Corporate Governance

Corporate Governance

The Company Secretary in a Commercial Bank

executive taking notes at a meeting

The Role and Responsibilities of the Company Secretary

The role of the Company Secretary is central to the implementation of modern and proper Corporate Governance in any company, it is of particular significance in banks. The temptation to bend the rules tends to be greater where something as fungible and liquid as money is concerned.

...the temptation to bend the rules...

Though the role of the Company Secretary is usually defined in company law and regulation, it is not always abundantly clear what the job actually entails and how it works in practise. It is the objective of this post to provide a practical guide on the daily work load and operations of the Company Secretary.

Purpose of the Company Secretary

The over-arching responsibility of the Company Secretary is to provide all the stakeholders with complete confidence and comfort that the institution is being run openly and honestly in full compliance with all domestic and international law and regulation. Thus there are a range of legal and compliance responsibilities, not least maintaining the records of the capital and shareholders of the company, as well as being responsible for the pension scheme, employment law and insurance arrangements.

A parallel but no less important responsibility is to ensure that all meetings of the shareholders, Board of Directors, Board of Management and various committees are being run in accordance with the law and their various charters but also that the meetings are efficient, effective and we would all hope reasonably quick.

Who is the Company Secretary?

The Company Secretary is not an executive decision maker but the holder of the legal keys of the institution, including the company stamp and the signature authorities.

He or she is appointed by the Board of Directors and not by the shareholders and certainly not by the Chief Executive Officer. They directly report to and support the Chairman of the Board of Directors, and can only be dismissed by the Board of Directors.

The Company Secretary is not part of any division nor department of the bank. The Company Secretary Department, because in larger institutions there may be too much work for one person, is independent of the executive, although they will have to work closely with the executive and in particular with the Chief Executive Officer on communication of proposals to and decisions from the Board of Directors.

confidential files

The Company Secretary, unless instructed by the Board of Directors, has no role in administrative matters such as premises, equipment nor indeed the staffing of the institution, except to ensure compliance with employment law and regulation.

A word of warning, whilst the Company Secretary has the ear of the Chairman of the Board of Directors they should never become the locus of power and influence. Though they will be privy to secrets, as a loyal servant of the Board of Directors they will have to be wholly discreet and treat all sensitive matters as confidential.

Shareholder Register

The Company Secretary is responsible for maintaining the records of all shares authorised and issued by the company, the shareholders and their holdings and all transfers and queries that may arise. They will arrange for the payment of dividends and any new share issues. Should the institution be quoted they will have responsibility for the relationship with the Stock Exchange.

The Company Secretary will also be responsible for arranging the Annual General Meeting (AGM) and any Extraordinary General Meetings that may be held of the shareholders. They have to ensure that an audited Annual Report agreed by the Board of Directors is presented to the shareholders at the AGM and that it conforms to at least all the minimum legal requirements. Like a lot of their responsibilities, they have to ensure that it actually happens but they are not expected, for example, to prepare that Annual Report themselves.

Compliance & Insurance

The Company Secretary is the advisor to the Chairman and the Board of Directors, and indeed the rest of the bank, on company law and practice. He or she ensures that the formation, charter and licences of the bank are in conformity with the law and regulation, that all reports and returns to the authorities are submitted and that all taxes are duly paid on time and in full. This will also include responsibility for ensuring that the terms and conditions of any legal agreements, in particular with creditors, are kept to.

They thus define the rule of law but have no power to uphold the law, that is the job of the Board of Directors.

In addition the Company Secretary arranges insurance cover for the bank, including if required the Directors and Officers Insurance and the Bankers Blanket Bond against fraud and fire insurance. Ensuring compliance with fire regulations is a necessity as is conformity with health and safety at work and employment regulation.

Usually it would also be the Company Secretary who runs the staff pension scheme and any employee share option scheme.

Arranging Meetings

A lot of the time of the Company Secretary will be spent in arranging and minuting meetings, the most important of which will be the AGM but the monthly meetings of the Board of Directors, and they are usually monthly (or at least ten a year to allow for holiday periods), will take up most of the time. They may also be requested to act as the Company Secretary for meetings of the Board of Management and the various committees of the institution which will add to the workload.

It is advisable to try and set up meetings of the Board of Directors a year advance so that members can arrange their calendars around the meetings. Wasting time attempting to obtain agreement on a date and ensuring that a quorum will be present can be very frustrating and unrewarding.

In conjunction with the Chairman, the Company Secretary will draft and circulate the agenda well in advance for meetings of the Board of Directors. The agenda will also advise the time and location of the meeting. It is advisable to have an annual schedule of matters that need to be submitted to the Board, first of all to ensure that nothing is missed but also to make sure that the workload is fairly evenly spread throughout the year.

Any papers on matters to be considered at the meeting must be received, usually from the executive management, and circulated to Board members at least 48 hours in advance. The issues to be considered may be complex and you don't want members to be either ill-informed or start reading at the table. It makes for poor decision making.

overloaded agenda

Running a Meeting

Nothing is as frustrating, time consuming and expensive as a meeting of senior well paid members going round in circles not making decisions on the matters in front of them. To keep the meeting on track and focused is mainly the job of the Chairman who will be prompted by the Company Secretary.

Various rules need to be place, for example no reading from prepared presentations (although they can be circulated in advance), all discussion to be directed to the Chairman so that private conversations don't disturb the flow of the discussion, no speaking unless you have something to offer on the topic under discussion and a maximum of 10 to 15 minutes on each agenda item. If well informed experienced professionals can't reach a conclusion within this time frame then there might be something wrong with the proposal and it needs to be resubmitted.

The secret, of course, is in the preparation for the meeting. The Chairman should have a reasonable idea of the position of each of the members of the Board on a particular issue and depending on how the discussion goes, and prompted by the Company Secretary, have some form of consensus decision in mind so that the matter is not deferred for another month. The job of the Board of Directors is to take decisions, not delay them.

The maximum period for any meeting should be around 90 minutes. After that the attention of members begins to wander and productivity slows down. Meetings of the Board of Directors should always be in the morning, followed by the prospect of a good lunch which tends to concentrate minds on completing the agenda in good time.

Taking Minutes

The minutes should only reflect the decisions reached, rather than the discussion. Under the doctrine of collective responsibility this is not relevant anyway. The Company Secretary will take the minutes but needs to be able to distil complex issues into a few sentences. It helps and saves a lot of time if he or she prepares an initial draft in advance and then amends them during the discussion to reflect the actual decision.

The executive will be anxiously waiting to implement the decisions so they have to be swift and clear, and without any ambiguity. Ideally the minutes should be available to the executive after lunch on the day of the meeting. The Company Secretary will submit the final draft to the Chairman for release to the executive. The minutes will be ratified by the members of the Board of Directors at their next meeting under Matters Arising.

Skills of the Company Secretary

It helps if the Company Secretary has a legal background but a banking background is also helpful. What is important is that they need to be very well organised, methodical and decisive in their approach. The Company Secretary implements the law, regulation and internal procedures without favour nor instruction. They will need to be able to understand complex issues, follow the discussion and summarise the conclusions.

They will also need to be discreet as many of the matters will be confidential and could be damaging if they became widely known. Most of all they should have excellent personal skills as Company Secretaries need to be persuasive, diplomatic and trusted by all senior personnel and stakeholders in the bank. They may be asked all sorts of difficult questions, some of which it may be best not to answer directly.

How can banks in emerging markets actually implement improved Corporate Governance?

The methodology and indeed the benefits of implementing modern corporate governance standards in financial institutions are now generally well understood and accepted. However, the difficulty arises when we seek to apply these standards in difficult environments with different corporate cultures. Banks in emerging markets banks realise that if they fail to apply these standards then they may be deprived of international funding and equity.

This leads to a box ticking exercise. "Yes" the Board of Directors provide direction and oversight,  "yes" the bank operates independently of the shareholders, "yes" internal audit are not influenced by management. Too often the answer is actually "no" but internal whistle-blowers are not normally thanked and  could risk their job or be labelled  as difficult or disloyal, adversely  affecting their career.  

The question is how do you put into place systems and methodologies that push the bank towards understanding, appreciating and wanting to work to higher corporate governance principles? Having good Non-Executive Directors is certainly helpful but you are not going to get a majority of NEDs on the Board of Directors in these markets. The answer probably lies amongst other things in the organisational structure, a fully functioning Audit Committee which is easier to staff independently, an Asset and Liability Committee that does review and report on the major issues and a strategic planning process that is continuously monitored. 

The point is that to get corporate governance actually working requires a lot more than simply telling a bank at the higher level what needs to be done; the information and verification has to flow from a variety of sources from within the bank and this leads to there being no alternative but to follow the agreed decision making methodology.

We would welcome your views on this. What in your experience contributes to the implementation of an effective corporate governance culture in a bank in an emerging market?