Company secretary: Governance and liabilities

Out-Law Guide | 17 Jun 2010 | 2:42 pm | 2 min. read

This guide is based on UK law as at 1st February 2010, unless otherwise stated. The growing importance placed on corporate governance has enhanced the role of the company secretary. The holder of t...

This guide is based on UK law as at 1st February 2010, unless otherwise stated.

Governance

The growing importance placed on corporate governance has enhanced the role of the company secretary. The holder of the post is now seen in many respects as the guardian of a company’s governance and an independent adviser to the board.

The UK Corporate Governance Code (see: Corporate governance, an OUT-LAW guide) makes this point: "The company secretary should be responsible for advising the board through the chairman on all governance matters."

The secretary thus has a responsibility to all directors, but, for practical reasons, the chairman needs to retain some control.

The Code sees the secretary as a resource for the whole board: "All directors should have access to the advice and services of the company secretary, who is responsible to the board for ensuring that board procedures are complied with."

And the administrative role is crucial: "Under the direction of the chairman, the company secretary’s responsibilities include ensuring good information flows within the board and its committees and between senior management and non-executive
directors, as well as facilitating induction and assisting with professional development as required."

Not only is the secretary in many ways a chief of staff to the chairman in running an efficient and effective board, but there is also a relationship with each director who might seek the independent view of the secretary on an area of potential dispute or controversy. (This is why it can be problematic if an executive director is also the company secretary.)

Non-executives can in particular look to the secretarial team for help and guidance in their role and to understand fully proposals coming before the board. If they want to seek independent advice outside the company (as encouraged by the Code), that can often be achieved through the company secretary.

Induction of new directors was an area highlighted by the 2009 Walker Report as a means of improving the effectiveness of non-executive directors, who might come to their post with little or no knowledge of the workings of the company and its board, and possibly little experience of its business sector. The secretary has a key role in designing and implementing an induction process that quickly and efficiently gives directors the knowledge they need to play a full part in the boardroom.

This semi-independent role enjoyed by the secretary is bolstered by the Code requirement that their appointment or removal be a matter for the board as a whole. No one director, even the chairman, should be in a position to hire or fire the secretary.

Liabilities

A company secretary may not be a director, but they will often be liable for breach of duty in the same way as board members. The code of directors’ duties, set out in the Companies Act, is not expressed as applying to the secretary, but, as an officer of the company, the duty to promote the company’s success should apply in equal measure, as should the obligations to avoid a conflict of interest and to exercise independent judgment. (Note that these duties are owed to the company and not directly to shareholders.)

As discussed above, the secretary has many administrative responsibilities, including filing returns at Companies House and ensuring compliance with the Companies Act. Numerous sections in the Act provide that, where there is a failure to file or comply, ‘an offence is committed by every officer of the company who is in default’. If the secretary is the person with prime responsibility for the task, they will be the person in default and liable to the fine.