CSj highlights the company secretary’s unique perspective on the factors that contribute to effective decision-making by the board.

You have put together a stellar cast of directors, and both shareholders and management are content, but before you know it, there are murmurs of dissatisfaction and rumblings of discontent. Personality clashes and rival agendas are splintering your board, and crucial policies are threatening
to unravel.

One factor which can help to avert this dismal scenario is having a professionally qualified company secretary to act as an anchor, playing a unique role in holding together board discussions, boosting board morale, enhancing its efficiency, teasing out the best policy decisions and safeguarding governance standards. Let us go then behind the scenes into the world of the company secretary to learn about the challenges they face and their unique contribution to quality decision-making by the board.

Director inductions

Philip Miller, FCIS FCS, Deputy Corporation Secretary, The Hongkong and Shanghai Banking Corporation Ltd (HSBC), points out that the company secretary plays a major role in helping new directors join the board with a tailored structure of induction meetings and briefings. An effective induction helps directors meet everyone they should know and understand how the business operates. He adds that inductions help directors get an understanding of the key growth drivers for the business, the environment relevant to the company and the risks to the business, particularly if it is an industry that is not their principal area of expertise.

Gillian Meller FCIS FCS, Legal and European Business Director and Company Secretary, MTR Corporation Ltd (MTRC), echoes Mr Miller in that the induction gives directors, firstly an understanding of the strategy of the business itself, and secondly a reminder of their duties and responsibilities. Interestingly, she adds a third element to this, since the company secretary can also play a pragmatic role explaining to directors how things get done and how the board works from a practical perspective. For example, how often do directors speak up at meetings and how often is a consensus reached?

‘If you cover these three elements, the strategy of the business, the responsibilities of directors – including their obligations and liabilities – and the boardroom dynamics, that will give a director a good start,’ Ms Meller says.

Informal conversations

Should a company secretary be cognisant of conversations that take place on the golf course? Mr Miller of HSBC accepts that there will be many informal business conversations, but points out that formal governance is the remit of the company secretary.

‘One is looking at the formal governance framework the company has in place,’ he says, ‘the board, its meetings and committees, or perhaps delegation of authority therefrom. This is what the company secretary should be focused on.’ He adds that, if the discussions are of consequence, proper governance would require them to be accurately described and recorded in board minutes, thus placing them within the remit of the company secretary and the value that he/she can add.

The MTRC meanwhile has a novel approach to the golf club quandary – the chairman’s lunch. This is held the day before the formal board meeting, giving directors the opportunity to talk through relevant discussion points informally. This gives directors the chance to ask questions and think through any particularly challenging issues, making them better prepared for the formal meeting the next day.

The minutes and board agenda

The company secretary is uniquely involved in both the highest-level strategy issues, and the minutiae of board and company administration – the latter being just as important as the former. Taking minutes and structuring the board agenda, for example, have a direct impact on board efficiency.

Setting the agenda, Mr Miller points out, requires the company secretary to engage with the chairman to get a clear agreement on what should be on the agenda, and with management to ensure they know what information they should be providing. The chairman, of course, has the key role to create an open engaging environment where frank discussions and honest conversations can take place. Where directors disagree with something, they should feel free to raise their objections.

The company secretary makes that possible in practice, however, through the structure of the agenda and ensuring that the correct information flows up to the board. The company secretary’s role in ensuring a correct format and structure of the meeting to facilitate detailed discussion, where appropriate, is crucial – simply having an opportunity for question time on key issues, for example, can make a huge difference to board outcomes.

Similarly, despite the great advances that technology has made to the art of minuting, the company secretary still plays a crucial role in correctly recording the various points of view of board members, and whether a fair and evaluative discussion has taken place. This is particularly important when there is conflict of opinion within the board – the minutes may need to record, for example, where dissenting opinions were raised.

Information flow

The most critical risk for a director is not receiving appropriate information to make an informed decision. This is particularly important with regards to information flow from committees to the board. Though board members routinely receive minutes of committee meetings circulated in advance of board meetings, there is the real risk that the sheer volume of paperwork will mean that vital information may be missed or not fully understood.

Ms Meller shares some tips on how to get around this dilemma. Though proceedings of board committee meetings need to be properly minuted and distributed, it can be helpful to prepare what she refers to as ‘proceedings’. These 5- to 10-page summaries of the committee meeting discussions can be a useful way to enhance understanding of the key issues raised.

Linking board and management

A seemingly obvious, but often overlooked, issue for company secretaries in their board support work is the task of ensuring that there is a strong relationship and understanding between directors and the management team. Mr Miller believes the company secretary can play an important role in helping to facilitate honest and meaningful discussions, not just between directors and senior management, but also the levels below that.

‘Familiarising directors with layers of management below the most senior level can provide them with valuable insights into the culture that pervades in the company,’ he says. ‘It is not a precise science, but the company secretary does inevitably play, or should play, an important role in supporting both directors and management, not getting between them, but helping facilitate their engagement and valuable interaction. In simple terms, this helps to make sure that directors are getting the quality of information they require for proper decision-making at the board level.’

To achieve this, the company secretary needs to be proactive. In the normal course of things, reporting to directors will usually come from very senior individuals, so the company secretary should look for opportunities where directors can engage with the next management level down. This might be achieved by delegating reporting on an ad hoc basis to lower levels of management where the specific expertise may actually lie, but this does require assent by the directors as they may need to take time out to meet with these individuals separately. There may be arrangements, for example, for off-site board meetings. A meeting in a different jurisdiction from the usual one would be a good opportunity for directors to meet the local team and for providing the management on-the-ground with the opportunities for interaction.

Avoiding groupthink

Groupthink, where board members fail to challenge a false consensus, is precisely what a proper board exists to avoid, but it is all too easy for the perceived ‘experts’ running the show to dominate discussions. A well-functioning board with independent and competent directors should be balanced in its approach while weighing different perspectives. The balance of power on the board can play a key role in the quality of discussions. It may be axiomatic that independent directors should have a voice that is not overwhelmed by executives. The company secretary has to ensure that the structure of meetings allows adequate time for potentially contentious discussions, and that, together with the chairman, the right environment is created to enable the views of independent directors to be heard and properly minuted.

Guiding the nomination committee

As mentioned above, boards should not be dominated by executive directors. This is particularly true of board committees, such as the nomination committee, which needs to have an independent approach. A key factor here is to have a chairman with a strong personality who will not be subservient to any executive directors on the committee, but the company secretary can also play an important role in protecting the committee’s independence. This might be achieved, for example, by ensuring that the different views of committee members are channelled back to the board.

Should company secretaries have a role to play where they perceive that an independent director has lost independence but remains designated as such by the board? ‘Absolutely’, Ms Meller says, ‘I think the first thing I would do is have a conversation with the chairman to talk him or her through the independence criteria and how the position may have changed. Then there would need to be a discussion either at the board or the nomination committee to come to an understanding of the issues’.
Ms Meller adds, however, that one should not assume that a non-executive director who cannot be deemed ‘independent’ will be too aligned with management. Some non-executive directors are appointed by shareholders and do not come from the ranks of management, as is the case with the MTRC.

Board evaluations

The nomination committee may have a broad enough perspective to determine the skill sets of board members and the expertise that may be lacking on the board, but it may itself not have the perspective to determine the strength and weakness of the board as a whole. This is especially true if business challenges on the horizon are coming from startups that existing board members are not familiar with.

Is it essential, then, for a third party to conduct board evaluations? Ms Meller feels that this depends on the type of internal or external evaluation that is carried out. Internal evaluations can be critical if one moves away from sending out a questionnaire with yes or no answers to something deeper and more searching. It may be tricky for a company secretary to sit down with board members and get them to be completely open because they may be seen to be too critical. But equally, ‘washing your laundry in-house’ might actually encourage board members to be more open. Conversely, members might also be more inclined to open up to a third party. She suggests that perhaps a combination of internal and external reviews, as is required in the UK, may make sense.

Sharan Gill