Thinking big - CSIA launches global governance principles for corporate secretaries

Friday | 6 December 2013

Since its creation in March 2010, the Corporate Secretaries International Association (CSIA) has not shied away from the tough challenges facing the global corporate secretarial profession. Perhaps the toughest of these challenges has been the attempt to establish globally-accepted principles of good governance for corporate secretaries; these were duly launched at a meeting in Kuala Lumpur in October this year.

There is huge diversity in the corporate secretarial profession at an international level, but the Corporate Secretaries International Association (CSIA) hopes to give the profession an international voice and presence. The CSIA, of which HKICS is a founder member, is an international federation of professional bodies that promotes best practices in corporate secretarial, corporate governance, and compliance services. In the three years since its launch, the CSIA has been working on three major initiatives:

lobbying at a national and international level to improve global governance standards and establishing globally-accepted principles of good governance for corporate secretaries
lobbying the World Trade Organisation (WTO) to include a new listing for 'Corporate Governance, Compliance and Secretarial Advisory Services’ in the WTO's 'Trade in Services’ business classification listings, and
developing a 'Corporate Secretaries Toolkit' for use in the training of corporate secretaries around the world.

At its third International Roundtable meeting in Kuala Lumpur, Malaysia, on 23 October 2013, the CSIA announced the first of these initiatives to be completed – its CSIA Governance Principles for Corporate Secretaries. The principles ‘aim to guide corporate secretaries across all countries, jurisdictions and cultures on how they can influence the implementation of good governance in their organisations,’ said Peter Turnbull FGIA FCIS, CSIA President.

Shared values?

Given the stark differences between corporate governance practices around the world, the attempt to encourage the adoption and application of good governance principles on a global basis was never going to be easy. The key distinction, however, is that the CSIA is not attempting to homogenise corporate governance practices globally. Clearly, the major differences in corporate ownership structures, legal traditions, regulatory infrastructures, etc, would make any such attempt futile. The CSIA believes, however, that there are common global principles which can usefully guide corporate secretaries in their work wherever they happen to be. These are the core principles that should be present in any good governance framework, and the CSIA recognises that adjustments will need to be made for local needs and conditions. The CSIA is not, of course, the first organisation to attempt to identify globally-accepted corporate governance principles. The OECD Corporate Governance Principles, the most widely known set of global governance principles, first came out in 1999. Since then other institutions – such as the International Corporate Governance Network (ICGN) – have brought out their own sets of principles (see ICGN Corporate Governance Principles at: www.icgn.org).

What then can the CSIA add to this space? The CSIA does not intend to double up on the work of organisations like the OECD and ICGN, but it believes that there is value in devising a set of governance principles specifically targetted at corporate secretaries. 'Corporate secretaries have a pivotal role to play in implementing good governance in their organisation. Accordingly, the CSIA Governance Principles for Corporate Secretaries complement these existing guidelines by providing guidance to the corporate secretary so that they can encourage a good governance framework in their organisation,’ the CSIA principles state.

The principles

The CSIA Governance Principles for Corporate Secretaries are:

integrity
accountability
stewardship
transparency
separation of board and management, and
corporate responsibility to society and the environment.

To be applicable across different cultures, these principles are necessarily at a high level of abstraction but does that mean that they will not be of much practical use to corporate secretaries in their daily work? To facilitate this approach, the CSIA has added a commentary to the principles to aid their implementation at a practical level.

‘CSIA is of the view that good governance does not need to be unduly complex or burdensome. Quite the contrary, good governance principles and processes should be practical in their application, cost-effective and most importantly, a business enabler, which facilitates the achievement of overall business strategy and not “governance for the sake of governance”,’ said Peter Turnbull.

Integrity

The CSIA emphasises that integrity, the first and most important principle in the list, is at the core of all governance structures and processes. It believes that diverse cultures will have a common understanding of the concept of integrity and the importance of acting with honesty, fairness, ethics and moral character.

On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

appropriate systems and processes, such as value frameworks or codes of conduct, are put in place to act as a guide to behaviour
the actions of the board and senior management reflect the espoused values of the organisation by ensuring adequate induction and training of directors and all staff, including senior managers, with a particular emphasis that high integrity in all corporate actions is a non-negotiable aspect of the organisation's values, and
acting with integrity is a key performance indicator for senior management and other staff

Accountability

This principle will clearly be subject to local conditions since different jurisdictions have different views about the extent of a company's accountability. Should a company be accountable only to its shareholders or also to a wider group of stakeholders? If the latter, which constituencies should be included – customers, employees, unions, the media, regulators, the local community, the general public? The CSIA believes that judgements as to appropriate channels of accountability can only be made at the local level, but it contends that an 'inclusive stakeholder approach is the correct one to enable sustainable and responsible businesses’. The CSIA points out that the ability to be accountable will require good listening and communication skills from corporate secretaries. They need to understand stakeholder expectations and they need to communicate to those stakeholders what the organisation is doing, why it is doing it, how it is doing it and what it has achieved.

On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

organisations engage with their members/ shareholders at least annually in a public forum, providing members/ shareholders with the opportunity to question the governing body on its decision making
organisations establish communication channels whereby they can receive feedback from members/ shareholders and other stakeholders and that mechanisms are in place to review the effectiveness of the communication, and
the board of directors or governing body conducts a performance review of itself annually and discloses to its members/ shareholders that such a process is in place.

Stewardship

There is a close connection between the goals of accountability and stewardship – the CSIA points out that both concepts require a longer-term view and vision. The CSIA principles define 'stewardship’ as an ethic that embodies responsible planning and management of resources with a long-term perspective.

In a legal sense, stewardship is seen as a fiduciary duty – companies need to display the appropriate care and skill in their management of their operations on behalf of members/ shareholders. The principles also emphasise that stewardship involves the sustainable performance of an organisation whilst operating within stakeholder expectations. On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

the board has an annual calendar of important decisions, procedures for the effective flow of information from management to the board, formal agendas and minutes and effective follow-up mechanisms
there is a periodic evaluation of the governing board's performance and also their development programmes, and that the governance function entails ensuring succession planning for key positions, and
the organisation has in place internal controls to ensure that all decisions benefit the organisation and its stakeholders and that conflicts of interest are registered, managed and minimised.

Transparency

The CSIA principles point out that transparency fosters trust in all relationships which is why it is so important. Moreover, transparency is not only an external concept in terms of information flows to stakeholders, it is also an internal concept where sufficiently detailed and open flows of information should be in place between the board, management and employees. Perhaps the hardest lesson to learn, however, when it comes to transparency, is that it applies equally to positive and to negative information. The CSIA principles make it clear that transparency is not just about good PR – stakeholders need to know the bad news as much as they need to know about the good.

On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

all relevant and material information, be it to members or other stakeholders, is published in a timely, accurate and complete fashion
such information is published in a form in which it can be easily understood by the target audience, and
such information is released digitally at every opportunity to ensure that it is timely and readily available, but requests to receive hardcopy information are met, particularly any requests in relation to financial statements and annual reports.

Separation of board and management

The CSIA principles aim to distinguish the roles of the directors who govern an organisation and the executives who manage it. This distinction is sometimes less clear where family and collective interests play a significant role in the affairs of companies and organisations. Nevertheless, the CSIA principles argue that a clear separation of the key oversight functions of the governing body from the operational management functions within an organisation is desirable. 'When these functions are properly separated it creates transparency and avoids confusion in the decision making and oversight process, providing clarity as to responsibilities,’ the CSIA principles state.

Where, due to cultural and local factors, individuals combine the oversight and operational functions, the CSIA recommends that processes are put in place to clarify 'which hat the individual is wearing’ to provide for accountability in decision making. It adds that any non- separation of these functions should be clearly communicated to stakeholders. On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

the supervisory and oversight functions of the board or governing body are set out in a charter or similar document
the board of directors or governing body sets out clear delegations of authority, both financial and non- financial, to clarify the business execution functions of management, and
the governing body or board of directors has authority to appoint and terminate the chief executive officer or managing director.

Corporate responsibility to society and the environment

Just as with the principle of accountability above, there will inevitably be differences between jurisdictions on this issue but there has been rising expectations globally for companies to operate in a sustainable, ethical and responsible manner. The CSIA recognises that this is not necessarily a duty prescribed in a legal sense, but that companies do nevertheless have to earn their 'social licence' to operate. Apart from anything else, companies need to create sustainable value for their members/ shareholders. Moreover, the CSIA principles point out that this clearly has implications for corporate reporting. 'Companies need to report not only on financial and commercial outcomes but on how the achievement of those outcomes may create social and environmental risks and how those risks are being managed to ensure the organisation is performing responsibly,’ the CSIA principles state. On a practical level the CSIA principles recommend that, among other things, corporate secretaries should ensure that:

their organisation implements and monitors its active compliance with the spirit as well as the letter of the law, ethical standards, international norms and stakeholder expectations
their organisation agrees on a set of corporate responsibility-related goals that are embedded in key performance indicators for senior management, and
their organisation integrates sustainability and financial reporting so that members/ shareholders and other stakeholders can assess the organisation's management of its material business risks

The 'CSIA Governance Principles for Corporate Secretaries’ is the second publication issued by the CSIA. The first publication – 'Twenty Practical Steps to Better Corporate Governance' – is available on the CSIA website: www.csiaorg.com.

SIDEBAR: Background to the CSIA principles

The CSIA Governance Principles for Corporate Secretaries first took shape at the conference held by the CSIA and the Shanghai Stock Exchange (SSE) in Shanghai in September 2011. Conference delegates reached the conclusion that a consensus on the fundamental principles underlying good governance is both a necessity and a very real possibility. However, the conference also concluded that any such principles would need to be genuinely global and culturally inclusive. The draft principles were identified at the Roundtable discussion convened on the second day of the Shanghai conference. The outcome of the Shanghai Roundtable was then put before a second Roundtable in New York in October 2012. The New York Roundtable led to a reorientation of the focus of the principles such that they reflect what corporate secretaries could implement, or recommend to be implemented, within their own organisation.