide management and the board of directors on how best to meet their responsibilities.

Importance of corporate governance in listed companies

Corporate governance is more than just complying with laws, regulations, standards, and codes; it is also about creating cultures of good practice.

Good governance is particularly important for listed companies. Compared to privately owned companies, more stringent laws and listing rules are applied to listed companies with the primary aim of protecting public investors. Non-compliance with regulations could result in massive fines and imprisonment of directors. Apart from legal consequences, any failure or reputation damage could also significantly impact a company’s profits and future. This explains why Hong Kong listing rules require a qualified individual with adequate relevant experience to act as the company secretary for companies listed on Hong Kong Stock Exchange.

The lesson learnt from the major corporate scandals we have seen over the past couple of decades is clear. A number of company collapses shook financial markets and the repercussions were felt all over the world. It is also worth noting that many of these failing companies had fully complied with the regulations, yet their corporate governance practices left a lot to be desired.

The company secretary can assist the board of directors in their legitimate pursuit of growth and profit with integrity, independence, dedication and professionalism and use reasonable endeavours to seek to protect the interests of the company and its stakeholders.

As a corporate governance professional, the company secretary acts as a builder, an implementer, an enforcer and an upgrader – spearheading the establishment of governance policies, procedures and practices; assisting different departments within an organization to set up governance instruments for deployment; reviewing and assessing compliance with established governance parameters; and updating governance instruments periodically against application to ensure that they are pertinent, up-to-date and compliant with new laws, requirements and rules.

Good corporate governance creates long-term value

In fact, there is clear evidence good corporate governance pays off in the long term. According to a study of the Morgan Stanley Capital International World Index, companies with good corporate governance outperformed by an average of 24 basis points per month during the 10 years up to 2018.

The rise of environmental, social and governance (“ESG”) investing is also a push factor as asset managers and investors call for better corporate governance in listed companies by exercising their voting rights and allocating their capital to companies that have higher ESG standards.

According to the survey conducted by the Securities and Futures Commission of Hong Kong (“SFC”) in 2019, 83% of the 1,000+ asset management firms surveyed considered at least one ESG factor in order to understand a company’s investment potential and facilitate better investment decisions and risk management.

Companies with strong governance perform better and hence attract more investors. This should be a major incentive for listed companies to adopt high governance standards, which is where the company secretary can make meaningful contribution, to create more value in the long term.

Future of the company secretary

Looking ahead, rapid digital transformations have encouraged more businesses to transfer their products and services onto online platforms. Adopting new technologies can transform internal operations, achieve higher productivity and efficiency, as well as create new opportunities, but this transformation is not without risks. 

As governance professionals, company secretaries would accordingly be involved in the process, and should therefore stay ahead of the curve and ensure the effective management of technology-related opportunities and risks, while acting with the highest integrity and independence in protecting the interests of the organization, its shareholders, and others with a legitimate interest in the organization’s affairs.

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