Jane Valls, Executive Director, GCC Board Director Institute, discusses the role of board secretary and its relationship with the chairman and the CEO.
Good governance does not stop at compliance because compliance is simply not enough. In fact, I really don’t like the word compliance at all.
I believe effective corporate governance is all about performance and best practices. If we only look at corporate governance as compliance then it is really just ticking the box and shows that we have not understood the true benefits of effective corporate governance.
And this is where the board secretary has an important role to play. The board secretary occupies a unique position in organisations. He or she is the key point of contact for the chairman, as well as a central member of the senior management team.
The board secretary bridges the gap between the boardroom and the executive because he or she has privileged access to both. However, the role and its value are frequently misunderstood and often overlooked and this can result in board dysfunction and the failure of the board secretary to deliver effectively.
As recently as 2012, a FTSE 250 executive director, was quoted as saying: “other than form-filling and complying with rules of little substance, I don’t think there is much [of a] role for a board secretary. This is a glorified clerical position.” The truth of course is very different. Because of the pivotal position played by the board secretary, the high-performing board secretary makes a significant contribution to the delivery of organisational objectives.
The concept of the secretary of the board as ‘the keeper of secrets’ or ‘the servant of the board’ has been with us for a long time. Deferential and discreet, the principal function of the board secretary was regarded as ensuring that board meetings ran smoothly, decisions were made and recorded with due process and the minutes were produced on time. The emphasis on administration and procedure over a more proactive approach was underpinned by the additional responsibility for ensuring that all laws and regulations were complied with.
However, as the importance of effective corporate governance continues to be critical in today’s environment, and particularly as a result of the global financial crisis, there has been increased focus on the role of the board secretary. Due to this increased focus on corporate governance there is a renewed recognition, and greater visibility of the board secretary, who has become the primary point of information and influence between the executive management and the board.
The board secretary is now required to be more outward-looking, to be more interactive with major shareholders, advisers and regulators; and to be increasingly strategic by bringing a wider understanding of business and the economic context in which their organisation works.
Most notably in the UK, the responsibility for developing and implementing processes to promote and sustain good corporate governance has fallen largely to the board secretary. This is recognised in both the UK code of corporate governance and in the FRC guidance on board effectiveness. Both have served to focus companies on board effectiveness and in turn how they can be assisted by the board secretary.
Although this guidance applies only to listed companies, it has been seen as international best practice where these standards of corporate governance should be adopted by other companies as far as they are appropriate to the nature and size of the organisation.
Moreover, the dynamics of the boardroom are changing. Chairmen and directors are realising that they need specialist skills and technical knowledge in this area and they are looking at board secretaries to provide this particular expertise. There are a number of responsibilities where the board secretary can add value:
One: Organisational governance. It is important that a strong framework of corporate governance is in place, and that this framework is clearly documented and communicated to the organisation. The position of the board secretary enables a holistic view of the governance framework and as a result the board secretary is generally tasked with the responsibility of ensuring that this framework and any supporting policies and procedures are clearly documented. The relationship between the board secretary and the CEO is key here.
Two: Supporting the chairman. The board secretary has a duty to advise the board, through the chairman, on all governance matters. Together they should periodically review whether the board and the company’s other governance processes are fit for purpose, and whether to consider any improvements or initiatives that could strengthen the governance of the company. The relationship between the board secretary and the chairman is central to creating an efficient board.
Three: Board and committee processes. This is the third area where the board secretary can add value. The board secretary plays a leading role in good governance by helping the board and its committees function effectively in accordance with their terms of reference and best practices. Providing support goes beyond scheduling meetings to proactively managing the agenda and ensuring in advance the presentation of high quality up-to-date information during meetings. The objective is to enable directors to contribute and debate fully in board discussions, and to enhance the capability of the board for good decision making. After the meetings, the board secretary should proactively manage follow up actions and report on matters arising.
Four: Board development. All directors should have access to the advice and services of the board secretary. The board secretary should build effective working relationships with all board members by offering impartial advice and acting in the best interests of the company. In promoting board development, the board secretary should assist the chairman with all development processes including board evaluation, induction and training.
In addition, this should involve implementing a rigorous annual board, committee and individual director assessment, and ensuring follow up actions arising from the reviews. Furthermore, the board secretary should take the lead in developing tailored induction plans for new directors and devise a training plan for individual directors and the board. Although these tasks are ultimately the responsibility of the chairman, the board secretary, on behalf of the chairman, can add great value by fulfilling these best governance practices.
Five: Communication with stakeholders. The board secretary is a unique interface between the board and the management, and, as such, can act as an important link between the board and the business. Through effective communication the board secretary can coach management to understand the expectations of and the value brought by the board and good corporate governance practices. The board secretary would work closely with the CEO in this area.
Also, the board secretary has an important role in communicating with external stakeholders, such as the investors. In fact, the board secretary is often the first point of contact for queries. The board secretary should work closely with the chairman and the board to ensure that effective shareholder relations are maintained.
Six: Disclosure and reporting. In recent years there has been increased emphasis on the quality of corporate governance reporting and calls for increased transparency. The board secretary usually has responsibility for drafting the governance section of the company’s annual report and ensuring that all reports are made available to shareholders according to the relevant regulations or listing requirements.
Seven: Keeping the board up to date. It is true to say that the role of the board secretary also includes keeping the board informed of new legislation and how it applies to them. With the increased focus on corporate governance, the role of the board secretary has been extended so that he/she is now seen as the guardian of the company’s compliance with legislative requirements and best practices.
Due to the increasing interest in corporate governance, and the increase in governance related regulations by both stock exchanges around the world, some companies have formalised the role of the secretary as corporate governance advisor with a title such as chief governance officer.
Of course, the focus of the board secretary’s responsibilities will differ depending on the type of company, whether it is public or private, and also depending on the industry. But no matter what the organisation, the role has expanded from simply ensuring statutory compliance to becoming a pivotal one. The skills of the board secretary can have a direct impact on the effectiveness of the board and the organisation.
Board secretaries can add real value to their role and increase their impact by bringing commercial acumen, strategic understanding and softer people skills in addition to their already much sought after legal and governance knowledge.
Reporting lines are complex
The board secretary is an officer of the company and is elected by the board of directors. Beyond that, to whom the board secretary reports varies significantly from company to company depending upon its size, culture and other matters. If the board secretary is also the general counsel, he or she usually reports directly to the CEO and may also report functionally to the chairman of the board or to the lead independent director. If the board secretary is not the general counsel, he or she may report directly to the general counsel or in some cases to the CEO, or another officer.
Since the board secretary advises the board on governance and is often ‘chief of staff’ to the chairman, he or she needs to operate with an independent mind-set. This independence can be supported or undermined by the board secretary’s reporting structure and remit. A report by the Henley Business School, in collaboration with ICSA, in 2014, considered there is a conflict of interest in the combined general counsel and board secretary role.
Furthermore, the report went on to say that to maximise the effectiveness of the role and support its independence, the board secretary should report to the chairman, while retaining close alignment with the CEO and the rest of the executive team.
However, more than that, board secretaries should be identified as being the third member of the triumvirate together with the CEO and the chairman. The board secretary’s position as part of this triumvirate, reinforces the independence of the role, which is critical to demonstrating the discretion and impartiality which is needed in order to build trust among the board and executive colleagues.
Where the board secretary has additional executive responsibilities to their core role in supporting the effectiveness of the board and its committees, the secretary often reports to the CEO or appropriate executive on such executive management matters. Then, it is good governance for a company to implement two reporting lines for the board secretary:
1.) A direct reporting line to the chair of the board on all matters relating to the proper functioning of the board; and
2.) A direct reporting line to the CEO or appropriate executive on management matters.
Relationships can vary between the executive and the board, but few are without tension. Nevertheless, effective board dynamics lie at the heart of organisational achievement. A high-performing board secretary, as a member of that top trio, will definitely contribute to the success of the board by making sure that the processes and relationships work.
There are four key areas where the relationship between the board secretary and the chairman are critical for board effectiveness:
- Well organised meetings
- The chairman’s behaviour
- The relationship between the chairman and the CEO
- Good governance practices
These are subjects where the closeness of the relationship between the board secretary and the chairman should have the greatest impact. This closeness is often confidential and is built on trust and common objectives.
Let’s look quickly at each one:
Well organised board meetings
The chairman needs to set the style and the tone of board meetings as well as the timings of meetings and individual items. Setting and planning the agenda is crucial, but achieving a good balance between the business of the board and the strategic conversation is not always easy. This is best done by deciding with the board secretary well in advance on what and how much should be discussed with the board and by scheduling enough time in meetings.
The chairman needs to be very clear about the quality standards expected of board packs, papers, circulations and presentations to the board so that the board secretary can ensure that the appropriate information for each item in the agenda is collected and delivered in a timely fashion. Critical feedback from the board on these standards is invaluable and fosters continuous improvement.
Relationship between the chairman and the CEO
The relationship between the chairman and the CEO is the single most important ingredient in good governance but this has inherent and necessary tensions. The CEO has a natural bias towards action, wants to get things done and wants results delivered. But the chairman’s role is to think more broadly about the long-term interests of the enterprise. On occasions this may mean holding back the CEO from immediate action and encouraging him/her to rethink along different lines.
These tensions are best managed by regular and frequent communication; and by ensuring that the personal chemistry between the chairman and the CEO works. If not, things can get difficult, particularly in international business where both parties are travelling frequently. It can be further challenging if there is ambiguity about who is doing what – especially who is talking to who.
This is where a good board secretary comes in and can clarify the roles and responsibilities and smooth the boundaries between CEO and chairman. A formal statement for defining these boundaries is very useful. However, the board secretary has a rather tricky role and can be very vulnerable to any uncontrolled tension between the chairman and the CEP. So a fine line needs to be trodden to remain neutral in facilitating good decision-making by the chairman and the CEO without being drawn into the politics.
A good board secretary needs to understand this and to be the confidant of both, trusted by both. The board secretary’s role is often one of a diplomat and mediator that requires confidentiality, objectivity and sensitivity.
The chairman sets the tone and influences the way business is conducted everywhere in the company. People will listen carefully for the explicit and implicit signals he gives in his communications which embodies the defining character of the company. The board secretary has a very important role to capture and reflect this in all company documents and communications.
Central information point
The board secretary is the central information point for reporting requirements and governance matters. With a crucial role in the quality and flow of information to the board, he or she has a unique influence on the board’s decision-making process. Close to the chair, yet able to bridge the gap between the board and the executive directors, the board secretary is present throughout the range of board and committee meetings, able to push the chair and the board to talk about what needs to be talked about, even if most often his or her own voice is unheard during the meeting.
As board members come and go, the board secretary can be the longest-serving member present at board meetings, bringing vital knowledge and experience of the company’s history and culture.
Therefore, it is good governance for a company to recognise the independence of the board secretary in both the appointment process and the reporting mechanisms attached to the role.
Given the duties of the board secretary, boards expect the board secretary to give impartial advice and to act in the best interests of the company. However, it is incumbent on boards of directors to ensure that the board secretaries are in a position to do so, for example, by ensuring that they are not subject to undue influence of one or more of the directors.
Equally, the board needs to ensure that the board secretary is not subject to the undue influence of other senior managers. If the board fails to protect the integrity of the board secretary’s position, one of the most effective in-built internal controls available to the company is likely to be seriously undermined. The establishment of appropriate reporting lines for the board secretary is therefore a crucial factor in establishing that protection.
At one point, the board secretary’s remuneration should be set (or at least noted) by the board as a whole, or by the remuneration committee of the board on the recommendation of the chairman or the CEO. The company should consider how these reporting lines should be documented. They may be formally documented in the board secretary’s job description or employment agreement, or more informally by way of board practice, which may be documented in a resolution or in the board’s governance policies. It is best governance practice for the board to be actively involved in the appointment and removal of the board secretary.
The performance review of the board secretary in relation to their executive responsibilities should be undertaken by the CEO or the senior executive to whom he or she reports. The performance review of the board secretary in relation to the board should be undertaken by the chair. Alternatively, the CEO can receive feedback on the board secretary from the chair as part of their executive management performance review.
There should be ‘parity of esteem’ and good team work between the chairman, the board secretary and the CEO. It is vital also that the board secretary has direct and informal access to all board members. He or she is ideally placed to align the interests of different parties around the boardroom table by facilitating dialogue, gathering information and enabling effective decision-making.
The best chairmen empower the board secretary to ensure that the organisation is led and that business is conducted with the spirit of good corporate governance principles. So it is essential that all parties understand these principles. Recent corporate crises, particularly in the financial sector, serve to highlight that the chairman is ultimately responsible for corporate behaviour and values.
While technical skills and knowledge continue to be important, the more significant areas of change are perceived in the personal characteristics required of the role. As working relationships have become more complicated, independence and the ability to influence different levels and groups of people to work together are highly sought after.
Access to the executive, the board, the chair and the CEO positions the board secretary as an intermediary and a diplomat, connecting people with each other. Competencies include: understanding the company’s business thoroughly; having at least a basic knowledge of corporate and securities law; demonstrating an “executive presence,” backed up with solid communication skills; being sensitive and intuitive to what the CEO and directors are thinking and feeling; being able to read signals on the horizon and provide early warning to management and the board; being able to lead and work within a multi-disciplinary setting to achieve consensus; and maintaining the appropriate perspective no matter how pressured a situation.
Here’s some characteristics of high-performing company secretaries
- Be a good follower but also a leader as part of the board.
- Have the standing and confidence needed to be a leading board professional.
- Manage depth and breadth – through technical, commercial and social traits.
- Build capability – combine intelligence and practical skills to make good judgements
- Use conversation, interaction and discernment.
Although board secretaries are not merely diplomats, they must also stand up for what they believe is right, even if that sometimes makes them a lone voice of dissent. In an environment where 66 per cent of top teams are ‘too inhibited to raise the uncomfortable issue’ (Kakabadse and Kakabadse), this formal and informal influencing and nurturing of relationships by board secretaries, in capable hands, can facilitate decision-making and improve board effectiveness.
So, are good board secretaries born or are they made?
Certainly resilience, independence and the ability to gain the trust of colleagues are essential qualities. So too are a thick skin and the ability to live with ambiguity and contradiction. Many board secretaries describe the difficulties of serving more than one master, of being both leader and follower, and having a voice but being unable to speak in certain circumstances.
Nearly all board secretaries identify practical knowledge, and having the intellectual capacity to master complex issues, as prerequisites coupled with leadership qualities of humility, and having the ability to form good relationships with key directors.
In summary, the relationship between the chairman, the CEO and the board secretary is key to the effectiveness of the board and the company as a whole. And to all those board secretaries who do a great job quietly, discreetly and effectively, I salute you.
Would you like to learn more about the role of board secretary? Join us at The Effective Board Secretary course on 4 December 2016 in Manama, Bahrain.
This workshop is for experienced board secretaries wishing to keep up to date with the latest best practices and new board secretaries wishing to improve their knowledge and skills and The one-day session offers a comprehensive overview of the administrative and statutory duties of the company secretary.